[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
   AMERICA'S HEALTH: PROTECTING PATIENTS' ACCESS TO QUALITY CARE AND 
                              INFORMATION

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

                                HEARINGS

                               before the

                            SUBCOMMITTEE ON
                         HEALTH AND ENVIRONMENT

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                  MARCH 24, JUNE 16, AND JUNE 23, 1999

                               __________

                           Serial No. 106-48

                               __________

            Printed for the use of the Committee on Commerce

                    ------------------------------  





                      U.S. GOVERNMENT PRINTING OFFICE
56-601 CC                     WASHINGTON : 1999



                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                 Subcommittee on Health and Environment

                  MICHAEL BILIRAKIS, Florida, Chairman

FRED UPTON, Michigan                 SHERROD BROWN, Ohio
CLIFF STEARNS, Florida               HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 PETER DEUTSCH, Florida
RICHARD BURR, North Carolina         BART STUPAK, Michigan
BRIAN P. BILBRAY, California         GENE GREEN, Texas
ED WHITFIELD, Kentucky               TED STRICKLAND, Ohio
GREG GANSKE, Iowa                    DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia             THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma              LOIS CAPPS, California
  Vice Chairman                      RALPH M. HALL, Texas
RICK LAZIO, New York                 EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN B. SHADEGG, Arizona             JOHN D. DINGELL, Michigan,
CHARLES W. ``CHIP'' PICKERING,         (Ex Officio)
Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)
                    ------------------------------  



                            C O N T E N T S

                               __________
                                                                   Page

Hearings held:
    March 24, 1999...............................................     1
    June 16, 1999................................................   109
    June 23, 1999................................................   241
Testimony of:
    Arnett, Grace-Marie, President, the Galen Institute..........   131
    Arth, Raymond, Phoenix Products, Inc., on behalf of Council 
      of Smaller Enterprises.....................................   192
    Atkins, G. Lawrence, President, Health Policy Analysts, Inc., 
      on behalf of Corporate Health Care Coalition...............   313
    Auer, Nancy J., Former President, American College of 
      Emergency Physicians, Medical Director of Emergency 
      Services, Swedish Medical Center...........................    19
    Barron, Connie, Associate Director, Legislative Affairs, 
      Texas Medical Association..................................   271
    Baumgardner, Christine, Executive Director, Alcona Health 
      Center.....................................................   205
    Braun, Joseph, Chief Medical Officer, George Washington 
      University Health Plan, representing the American 
      Association of Health Plans................................    24
    Carlson, Richard W., Executive Director, Illinois 
      Comprehensive Health Insurance Program.....................   210
    Conway, William A., Vice Chair, Henry Ford Health System, on 
      behalf of the American Medical Group Association...........   267
    Dunne, Philip K., Chief Executive Officer, Texas Medical 
      Foundation.................................................   329
    Garcia de Posada, Robert, Executive Director, Hispanic 
      Business Roundtable........................................   140
    Grogg, Stanley E., Associate Professor of Pediatrics, 
      Oklahoma State University College of Osteopathic Medicine, 
      on behalf of the American Osteopathic Association..........   281
    Horsley, Mary, Consumer, on behalf of Families USA...........   130
    Johnson, Daniel H., Jr., President, World Medical Association   187
    Lehnhard, Mary Nell, Senior Vice President, Blue Cross and 
      Blue Shield Association....................................    74
    Meyer, Jack A., President, Economic and Social Research 
      Institute..................................................   200
    Morehead, Robert N., Cebs, Area President, Gallagher Byerly, 
      Inc........................................................   196
    Neese, Terry, Past President and Public Policy Advisor, 
      National Association of Women Business Owners..............   138
    Nichols, Len M., Principal Research Associate, Urban 
      Institute..................................................   216
    Pollack, Ronald F., Executive Director, Families USA 
      Foundation.................................................    80
    Reardon, Thomas R., President-Elect, American Medical 
      Association................................................    67
    Rosenbaum, Sara, Director, Center for Health Services 
      Research and Policy........................................   323
    Rowland, Diane, Executive Director, Kaiser Family Foundation.   142
    Thomas, Peter W., Former Chair, Subcommittee on Consumer 
      Rights, Protections, and Responsibilities, President's 
      Advisory Commission, Consumer Protection and Quality in the 
      Health Industry............................................    32
    Weiss, Bruce A., Group Vice President, Medical Operations, 
      AVMED......................................................   276
Material submitted for the record by:
    Arnett, Grace-Marie, President, the Galen Institute, letter 
      dated June 21, 1999, to Hon. John D. Dingell, enclosing 
      response for the record....................................   236
    Braun, Joseph, Chief Medical Officer, George Washington 
      University Health Plan, letter dated April 27, 1999, 
      enclosing response for the record..........................   107
    Commonwealth Fund, The:
        Press release............................................   237
        Letter dated June 16, 1999, to Hon. Michael Bilirakis....   238
    March of Dimes Birth Defects Foundation, prepared statement 
      of.........................................................   235

                                 (iii)

  


   AMERICA'S HEALTH: PROTECTING PATIENTS' ACCESS TO QUALITY CARE AND 
                              INFORMATION

                              ----------                              


                       WEDNESDAY, MARCH 24, 1999

                  House of Representatives,
                             Committee on Commerce,
                    Subcommittee on Health and Environment,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:40 p.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Upton, Stearns, 
Greenwood, Deal, Burr, Bilbray, Whitfield, Ganske, Norwood, 
Coburn, Shadegg, Pickering, Bryant, Bliley (ex officio), Brown, 
Pallone, Green, Strickland, Barrett, Capps, Towns, and Dingell 
(ex officio).
    Staff present: Jason Lee, majority counsel; Tom Giles, 
majority counsel, Penn Crawford, legislative clerk; Bridgett 
Taylor, minority counsel, and Amy Droskoski, minority 
professional staff.
    Mr. Bilirakis. Let's have order, please, so that we can get 
started.
    Good afternoon. I have convened this hearing to examine two 
basic issues related to America's health. The first concern is 
access to quality healthcare, and the second pertains to 
quality information on healthcare.
    As we announced in a press release last week, today marks 
the first in a series of bipartisan informational subcommittee 
hearings on managed care and the problem of the uninsured in 
this country.
    During these hearings, we will address all of the major 
areas of concern to members on both sides of the aisle, and 
even more important, those healthcare issues of greatest 
concern to our fellow Americans. I have said it before and will 
repeat it now, ``Times are changing in the practice of 
medicine.'' I hear it all the time from physicians in my 
district, and especially my son who is an internist in Palm 
Harbor, Florida.
    For many, the transition to managed care has not been easy. 
It represents a whole new way of medical care delivery and 
financing in this country. In addition, managed care patients 
have complained that their current health plans at times 
prevent them from seeing their own doctors.
    Today, however, I would like to ask members of this 
subcommit-

tee to focus their attention--focus their attention--on two 
main

 issues. We will ultimately, as we go forward with our 
hearings,

cover all of the issues, but focus our attention today on two 
main issues.
    The first panel of healthcare experts will address access 
to emergency services and access to specialty care. The second 
panel will address medical communications between health 
professionals and patients. It will also cover the availability 
of information on the quality of care delivered by plans and 
providers, so very, very significant in my opinion. And, 
finally, the second panel will discuss the use of an ombudsman 
to help guide patients through the often confusing maze of 
modern healthcare systems.
    As we listen today, I ask that members keep an open mind; I 
know that is difficult. But the healthcare alternatives, as we 
know, are so very complex, the issues so urgent, and the 
decisions so far reaching, that only with an open mind, can we 
do what is right.
    In closing, I want to reiterate that today's hearing is the 
first in a series of subcommittee hearings on the topics of 
managed care and the uninsured. Some hearings will be held 
outside of Washington so we can gain a better perspective on 
the everyday problems facing those who live outside the 
beltway.
    Subcommittee members should rest assured that medical 
liability, medical necessity, point of service, and other 
issues will be addressed in the near future.
    And finally, I would like to welcome our witnesses to thank 
you for taking time out of your busy schedule to join us today. 
We all look forward to hearing your views on important health 
access issues facing our Nation today.
    And the Chair would now yield to ranking member Mr. Brown, 
my good friend.
    Mr. Brown. Mr. Chairman, thank you, and thanks to our 
distinguished panelists on this panel and on the next panel.
    The Congress has debated the merits of managed care reform 
for more than 3 years. The logic for reform is there; the 
evidence for reform is overwhelming, yet we are well into the 
106th session of Congress without accomplishments, without 
comprehensive patient protections on the books. For the victims 
of our inaction, individuals whose coverage disintegrated the 
moment it was needed, 3 years is a lifetime.
    Managed care should mean coordinated care; it should mean 
expert care; it should mean informed care. Application of these 
principles can improve quality, minimize waste, and reduce 
costs. But there is a faster way to cut costs and to increase 
profits. Health plans can skew their coverage toward what is 
least expensive, rather than what is most effective. The 
complex nature of healthcare gives them cover; the bottom line 
gives them incentive.
    We can all name health plans that effectively self-monitor 
and truly put the patient first. For these plans, the 
protections we will discuss today should be non-issues.
    These plans would not deny full coverage for a trip in an 
ambulance and treatment in an out-of-network emergency room if 
their enrollee believes she was in an emergency situation. 
These plans would not bypass physician and non-physician 
providers when their services are medically indicated, but the 
patient is not aware of that. These plans would not dissuade 
chronic care patients from receiving proper care by requiring 
referral, after referral, after referral, for services that are 
clearly needed on an ongoing basis. These plans would not 
create disincentives, financial or otherwise, that inhibit 
physician and non-physician providers from being candid with 
their patients. These plans would not do that, but we know that 
some plans do.
    A continuous flow of letters and phone calls from our 
constituents attest to the fact that not all health plans live 
up to the promises that enrollees read about in their benefit 
booklet. Some health plans systematically obstruct, delay, and 
deny care. Some health plans provide excuses instead of 
coverage. It is to protect those enrollees that we must 
establish meaningful patient protections.
    The protections we will discuss today--access to 
information, coverage for emergency transportation, and 
healthcare services that does not vary with the site of care or 
the eventual diagnoses, coverage for the services of 
appropriate physician and non-physician specialists alike, 
prohibitions on gag rules, access to ombudsman services. These 
protections are fundamental, and they will make a difference. 
But their ultimate value depends on a larger package of 
reforms, one that raises the stakes on those few plans that 
make a practice of mistreating their enrollees. Health plan 
accountability is critical and it is appropriate. Providers 
make medical decisions; health plans make medical decisions. 
They should be held accountable.
    The most valuable product we can take from today's hearing 
is momentum. We need to address the remaining issues, as 
formidable as they may be, quickly. It is incumbent on us to 
move beyond the theoretical to the concrete and take advantage 
of the hard work already put in by Mr. Dingell and Mr. 
Bilirakis and others. We need to debate, mark up, and deliver a 
bill that finally addresses the managed care concerns borne out 
by millions of Americans.
    I look forward, Mr. Chairman, to working with my 
colleagues, on a bipartisan basis, to get this job done.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Brown. Thank you.
    Mr. Bilirakis. Mr. Bliley, for an opening statement--the 
chairman of the full committee.
    Chairman Bliley. Thank you, Mr. Chairman. I want to thank 
you for holding this important informational hearing today.
    As this subcommittee announced last week, Chairman 
Bilirakis and subcommittee ranking member Brown will take the 
lead in holding a series of hearings examining issues affecting 
America's health. I want to commend these gentlemen for holding 
field hearings and taking the debate to the American people to 
hear from real Americans.
    Last year we tried to enact legislation by task force and 
bypass the committee process. This year, Speaker Hastert 
announced his intention for this body to return to regular 
order. As a result, I want to reiterate that this is only the 
first in a series of several hearings this committee will hold 
addressing issues affecting America's health. Some of these 
hearings will be held right here in this room, while others 
will be held outside of Washington. We need to have a dialog 
with the American people to ensure that any legislation we 
enact is responsible and is responsive to the needs of Main 
Street America.
    Today we will hear from experts with experience in the 
areas of access to emergency services, access to pediatric and 
OB/GYN specialists, and access to specialists for persons with 
chronic conditions. We will also hear from experts in the areas 
of medical communications, information disclosure, and 
ombudsman programs. Access to quality care and useful 
information are important subjects in the debate on America's 
health.
    It is important to remember throughout these hearings that 
another type of access, access to health insurance, is sorely 
lacking in this country. While America can be proud that it 
provides the best and highest quality healthcare in the world, 
it is disturbing to see, year after year, the number of 
uninsured Americans continuing to increase. Today the number of 
uninsured in this country is approaching 44 million, and 
growing. As we consider reforms to the private health insurance 
market, we must be mindful of the impact such changes will have 
on access to health insurance for all Americans and work toward 
increasing access, not limiting it. To enact any reforms that 
could exacerbate this problem, would be irresponsible and 
unacceptable.
    Last year, the House passed a health reform bill which 
included health marts as a way to make healthcare more 
affordable. I hope to explore this option in further detail at 
a subsequent hearing.
    Finally, let me emphasis my commitment to continuing to 
work with members of this committee on both sides of the aisle 
to address the important health concerns facing the American 
people today.
    I, again, want to thank Chairman Bilirakis for holding this 
hearing on an issue of such importance to the American people. 
I look forward to hearing from our panelists here today and 
yield back the balance of my time.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    Mr. Pallone, for an opening statement.
    Mr. Pallone. Thank you, Mr. Chairman, and I want to say I 
do appreciate the opportunity to discuss managed care reform in 
committee today and your willingness to hold this hearing.
    But having said that, I am concerned that the approach 
adopted today is not the best way to proceed. And while all of 
the issues that you identified for discussion today are 
important, the two most important issues in this managed care 
debate are not on the agenda. And, of course, I am referring to 
the right to sue, as well as who will define ``medical 
necessity.'' While I understand that this is the first of a 
number of scheduled hearings, I think these issues need to be 
addressed immediately for two reasons.
    The first is that none of the protections discussed today 
will be worth anything to anybody if they do not have the right 
to sue and if the insurance company is allowed to continue 
defining ``medical necessity.'' The second is that these are 
the issues that there is no agreement on and really cut to the 
core of the managed care debate. So, as important as all the 
other issues are to discuss them before you, to discuss the 
framework that will make them worth anything, I think you need 
to talk about these other two issues of the right to sue and 
medical necessity.
    I also want to make an observation about the fact that 
there are a lot of rumors out there and reports circulating 
that the Republican leadership is contemplating a piecemeal 
approach to managed care reform. And I would just say--and I am 
not saying it is the case, but if it is the case, it would be a 
huge mistake. The experience of people who have been injured 
for life and the countless deaths that have occurred because 
patients were denied needed care, demand that a comprehensive 
reform to the system be enacted. And fixing one aspect of the 
problem while neglecting another will only insure more people 
who could have been saved, or their lives or their health 
saved, unfortunately, will be profoundly changed forever. And I 
don't think it is the right thing to do. We need to look at 
this in a comprehensive way.
    Now, as everyone involved in this debate knows, there is 
significant disagreement between the Democrats' Patients' Bill 
of Rights and the Republican leadership's Managed Care bill. 
Simply stated, in my opinion--and I am not expecting you to 
agree on the other side--but I believe that the Patients' Bill 
of Rights proposes to protect patients, and that the Republican 
leadership bill that we saw in the last session, and I guess we 
are likely to see again, basically protects the insurance 
industry.
    For instance, the Republican leadership bill does not list 
``severe pain'' as a legitimate reason to go to the emergency 
room; the Patients' Bill of Rights does. The Republican bill 
does not allow women to choose their OB/GYN as their primary-
care doctor; the Patients' Bill of Rights does. The Republican 
bill does not allow people with chronic conditions to obtain 
standing referrals; the Patients' Bill of Rights does. The 
Republican bill purports to prohibit gag clauses, but in 
reality does no such thing. The Republican bill does not 
require plans to collect data on quality, and the Patients' 
Bill of Rights has that requirement. And the Republican bill 
does not establish an ombudsman program to help consumers 
navigate their way through the confusing array of health 
options, and the Patients' Bill of Rights does.
    Let me just say, in conclusion, if we are going to have a 
hearing that addresses these issues, I think it should focus on 
the difference between the competing bills, not on whether 
aspects such as these should or shouldn't be included. And to 
that end, I would intend to focus my energy today on 
highlighting the differences between the Patients' Bill of 
Rights and Republican leadership bill and some of the other 
bills I think that have been suggested by committee members or 
others.
    But I do appreciate the fact that we are having this 
hearing, and I hope there will be a lot more. I think we need 
to get to a comprehensive bill quickly that will pass something 
out of this committee.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman.
    Mr. Upton, for an opening statement.
    Mr. Upton. Thank you, Mr. Chairman. I appreciate you 
calling this hearing today and the whole series of hearings as 
we look at the managed care health issue.
    This is an issue that I care very deeply about. Rarely a 
day goes by that I don't hear or read in my constituent mail of 
serious problems that individuals or their families are having 
with their managed care plans.
    One of the issues that we are examining in this hearing is 
access to emergency room care. The importance of ensuring 
prompt access to emergency room care was brought home recently 
when I received a report about a Michigan woman who was 
experiencing severe abdominal pain. She went to the nearest 
hospital emergency room, but her managed care plan would not 
cover her care at that facility. Instead, a plan clerk directed 
her to another facility more distant. And, unfortunately, that 
facility was affected by a massive power outage in the Detroit 
area, and they could not see her promptly. She requested 
permission to return to the first hospital, but was denied. And 
by the time that she received care, she was very seriously ill 
with a massive infection from a ruptured ovarian cyst.
    So I want to make sure that this a high priority that we 
tackle this year. And as we work on it, I want to make sure 
that we define ``emergency services'' to clearly include 
ambulance services. I think most would agree that ambulance 
services should be covered as part of emergency care when 
prudent laypersons would make the judgment that their condition 
warranted such care. And I think that most of us thought that 
the Managed Care Reform bill that we passed last year did that, 
but, sadly, it was not the case.
    I am pleased that I have a constituent from Kalamazoo, 
Michigan, Mark Meijer, here in the audience. He is president of 
the American Ambulance Association. I have worked with Mark for 
a number of years now on emergency service issues, and I have a 
great deal of respect for his hands-on experience.
    He recently pointed out that, while we all may have thought 
that we covered ambulance services in the past, in fact, we 
haven't actually seen it. And I intend to introduce legislation 
in the next couple of weeks to address this. I would hope that 
we could include it as part of a managed care bill as we move 
forward.
    And by unanimous consent, I would like to include a 
statement from Mr. Meijer as part of my statement, and I yield 
back the balance of my time.
    Mr. Bilirakis. Without objection.
    [The prepared statement of Mark D. Meijer follows:]
  Prepared Statement of Mark D. Meijer, American Ambulance Association
    Chairman Bilirakis, Ranking Minority Member Brown and members of 
the Subcommittee, on behalf of the American Ambulance Association 
(AAA), thank you for allowing us to submit written testimony for the 
hearing record. My name is Mark Meijer, and I am president of the 
American Ambulance Association and a provider of emergency ambulance 
services in Kalamazoo, Grand Rapids, and other parts of west Michigan. 
The American Ambulance Association represents more than 650 ambulance 
providers from all fifty states.
    As president of the AAA, I hear from ambulance service providers 
across the country who are being denied reimbursement by managed care 
plans for ambulance services that any reasonable person would consider 
a medical emergency and cause for calling 911. As an ambulance service 
provider in Michigan, I have firsthand knowledge of numerous instances 
where managed care plans denied reimbursement for similar legitimate 
claims. It is with these experiences in mind that I implore Congress to 
pass managed care reform legislation that contains an emergency 
services provision applying the ``prudent layperson'' standard to 
emergency ambulance services in addition to the emergency room services 
expressed in the bills.
    I do want to be clear on a number of points. We are not asking for 
a mandated benefit. We are asking that this requirement apply only to 
plans that provide coverage for ambulance services. In addition, we are 
not suggesting that every medical emergency in which the ``prudent 
layperson'' standard might be invoked would necessarily require an 
ambulance. We propose a second ``prudent layperson'' standard by which, 
not only must there be a medical emergency, but that ambulance 
transportation must be considered medically necessary by a ``prudent 
layperson.'' We have sought to keep our proposal deliberately narrow, 
but fair to those that are faced with calling for emergency medical 
help.
    The recent growth of managed care has increased concern about 
whether adequate emergency medical services are being provided to 
participants of managed care plans. That is, as we understand it, why 
this legislation is before you today. Chief among these concerns is the 
extent to which managed care plans are second-guessing victims of 
perceived medical emergencies when they seek emergency medical care. 
This second-guessing can result in the loss of precious time that could 
worsen a patient's sudden illness or injury, and in fact increase 
mortality and morbidity as well as cost to payers. The response by 
Congress has been very gratifying. While there are any number of 
controversies attached to the various approaches to regulating managed 
care, there seems to be a broad consensus on the need of a provision 
covering emergency medical care.
    The problem with ambulance coverage is that the emergency medical 
services provision in all of these bills is based on a law, the 
Emergency Medical Treatment and Active Labor Act (EMTALA), that does 
not address pre-hospital care and thus does not include emergency 
ambulance services. Even those bills seeking to broaden coverage, for 
instance, by including the term ``ancillary services'' among those 
services that should be provided, are inadequate, according to our 
counsel and more importantly real life experience. The fact is that 
EMTALA begins at the hospital door, so ``ancillary services'' would 
only cover services provided in a hospital. In order to ensure that 
emergency ambulance services are indeed covered, managed care reform 
legislation must explicitly refer to ambulance services.
    The fact that emergency ambulance services are not covered is very 
troubling considering that millions of medical emergencies a year begin 
with a 911 call. The dispatch of an ambulance is often the very first 
response to an emergency medical episode. Prompt attention by emergency 
medical personnel from an ambulance can be every bit as critical as 
emergency room care in such situations. Failure to reimburse for 
emergency ambulance services may either discourage patients from 
utilizing life-saving emergency care or surprise them with bills for 
emergency ambulance services that they did not expect.
    When a medical emergency strikes, whether real or perceived, nobody 
is thinking of reimbursement. Neither the individual experiencing the 
emergency, their family or friends or their care-givers should have to 
worry, at that moment, who is paying for their care. Similarly, 
ambulance providers respond to such emergencies with one thought in 
mind: the health and well-being of the patient. Ambulance providers 
respond to emergencies regardless of the patient's ability to pay or 
the patient's insurance company's willingness to pay. Managed care 
plans should not be allowed to take advantage of this commitment by the 
ambulance industry. If we require them to pay for emergency room care, 
we should require them to pay for ambulance care as well. As members of 
the House Subcommittee with jurisdiction over this issue, I hope that 
you will work to include language specific to emergency ambulance 
services. Your assistance is critical to keeping this front-line access 
to emergency medical services available to health care plan 
participants across the nation.
    Once again, thank you for allowing the American Ambulance 
Association to submit written testimony for the record. I would be 
happy to respond to any follow-up written questions that members of the 
subcommittee may have on the issue.

    Mr. Bilirakis. And I might at this point say that the 
opening statements of all members of the subcommittee can be 
made a part of the record.
    I recognize Mr. Dingell for an opening statement.
    Mr. Dingell. Mr. Chairman, thank you, and I want to commend 
you and thank you for holding this hearing on patient 
protections, which is our first since October 1997. I also want 
to commend Chairman Bliley for his interest in this matter.
    The issue of patients' rights has been before the Congress 
for a number of years. I began working on the original 
Patients' Bill of Rights in 1996; the bill was introduced early 
in 1997. The bill evolved into the measure that Dr. Ganske and 
I co-sponsored in the last Congress which only fell five votes 
short of passage during the last summer.
    No fewer than four comprehensive Patients' bills of rights 
are pending before the Congress today. In addition to my own, 
three of my Republican colleagues have proposed their own 
legislation. Dr. Ganske's legislation, as always, closely 
resembles mine. Mr. Norwood takes a slightly different, but no 
less comprehensive, approach. While you, Mr. Chairman, 
introduced the leadership bill that was brought directly to the 
floor last year.
    Today's hearings will begin to explore some but not all the 
issues that must be included in any basic bill of rights to 
protect patients.
    We will hear from a number of excellent witnesses, 
including the president-elect to the American Medical 
Association, Dr. Reardon. Also, Mr. Peter Thomas and Mr. Ron 
Pollack, all of whom have served on the President's Quality 
Commission, and they should be listened to respectfully. We 
will hear them describe the hard experience of patients and 
providers in dealing with their health insurance plans.
    While some rogues and scoundrels may be operating in the 
health insurance industry, we should readily recognize that 
many of the health plans are doing all the things right for 
their patients. Dr. Joseph Braun, from the GW Health Plan, will 
testify about measures that some health plans have taken to 
ensure that patients get timely access to proper care. But with 
an issue as serious as healthcare, some plans providing some 
protections, some of the time, may not be enough and, indeed, 
probably it is not.
    Today's hearing will explore some, but only some, of the 
protections that must be included in any basic patient rights' 
bill--direct access to pediatricians, obstetricians, or 
gynecologists, emergency room care, information disclosures, 
and then the gag rules, and a few others.
    All these issues are important to patients, but there are 
many others amongst them--access to clinical trials, drug 
formulary protections, continuity of care, point of service, 
and perhaps--indeed, not perhaps--but external appeals, 
internal appeals, medical necessity without which there could 
be no full protection of the rights of patients, and liability 
as an enforcement mechanism.
    As a recent Families USA report points out, States have 
increasingly taken aim at some of these issues. Unfortunately, 
the record reveals hits as well as misses. Consumers can't 
count on basic protection. Even States with strong consumer 
protections cannot and do not cover a large number of their 
residents. Some 51 million Americans who receive health 
insurance from the self-insured employer under the Employee 
Retirement Income Security Act, ERISA, are not protected by 
State laws and have no right to sue, no matter the outrage that 
is perpetrated upon them.
    We need comprehensive Federal legislation that provides, as 
a

 minimum, a uniform platform on which all Americans may stand.

 In my judgment, that means three things: one, finding 
independ-

ent, external appeals process with the authority to resolve 
disputes

 between patients and plans in a timely manner; two, a strong 
en-

forcement mechanism that gives patients the ability to hold 
their

 health plan accountable in the event that it caused them 
injury or

 death; and three, a standard for review that ensures that 
medical

 treatment decisions are made in accordance with prudent 
medical

 practice, based upon the patient's own medical record and 
available

medical evidence and the judgment of the treating physician as 
well as the healthcare plan. Without these protections, other 
rights will be meaningless.
    I commend you again, Mr. Chairman. I look forward to 
hearing from our witnesses; they have much to tell us.
    Mr. Upton. [presiding] Thank you, my good friend from the 
great State of Michigan.
    The gentleman from North Carolina, Mr. Burr.
    Mr. Burr. Mr. Chairman, I have no opening statement.
    Mr. Upton. Okay.
    Mr. Ganske, from Iowa.
    Mr. Ganske. Thank you, Mr. Chairman.
    Mr. Chairman, the waters are building up behind the dam. 
They are roiling; they are getting closer and closer to that 
spillway. We have been talking about passing patient protection 
legislation for 3 years.
    Mr. Markey and I introduced a bill 3 years ago, the Patient 
Right to Know Act, which had more than 295 bipartisan co-
sponsors. We had a hearing on gag rules 3 years ago; couldn't 
get that to the floor, a bill that had around 300 co-sponsors.
    Mr. Chairman, it is time to do comprehensive legislation, 
no itty-bitty band-aid, piecemeal legislation. It is time to 
timely consider this legislation. We have had hearings before; 
I welcome hearings, but I think we ought to set a time table 
for a committee markup, subcommittee and full committee. And we 
ought to have it as a goal, moving this to the floor under an 
open rule for consideration by July 1.
    And, finally, Mr. Chairman, this is a great committee that 
we sit on. Both Republicans and Democrats have contributed to 
the history of this committee. This committee is the only 
committee that is specifically mentioned in the United States 
Constitution. We have jurisdiction over insurance and health. 
Education and Labor has jurisdiction over ERISA, as well. This 
comprehensive bill that we should be working on should be a 
product of the Commerce Committee. If other committees want to 
do a tax bill with radical restructuring of the way the tax 
code interacts with the healthcare system, then I say, ``Go for 
it.'' There may be some merit in what they do, but that should 
not be a part of the comprehensive patient protection bill that 
we are dealing with. This is a bill for this committee's 
jurisdiction.
    Mr. Chairman, 3 years ago when we had a hearing on this, 
toward the end of the day--it was May 30, 1996--a small nervous 
woman testified before this committee. Her testimony was buried 
in the fourth panel at the end of a long day about the abuses 
of managed care. She had been a claims reviewer for several 
HMOs. She started out her testimony by saying, ``I wish to 
begin by making a public confession. In the spring of 1987, I 
caused the death of a man. Although this was known to many 
people, I have not been taken before any court of law or called 
to account for this in any professional or public forum. In 
fact, just the opposite occurred; I was rewarded for this. It 
brought me an improved reputation in my job and contributed to 
my advancement afterwards. Not only did I demonstrate that I 
could do as was expected of me, I exemplified the good company 
doctor.''
    She continued, ``Since that day, I have lived with this act 
and many others, eating into my heart and soul. For me, a 
physician is a professional charged with the care or healing of 
his or her human beings. The primary ethical norm is do no 
harm.'' She went on to say, ``I did worse. I caused death. 
Instead of using a clumsy, bloody weapon, I used the simplest, 
cleanest of tools--my words. This man died because I denied him 
a necessary operation to save his heart. I felt little pain or 
remorse at the time. The man's faceless distance soothed my 
conscience. Like a skilled soldier, I was trained for this 
moment. When any moral qualms would arise, I was to 
remember,''--Mr. Chairman, as this lady said, with tears in her 
eyes, as the hush fell over this room, she said, ``I was to 
remember, I am not denying care; I am only denying payment.''
    Mr. Chairman, we are going to hear about emergency care 
today. We are going to hear about gag rules. But I think it 
will be entirely appropriate to talk about what this woman, 
former medical reviewer, said of the medical necessity issue, 
that it was the ``smart bomb'' of cost containment. Because 
without a standard definition of care for ``medical 
necessity,'' none of these procedural patient protections that 
we are talking about will mean a hill of beans.
    I yield back. Thank you, Mr. Chairman.
    Mr. Upton. Thank you, Mr. Ganske.
    The gentleman from Texas, Mr. Green.
    Mr. Green. Mr. Chairman, my colleague from California was 
here first----
    Mr. Upton. Oh. I just----
    Mr. Green. [continuing] and I will be glad to follow her.
    Mr. Upton. I regret the mistake, looking at my good staff.
    Ms. Capps, of California.
    Ms. Capps. Thank you, Mr. Chairman, for calling this 
hearing today.
    As you know, I am new to this committee, and healthcare, 
particularly managed care reform, is one of the major reasons I 
sought out this committee. So I am very happy that we are all 
here today, and thank you, witnesses, for being willing to 
testify.
    Let me say, first, that I am encouraged by today's hearing 
and the majority's willingness to reach out to us and work with 
us on moving this process forward. Last week I noted with 
dismay, the action in the Senate Labor Committee, where the two 
parties were unable to come together, and hope that this 
committee can do better. Maybe I am too new here, but I still 
hold out hope.
    I understand that this is the first of several hearings 
that the subcommittee will undertake to examine the various 
aspects of managed care reform. I look forward to them and 
encourage the majority to schedule them as soon as possible, in 
a timely fashion, so that we can begin to move this legislation 
before the House gets too consumed by other priorities in the 
legislative calendar.
    Also, it is my hope that in future hearings, we are able to 
broaden the voices that the subcommittee hears, specifically, 
those of non-physician providers like nurse practitioners, 
nurse midwives, and anesthetists, among others. I have a bias 
here, of course, due to my background as a nurse, but I know 
that these voices have much to add to this debate as well, and 
we should hear from them.
    And, also, I want to echo what Representative Ganske just 
mentioned. I want us to continue to address the tough issues in 
a timely manner. Representative Ganske had sent me his opening 
statement, and I am glad it is going to be entered into the 
record. I read it as a letter from him last week, and it 
underscores for me as well, the need to deal with issues such 
as accountability and medical necessity.
    Managed care reform is, of course, one of the most 
important issues before this 106th Congress. For too long, 
patient care has been put second in line behind the bottom 
line. Doctors, nurses, and other healthcare providers are 
second-guessed in their treatment strategies by accountants, 
and patient access to full information about treatment options 
has been compromised.
    It is past time that Congress pass a comprehensive--and I 
underscore ``comprehensive''--patient bill of rights and give 
consumers the protection they need and are demanding.
    Thank you, again, Mr. Chairman, for holding this hearing 
today. I look forward to hearing from our witnesses, and yield 
back the balance of my time.
    Mr. Upton. Appreciated the gentlelady's statement.
    The gentleman from Georgia, Mr. Norwood.
    Mr. Norwood. Thank you, Mr. Chairman, and thank you, Mr. 
Bilirakis, for holding these hearings.
    It some days feels like it was 100 years ago since 1995 
when I dropped my comprehensive managed care reform bill--and 
Lord knows, I didn't know what was going to happen after that. 
But finally, we are beginning to talk about the subject from 
both sides of the aisle.
    And I really look forward to these hearings and hope they 
will be very informative.
    As most of you know, I have taken somewhat of an interest 
in this subject about today's hearings, and I hope my views are 
fairly well-known, but I am not the only one who has taken an 
interest in this subject. My friend, Dr. Ganske, has introduced 
a bill, as has Mr. Dingell, as has our distinguished chairman. 
But, most importantly, the American people have taken an 
interest in patient protections. We should honor them by 
working together to find the common ground between us on this 
committee in passing a bipartisan bill that is consistent with 
the traditions of this great committee. And the truth of the 
matter is that we should be able to easily find common ground 
between our various bills.
    These hearings will focus on many of the things we have in 
common. We should be able to turn quickly from these hearings 
to create a base bill that we can work from in this committee.
    First and foremost, we should have an internal/external 
review process that empowers patients to get the care they paid 
for when they need it. External review must be independent from 
an insurer. Independent medical experts must be able to make 
decisions using an objective standard that an insurer has no 
control over, and the decisions made during the review must be 
binding.
    More than anything else, Americans control quality with 
their feet. We must include a consumer choice provision that 
legitimately allows us to say to everyone, ``Everyone in 
America, you can see your own doctor.'' We need to include in a 
base bill many of the issues that we are going to be discussing 
today.
    We should guarantee patients have access to obstetricians 
and gynecologists and pediatricians and emergency room 
services. I can't believe we are having a hearing on this, 
frankly--that I would be saying what I just said. We should 
guarantee patients access to a specialist when a specialist is 
called for, and we should guarantee continued access to that 
specialist in a chronic care situation.
    We should guarantee patients access to a standard set of 
basic information about their insurance coverage.
    We should guarantee doctors the rights to freely 
communicate with their patients, and we should institute some 
very basic protections for doctors so that they can advocate 
for the best interests of their patients.
    This legislation should affect all Americans; to do 
anything less is to fail. Apparently our colleagues in the 
Senate decided last week that we are a Nation of 48 million 
people. Hopefully the next census will help them and straighten 
them out.
    And the legislation we write should be inclusive of 
physicians and non-physician providers. Those of us in rural 
districts know the critical role that non-physician providers 
play, and our legislation must not ignore them.
    We should then have an honest and in a fair amendment 
process that allows us to openly raise those issues where there 
may not be consensus among us. Whether any of us wins or loses, 
when we place our amendments on the table, we should be able to 
look each other in the eye and say, ``We were treated fairly on 
the Commerce Committee.'' By passing consensus legislation in a 
fair process, we can ensure the quality of care patients 
receive and empower patients when there are disputes over what 
is best for them.
    We have seen what happens when partisanship triumphs 
cooperation. Last week's mark up of a rotten bill in the Senate 
Health Committee was disgraceful. The people are owed a better 
effort from us than that, and we can do it. It only takes the 
willingness to work together, the perseverance to resist those 
who want nothing, and the courage to stand for what is right 
for the American people.
    I thank you, Mr. Chairman, for the time.
    Mr. Upton. The gentleman's time has expired.
    The gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, ever the southern 
gentleman, but I appreciate the opportunity to be here to day.
    And I think most of us are always thanking the chairman for 
scheduling this important hearing. But today we mean it more 
than ever because this is probably the most important hearing I 
think I have seen--participated in since my three terms--now 
four terms--in Congress.
    And I like to associate myself with the remarks of my 
colleague, Dr. Ganske, and, also, Dr. Norwood, although I would 
compare that what happened on our House floor last year with 
the bill that passed, with what happened in the Senate last 
week.
    The American people have spoken loud and clear over the 
past few years that they want--no, they really ``need''--real 
managed care reform.
    We learned from last year's legislative experience that 
anyone can write a bill and put a flashy title on it, include 
some key words like ``access'' and ``gag clause,'' and say they 
passed managed care reform. What we also learned is, unless 
these titles and key sections are backed by strong and binding 
legislative language, the bill is worth little more than the 
paper it is printed on.
    Today's hearing will focus on some of the most important 
managed care issues--access to specialists, emergency room 
care, open communication, and information disclosure. While 
there is widespread agreement that any managed care bill must 
include provisions that address these issues, we are still a 
long way from agreeing on which approach would be best.
    I believe our ultimate goal must be to tailor those 
provisions after the Patients' Bill of Rights legislation that 
was introduced by ranking member, Congressman Dingell, and 
similar to legislation introduced by Dr. Ganske. This bill--
Congressman Dingell's bill--has over 180 co-sponsors, and it 
was endorsed by almost every major patient and provider group 
in the last Congress, because it takes the most sensible, 
reasonable and equitable approach to protecting patients.
    I hope if there is one thing that we as Democrats and 
Republicans can agree on at the outset of these hearings, is 
that our ultimate goal must be to support the most sensible, 
responsible, and equitable policy that protects patients in 
managed care.
    Mr. Chairman, again, I want to thank you for calling the 
hearing and getting the process started. And, hopefully, this 
year, we will be able to legislate in our committee--and as Dr. 
Norwood said, ``win or lose,'' but we will at least be able to 
deal with the issue.
    Thank you.
    Mr. Upton. Thank you.
    The gentleman from Kentucky, Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman, thank you very much, and like 
the other members of this committee, I, too, am delighted that 
we are having this hearing to explore this subject in more 
detail.
    The gentleman from New Jersey made the statement that the 
Republicans or the Republican bill, last year--I wasn't sure if 
he was talking about last year's bill or Republicans this 
year--are here to protect the insurance companies. And I would 
say that I think everyone on this committee, obviously, wants 
to protect patients and wants to make sure that they have the 
care that they need to take care of their medical situations.
    But I also think that, not only do we need to look at the 
physician part of this, not only do we need to look at the 
patient part of this, but I think we also have a responsibility 
to look at any legislation that we pass, and what impact that 
legislation will have on the cost of a lot of small business 
men and women who provide healthcare for their employees.
    Now all of us hear a lot about healthcare is unaffordable 
today. So, I think as we go through these hearings, I hope that 
we will take a balanced approach and do everything that we can 
to protect patients, but also to be aware that anything that we 
pass will, ultimately, have an impact on the cost of 
healthcare. And I don't think anyone here wants to diminish the 
availability of healthcare to anyone.
    So, I am delighted that we are having these hearings. As it 
says, these are educational hearings, and I think all of us 
will benefit from it.
    Mr. Upton. Thank you.
    The gentleman from Ohio, Mr. Strickland?
    Mr. Strickland. Thank you, Mr. Chairman.
    I am sitting here listening to my colleagues make their 
opening statements, and I am glad we are having this hearing, 
too, but I hope, you know, that we don't break our arms by 
patting ourselves on the back. Because the fact is that managed 
care needs to be reformed, but I am thinking that we have 
millions of uninsured in this country, and we are not dealing 
with that issue. We have millions of our children with no 
health coverage, and we are not dealing with that issue. I am 
glad we are dealing with managed care, but it troubles me that 
years have passed, Dr. Norwood--years have passed, and we all 
know what the problems are, because every last Member of 
Congress hears it from their constituents. And yet, we seem to 
be so timid in taking bold steps.
    Last weekend, I visited the Franklin Delano Roosevelt 
Memorial for the first time, and I was struck, as I read the 
saying, ``I see a Nation one-third ill-clothed, ill-fed, ill-
housed.'' The fact is that, in the past, our country has had 
strong leaders who have looked at difficult situations and been 
willing to take strong action.
    I yearn for the time when those of us who have the current 
responsibilities in this committee and in this Congress are 
willing to take the bold action that is necessary to do what we 
all know in our hearts to be the right thing to do.
    Thank you, Mr. Chairman.
    Mr. Upton. The gentleman from Mississippi, Mr. Pickering.
    Mr. Pickering. Mr. Chairman, I, too, thank you for having 
this hearing.
    I am new to this committee, and so I am here to listen 
today. I look forward to working with all the members and 
colleagues so that we can reach common ground and consensus 
that we can address the twin pillars of access and 
affordability, and I hope do the right thing for the country, 
for the healthcare and for our constituents.
    Thank you, Mr. Chairman.
    Mr. Upton. The gentleman from Wisconsin, Mr. Barrett.
    Mr. Barrett. Thank you, Mr. Chairman; I appreciate your 
holding these hearings as well.
    I am here to listen; I am here to learn. And, hopefully, we 
will get something done.
    Thank you.
    Mr. Upton. The gentleman from Oklahoma, Mr. Coburn.
    Mr. Coburn. Thank you, Mr. Chairman.
    You know, we are very quick to criticize managed care. But 
I want to tell you, as a practicing physician, they brought a 
lot of positive things to our country. They have improved the 
practice of a lot of doctors. They have helped contain costs. 
There are significant problems, and the costs of managed care 
have been too great. The No. 1 cost of managed care is loss of 
freedom and loss of quality healthcare in too many specific 
instances, not in total.
    We can still utilize many of these concepts to help us 
deliver higher quality care to more people, and I think it is--
to me, it is very bothersome. And I have discussed with Dr. 
Norwood and Dr. Ganske and several of the other physicians in 
the House. I think it is very dangerous that we try to apply 
the Soviet-style error of management of an economic model when 
it comes to healthcare. And my concern is, is we are forgetting 
the market. You know, we trust people in this country, 
individuals, to buy their homeowners' insurance; we trust them 
to make good decisions on their auto insurance; we trust them 
to make a wonderful number of other decisions about things that 
markedly affect their life, quality of life, and outcome of 
their life.
    But we have decided we are not going to allow that. And so 
we are moving down a track, because of the problems that we 
presently see, and we are going to manage managed care more. 
Now, the points and the problems that are wrong with managed 
care can be fixed. But my caution to us, as we move into this--
dare we fix it too much. You know, in 1996, we spent a trillion 
and 36 billion dollars in this country on healthcare. And 
somewhere between $150 and $200 billion of that didn't help 
anybody get well; $35 to $40 billion was defensive medicine, 
not to help anybody, but to prevent the caregiver from getting 
sued or to defend the caregiver.
    In my practice alone, with my four partners, we have 33 
employees, 11 of which do nothing but push paperwork around for 
either law firms, insurance companies, or the Government. That 
doesn't help anybody get well.
    We have cost-shifted to where we can't cost-shift anymore. 
We have moved medicine out of the control of what is in the 
best interests of the patient, and put it in the best interests 
of pocketbooks.
    I trust the market in this country; I trust that American 
consumers are smart. I think they ought to be given the 
opportunity to make decisions about their healthcare. I think 
we should no longer have a tax-deductibility for employers, 
unless it is given directly to the employee in some type of 
medical savings or medical IRA, so that we truly reinstitute 
choice. There is nothing more personal than making a choice 
about a physician that is going to invade your body. And to say 
that we live in the freest country in the world and you don't 
have that right in this country, is a contradiction of the term 
``freedom.''
    I appreciate that we are having this hearing. I would 
caution us to look at all aspects of healthcare. By and large, 
caregivers, physicians, managed care, insurance companies, do a 
great job in this country. We should not demonize any group as 
we go to improve the quality of product. And the one thing that 
should be there, that is lacking today, is utilizing the forces 
of supply and demand on this most precious resource, 
healthcare, so that it is allocated in the most proper and 
beneficial ways for every person in this country.
    I yield back. Thank you.
    Mr. Bilirakis. The gentleman from Florida for an opening 
statement.
    Mr. Stearns. Thank you, Mr. Chairman.
    I think in all fairness, Mr. Chairman, that on many of 
these issues we can come to an agreement.
    Do the patients have the access to emergency care--one of 
the key issues? Does managed care allow patients to choose 
their own physicians, including specialists? I think we can all 
come to some kind of agreement on this.
    But I would point out to Mr. Ganske, it isn't like we 
didn't pass a bill. We did pass a bill, and Mr. Norwood also 
voted for that bill. Mr. Hastert, our present Speaker, put 
together a coalition, came up with a task force, and we did, 
indeed, out of the House, pass a bill dealing with protecting 
patients' access to quality care.
    Did the bill satisfy everybody? No. Did it satisfy the 
Senate? No.
    But Mr. Coburn has mentioned that 11 of his 33 employees 
spend all day long just with paperwork. We have got to be 
careful we don't pass legislation out of this committee, so 
that 5 years from now, 14 or 15 of his employees are just doing 
paperwork.
    Now the crux of this bill, which as I understand is the 
problem is that if you allow lawyers to sue an HMO as well as 
the corporation behind the HMO, the corporation is going to get 
out of the business of selling healthcare.
    For example, Wal-Mart--Wal-Mart does its own healthcare. So 
if I was an employee of Wal-Mart, I would get my healthcare 
through their HMO, which is controlled and operated by Wal-
Mart. Now, if some of these bills that we have had presented in 
the Commerce Committee pass, Wal-Mart, the director of the 
healthcare plan, said it would get out of the business. Their 
corporation, Wal-Mart, would no longer be in the business 
because they don't want to be involved with suits dealing with 
directions that they made through their HMO. So we have got to 
come up with a compromise, some language that protects these 
corporations.
    But in the end, I think we can reach an agreement, and I 
think Mr. Norwood's frustration that it takes so long, should 
be circumvented. We should get this done much quicker. And we 
need to urge the Senate to act, because in America, we don't 
necessarily have to get it right the first time. In fact, there 
is a book by Joshua Hammond called ``The Seven Cultural 
Forces,'' that determine what our characteristics are. And, of 
course, the first one is ``choice.'' All Americans want choice. 
But No. 5 is, we are willing to improvise; we don't have to get 
it right the first time, because we will come back the second 
time. So this idea of an incremental approach is not all bad. 
We don't have to have the whole enchilada in one bill; we can 
move it forward, get something in place, and then move a little 
bit further along, and get this committee to try and pass 
something again, on the lines of the Hastert bill, and I urge 
the Senate to do the same.
    And, Mr. Chairman, I ask my written statement be made part 
of the record.
    Mr. Bilirakis. Without objection, the written statements, I 
have already said, are all part of the record.
    [The prepared statement of Hon. Cliff Stearns follows:]
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Thank you, Chairman Bilirakis, for holding this important hearing.
    This is the first in a series of hearings on how to resolve some of 
the problems associated with managed care. The first panel will address 
whether patients have sufficient access to emergency care under managed 
care; and does managed care allow patients to choose their own 
physician, including specialists. This is particularly important to 
patients with disabilities or chronic illnesses.
    One of our witnesses, Mr. Peter Thomas, will discuss why such 
access is vitally important to person's with disabilities or chronic 
illnesses.
    Mr. Chairman, the American people want us to take action to address 
the needs of patients by enacting legislation to make health care more 
accessible, more affordable and more accountable. These are not 
unreasonable demands.
    I agree with these principles and I am anxious to hear from our 
distinguished panel of witnesses so that we can have the benefit of 
their expertise about possible solutions to correct the most egregious 
complaints made by the public against HMOs.
    Our second panel will focus on issues related to medical 
communication and the disclosure of health plan information. I have 
heard from health care providers in my district that managed care 
prevents them from providing their patients with the vital information 
they need to make truly informed decisions with respect to their 
options. This would include information about the basic benefits being 
offered by a given plan. Most patients rely on their doctors for such 
guidance.
    This brings us to the issue of medical necessity. Should an 
insurance company make such decisions for individuals, or should these 
decisions be made by the patients in consultation with their 
physicians?
    There is one important issue that must also be looked at in the 
context of patient protection.
    In the 104th Congress, we enacted the Health Insurance Portability 
and Accountability Act, a very important provision in that legislation 
was the inclusion of ``genetic information'' in the definition of 
health status.
    That was an important first step. However, we now need to define 
what we mean by genetic information.
    We have an opportunity to expand this safeguard. Last year the 
Senate took such a step by including such language in its patient 
protection measure.
    It is noteworthy that the Senate has again included such a 
provision in its Patient Bill of Rights Plus Act.
    While I recognize that the bill we passed in this Committee and on 
the House Floor in the last Congress did contain safeguards for medical 
records, I do not believe it went far enough. I have drafted 
legislation to do just that.
    The question of confidentiality of one's medical records is 
something that should concern us all. I believe the Subcommittee should 
hold hearings to ascertain whether it would be advisable to provide 
special protections to safeguard such sensitive information. We need to 
ensure that technological advances in genetic testing proceed while at 
the same time protecting the interests of the individual.
    While we all have errors in our genetic blueprint, for most of us 
it does no harm--but for many the onset of disease is devastating. We 
owe them a level of privacy and the hope for treatment and cures.
    I know that today's hearing will focus on a broad array of issues 
relating to managed care delivery not the least of which is a patient's 
right to have all their medical records protected from the misuse of 
such information.

    Mr. Bilirakis. Mr. Greenwood, any opening statement, Jim?
    All right, thanks.
    Okay. Well, then why don't proceed with the first panel? 
Again, your written statements, as per usual, are parts of the 
record. I will turn the 5-minute----
    Mr. Brown. Mr. Chairman, I would like to ask unanimous 
consent to enter into the record a statement from Mr. Cardin 
who has been very involved in the prudent layperson issue, if I 
could ask unanimous consent.
    Mr. Bilirakis. Without objection, that will be made a part 
of the record.
    [The prepared statement of Hon. Benjamin L. Cardin 
follows:]
  Prepared Statement of Hon. Benjamin L. Cardin, a Representative in 
                  Congress from the State of Maryland
    Good afternoon, Mr. Chairman and Members of the Subcommittee. I 
commend Chairman Bilirakis for holding this hearing on patients' 
rights. One of the most fundamental of these rights--one that this 
Congress seemed to have reached agreement on nearly two years ago--is 
the right to access needed emergency services.
    In the 104th and the 105th Congresses, I introduced the Access to 
Emergency Medical Services Act. This legislation would establish the 
``prudent layperson'' definition of emergency as the standard for 
insurance coverage for emergency services under group health plans, 
health insurers, and the Medicare and Medicaid programs. Health plans 
would be required to cover and pay for emergency care based upon the 
patient's symptoms rather than the final diagnosis. The examination is 
tied to the federal law of EMTALA, which includes the screening and any 
stabilization services that are necessary. In addition, the legislation 
would prohibit health plans from requiring that patients obtain prior 
authorization before seeking emergency care. The bill would also help 
promote quality, cost-effective care by requiring that health plans and 
emergency physicians work together to coordinate any necessary follow-
up care. At the end of the last Congress, this bill had secured 241 
cosponsors and the endorsement of 46 health care organizations.
    The prudent layperson definition requires a health plan to pay for 
treatment rendered when a patient experiences:
        ``a medical condition manifesting itself by acute symptoms of 
        sufficient severity (including severe pain) such that a prudent 
        layperson, who possesses an average knowledge of health and 
        medicine could reasonably expect the absence of immediate 
        medical attention to result in placing the health of the 
        individual in serious jeopardy, serious impairment to bodily 
        functions, or serious dysfunction of any bodily organ or 
        part.''
    In the Balanced Budget Act of 1997, Congress did indeed guarantee 
this right to Medicare and Medicaid patients enrolled in managed care 
plans. Then in February 1998, the President extended this right to all 
persons in federal health programs, including FEHBP, veterans and 
military enrollees. So as enrollees in FEHBP plans, all members of 
Congress have been guaranteed this important patient protection. 
Twenty-six states have also passed laws establishing this standard. But 
to protect residents of the twenty-four states that have not passed a 
prudent layperson standard, and for the 48 million persons who are 
enrolled in ERISA self-insured plans, Congress must act.
    But simply inserting the words ``prudent layperson'' into a bill 
does not ensure access to appropriate emergency care. During the House 
debate on The Patient Protection Act (H.R. 4250) in the 105th Congress, 
some Members insisted that it contained the same emergency care 
standard that was provided for in the Balanced Budget Act. In October 
1998, thirty Members who had voted for H.R. 4250 recognized that the 
language was not the same and wrote the Speaker asking that the true 
prudent layperson standard--reflecting the BBA provisions and 
consistent with EMTALA--be included in any patients' rights legislation 
that moved forward.
    Regrettably, the 105th Congress adjourned without additional action 
on HMO reform. Millions of Americans enrolled in managed care plans 
were frustrated by our inability to send a bill to the President's 
desk, but remained hopeful that Congress would produce effective 
patients rights legislation when it convened this year.
    However, The Patient Protection Act of 1999 (H.R. 448), which was 
introduced on February 2, is just cause for any private health plan 
enrollee to be alarmed. Its emergency services provisions are wholly 
inadequate. Its language still fails to replicate the benefits 
enumerated in BBA; in fact, the provisions in that bill are even worse 
than those introduced last year.
    HR 448:

 defines emergency care as a situation in which ``an 
        appropriate physician has certified in writing that failure to 
        immediately provide the care to the participant or beneficiary 
        could reasonably be expected to result in placing the health of 
        such participant or beneficiary . . . in serious jeopardy, 
        serious impairment to bodily functions; or serious dysfunction 
        of any bodily organ or part . . .''
 does not include ``severe pain'' as a qualifying symptom for 
        emergency care;
 provides for only an ``initial screening examination'' and 
        then introduces the new concept of the ``prudent emergency 
        medical professional'' as the person who determines if the 
        patient should be stabilized;
 does not protect patients against unreasonable copayments for 
        care obtained at a facility that does not contract with the 
        health insurer. To the contrary, it specifies that plans will 
        have the ability to charge whatever they want for such visits.
    I have reintroduced the Access to Emergency Medical Services Act in 
the 106th Congress, again with Rep. Marge Roukema as the original 
Republican cosponsor and strong bipartisan support. This year's bill 
number is H.R. 904; its companion bill in the Senate is S. 517. I 
encourage all members of Congress to study this issue carefully, talk 
with their constituents, and support this fundamental legislation.
    I am pleased that Dr. Nancy Auer will testify today on behalf of 
the American College of Emergency Physicians, the organization that 
represents front line emergency care providers. I look forward to their 
statement and urge members of the subcommittee to insist on an 
authentic prudent layperson standard that ensures the millions of 
unprotected managed care enrollees access to the full range of services 
their acute emergency conditions require.

    Mr. Bilirakis. So, anyhow, I will turn the 5-minute light 
on, and I would appreciate if your oral statement would be--
could hope you could hold it as close to 5 minutes as you 
possible can.
    Let's see, let's start out with Dr. Auer. Would you please 
proceed?

STATEMENTS OF NANCY J. AUER, FORMER PRESIDENT, AMERICAN COLLEGE 
    OF EMERGENCY PHYSICIANS, MEDICAL DIRECTOR OF EMERGENCY 
 SERVICES, SWEDISH MEDICAL CENTER; JOSEPH BRAUN, CHIEF MEDICAL 
OFFICER, GEORGE WASHINGTON UNIVERSITY HEALTH PLAN, REPRESENTING 
THE AMERICAN ASSOCIATION OF HEALTH PLANS; AND PETER W. THOMAS, 
FORMER CHAIR, SUBCOMMITTEE ON CONSUMER RIGHTS, PROTECTIONS, AND 
  RESPONSIBILITIES, PRESIDENT'S ADVISORY COMMISSION, CONSUMER 
         PROTECTION AND QUALITY IN THE HEALTH INDUSTRY

    Ms. Auer. Thank you.
    I am Dr. Nancy Auer; I am the immediate past president of 
the American College of Emergency Physicians, and I am medical 
director of Emergency Services at Swedish Medical Center, in 
Seattle. I am here today representing the concerns of nearly 
20,000 emergency physicians and our patients.
    Each year, 100 million people go to emergency departments--
almost 1 in every 3 Americans. Emergency care is available 24 
hours a day, 7 days a week, and emergencies aren't scheduled. 
Thanks to the advancements of the past 30 years, if you have an 
emergency, you will be cared for by highly trained specialists 
using advanced diagnostic technology and the most effective 
medical techniques.
    Today, Congress is debating how to resolve some of the 
problems in managed care, one of today's most important 
healthcare issues. The growing sentiment about the shortcomings 
in managed care is what led the House to pass H.R. 4250 in the 
105th Congress.
    That measure would have established a narrow set of patient 
protections and created a second-tier test by covering 
emergency care only if a prudent medical professional agreed 
with the treating physician's judgment. In effect, it would 
have created a double standard--one for Americans participating 
in Medicare and Medicaid, and a weaker standard for those 
Americans who pay for their insurance.
    What we need now is a uniform Federal standard. All of us 
want to know that when we have an emergency, we will get the 
best care possible without delay. That is why, almost 15 years 
ago, Congress passed the Emergency Medical Treatment and Active 
Labor Act, otherwise known as EMTALA, in section 18-67 of 
COBRA, ``to protect patients in emergency situations.'' The law 
guarantees that every person who comes to an emergency 
department will receive a medical screening exam and be 
stabilized if he has an emergency medical condition, regardless 
of ability to pay. In effect, EMTALA designates emergency 
departments as America's healthcare safety net.
    Back in 1986, the concern was that the poor and uninsured 
were being ``triaged'' away from hospitals for financial 
reasons. Today, however, the new victims of ``economic triage'' 
are often the people who are fully insured. These hardworking 
Americans pay for their health insurance, including emergency 
services, and then are denied payment for those services after 
the fact.
    Many managed healthcare plans ignore EMTALA's definition of 
``emergency care.'' They do so by denying reimbursement because 
prior authorization was not obtained. They use narrow and 
unreasonable definitions of ``emergency'' to justify 
retrospective denial of payment. They deny claims by basing 
coverage on the final diagnosis, rather than considering the 
patient's initial symptoms.
    These tactics put patients in terrible dilemmas. If a 
patient has chest pains, should he take the precious time to 
call a managed care plan for approval before going to an 
emergency department? Or, should he try to self-diagnose the 
severity of the illness? If he doesn't make the right choice, 
it could mean being stuck with a big bill, or even worse. What 
if he chooses wrong and fails to get treatment for what could 
be a fatal heart attack?
    And for anyone who doubts that this is happening, let me 
put a face on this problem. In my home State of Washington--the 
``other'' Washington--the insurance commissioner found more 
than 700 inappropriate emergency care denials by 4 major health 
carriers in the first 4 months of 1998. In one case, a Seattle 
woman could not drive home because of chest pain and numbness 
and sought help at a fire station. The medics took her to the 
emergency department of the nearby hospital where she was 
treated and admitted. Yet her managed care company denied 
coverage because it was not pre-authorized.
    For the past 4 years, ACEP has led the fight to establish 
``prudent layperson'' as the national standard for coverage of 
emergency services. Congress included the standard Medicare and 
Medicaid beneficiaries in the 1997 Balanced Budget Act. This 
standard protects Medicare and Medicaid beneficiaries.
    Last February, the prudent layperson standard was extended 
to all Federal employees via the President's Executive Order; 
27 States have already adopted the prudent layperson language, 
but even if every State in the Union were to pass similar 
legislation, it would not cover everyone, especially the 48 
million who are in self-insured ERISA plans. These plans are 
generally immune from State enactments.
    Once a patient's emergency medical condition is stabilized, 
there are still decisions that must be made related to the 
patient's need for additional care. ACEP is an advocate for 
uniform ground rules for coordinating a patient's post 
stabilization services between emergency physicians and managed 
care plans. The attending emergency physician and the patient's 
health plan must work together in a timely manner to coordinate 
appropriate care--not via voice mail and not via answering 
machine.
    ACEP has worked with many Members of Congress to develop 
appropriate language.
    Mr. Bilirakis. Would you please summarize, Doctor?
    Ms. Auer. H.R. 904----
    Mr. Bilirakis. Thank you.
    Ms. Auer. [continuing] The Access to Emergency Medical 
Services Act and S. 517, the Senate companion bill, best 
achieve the objectives consistent with EMTALA and the 
protections of the Balanced Budget Act. In addition, the bills 
proposed by Representatives Ganske, Norwood, and Dingell 
contain the same language.
    If the language in these bills is enacted, it would 
establish a uniform national definition of ``emergency,'' based 
on the prudent layperson standard, ensuring that health plans 
cover emergency care, based on the patient's symptoms rather 
than the final diagnosis and eliminating requirements for prior 
authorization.
    In addition, these bills promote quality, cost-effective 
care by establishing a process in which the emergency physician 
and the health plan work together in a coordinated fashion.
    We urge Congress to extend these protections to the 161 
million Americans in private health insurance, as Congress did 
for Medicare and Medicaid beneficiaries, and not for just the 
48 million in self-insured health plans, so there is a 
uniformed standard.
    Mr. Bilirakis. Doctor, you are going to have to summarize.
    Ms. Auer. We appreciate----
    Mr. Bilirakis. I am sure with all the questioning----
    Ms. Auer. Yes, sir.
    Mr. Bilirakis. [continuing] you will be able to get many 
points across.
    Ms. Auer. We appreciate these hearings, and we urge you to 
adopt legislation that includes the language consistent with 
the Balanced Budget Act, and we appreciate the opportunity to 
work with your committee.
    Mr. Bilirakis. Thank you.
    Ms. Auer. Thank you.
    [The prepared statement of Nancy J. Auer follows:]
  Prepared Statement of Nancy J. Auer, American College of Emergency 
                               Physicians
    Thank you very much. I am Dr. Nancy Auer, immediate past president 
of the American College of Emergency Physicians, and First Vice 
President of the Washington State Medical Association. I'm here 
representing the concerns of nearly 20,000 emergency physicians and 
their patients in the United States.
    Today Congress is debating how to resolve some of the problems of 
managed care, one of today's most important health care issues. In 
recent years, more and more Americans have enrolled in managed health 
care plans. These plans vary in their design and in the benefits they 
cover.
    We have all witnessed the growth of health maintenance 
organizations (HMOs), point-of-service plans (POSs), preferred provider 
organizations (PPOs), and other systems that have all but replaced 
traditional fee-for-service medicine.
    The explosive growth in managed care affects enrollees in state-
regulated insurance plans, those covered by the Employee Retirement 
Income Security Act (ERISA) of 1974, Medicare and Medicaid, and others.
    For many, managed care has delivered on the promise of improved 
quality of care at restrained prices, at least initially. Of course, 
the changes in our health care delivery and financing systems have left 
untouched the 42 million Americans who have no insurance coverage at 
all.
    Managed care's growth has not been without serious shortcomings. 
Many enrollees often are unclear about their coverage, the cost of in-
network versus out-of-network care, which hospitals are in a plan, and 
which doctors they may see.
    It is this confusion that has heightened their frustration with the 
``system'' and resulted in 30 states enacting laws and promulgating 
regulations in the last 2 years to provide broad protections for 
consumers of managed health care plans. These state efforts and the 
demand for Congressional action are among the reasons why Congress has 
been challenged to take up legislation to address some of these 
problems.
    It was that growing sentiment that led to passage of H.R. 4250 in 
the 105th Congress.
    That measure would have established a narrow set of patient 
protections and created a second-tier test by covering emergency care 
only if a ``prudent medical professional'' agreed with the treating 
physician's judgement. In effect, it would have established a double 
standard--one for Americans participating in Medicare and Medicaid and 
a weaker standard for hard-working Americans who are paying for their 
insurance.
    I am prepared today to discuss with the Subcommittee some of the 
problems that enrollees in managed care health plans are having. In 
particular, I want to tell you firsthand about the problems that 
managed care patients are having every day when they come to the 
emergency department.
    Each year, approximately 100 million patients go to the emergency 
department that's almost one in three Americans. Emergency care is 
available 24 hours a day, 7 days a week. Strokes, car accidents, heart 
attacks, and other health care emergencies are of course, 
unpredictable. And today, thanks to the advancements of the past 30 
years, if you have an emergency, you will be cared for by highly 
trained specialists using advanced diagnostic technology and the most 
effective medical techniques.
    Congress historically has protected the rights of patients when it 
comes to emergency care, realizing that emergency situations are 
unique.
    All of us want to know that in a life- or health-threatening 
emergency, we will get the best possible care without any delay. That's 
why, almost 15 years ago, Congress passed the Emergency Medical 
Treatment and Labor Act, otherwise known as EMTALA, to protect patients 
in emergency situations.
    The law guarantees that each person who comes through the doors of 
an emergency department will receive a medical screening exam and be 
stabilized if he or she has an emergency medical condition, regardless 
of their ability to pay. In effect, EMTALA designates emergency 
departments as America's health care safety net.
    Violation of EMTALA can result in a $50,000 fine for the physician 
and expulsion from participating in the Medicare and Medicaid programs.
    Back in 1986, the concern was that the poor and uninsured were 
being transferred to county or public hospitals for financial reasons. 
This system of ``economic triage'' endangered many and cost some 
patients' their lives.
    Today, however, the new victims of ``economic triage'' are often 
the people who are fully insured. These are hard-working Americans who 
pay for their health insurance--including emergency services--and then 
are denied payment for those services, after the fact.
    Many managed health care plans are reluctant to follow EMTALA's 
definition of emergency care. They do so by denying reimbursement 
because prior authorization was not obtained. And in cases when 
additional care may be required, during the post-stabilization phase, 
emergency physicians often find it impossible to reach anyone at a 
health plan.
    To be specific, the managed care industry has adopted tactics that 
interfere with a patient's right to access to emergency care.
    They use narrow and unreasonable definitions of emergency to 
justify retrospective denial of payment.
    They deny claims by basing coverage on the final diagnosis, rather 
than considering the patient's initial symptoms.
    These tactics put patients in a terrible dilemma. For example, if a 
patient has chest pain, should he or she take precious time to call a 
managed care plan for approval before going to an emergency department? 
Or should he or she take a chance and try to diagnose the severity of 
the illness? If he or she doesn't make the right choice, it could mean 
being stuck with a big bill, or even worse, risking health and failing 
to get treatment for what could be a serious or life-threatening 
condition.
    And for anyone who doubts that this is happening, let me put a face 
on this problem.
    In my home state of Washington, the State Insurance Commissioner 
investigated more than 700 emergency care denials by four major health 
carriers in 4 months of 1998 and found that more than half of the 
denials were unlawful. In one case, a Seattle woman could not drive 
home because of chest pains and numbness and sought help at a fire 
station. A firefighter took her to the emergency department of a nearby 
hospital, where she was treated and admitted. Yet her managed care 
company denied coverage, because it was ``not preauthorized.''
    A 15-year-old girl with a broken leg was taken to a hospital 
emergency department by her parents. The family's insurance company 
denied claim, ruling it was not an emergency.
    A 17-year-old victim of a beating suffered serious head injuries 
and was taken to an emergency department. The insurer rejected payment 
for a CAT scan because again there was no prior authorization.
    These are not TV episodes on ``ER.'' These are real people with 
real lives.
    For the past four years, ACEP has led the fight to establish the 
``prudent layperson'' as the national standard for coverage of 
emergency services and fought to eliminate restrictive ``prior 
authorization'' requirements.
    The prudent layperson standard would require health plans to cover 
emergency services based on a patient's presenting symptoms rather than 
on his or her final diagnosis. It would also prohibit health plans from 
requiring patients to obtain prior authorization before seeking 
emergency care.
    Congress included this standard for Medicare and Medicaid 
beneficiaries in the 1997 Balanced Budget Act. These safeguards will 
help protect Medicare and Medicaid beneficiaries. ACEP is concerned, 
however, that the provisions of the BBA are not being uniformly 
enforced. ACEP and others have received information that some managed 
care organizations under contract with State Medicaid programs and 
Medicaid managed care plans are failing to fully follow the provisions 
of the BBA.
    Last February, the prudent layperson standard was extended to all 
federal employees via the President's Executive Order. Twenty-six 
states also have already adopted some form of the ``prudent layperson'' 
standard--but even if each state in the union were to pass similar 
legislation, it would not cover everyone, especially the 48 million who 
are in self-insured ERISA plans. These plans are generally immune from 
state enactments.
    Once a patient's emergency medical condition is stabilized, there 
are still decisions that must be made related to the patient's care. 
ACEP is an advocate for uniform ground rules for coordinating a 
patient's ``post stabilization'' services between emergency physicians 
and managed care plans. It is important that the attending emergency 
physician and the patient's health plan work together in a timely 
manner and effectively to coordinate appropriate care.
    These are issues we see every day in the emergency department.
    As the nation's largest and oldest representative body for 
emergency physicians, the American College of Emergency Physicians 
urges you to adopt meaningful patient protection legislation that 
includes the prudent layperson standard for coverage of emergency 
services.
    ACEP has worked with a number of members of Congress to develop 
appropriate language. HR 904, the Access to Emergency Medical Services 
Act, and S. 517, the Senate companion bill, best achieve the objectives 
consistent with EMTALA and the protections accorded by the BBA. In 
addition, the bills proposed by Reps. Ganske (HR 719), Norwood (HR 
216), and Dingell (HR 358) contain the same language.
    If the language of these bills is enacted, it would establish a 
national uniform definition of emergency based on the prudent layperson 
standard, ensuring that health plans cover emergency care based on a 
patient's symptoms, rather than his or her final diagnosis, and 
eliminating requirements for prior authorization for emergency care.
    In addition, these bills help promote quality cost-effective care 
by establishing a process in which the emergency physician and health 
plan work together to coordinate appropriate post-stabilization care or 
followup care.
    The treating emergency physician and the health plan would be 
required to make timely communications concerning any medically 
necessary post-stabilization care identified as a result of a federally 
required screening examination. Plans, in conjunction with the treating 
physician, may arrange for an alternative treatment plan that allows 
the health plan to assume care of the patient after stabilization.
    We urge Congress to protect patients in emergency situations by 
allowing them to go to the nearest emergency room without incurring 
additional costs or co-payment charges.
    We urge you to adopt uniform ground rules for coordinating ``post 
stabilization'' services between emergency physicians and managed care 
plans in order to provide patients with appropriate and timely care.
    And finally, we urge you to extend these protections to all 161 
million Americans in private health insurance, as the Congress did for 
Medicare and Medicaid beneficiaries in the BBA of 1997, and not just 
for the 48 million people in self-insured health plans.
    ACEP appreciates that hearings are being held to address the 
problems faced by emergency care patients, and we look forward to an 
appropriate remedy. ACEP is prepared to work with the Subcommittee and 
the full Commerce Committee toward that end.
    Thank you, and I would be happy to answer any questions.

    Mr. Bilirakis. Thank you very much.
    Dr. Braun.

                   STATEMENT OF JOSEPH BRAUN

    Mr. Braun. Mr. Chairman, and members of the committee, my 
name is Joseph Braun, and I am the chief medical officer of the 
George Washington University Health Plan, in Bethesda, 
Maryland. GW Health Plan serves 86,000 members in both its 
commercial and Medicaid plans throughout DC, Virginia, and 
Maryland.
    Today, I am testifying on behalf of the American 
Association Health Plans, which is the national trade 
association representing HMO's, PPO's, and network-based plans 
throughout the United States.
    Through their internal quality improvement programs, health 
plans have taken great strides in improving the health of 
millions of Americans. And through designing their provider 
networks and referral processes, health plans have effectively 
responded and continue to respond to their members' preferences 
in accessing specialty care.
    Plan initiatives in this area vary greatly, but they all 
have a couple of things in common. They are in direct response 
to consumer preferences, a clear indication that the market is 
working, and they differ greatly from the one-size-fits-all 
approaches that certain legislative proposals take.
    For example, GW Health Plan offers POS members the option 
to self-refer for a visit to a specialist. We also do not 
restrict referrals from the PCP to a specialist in any way and 
provide direct access to OB/GYN care for women. But our 
approach preserves the role of the primary care provider in 
that any treatment recommended by the specialist must be 
coordinated through the individual's personal physician and the 
plan to ensure that it doesn't conflict with other care the 
individual is receiving and to ensure that the care is 
consistent with the individual's medical history and treatment 
plan.
    An examination of the facts clearly show how well health 
plans provide access to specialists. Studies on a range of 
conditions show that health plans provide equal or greater 
access to specialty care than is provided under fee-for-service 
coverage. And equally if not more important is the fact that 
studies show quality of the care delivered in health plans to 
be equal or better than that delivered under fee-for-service 
coverage.
    These findings remain true, with respect to special 
populations as well, such as women, children, and the 
chronically ill.
    For example, women in healthcare plans are more likely to 
obtain mammograms, pap smears, and clinical breast exams, and 
have their cancer diagnosed at an earlier and, therefore, more 
treatable stage, than women in fee-for-service. The vast 
majority of health plans offer women members self-referral for 
routine care.
    Children in health plans are more likely to receive 
appropriate immunization schedules.
    And, finally, teams of health professions specialized in a 
given illness carry out disease state management programs that 
have helped millions of Americans with such chronic conditions 
as asthma, diabetes, and congestive heart failure, manage their 
condition, and improve their overall health status.
    To underscore our members' longstanding commitment to the 
quality of care, over 2 years ago, AAHP began an important 
nationwide initiative we now call our ``Code of Conduct.'' 
AAHP's Code of Conduct sets forth specific health plan policies 
in a number of areas, including access to specialty care and 
emergency care. As a part of the Code of Conduct, health plans 
have pledged to have procedures to promote timely and 
appropriate access to specialty care and periodically evaluate 
these procedures with reference to selected medical conditions.
    Health plans have also pledged to cover emergency room 
screening and stabilization as needed for conditions that 
reasonably appear to constitute an emergency, based on the 
patient's presenting symptoms.
    Initiatives like AAHP's Code of Conduct are a part of a 
much larger vision that is being proposed by the various bills 
before our Congress, one that takes a broad view of quality and 
the challenges we face systemwide.
    The issues that we face today, such as how to expand access 
to affordable care and how to preserve and promote innovation, 
can only be addressed by broadening our policy decisions and 
discussions that address systemic changes and challenges that 
extend across all types of delivery systems, providers, 
purchasers, and consumers.
    Consistent with this broader vision, AAHP's board of 
directors has adopted a set of policy principles which I have 
also included as part of my written statement. These policy 
principles emphasis the importance of doing no harm, keeping 
coverage affordable, and expanding access to all Americans.
    I urge you, the committee, to consider this broader vision, 
in its deliberations and avoid the micro regulation that will 
only serve to reduce quality, stifle innovation, increase 
costs, and increase the number of uninsured.
    I thank you for this opportunity to address this panel.
    [The prepared statement of Joseph Braun follows:]
 Prepared Statement of Joseph Braun, Chief Medical Officer, The George 
     Washington University Health Plan, on Behalf of The American 
                      Association of Health Plans
    Mr. Chairman and members of the Committee, my name is Dr. Joseph 
Braun, and I am chief medical officer of the George Washington 
University Health Plan in Bethesda, Maryland. The George Washington 
University Health Plan has approximately 86,000 members in both its 
commercial and Medicaid plans throughout the District of Columbia, 
Virginia, and Maryland.
    I am testifying today on behalf of the American Association of 
Health Plans (AAHP). AAHP is the national trade association 
representing HMOs, PPOs, and other network-based health plans 
throughout the United States. The Association represents approximately 
1,000 member plans serving more than 140 million Americans--over half 
of the population of the United States. AAHP and its member plans are 
dedicated to a philosophy of care that puts patients first by promoting 
coordinated, comprehensive, quality health care.
    I appreciate the opportunity to participate in today's hearing, 
which is intended to provide insight into Americans' access to quality 
medical care. I have focused my remarks in the following four areas: I. 
Health plans' contributions and commitment to improving quality; II. 
Current requirements with respect to health plan provider networks; 
III. Some of the prevailing myths and misunderstandings about health 
plans and members' access to quality care that have skewed the current 
debate, and examples of health plan initiatives and innovations in 
improving patients' access to appropriate providers and quality care; 
and IV. The need for a broader vision of quality and access in the 
health care system.
   i. health plans' contributions and commitment to improving quality
    When evaluating patients' access to care, it is important to 
recognize that access to care has little meaning unless we're talking 
about access to quality care. AAHP's member plans are proud of their 
track record in improving quality and are concerned that the current 
debate often has overlooked important dimensions of quality and how it 
continually can be improved. To address these concerns, I would like to 
take a few minutes to put today's discussion in context. The fact is 
that health care in America is getting better. And it is getting 
better, in large part, because of the contributions of health plans.
    Health plans have offered a different vision Bone that involves 
undertaking quality-enhancing activities that simply could not be done 
under fee-for-service coverage. For example, plans have established 
formal internal programs to monitor quality and are dedicated to 
continuous improvement. Let me be specific.
     Health Promotion and Disease Prevention. Health promotion 
and disease prevention activities improve quality by identifying 
members at risk of certain illnesses or eligible for certain services 
and reaching out to those members to educate them and encourage them to 
seek care. These types of activities have led to demonstrable results 
in numerous areas:

 Women in Medicare HMOs are more likely to have their breast 
        cancer diagnosed at an earlier and therefore more treatable 
        stage than women in Medicare fee-for-service. (Journal of the 
        American Medical Association, 1999)
     Women in HMOs are more likely to obtain mammograms, pap 
smears, and clinical breast exams than women in fee-for-service plans. 
(CDC/NCHS, 1994; Physician Payment Review Commission, 1996; Journal of 
the American Medical Association, 1999)
 The New York State Department of Health found that 
        immunization rates for children under age two enrolled in 
        commercial health plans increased from 78% in 1994 to 86% in 
        1995. (New York State Department of Health, 1995 Quality 
        Assurance Reporting Requirements, 1997)
 61% of smokers age 18 and over in health plans received advice 
        to quit smoking from a health professional, compared with 37% 
        of fee-for-service enrollees. (NCQA, The State of Managed Care 
        Quality, 1997)
     Disease Management. Disease management activities improve 
quality by identifying members who have been diagnosed with certain 
chronic conditions and coordinating and monitoring their care. Through 
disease management activities, health plans have worked with physicians 
and other practitioners to improve health outcomes for millions of 
individuals with chronic conditions such as asthma, diabetes, and 
congestive heart failure, among others.

 Asthma disease management programs are designed to: inform 
        consumers about how to manage their condition; promote 
        appropriate use of asthma-related equipment; promote adherence 
        to asthma care guidelines; improve overall health outcomes; 
        reduce emergency room visits and hospitalizations; and reduce 
        the number of absences from school and work.
 Diabetes disease management programs are designed to: inform 
        consumers about how to manage their condition; ensure delivery 
        of appropriate preventive screenings; promote adherence to 
        diabetes care guidelines; improve overall health outcomes; 
        ensure regular vision screenings and foot exams; monitor blood 
        sugar levels; and promote nutrition education.
 Congestive heart failure disease management programs are 
        designed to: provide lifestyle education that includes 
        nutrition, exercise, and relaxation techniques; improve overall 
        health outcomes; reduce hospital admissions; and monitor weight 
        and cholesterol levels.
     Clinical Quality Improvement and Research Programs. Health 
plans also have quality improvement and research programs. These 
programs monitor trends in health care, determine which treatments 
produce the best health outcomes, establish quality improvement goals, 
and define the process for making any needed improvements. In addition 
to individual plan activities, health plans, through their membership 
in AAHP, are part of a public-private partnership with the Agency for 
Health Care Policy and Research (AHCPR) to provide funding to 
researchers to assess the relationship between health plans, health 
outcomes, and quality of care for patients with chronic diseases. 
Chronic diseases to be studied include diabetes, cardiovascular 
disease, and HIV/AIDS. The research will also focus upon special 
populations, such as children and minorities, who suffer from these 
diseases.
    Examples of how plan quality improvement and research programs have 
benefited and will continue to benefit millions of patients are too 
numerous to mention. Below are just a few:

 Medicare HMO enrollees are not only diagnosed at early stages 
        as mentioned above, but they are also more likely to receive 
        breast-conserving surgery (as opposed to mastectomy) and HMO 
        enrollees receiving breast-conserving surgery are significantly 
        more likely to receive radiation therapy. (Journal of the 
        American Medical Association, 1999)
 The process and outcomes of cardiovascular care in HMOs are 
        better than or equal to care in non-HMO settings. Of 15 
        measures and subscales measuring overall process of care, 60% 
        indicated better care for HMO patients, 33% indicated no 
        statistically significant difference, and only 7% indicated 
        better care for patients in non-HMO settings. Of 43 measures 
        and subscales of overall outcome measures, 10% indicated better 
        care for HMO patients, 90% found no statistically significant 
        difference in outcomes, and none indicated better performance 
        in non-HMO settings. (Medical Care, 1998)
 Fee-for-service appendicitis patients are 20 percent more 
        likely to suffer a ruptured appendix than HMO patients. (The 
        New England Journal of Medicine, 1994)
 Prenatal care in HMOs surpasses the national average in key 
        areas, such as women having their first prenatal care visits 
        during their first trimester and having their blood pressure 
        measured at every visit. (Archives of Family Medicine, 1994)
 HMO patients treated in intensive care units have a 
        statistically significant lower level of mortality than 
        patients in traditional fee-for-service. (Journal of the 
        American Medical Association, 1996)
     Member Satisfaction. Nationwide, well over 90 percent of 
all health plans conduct member satisfaction surveys. Based on members' 
input, health plans modify their operations to meet members' changing 
needs. Health plans have adapted member orientation programs, 
providers' office hours, referral procedures, health education classes, 
and many other plan design features to accommodate member preferences. 
For example:

 Many health plans have responded to consumer input by offering 
        women members the option to select ob/gyns as their primary 
        care physicians or offering self-referral for routine ob/gyn 
        care.
 Many health plans have responded to consumer input by 
        developing streamlined referral procedures for access to 
        specialty care.
 Many health plans have responded to consumer input by 
        designing coverage options, such as point-of-service plans, 
        with out-of-network benefits.
 Many health plans have revamped their member services to be 
        more responsive to their members' needs. These initiatives 
        include efforts to provide round-the-clock advice hotlines 
        staffed by registered nurses and offering personal service 
        representatives for new members.
     Clinical Practice Guidelines. As Robert Brook of the RAND 
Corporation has noted, Amedicine is largely practiced from memory, in 
chaotic systems without built-in safeguards. It is simply not realistic 
to expect a physician to recall the full breadth of his or her training 
and knowledge at any given time'' (The Lancet, 1995). To help inform 
physicians about evidence-based exemplary practices, health plans 
disseminate and promote the use of practice guidelines.
     Utilization Review. Through utilization review, plans 
assess the medical appropriateness of a suggested course of treatment 
for a particular patient for the purpose of coverage decisions. In 
doing so, plans are able to monitor under- and overutilization of 
services--encouraging the provision of appropriate care and 
discouraging the provision of inappropriate care.
     Credentialing. Before health plans contract with 
physicians and other health care providers, they examine their 
credentials to determine clinical competence and to ensure that the 
providers meet the organization's criteria. The credentialing process 
involves a review of providers' educational background and verification 
of board certification and licensure. Plans also check physicians' 
hospital privileges, malpractice history, and malpractice insurance. 
Plans recredential health care providers regularly, typically every two 
years. This process is a key factor considered by individuals and 
employers when evaluating health plans.
     Profiling. Many plans use practitioner profiling as a 
method of quality improvement. Profiling focuses on an individual 
practitioner's patterns of care rather than that practitioner's 
specific clinical decisions and compares the patterns to those of peers 
and to exemplary practice patterns.
       ii. current requirements for health plan provider networks
    The issue of network adequacy has been raised consistently. It is 
important to understand that provider network adequacy is addressed in 
numerous forums. For example, states require plans to contract with an 
adequate number and type of specialists, and further stipulate that 
plans make arrangements with out-of-network providers at no additional 
cost when a qualified network provider is not available. On the federal 
level, the Federal HMO Act requires HMOs to maintain a network that is 
adequate to provide 90 percent of the services generated by an HMO's 
members. In addition, private accreditation organizations, such as the 
National Committee for Quality Assurance (NCQA), require that plans 
maintain a network of sufficient number and types of providers in order 
to be accredited. Similarly, employers frequently include network 
adequacy among the requirements for health plans with which they 
contract.
      iii. the truth about health plans and access to quality care
    The results of plans' quality-enhancing efforts are demonstrable. 
Unfortunately, the current debate regarding health plan members' access 
to high-quality care has been based on a great deal of 
misunderstanding, and has not focused on the issue of the quality of 
care received by health plan members. It has become fashionable for 
health plan opponents to promote legislation by developing caricatures 
of health plan practices based on anecdotes, and rarely are the facts 
about the quality of medical care delivered to health plan members 
considered, or even offered. These omissions harm patients by 
misleading them about their health care system and what to expect. 
However, the record refutes these myths.
    Proponents of some of this legislation have singled-out several 
specific patient populations, including women, the chronically and 
acutely ill, and children, in their anecdotes, claiming that these 
populations do not have appropriate access to the specialized and often 
complex care that they require. However, these claims do not hold up 
under closer examination. Through their continuous quality improvement 
activities and innovative initiatives, health plans promote high-
quality, appropriate care for all of their enrollees, including women, 
children, and the chronically ill, and are proud of the results they 
have achieved so far. Some of these results are discussed in detail 
below.
A. Women's Experience in Health Plans
    While some claim that women do not have appropriate access to 
obstetrical, gynecological, and other care, the facts show otherwise. 
National studies show that health plans provide equal or greater access 
to specialty care than is provided under fee-for-service coverage. In 
particular, the availability of obstetricians and gynecologists has 
resulted in positive health outcomes for women enrolled in health 
plans. For example:

 Women in HMOs are more likely to obtain mammograms, pap 
        smears, and clinical breast exams (62% vs. 50%, 65% vs. 53%, 
        71% vs. 61%, respectively) than are women in indemnity plans, 
        according to a study of cancer screening among women conducted 
        by the Centers for Disease Control and Prevention. (CDC/NCHS 
        Advance Date No. 254, August 1994)
 A study of survival and treatment rates among breast cancer 
        patients aged 65 and over enrolled in two Medicare HMOs found 
        that women enrolled in HMOs had 10-year survival outcomes at 
        least equal to and possibly better than women in the fee-for-
        service Medicare program, according to research conducted by 
        the National Cancer Institute and HCFA using data from 1985-
        1994. In addition, women in the two HMOs were more likely to 
        receive breast-sparing surgery and adjuvant radiotherapy. 
        (Journal of the National Cancer Institute, November 1997)
 Among elderly women with breast cancer, 72.3% of HMO patients 
        had their cancer diagnosed at the two earliest stages, compared 
        with 66% of fee-for-service patients. (American Journal of 
        Public Health, 1994)
 A RAND Corp. study of 24,000 births to women in HMOs showed 
        that prenatal care is ``quite good'' overall and that it 
        surpasses the national average in six key areas. For instance, 
        87% of women had their first prenatal care visits during the 
        first trimester, compared with the national average of 76%. 
        Also, infants born to women in HMOs had a low birthweight rate 
        of only 5%, compared to 7% nationwide. (Archives of Family 
        Medicine, January 1994)
 81% of HMOs offer women the choice of an ob/gyn as their 
        primary care provider or allow women to self-refer to one for 
        routine ob/gyn care, according to research sponsored by the 
        Kaiser Family Foundation (GHAA/Kaiser Family Foundation, 1994 
        Member Survey)
    In 1996, The Commonwealth Fund provided a grant to AAHP to identify 
models of delivering care to women through health plans. By collecting 
information from more than 1,000 health plans across the country, AAHP 
was able to develop a series of reports entitled Best Practices in 
Women's Health: Identifying Exemplary Care. This series showcases 
exemplary practices and programs in four women's health topics: breast 
cancer, domestic violence, obstetrics and prenatal care, and hormone 
replacement therapy and other mid-life issues. These reports are 
available in their entirety on AAHP's website at www.aahp.org. I would 
like to highlight just a few of the many innovative quality-enhancing 
programs identified through this initiative:
     Blue Cross and Blue Shield of Florida (Jacksonville, FL) 
developed Healthy Additions, a voluntary prenatal education and early 
intervention program designed to provide information and assistance to 
expectant women enrolled in either the health plan's Health Options, 
Inc. (HMO) or their select administrative services only (ASO) PPO 
group. The program emphasizes early screening, ideally in the first 
trimester. To achieve this goal, the plan provides an initial risk-
assessment screening to all program participants, in addition to 
regular physician visits. Those members who are found to be high-risk 
or potentially high-risk through this screening are referred to the 
high-risk monitoring unit for telephone follow-up. Those who are not 
found to be at risk during the initial assessment are rescreened 
between 28 and 32 weeks gestation. In addition, participants are 
provided with educational materials that are customized to each 
member's specific needs. (Obstetrics and Pregnancy Care)
     Keystone Mercy Health Plan (Philadelphia, PA) established 
the WeeCare initiative in an effort to help pregnant members have the 
healthiest babies possible. The program, which is open to all expectant 
and new mothers enrolled in Keystone Mercy, combines social support 
services with medical services. It emphasizes the importance of 
prenatal care, postpartum care, and regular doctor visits during this 
critical time in the lives of the mother and baby. When a member 
decides to participate, highly skilled social workers, nurses, and lay 
counselors work closely with her to ensure she has the basic 
necessities for a healthy pregnancy, delivery, and baby, as well as for 
a comfortable transition home with the newborn. These relationships 
exist for the duration of the pregnancy and delivery. A WeeCare 
coordinator offers support through monthly telephone contact or in-home 
visits, and serves as a liaison between the expectant mother and a 
variety of social service support agencies. The program also offers 
assistance in several other ways, including providing transportation, 
arranging for childcare services, and scheduling doctor visits. 
(Obstetrics and Pregnancy Care)
B. The Experience of Health Plan Enrollees With Chronic and Acute 
        Illnesses
    People with chronic and acute illnesses are increasingly enrolling 
in health plans, because health plans offer an affordable, high-quality 
alternative to costly, fragmented fee-for-service coverage, where 
patients often fall through the cracks. National studies of a range of 
conditions, including arthritis, hypertension, and cancer, among 
others, show that health plans provide equal or greater access to the 
specialty care that individuals with chronic and acute illnesses need 
than is provided under fee-for-service coverage. For example:

 A HCFA-funded National Medicare Competition Evaluation study 
        of HMO Medicare enrollees with hypertension found that HMOs 
        physicians are more likely to refer for ophthalmologic, cardiac 
        and fundoscopic exams than were fee-for-service physicians. 
        (Journal of the American Geriatrics Society, 1991)
 An Arthritis Foundation-sponsored study of HMO patients with 
        rheumatoid arthritis found no significant difference in number 
        of office visits with rheumatologists, number of outpatient 
        surgeries, or number of hospital admissions when compared to 
        fee-for-service patients. (Journal of the American Medical 
        Association, 1996)
 A study by the MEDSTAT Group prepared for AAHP found that the 
        percentage of admissions to teaching hospitals, where 
        specialists are predominant, is comparable between health plans 
        and fee-for-service coverage. Health plans have a slightly 
        higher admission rate to major teaching hospitals (27%) than 
        does fee-for-service coverage (22%). (MEDSTAT Group, 1997)
    Seriously ill and at-risk Medicare HMO beneficiaries have reported 
high satisfaction with access to health care services, including their 
access to specialty care. For example:

 A survey of over 16,000 chronically ill Medicare beneficiaries 
        in 33 markets across the country found that, in six of seven 
        areas comprising overall satisfaction, Medicare HMO enrollees 
        were equally or more satisfied than Medicare members remaining 
        in the traditional Medicare program. The seven key areas were: 
        network access, physician access, plan benefits, costs, 
        perceived medical quality, medical management, and member 
        services. (Sachs Group, ``Sachs/Scarborough HealthPlus 1997'')
    Proactive coordination and management of care is especially 
beneficial for health plan members with chronic or acute conditions. As 
a result, health plans have designed and implemented programs that 
facilitate coordination of the often complex services that patients 
receive. For example:
     Harvard Pilgrim Health Care (Brookline, MA) developed an 
asthma management and outreach program that focuses on providing 
patients with in-depth information about the disease, helping them 
understand what triggers the attack, and teaching them how to monitor 
and control their asthma. Patients meet at home with credentialed nurse 
educators and receive individualized care and education that meets 
their specific needs, resulting in patients who are actively engaged in 
the management of their asthma. Initial program results showed a 79% 
reduction in hospitalizations and an 86% reduction in emergency room 
visits. In addition, a Harvard Pilgrim survey found that the number of 
days lost from work decreased by 8,000 days in just one year due to the 
program.
     Humana Inc. (Louisville, KY) operates a monitoring and 
education program, Cardiac Solutions, for members with congestive heart 
failure (CHF). As of November 1997, 2,100 members in 15 Humana plans 
participated in the program, which combines physician-directed, home-
based care with a nurse monitoring component. A recent year-long study 
found that hospital admissions decreased by 60%. Surveys indicate that 
participants are very satisfied with how the program helps them 
understand heart failure and what can be done to improve their 
condition.
C. The Experience of Children in Health Plans
    The innovative services offered by health plans help parents do a 
better job of coping with the health care challenges that many children 
face. The programs summarized below illustrate some of the many ways in 
which health plans are working with parents and health professionals to 
facilitate the delivery of quality care to children.
     Prudential Health Care of California (San Mateo/Woodland 
Hills, CA) has developed a parent education initiative called Getting 
Bigger to improve its pediatric immunization rates. The program 
includes a Welcome Baby packet at enrollment, a first birthday card, 
and an Almost Two immunization reminder card. Physicians are provided 
with information about the immunization status of their pediatric 
patients and chart stickers to use as a manual immunization tracking 
system.
     HealthPartners Research (Bloomington, MN), in 
collaboration with the University of Minnesota's Center for Children 
with Chronic Illness and Disability is undertaking an initiative that 
will allow them to determine the feasibility of integrating services 
(medical, social, and community) for children with chronic illness and 
disabilities who are members of HealthPartners. This will enable them 
to answer important questions such as what mix of services is needed by 
children with different chronic conditions, what is the optimal role of 
the primary care physician, and who is in the best position to serve as 
care coordinator.
D. Access to Quality Care for All Patients
    In addition to initiatives targeted to the specific patient groups 
discussed above, health plans are rapidly responding to their members' 
preferences by developing a variety of innovative streamlined referral 
initiatives that further broaden enrollees' options for obtaining 
specialty services. In fact, no other area of health plan practices is 
undergoing more rapid change and improvement. Approaches to modifying 
referral procedures include: use of electronic terminals in physicians' 
offices to obtain real-time referral authorizations to specialists with 
a swipe of a member's I.D. card; use of the Internet to provide 
patients access to primary care physicians for the purpose of obtaining 
referrals; and use of automated referral systems designed by physicians 
that allow treating physicians to obtain immediate referrals based on a 
patient's condition.
    Some specific examples of plans' innovative referral initiatives 
include:
     Health Alliance Plan's (Detroit, MI) SelfDirect program 
enables members using Henry Ford Medical Centers to self-refer to many 
Henry Ford specialists without first obtaining a written referral from 
their personal care physician (PCP).
     United HealthCare's (Minnetonka, MN) open access products, 
named United HealthCare Choice and United HealthCare Choice Plus, give 
members greater choice by providing coverage for services received by 
network doctors and specialists without a referral from a primary care 
physician. These products are offered in 33 states as well as Puerto 
Rico.
     PacifiCare Health Systems (Santa Ana, CA) offers a 
streamlined referral process, Express Referrals, which allows primary 
care providers at participating medical groups to refer patients to 
specialists within the medical group without preauthorization from a 
medical committee.
    These examples demonstrate the ability of accountable systems to 
determine what approaches to referrals work best for health plan 
members. No two plan initiatives are identical, but each has been 
developed in response to particular needs and preferences of the 
members of different health plans. Proposals that would set strict 
rules for health plan referral procedures may have the unintended and 
adverse consequence of forcing plans into a ``one size fits all'' model 
for referrals. It is imperative that Congress evaluate the role of 
health plans in meeting the specific needs and preferences of patients 
before acting to adopt further regulation.
    It is important to point out that none of these plan examples would 
eliminate the role of the primary care physician (PCP), yet some of the 
current legislative proposals would, through implementing the ``one 
size fits all'' model, limit plans' ability to make good use of PCPs. 
PCPs can help promote the provision of preventive care and greater 
coordination of care for patients. As a result, these proposals could 
have unintended consequences for the quality of care that health plan 
members receive.
                          iv. a broader vision
    Through a number of initiatives, AAHP endorses a much larger vision 
than is being proposed by the various bills in Congress. This 
alternative vision takes a broad view of quality, health plans' role in 
it, and the challenges we face systemwide. The issues that we face 
today, such as how to expand access to affordable health care coverage 
for all Americans and how to preserve and promote innovation and deal 
with the challenges of new technology, can only be addressed by 
broadening our policy discussions to address systemic challenges that 
extend across all types of delivery systems, providers, purchasers, and 
consumers.
    AAHP's Code of Conduct is a part of this much larger vision. The 
Code of Conduct sets forth specific health plan policies that promote 
high-quality care in a manner that meets the needs of individual 
patients. It is an ongoing, comprehensive program to let patients, 
doctors, and purchasers know what they can expect from health plans in 
a number of areas. Under this initiative, a task force of AAHP's Board 
of Directors is charged with identifying and highlighting issues that 
should be addressed, and each policy statement that is included in the 
initiative is approved by the Association's full Board of Directors. 
Policies adopted to date fall under three major categories: (1) Patient 
Access; (2) Patient Information; and (3) Physicians' Role in Quality 
Improvement. Included in the patient access category are specific 
policies regarding ``Patient Access to Specialty Care'' and ``Emergency 
Care.'' These policies are described below.
     Patient Access to Specialty Care. Health plans believe 
that patients should have access to timely and appropriate specialty 
care within a plan's network.

+ Each health plan should have procedures to promote timely and 
        appropriate access to specialty care. Plans should periodically 
        evaluate these procedures with reference to selected medical 
        conditions. (Because much medical care can appropriately be 
        delivered by either primary care or specialist practitioners, 
        plan evaluations should emphasize the appropriateness of care 
        rather than the provider of care.)
+ Each health plan should offer members a choice, in coordination with 
        their primary care physician, among specialty physicians who 
        participate in the plan's network and are available to accept 
        new patients. Plans should disclose to consumers if referrals 
        will be within a medical group or other network arrangement.
     Emergency Care. Health plans have pledged to pay for 
emergency care if a patient reasonably believes he or she has a 
condition requiring immediate medical attention.

+ Health plans have pledged to cover emergency-room screening and 
        stabilization as needed for conditions that reasonably appear 
        to constitute an emergency, based on the patient's presenting 
        symptoms. Emergency conditions are those that arise suddenly 
        and require immediate treatment to avoid jeopardy to a 
        patient's life or health. To promote continuity of care and 
        optimal care by the treating physician, the emergency 
        department should contact the patient's primary care physician 
        as soon as possible.
    To demonstrate their commitment to this effort, AAHP's Board of 
Directors and member plans decided that health plans joining or 
renewing membership in AAHP should be required to uphold the Code of 
Conduct policies. A copy of AAHP's Code of Conduct in its entirety has 
been attached as Appendix A.
    Consistent with this challenge, AAHP's Board of Directors has 
adopted a set of policy principles that offer our alternative vision. 
These principles, attached in their entirety as Appendix B, apply to 
both efforts in the public and private sector. I would like to discuss 
just a few of them now.
     Health Care Access for All: A core challenge for our 
nation's health care system is how to best preserve and expand access 
to affordable, high-quality health care. We pledge to join with 
consumers, employers, physicians, providers, and policymakers to pursue 
strategies that expand health care access to and maintain affordable 
health care coverage for all Americans.
     Keep Health Care Coverage Affordable: Discussions about 
how to best protect patients are meaningless for the 43 million 
Americans who are without health coverage. Whatever approach is taken, 
it is critical that our nation not take actions that we know will 
increase costs and the number of uninsured individuals. The first and 
foremost priority in Washington should be to promote and expand access 
to affordable and effective health care.
     Promote Care Based on Evidence: An ongoing challenge for 
our health care system is to address the wide variations in health care 
practice patterns within specific geographic areas and across regions. 
Health plans have pioneered a system of quality oversight to promote 
the delivery of the right care, at the right time, in the right 
setting. Efforts to improve our health care system should not 
jeopardize the progress that has been made in the area of quality 
assurance and quality improvement.
     Do No Harm: At this time, our nation faces a stark choice 
in health care. One path would build on what has worked in both the 
private market and in Medicare and Medicaid--expanded access, lower 
premiums and out-of-pocket costs, and more appropriate care for 
millions of Americans. The other path--and the wrong approach--would 
imperil these gains and benefit trial lawyers and provider groups at 
the expense of hard-working American families. We need to broaden the 
debate and recognize that improving health care means expanding choice 
in the Medicare and Medicaid programs, expanding access to affordable, 
quality coverage (particularly for 43 million Americans with no health 
care protection) and, empowering consumers--not government--by giving 
them the information that they need to evaluate their health care 
choices.
                             v. conclusion
    Health plans are working hard--and are succeeding--at providing 
access to high-quality care for their members. We cannot forget, 
however, that one of the greatest barriers to access to care is 
affordability. Health plans have played an instrumental role in keeping 
health care affordable for millions of Americans by focusing on 
continuous quality improvement and developing innovative strategies to 
provide patients with the care that they need. For example, according 
to a 1997 study conducted by the Lewin Group for AAHP, the growth of 
managed health care may save Americans as much as $383 billion this 
decade. Over the 1997 through 2000 period, total managed care savings 
for people covered by private health plans are estimated to reach 
between $125 billion and $202 billion. Moreover, these savings 
translate into fewer uninsured Americans--about 3 to 5 million fewer 
based on the Lewin estimate. In order to promote affordability, to 
improve access, and to do no harm, Congress must continue to allow 
health plans the flexibility to structure their options to respond to 
patient needs and concerns and avoid any regulations that will reduce 
quality, increase costs, increase the number of uninsured Americans, 
and stifle innovation.

    Mr. Bilirakis. Thank you very much, Dr. Braun.
    Now, Mr. Thomas.

                  STATEMENT OF PETER W. THOMAS

    Mr. Thomas. Thank you, Mr. Chairman, and members of the 
subcommittee.
    Today, I wanted to focus my remarks on two basic things; I 
wanted to start with giving a little bit of background about 
the President's Commission on Consumer Protection and Quality 
in the Healthcare Industry. I chaired the subcommittee that 
worked on the Patients' Bill of Rights. And then go in and 
discuss in-depth the access to specialty care provisions.
    The President's Commission was developed and put together 
initially because of a perceived sense that patients in America 
were having problems accessing the kind of care that they 
needed, when they needed it, and for fear that some of those 
decisions may have been being made based more on the bottom 
line than on the medicine.
    The Commission was comprised of an extremely diverse group 
of people representing virtually all aspects and kind of 
stakeholders of the healthcare industry, including consumers 
and providers and health plans, quality experts, and State and 
local government representatives, et cetera.
    The Commission spent about 6 solid months working on a 
Patients' Bill of Rights, trying to review all the different 
documents that had come out of a wide diversity of 
organizations that had addressed patient rights to date, and 
kind of culled through the common issues that were in those 
bills of rights--organizations like NCQA and AAHP, as well as 
Consumers Union and Families USA, to name a few.
    We met seven times; we considered background papers and 
heard witnesses on a variety of different issues. And, in the 
end, there was a process where the subcommittee recommended to 
the full commission, a series of recommendations on seven basic 
rights.
    The reason that I am going through in somewhat detail, kind 
of what the process was to come out with those rights, was to 
really try to get across the point that this bill of rights 
that was produced by the Commission was really a moderate 
approach. There was a number of people on the Commission who 
wanted to go much farther than the bill of rights went, and 
there were a few people, of course, who didn't want to go 
nearly as far as the bill of rights went, as well, and that is 
what defined ``consensus.''
    Our operating rules were one of consensus. We had to reach 
consensus, but, in fact, that turned into unanimity pretty 
quickly. And so, really, no recommendation went forward without 
having virtually unanimous support from the entire Commission. 
And in the end, 33 out of 34 commissioners voted--well, we 
actually never voted--but 33 out of 34 commissioners approved 
of the bill of rights.
    That has now made its way into a legislation, the Patients' 
Bill of Rights Act, which also had a number of other issues 
that were added to it.
    What I wanted to really stress is that this is a moderate 
set of protections that is, in my view, a basic set of 
standards that the private healthcare marketplace can operate 
under and really base competition on quality and cost-
effectiveness and service to the patient, rather than on trying 
to avoid risky patients, trying to avoid patients who require a 
lot of care and who are costly.
    And so you see similar situations with the FCC laws and the 
antitrust laws, where there are basic sets of rules created 
and, in my view, the market has added.
    And my view is that I am not trying to bash managed care; I 
am not trying to impose costs; I am not trying to micro manage. 
What I am advocating for is just a basic set of protections 
that can help structure the marketplace so, again, high-quality 
care is the hallmark and risky patients are not avoided.
    So the Patients' Bill of Rights has been implemented and is 
being implemented across the Federal agencies. And by the end 
of 1999, one-third of the American people will be covered by 
it. This is a tremendous opportunity now for this body to 
extend those same protections to the other two-thirds of the 
population of this country.
    On the access to specialty care piece, let me try to make a 
couple of basic points.
    The first is the requirement that the provider network of a 
network plan in managed care be adequate to provide the 
benefits that the plan says that it will cover. It is very 
important for people with disabilities and chronic illnesses to 
have certain specialists in the network, and if they are not in 
the network, to be able to get an out-of-network referral to 
access that care.
    Another very important piece is that those specialists be 
within a reasonable proximity to the patient's residences or 
businesses, and that the specialists have the appropriate 
degree of specialization, so that if you need a specialists for 
a child with a neurologic condition, they get to go to a 
pediatric neurologist rather than a general neurologist.
    Standing referrals for people with disabilities is 
critical. Direct access to specialty care for people with 
disabilities and chronic illnesses is a major issue that I hope 
this subcommittee will consider very strongly.
    And finally, let me say that transitional care is critical 
for people who have a certain set of providers that they are 
used to going to, are in the midst of a treatment plan, and if 
those providers are kind of switched for one reason or 
another--involuntary, not based on cause or quality concerns--
they should be able to see those providers for at least a 90-
day period while the plan switches that provider network.
    Because my time is over, I will finish. Thank you.
    Mr. Bilirakis. You can summarize, if you have something, 
very quickly.
    Mr. Thomas. The only other issue I really wanted to raise 
was the point-of-service option. None of the three provisions 
that were in the Patients' Bill of Rights addressed the point-
of-service option, and that I see as an extremely important 
piece for access to specialty care.
    If all you are given, as an employee, is the option to have 
one closed-panel HMO, my view is that at the time of 
enrollment, the enrollee should have the opportunity to 
purchase, through a premium and then a co-payment, a point-of-
service option to get out of that closed-panel if they need to 
see some specialty care that is not covered by that closed 
panel. The cost of that can be borne, primarily, by the 
enrollee, him or herself, and it is a provision that I think is 
critically important, especially when an employer only offers 
one plan, being a closed-panel plan.
    Thank you.
    [The prepared statement of Peter W. Thomas follows:]
 Prepared Statement of Peter W. Thomas, Former Chair, Subcommittee on 
 Consumer Rights, Protections and Responsibilities of the President's 
 Advisory Commission on Consumer Protection and Quality in the Health 
                             Care Industry
    Chairman Bilirakis, Congressman Brown, and Distinguished Members of 
the Subcommittee: It is an honor to testify before you today. I commend 
the members of this subcommittee for their extensive efforts in 
addressing the critical issue of consumer protection in health care. 
While I am testifying today in my individual capacity, I was a member 
of the President's Advisory Commission on Consumer Protection and 
Quality in the Health Care Industry and chaired the Subcommittee on 
Consumer Rights, Protections, and Responsibilities, which drafted the 
Commission's Patients Bill of Rights. As Congress considers legislation 
in this area, I am grateful for the invitation to participate in this 
hearing and provide input into this process.
    As a user of two artificial legs since the age of ten, I can attest 
to a long history of interaction with the American health care system. 
I have had five surgical operations and extensive medical 
rehabilitation from rehabilitation hospitals and other providers over 
the past 25 years. I have consulted numerous medical specialists and 
have had ten sets of prosthetic limbs provided by seven different 
prosthetists in five different states. I have been given the 
opportunity to access the health care that meets my needs. With high 
quality care, I have been able to live completely independently, 
working in a good job and raising a family.
    However, for many consumers, particularly people with disabilities 
and chronic illnesses, the past decade has brought pressures in the 
health care system to limit important benefits and restrict access to 
specialists and specialty providers. These restrictions in the health 
care system are now commonplace and are having a profound impact on 
people's lives.
    For instance, anecdotal evidence suggests that patients with 
traumatic physical injuries--such as spinal cord and brain injuries--
who are covered by health plans that have restrictions of this nature 
are more likely to be sent to nursing homes rather than medical 
rehabilitation hospitals. Rehabilitation hospitals and units provide a 
far greater level of specialty rehabilitation care and generally 
produce better clinical outcomes for persons with severe physical 
disabilities. These specialty hospitals and physicians and other 
providers with training and experience in medical rehabilitation are 
critical to high quality and cost effective health care and should not 
be arbitrarily restricted.
    The pressures within managed care networks to restrict access to 
specialty care manifest themselves in the continuing erosion of public 
confidence in our health care system. My intent is not to discredit 
managed care, for managed care that is managed well can lead to major 
improvements in quality. My intent is to stress the importance of 
making sure that managed care plans serve all users of care at 
comparable levels of quality, regardless of the frequency or complexity 
of services a particular enrollee needs. Above all, health plans, 
particularly managed care plans, must not sacrifice sound medical 
decisions to considerations of the plan's bottom line.
    I would like to focus my remarks on the Patients Bill of Rights and 
Responsibilities that was developed by the President's Commission. As 
you know, Mr. Chairman, the Commission's Bill of Rights was translated 
into legislative language and now forms the basis of the Patients Bill 
of Rights Act, H.R. 358. The access to specialty care provisions in 
that bill closely parallel the Commission's recommendations on this 
issue. There are a number of other bills that also address the access 
to specialty care issue, some of which have been sponsored by 
distinguished members of this subcommittee. I commend the subcommittee 
for examining closely the specialty care issue, for I believe that any 
law that purports to protect patients must include provisions ensuring 
access to specialists, particularly for people with disabilities and 
chronic illnesses.
The Need for Federal Legislation
    Other than several federal health care programs, the American 
health care system is largely a market-based system. The hallmark of a 
well-functioning marketplace is the concept of competition, and 
optimally, improvements in quality and consumer satisfaction that come 
from this competition. But the federal government often establishes 
certain ground rules within which the American marketplace must 
function. The antitrust and securities laws are good examples of 
federal rules that provide structure to a well-functioning competitive 
market. The market in health care also requires structure in order to 
function well. Without the establishment of basic ground rules that 
will prompt the health care market to compete on quality and consumer 
satisfaction, the health care market will compete based on the 
avoidance of risky patients.
    I am not an advocate of micro managing the health care marketplace 
or stifling some of the progress the health care industry has made in 
improving quality while reducing the rate of health care inflation. I 
am an advocate for the creation of a basic set of consumer protections 
at the federal level that all health plans must meet, including self-
funded ERISA plans. Without federal legislation, health plans that 
operate under the Employee Retirement Income Security Act (ERISA) will 
be free to deny consumers basic rights that health plans subject to 
state laws may be required to provide.
    Unless all health plans are subject to the same set of consumer 
protection standards, plans that do not adhere to such standards will 
be at a distinct competitive advantage in the marketplace. Without 
federal standards to level the playing field, there is actually a 
disincentive to improve the quality of care, because those plans that 
develop a reputation for high quality and good outcomes will be 
adversely selected by individuals who need health services the most. 
Competition within a framework that protects consumers will have a 
significant impact on the quality of care and the confidence that 
Americans have in their health care system.
The Commission's Recommendations
    This is the underpinning behind the Patients Bill of Rights and 
Responsibilities recommended to the President by the Commission. The 
Patients Bill of Rights was drafted after months-long negotiations 
between a very diverse panel of representatives, including consumers, 
patients, providers, health insurers, health plans, large and small 
businesses, labor, state and local governments, and health quality 
experts. Virtually every major sector of health care was actively 
engaged in the Commission's efforts. The Commission operated under a 
rule of consensus, which had the practical effect of requiring 
unanimous support for any recommendation before it went forward.
    While the Commission was able to reach consensus as to the 
substance of the Patients Bill of Rights, it was not able to reach 
consensus as to the implementation and enforcement of these rights; 
whether they should be enacted into law or implemented on a voluntary 
basis. This was not surprising, however, due to the diversity of the 
Commission's members and the rule of consensus, or more accurately, 
unanimity. It is unfortunate, though, that some of the same 
constituencies that were at the table, engaged in the Commission's 
process, and in agreement with the final version of the Patients Bill 
of Rights are now actively opposing the creation of these very 
standards for all consumers.
How the Process Impacted the Substance
    The seven rights on which the Commission was able to reach 
consensus derive from common elements included in the previous work of 
numerous organizations representing the entire health care spectrum, 
from the American Association of Health Plans to the National Committee 
for Quality Assurance to Families USA. The Commission's Subcommittee on 
Consumer Rights met in open session on seven occasions over a six-month 
period, heard from numerous witnesses, and considered background papers 
on each subject. The Subcommittee reviewed two or three drafts of each 
chapter and conferred with the full Commission until refinements were 
made and consensus was achieved on the overall document.
    The process of reaching virtual unanimity on a set of patient 
rights that the Commission members agreed should apply to all consumers 
was a difficult one. All of the major health care constituencies were 
engaged in the process and many compromises were made during the course 
of debating and drafting the substance of each patient right. Many 
wanted to go much farther, establishing a patient right to certain 
mandated benefits. This and other proposals either found their way into 
the preamble of the Bill of Rights or were taken off the table due to 
considerations of cost, lack of time for full debate, or claims of 
micro-managing the health care system.
    The point is that the final Patients Bill of Rights that emerged 
from the Commis-

sion represents a consensus set of patient protections, a moderate 
approach to en-

suring that all health care consumers have the tools they need to 
access the health

care they require. Each of the seven rights are integral to truly 
protecting consum-

ers and improving the health care system and each right is diminished 
when one

of the other rights is not present. In my view, any legislation that 
purports to adequately protect patients must include these elements.
The Bill of Rights Should Apply to Everyone
    Since the announcement of the Patients Bill of Rights in November 
1997, the Clinton Administration has implemented these rights across 
each of the federal agencies that administer federal health programs, 
including Medicare, Medicaid, the FEHBP, the VA health system, the 
Department of Defense programs, the Indian Health Service, and the 
Department of Labor. In total, by the end of 1999, one third of the 
American people will be covered by the Patients Bill of Rights. It is 
now in the hands of Congress to extend these basic consumer protections 
to the rest of the American population.
    While the creation of the Advisory Commission was largely spurred 
by consumers' problems with managed care plans, as already stated, the 
Commission felt strongly that these protections should apply to all 
health care consumers in all health plans receiving care in all health 
care settings.
Access to Specialists
    This provision in the Patients Bill of Rights derives from one of 
the principal complaints of consumers in managed care plans; restricted 
access to specialty care providers. The Commission heard testimony from 
a woman with epilepsy whose long term relationship with her neurologist 
was interrupted when she joined a network plan, even though the plan 
initially stated that she could continue seeing her current providers. 
The Commission effectively rejected the ``any willing provider'' 
approach to ensure adequate choice of provider, but established a 
number of provisions that assist consumers in accessing appropriate 
specialty care.
    The Commission's choice-of-provider provisions have three aspects 
that are directly relevant to improving health care quality: network 
adequacy; standing referrals; and transitional care. The network 
adequacy requirement ensures that enrollees in a health plan that 
utilizes a network of providers will have adequate in-network access to 
the specialty providers and professionals necessary to provide 
enrollees with the full range of benefits offered by the plan. To meet 
this requirement, plans would have to offer in-network providers with 
an appropriate degree of specialization and within a reasonable 
proximity to enrollees. If a plan did not provide adequate in-network 
access to specialty care, it would be obligated to provide referrals to 
out-of-network specialists, but at no greater cost to the patient than 
in-network care.
    The standing referral requirement would permit enrollees with 
chronic or disabling conditions to have direct access to specialists 
without needing repeated referrals from primary care providers. Plans 
would have to permit an adequate number of direct access visits but 
reasonable limits could be imposed before a patient would be required 
to revisit his or her primary care provider. For a patient with a 
complex or serious medical condition, direct access to specialists 
under an approved treatment plan can be highly cost effective, 
eliminating the need for unnecessary primary care visits when specialty 
care is required.
    Some of the patient protection bills in this Congress also permit 
patients with ``ongoing special conditions'' to select a specialist as 
a primary care provider. While the Commission could not reach consensus 
on this approach, this provision makes imminent sense for people with 
chronic illnesses such as multiple sclerosis and similar conditions.
    The transitional care provision would allow patients who are 
undergoing a course of treatment for a chronic or disabling condition 
(or who are pregnant) to continue seeing their current primary and 
specialty care providers for up to 90 days in the event of a disruption 
in care. For instance, if a health plan were to become insolvent, 
transfer ownership, or stop serving enrollees within a state, or if a 
provider were to be dropped from a plan's network for any reason other 
than ``cause,'' the enrollee would be able to continue seeing his or 
her same providers for up to 90 days while suitable alternative 
providers are contacted. In addition, under the Commission's 
recommendations, women would have direct access to women's health 
services.
    These policies would improve the quality of care by ensuring that 
managed care enrollees get all the necessary and appropriate care 
covered by their health plan, including specialty care. It will also be 
cost-effective by guaranteeing that patients with disabilities and 
chronic conditions will be able to access specialty providers without 
first being required to make an unnecessary visit to a primary care 
provider. Finally, ensuring that patient care is not disrupted after 
involuntary changes in insurance coverage will enhance quality.
Point-of-Service Option for Managed Care Enrollees
    While the Commission did not reach consensus on the point-of-
service option, this provision is a critical patient protection when a 
closed panel HMO or network plan is the consumer's only option in 
obtaining health coverage. The point of service provision would require 
closed panel plans to permit enrollees to elect to purchase an option 
at the time of enrollment to access out-of-network providers, at an 
additional premium and/or co-payment to the enrollee. The option could 
be structured to create minimal costs for the health plan or employer 
sponsor and tremendous benefits for enrollees who develop the need or 
desire to obtain care from providers and/or specialists of the 
enrollee's choice who are not within the plan's network of providers. 
The point of service option is an important element of effective access 
to specialists and maximizes patient choice of provider.
Access to Emergency Services
    To build confidence among the American people that emergency care 
will be covered by health plans when and where an emergency arises, the 
Commission included provisions on access to emergency services in the 
Patients Bill of Rights. The Commission agreed that health plans should 
provide payment when a consumer presents to an emergency department 
with acute symptoms of sufficient severity--including severe pain--such 
that a ``prudent layperson'' could reasonably expect the need for 
emergency care. Similar provisions were enacted as part of the Balanced 
Budget Act of 1997 for Medicare and Medicaid patients.
    The Commission also recommended that health plans should not impose 
prior authorization requirements for either in-network or out-of-
network emergency care, but that reimbursement for out-of-network 
emergency services should be limited to the in-plan rate. These 
provisions will improve the quality of care by striking a balance 
between unnecessary use of emergency services and encouraging people 
who believe they are experiencing an emergency medical condition to 
seek treatment immediately without fear that the services may not be 
covered by the health plan.
Information Disclosure
    This protection requires that health plans, providers, and 
facilities provide patients with accurate, easily understood 
information to be used in making informed health care decisions. Plans 
would be required to provide information such as covered benefits and 
exclusions, specialty referral rules, and cost-sharing requirements. 
Professionals and other providers would be required to provide 
information on their level of education and board certification status. 
Facilities would be required to provide information on their experience 
in performing specific procedures and accreditation status.
    In a health care system that is primarily market-based, accurate 
and easily understood information is critical to effective consumer 
decision-making. Many states have already enacted laws requiring the 
disclosure of health care information to consumers. As consumers become 
more familiar with the often-complex information provided to them, they 
will be able to demand higher performance from providers and make 
decisions based on the quality of care and demonstrated outcomes.
Consumer Assistance/Health Care Ombudsperson Programs
    The complexity of our health care system makes its navigation 
extremely difficult for many consumers, particularly for persons with 
little education, low incomes, and little experience with the health 
care system. All the information disclosure in the world simply will 
not be useful to a significant portion of the population without the 
availability of some form of consumer assistance. The Commission 
expressed the importance of consumer assistance programs for some 
consumers within the context of the right to information disclosure but 
stopped short of establishing consumer assistance as a right of all 
Americans.
    In order to provide a network of independent consumer assistance or 
ombudsperson programs throughout the country, a stable funding source 
would have to be identified that would not be dependent on health plans 
in a way that compromised the independence of the consumer assistance. 
Such programs would have to be carefully structured and offer a variety 
of resources, including knowledgeable customer service representatives 
to assist patients in making informed health care decisions. These 
efforts could facilitate cooperation between health plans, providers, 
payers and consumers and would increase confidence in the health care 
system to a substantial degree. Consumer assistance programs would 
improve the quality of care by ensuring that the most vulnerable 
patients are able to negotiate the health care system and access the 
benefits, services and providers included in their health plan, without 
resorting to an after-the-fact appeals process.
Participation in Treatment Decisions
    Concern that the sanctity of the doctor-patient relationship was 
being eroded prompted the Commission to act to protect open 
communication between providers and patients, which is necessary for 
effective treatment. The Commission decided that all consumers have the 
right and the responsibility to participate in all decisions related to 
their health care. Among other items, providers should disclose 
factors--such as methods of compensation--that could influence advice 
or treatment decisions and should ensure that contracts with health 
plans do not contain so-called ``gag clauses.'' Patients should also be 
told about the risks and benefits of all treatment options, regardless 
of the cost or coverage of the service, and should be allowed to refuse 
treatment.
    Full participation in health care decisions by informed, 
knowledgeable consumers is a key to improving the quality of health 
care. The Commission reviewed numerous studies that demonstrated that 
when people are active participants in their treatment regimen, 
outcomes are improved.
Non-Discrimination
    The Commission recognized the significant disparities in the 
quality of care and outcomes between people with different races, 
sexes, and other characteristics. The Patients Bill of Rights includes 
a non-discrimination provision that applies to the delivery, marketing 
and enrollment of health care in order to attempt to address these 
disparities. The specific provision applies to discrimination based on 
race, ethnicity, national origin, religion, sex, age, mental or 
physical disability, sexual orientation, genetic information or source 
of payment. The specific recommended language, however, is limited in 
terms of the phrase ``mental or physical disability,'' in that it does 
not mandate benefits or guarantee issue in the individual health 
insurance market.
    Consumer protection against discrimination in the delivery, 
marketing and enrollment of health care is critical if health plans are 
to compete in the marketplace based on quality and consumer 
satisfaction, not based on the avoidance of risk. Non-discrimination 
provisions are essential to the elimination of disincentives to improve 
care. The Commission's non-discrimination language will not solve all 
of the problems of discrimination in the health care system, but it is 
a significant step forward.
Confidentiality of Health Care Information
    One of the key aspects of effective communication between patients 
and providers is the bedrock understanding that one's medical records 
and doctor-patient communications will be kept confidential. Due to 
many cases of breaches or near-breaches of confidentiality in the 
recent past, the public's confidence that such information is fully 
protected has been seriously eroded. This issue has become so important 
that Congress is currently considering stand-alone medical privacy 
legislation. The Commission's provision limits the number of instances 
where individually identifiable health care information may be used 
without written consent and creates a presumption that nonidentifiable 
health care information should be used to the maximum extent feasible.
    Ensuring that medical records and other confidential information is 
kept private, and making sure that patients understand and believe 
their information is safe, is key to improving the quality of care. If 
patients do not have these assurances, they may limit their candor with 
health care providers which, of course, has a direct negative impact on 
quality.
Complaints and Appeals
    This recommendation alone has the potential to restore a great deal 
of confidence in the health care system. The concern of many Americans 
that health care plans may be making coverage decisions based on the 
bottom line rather than on the patient's best interests prompted the 
Commission to recommend that all health plans make available to 
enrollees a fair and efficient grievance and appeals process. The 
specific recommendation is to provide every consumer with an internal 
appeals process (which includes expedited review for urgent care) and, 
once exhausted, an independent external review of the dispute. The 
Commission's language would permit external review for claims involving 
experimental or investigational treatments as well as denials of 
benefits based on medical necessity that exceed a significant 
threshold.
    The Commission's recommendation would be strengthened if enrollees 
were permitted to challenge denials of access to specialists as well as 
certain drug formularies through internal and external appeals 
processes. In addition, the appeals system should be available for 
challenges of denials based on the fact that a particular benefit is 
not considered a covered service under the plan's benefit package. I am 
not suggesting that the appeals mechanism be converted into a process 
where a plan's benefit package is subject to constant revision. 
However, many people with disabilities are denied benefits because the 
plan makes an arbitrary decision that the claimed medical service or 
device is not considered a defined benefit, when in fact the policy 
language is ambiguous or even contrary to the stated position of the 
plan. In this instance, claimants should be afforded the opportunity to 
use the plan's appeals process to resolve these disputes.
Conclusion
    The consumer protection standards described in this testimony 
represent a reasonable step toward protecting consumers in the health 
care marketplace while improving the quality of care. Now is the time 
for Congress to act to ensure that all Americans receive the benefit 
that these basic standards offer. I again thank the Subcommittee for 
this opportunity to testify and will answer any questions you may have 
at this time.

    Mr. Bilirakis. Thank you very much, Mr. Thomas.
    Okay, I will proceed with the questions.
    Let's see, Dr. Auer, you, of course, are a former president 
of the American College of Emergency Physicians. Under prudent 
layperson standard, assuming that the patient has no greater 
costs when treated at an out-of-network emergency room than at 
an in-network facility, should the provider be required to 
accept the payer's in-network reimbursement rate? Or should the 
plan be required to pay the provider's bill charges?
    Ms. Auer. Well, I am not sure that is an issue that we 
should be considering. I think that is a marketplace decision, 
and it is one that providers make every day in negotiating 
their costs with insurers.
    I think the question here today is providing access to 
patients when they believe they have coverage for that access.
    Mr. Bilirakis. Well, all right; but let me ask you, then, 
having said that, how many patients that walk into an emergency 
room have true emergencies? So, I mean what is your answer to 
that?
    Ms. Auer. All of them.
    Mr. Bilirakis. All of them have true emergencies?
    Ms. Auer. Patients--there are some patients that do come to 
the emergency department for a variety of reasons that you 
wouldn't consider perhaps life threatening. But you have to 
take into consideration the circumstances that surround it.
    And if I could give you one example, sir. I had a woman 
come into my emergency department about a month ago with her 
three very ill children. One of the children had gotten sick 
with a cold, a runny nose. She had gone to her managed care 
physician, as she was supposed to do. They said it was just a 
cold, gave her some instructions; she took the child home. 
During the week, the child became more severely ill. Her other 
children got ill; she became ill. She called her provider; she 
got no call back. She called the next day, got no call back. 
She called the third day, got no call back. By then, all 
children were running high fevers. Three of the children were 
vomiting, and she, herself, was feeble and sick. She came to 
the emergency department to get care. Was that unreasonable? I 
don't think so.
    Mr. Bilirakis. Well, all right. You have told us--I am not 
agreeing or disagreeing with you, but I don't intend to give 
that impression.
    But if we had a prudent layperson standard, how would that, 
then, apply, in terms of--now you say that all emergencies are 
true emergencies?
    Ms. Auer. I was being a bit facetious, sir.
    Mr. Bilirakis. Yes, we----
    Ms. Auer. There are some people who do abuse the system.
    Mr. Bilirakis. Yes. Okay.
    Well let me ask Dr. Braun; according to research--and we do 
have some information here to the effect of a certain 
percentage of emergency patients are not considered to be true 
emergencies. I don't know how that would effect that percentage 
if we use a ``prudent layperson's'' standard. But, Dr. Braun, 
according to research sponsored by the Kaiser Family 
Foundation, as I understand it, 81 percent of HMO's offer women 
the choice of OB/GYN as their primary care provider or allow 
women to self-refer to one. In addition, more than 75 percent 
of HMO's surveyed by Mathematica Policy Research allowed 
certain specialists to serve as primary care providers on a 
case-by-case basis.
    So the question is, in light of these findings, do you 
think that the market is moving toward a solution to access 
problems? Or do you believe that there is a role for Federal 
regulation in this area?
    You may recall that, in our legislation, in any case, we 
determined that OB/GYN's and pediatricians should be concerned 
primary care physicians. And I realize that there are several 
viewpoints regarding that, but would you respond, please?
    Mr. Braun. Yes, sir. Well, certainly I agree that the--I, 
like Mr. Coburn, do believe in the marketplace as being a 
solution. I feel that the unfettered marketplace oftentimes 
comes up with a better solution than the one that is forced.
    As we can see, what is happening is the plans are gradually 
coming around, and they have been very proactive in terms of 
allowing women to have access to OB/GYN care without any 
interference.
    As for whether--if you ask some of them, they would--maybe 
some of the OB/GYN doctors would prefer not to be primary care 
doctors.
    They sometimes feel that they are a little out of their 
league treating colds and things like that. There are other 
more important things.
    In regards to the use of specialists to treat certain 
disease states, I am very much in favor of that. I mean we have 
a very proactive Disease State Management Program that AAHP 
endorses. Studies over the last several years have been 
appearing in very prominent medical journals show that there 
are some disease conditions such as heart problems and some 
pulmonary problems--asthma and the like that--are much better 
treated by specialists. The results are better; the overall use 
of resources is better. And probably, more importantly, the 
lifestyle and the quality of life for the patient member is 
better. So I am very much in favor of that.
    Mr. Bilirakis. Do you--just very quickly--do you feel that 
the market is moving toward a solution in this area? You have 
indicated you favor the market approach?
    Mr. Braun. Yes, sir, I do believe that. I believe that 
managed care right now is in a great period of evolution, that 
we are merely at a weigh station along the way, that the market 
will force us to give more care, and better quality care. You 
know, there is a solution out there that we are all, hopefully, 
going to reach.
    Mr. Bilirakis. Thank you very much.
    Mr. Brown.
    Mr. Brown. Dr. Braun, you say the market is correcting some 
of these problems. If a woman wakes up in the middle of night 
and thinks that she is facing a life--she is living alone, 
thinks she faces a life-threatening illness, is in great pain. 
She calls an ambulance, picks her up, takes her to the 
emergency room. Should a health plan pay for that, even it is 
not on the list?
    Mr. Braun. Well, I am not sure what list you are referring 
to.
    Mr. Brown. Even if it is not on some sort of an approved 
hospital list in that health plan?
    Mr. Braun. Again, I mean I can only speak for the plans I 
have worked for. And a situation like that, the idea is, is it 
the symptoms of the patient and what the patient feels is an 
emergency. If someone comes, and they are in extreme pain, if 
it seems like the care is appropriately done in the emergency 
room; obviously in the middle of the night, we don't see too 
many primary care offices that are open, I would say that I 
can't think of too many plans that would turn that down. And I 
know ours wouldn't.
    Mr. Brown. Do you think there are plans that turn it down?
    Mr. Braun. None that I know of----
    Mr. Brown. Dr. Auer seems to say there are.
    Mr. Braun. Well I--again, I can only speak for the ones I 
have worked for, and I have worked for four of them, and we 
have had extremely----
    Mr. Brown. But what if she----
    Mr. Braun. I am an emergency room doctor, myself, in fact. 
And I can tell you, I get involved on the other end of this. I 
have worked many midnight shifts where I have the patient that 
you talk about come in. And as an ER doctor, I am going to 
treat them, and I am going to worry about the payment issues 
later. But I can tell you, 99 percent of the time, as far as I 
know, the care is taken care of in the situation you----
    Mr. Brown. And the ambulance, too?
    Mr. Braun. And the ambulance, as far as I know.
    Mr. Brown. But what if it turns out she is not really sick, 
that she didn't really need that emergency care. Do all those 
four plans you work for pay for it? And does every plan you 
know pay for it?
    Mr. Braun. Well, again, the situation you are describing 
now is a bit different than the first one. If the patient is 
not really sick, then there is the question of----
    Mr. Brown. But thinks she is.
    Mr. Braun. She thinks she is? Well, there is problem there, 
and that, you know, there have been incentives in certain plans 
in the past that would probably not pay for something like 
that.
    But, again, what we are trying to do--we would hope that a 
patient in that condition would call. You know, we have 
something called a ``Nurse Help Line,'' that we ask that they 
call to get some recommendation concerning that. We try and 
have people sent to the proper place for care. I mean, if 
somebody is not really sick, they can discuss the symptoms with 
trained medical professionals over the phone. We do after-hours 
audits of our professional, our physicians, to make certain 
that they are available in case a situation like that comes up.
    Again, we try and treat the patient in the most appropriate 
place.
    Mr. Brown. But this woman probably doesn't really want to 
call a nurse and call around and find the right number because 
she is feeling like her life might really be threatened. It 
might be heart attack symptoms, but not a heart attack, but she 
doesn't know that because she has never had one before.
    And you, personally, as a physician, do you think that--
should she start calling around, because she might not really 
be sick and spend valuable time and check on what might be on 
the plan and what might not be on the plan? Or do you think, as 
a physician, she should go directly--she should get to the 
emergency room as quickly as possible because she really does 
believe that her life might be threatened or something--that 
her health certainly is threatened?
    Mr. Braun. Well, again, I would probably need to know a few 
more facts than we are having here. I mean we are getting into 
a great deal of a hypothesis here.
    I can tell you that the thing I would say, that a woman in 
this situation should, if there is, in fact, any concern on her 
part to receive care, should go to an emergency room.
    The sad part about it is, is, unfortunately, emergency room 
care, at this point, is more expensive; it is about three times 
more expensive than it is during the day. Now this should not 
be an absolute contraindication for using emergency rooms.
    One of the things that I have tried to foster, being an 
emergency room doctor, is try to work out relationships with 
and partnerships between the emergency rooms and the healthcare 
plans, so that this very patient that you are talking about 
would have a way they could come in. They could be screened. 
That would be part of the care that is rendered by the 
healthcare plan. More importantly, that care would be reported 
back to their primary care doctor, so there would be continuity 
of care and follow up for that patient the next day.
    Mr. Brown. The next day?
    But, again, you surely, as a physician, know of patients 
that have gotten very, very sick or think they are very, very 
sick and need that kind of--believe they need that sort of 
emergency care, don't have either the ability or the will or 
the desire to call around and find out what might be the 
appropriate thing to do at that time--just want to get to the 
emergency room. But some health plans clearly won't pay for the 
ambulance and won't pay for the hospital if it turns out she 
wasn't really that sick; correct?
    Mr. Braun. Well, again, I can only speak for the ones I 
work for. I don't know that that situation would be something 
that wouldn't be paid for. But I know the one that I work for 
now would pay for it. So----
    Mr. Brown. Even if she weren't sick?
    Mr. Braun. Well----
    Mr. Brown. Particularly?
    Mr. Braun. Well, if she wasn't sick, there is a question 
of, what is she doing in the emergency room, then? I mean that 
is----
    Mr. Brown. Oh.
    Mr. Braun. [continuing] I guess that is the key question.
    Mr. Brown. So you have never known a patient that, by self-
diagnosis, thinks he or she is very, very sick, but it turns 
out had not much wrong with him or her. You have never known a 
patient like that?
    Mr. Braun. Oh, I have had patients come in that have had 
panic attacks; I have had patients come in that have had simply 
crisis of confidence in the middle of the night, and I consider 
myself to be a very empathetic sort of person. The thing that I 
would hope, as I said, that there would be a vehicle 
predetermined beforehand that would allow that patient to come 
in, possibly talk to me, possibly talk to a mental health 
person, so that the care would be approved.
    Again, the question is one of more of market and contract 
than I think that it is of legislation or mandates.
    Mr. Brown. Okay.
    I guess my time has expired. Thank you, Mr. Chairman.
    Mr. Bilirakis. Mr. Burr left.
    Mr. Upton to inquire.
    Mr. Upton. Thank you, Mr. Chairman.
    I appreciated the testimony, and I know as you listened to 
all of our opening statements, you heard my statement earlier 
about the prudent layperson standard and whether--that we 
should have some standard for emergency care.
    And one of the cases that I am thinking about is someone 
maybe in the middle of the night, chest pains. His spouse calls 
911, ambulance shows up, takes him to the local hospital, and 
they might find out it might be some good news. Maybe it wasn't 
a heart attack, something like that. Maybe it was something a 
lot less than that. But I found out that the ambulance services 
are often left with the tab.
    And as I indicated in my statement at the beginning, I am 
interested in pursuing legislation to be added to this bill, as 
it begins to move down the road.
    And I am interested in maybe, Dr. Auer or Dr. Braun, 
whether you would support such language as part of the bill 
that would allow emergency care when that call came through, as 
being part of this legislation?
    Ms. Auer. Today, I would like to focus on the fact that 
there is a need for a Federal solution because emergency 
physicians operate under EMTALA and there is a mandate, also, 
in the Balanced Budget Act.
    Certainly, we are sympathetic to the concerns of the pre-
hospital providers, and if this committee desires to look at 
that issue, ACEP would be pleased to work with you on it.
    Mr. Upton. Terrific.
    Dr. Braun?
    Mr. Braun. Likewise, I would like to focus on the fact 
that, again, hopefully there would be market solution to a 
question like this. That, you know, ambulance companies, EMS, 
and like that, hopefully, again, there will be prearranged 
contractual sorts of things that are done that are freely 
entered into that would cover this situation, rather than 
legislation.
    Mr. Upton. Okay.
    With that, I will yield back the balance of my time.
    Mr. Bilirakis. It is Mr. Pallone to inquire.
    Mr. Pallone. Thank you, Mr. Chairman.
    I wanted to ask Dr. Braun, you talked about a Code of 
Conduct, I guess, amongst the HMO's and some kind of 
professional code of conduct. And the suggestion you seem to be 
making--you can correct me if I am wrong--is that somehow, you 
know, you prefer or that they go through some self-policing 
policy, which would perhaps negate the need for, you know, 
Federal legislation on some or all of the issues that we are 
talking about today.
    How is that enforced? I mean I guess my concern is that I 
know at a previous hearing, we had someone who came in and 
talked about an HMO that had decided abruptly, apparently, to 
change its policy with regard to mental health visits. And 
contrary to, you know, the normal standards, had decided to 
only allow like one or two visits, as opposed to what the norm 
would be maybe seven or eight, just to give you an example.
    And it was suggested that the reason they did is because 
they were about to be sold to a larger HMO, and they wanted to 
show that they had low costs and that they weren't spending a 
lot of money. So they simply changed their policy in a way that 
was contrary to the norm.
    I am afraid that oftentimes what the HMO's do is simply 
money driven to save costs. And I don't understand how this 
self-policing mechanism can possibly work. It doesn't seem to 
me it does.
    What enforcement is there? Do you sue the HMO if they don't 
meet the standards? Do you fine them? Do they just drop out and 
who cares?
    Mr. Braun. Well, again, I mean--I, like Mr. Coburn, do 
believe that the market will punish the people that don't serve 
their members properly.
    The fact is, is that in the situation that you are talking 
about, the legislation would take and tie us I think too much. 
I mean I am an attorney as well as being a physician. I can 
tell you I have been involved in court suits where the entire 
case turned over where a comma was placed. Now, if we have 
legislation where we are going to be worried about people's 
lives because of where a comma is placed, that doesn't allow us 
much flexibility.
    Mr. Pallone. Yes, but what I am asking, Dr. Braun, is 
what--when you mentioned this Code of Conduct, and you put a 
lot emphasis on it in your testimony, what enforcement 
mechanism is there? What happens if the HMO doesn't meet your 
Code of Conduct? Do you fine them? What do you do?
    Mr. Braun. Well, again, as I said, I would hope the market 
would take in and there would----
    Mr. Pallone. Well----
    Mr. Braun. [continuing] be adjustments there. The Code of 
Conduct--a code is an ancient and futile sort of thing. It 
implies that there is honor on the part of the people----
    Mr. Pallone. Well, I mean----
    Mr. Braun. [continuing] that take part in it.
    Mr. Pallone. [continuing] this is capitalism here. This is 
feudalism. We are not living in the Middle Ages.
    I am sorry, I don't think--I think I understand your 
answer, but it doesn't seem to me to mean much, in terms of, 
you know, the actual effect of the Code of Conduct.
    Let me ask Mr. Thomas a question--or I guess Dr. Auer--
either one of you, if I could.
    One of the things that I keep harping on is the fact that, 
in many cases, the Republican bill--I think it was the 
Republican leadership that I think Dr. Auer mentioned--H.R. 
250, that was passed in the 105th Congress. I have made the 
point many times that, in many cases, it actually dilutes 
existing standards of protections. It is actually regressive 
instead of progressive, with regard to managed care reform. And 
you seem to be suggesting that with regard to emergency care. 
That right now, Medicare, Medicaid, and I guess maybe even 
Federal employees are covered by a prudent layperson or 
``medical profession'' standard, and that, in effect, the type 
of protection that is provided in the Republican leadership 
bill is a lot less than that, or seemingly less than that.
    Could you just elaborate on that again? Because the one 
thing I don't want to see coming out of all of this is that we 
get a Republican leadership bill that is actually worse than 
the status quo.
    Ms. Auer. Yes, sir. Thank you.
    Before, when I was asked, ``Are all patients emergencies?'' 
And I somewhat facetiously said, ``Yes.'' It is because it is 
that trap of looking at the final diagnosis that I think we all 
fall into. And I gave the example of the woman with her 
children who they became more ill with what could have been 
handled in an office, had she had appropriate access.
    The Republican bill has a prudent professional second-
guessing the care of the patient and the emergency physician at 
the time the care was delivered.
    And the whole concept in the prudent layperson is that it 
is based on what that person believes at the time they come for 
their evaluation. And that protection, in fact, is there for 
the Medicare and Medicaid population, as provided through the 
Balanced Budget Act, and now extended to Federal employees.
    Mr. Pallone. Thank you; I appreciate that.
    Mr. Bilirakis. Dr. Ganske to inquire.
    Mr. Ganske. Thank you, Mr. Chairman.
    Dr. Braun, you have quite a resume. As you mentioned, you 
are an attorney, and you have worked for United Healthcare and 
PacifiCare and Santus New York Life, MedicLane Physicians, Epic 
Health Trust Hospitals. It says here that you practice family 
medicine. Are you a member of the AAFP, the American Academy of 
Family Physicians?
    Mr. Braun. Actually, I'm boarded in emergency medicine, 
sir.
    Mr. Ganske. Okay.
    Well the reason that I mentioned the American Academy of 
Family Physicians, Mr. Chairman, is that today the American 
Academy of Family Physicians endorsed the Ganske Managed Care 
Reform Bill of 1999, and I will just include that endorsement 
in the record, because it does, in their statement, deal 
specifically with gag clauses and sufficient and adequate 
information.
    This organization, by the way, represents 88,000 family 
practitioners, those who deal most primarily with problems. And 
they looked at my bill and thought that it was the best bill. 
It is notable that the AAFP, until today, had not endorsed any 
bill.
    Now, just to continue, Dr. Braun, are you still practicing 
medicine?
    Mr. Braun. Yes, sir.
    Mr. Ganske. So you are still seeing patients?
    Mr. Braun. I work occasionally in emergency rooms on 
weekends. My full-time job is being the chief medical officer 
at George Washington University.
    Mr. Ganske. But you do see patients in emergency rooms?
    Mr. Braun. Yes, sir.
    Mr. Ganske. Okay. Did you agree with the statutory language 
that was passed in the Balance Budget Act, 1997, as it related 
to emergency care and a layperson's definition?
    Mr. Braun. I am not quite sure what you are referring to. I 
have a general idea, but, again, I mean the----
    Mr. Ganske. Well there was a definition for a layperson's 
definition, and that included ``severe pain'' as something that 
should be considered as valid. That is in current law, I should 
point out to the members of this committee--including the 
chairman of this committee, that we voted for that statutory 
language. And that statutory language, in fact, is the language 
that I have in my bill, that Congressman Norwood has in his 
bill, and that Congressman Dingell has in his bill. But, in 
order to inform some of the members of this committee who voted 
for the Patient Protection Act, the bill did not have ``severe 
pain'' as part of the definition of an emergency. Is that 
right; Dr. Braun?
    Mr. Braun. I am not familiar with those other legislations, 
sir.
    Mr. Ganske. But, as a practicing emergency room doctor who 
still sees patients, you would have to agree that if somebody 
who comes in with crushing chest pain or severe abdominal pain, 
that that should constitute a prudent definition for an 
emergency; should it not?
    Mr. Braun. Well, again, you have to look at the entire 
constellation. Certainly, when somebody comes in, being trained 
as a physician--I am also trained as a preacher, and I will 
tell you, there is a lot of prayer in medicine nowadays. But I 
mean, you know, in a condition like that, when somebody is 
coming in and they are having a lot of pain, I mean, you have--
--
    Mr. Ganske. Okay. If somebody comes in and they have 
crushing chest pain and they are all sweaty, would you work 
that patient up----
    Mr. Braun. Certainly.
    Mr. Ganske. [continuing] for a MI?
    Mr. Braun. Certainly. I would also take and work up someone 
when they came in with severe tooth pain, too. I mean, one 
instance----
    Mr. Ganske. Okay.
    Mr. Braun. [continuing] we see a lot.
    Mr. Ganske. But you would agree that----
    Mr. Braun. Yes, sir.
    Mr. Ganske. [continuing] that patient should be seen----
    Mr. Braun. Certainly.
    Mr. Ganske. [continuing] and should be evaluated in the 
emergency room; right?
    Mr. Braun. Certainly.
    Mr. Ganske. Now, ex post facto, if the health plan denies 
treatment because you find out that that EKG was normal, is 
that right that they should deny payment?
    Mr. Braun. Well, again, it depends--I mean there are 
certain things like contractual relations and like that. I 
mean----
    Mr. Ganske. Okay. Well, let's go to the contractual 
relations, because----
    Mr. Braun. Yes, sir.
    Mr. Ganske. [continuing] you are an attorney. You mentioned 
that your plan uses clinical practice guidelines and 
utilization review to ensure that patients get the best 
quality.
    Mr. Braun. Yes, sir.
    Mr. Ganske. I am going to read you a contract clause, and I 
would like you to tell me how this promotes quality care.
    This is from a contract in Texas that promises patients 
medically necessary care. The plan defines ``medical 
necessity'' to mean, ``the shortest, least expensive, or least 
intensive level treatment,'' as determined by the plan.
    Can you tell us how language like that promotes access to 
the best quality care?
    Mr. Braun. Well, again, I am not sure what contract you are 
reading from, but the concept----
    Mr. Ganske. I will provide you with a reference.
    Mr. Braun. Okay.
    Mr. Ganske. Would that be something that your plan would 
use?
    Mr. Braun. No, sir.
    Mr. Ganske. Do you think that that is an appropriate 
contract language?
    Mr. Braun. Well, the word is appropriate. What we use for--
and when we are considering care for, is the appropriateness of 
the care, the right treatment for the right person, at the 
right time. And, you know, what we look at is, is this care 
going to do the best thing for the patient; also, will it make 
the best use of the resources?
    Mr. Ganske. But by this contract language, the plan can 
specifically exclude anything except the cheapest, shortest, 
least expensive, least intensive level of treatment.
    Mr. Braun. Well, there are bad contracts out there. I can't 
deny that. I mean----
    Mr. Ganske. So we ought to just let the free market--just 
let the individual sort that out? However, most people aren't 
lawyers. They don't read that contract language and probably 
wouldn't understand the implications of that anyway; would 
they?
    Mr. Braun. Well, again, I come back to the fact that we 
would hope--and, again, I would have to speak for the vast 
majority of plans. Most of us are trying to do a good job of 
managing care. We are trying to evolve care; we are trying to 
take and move care to a place where we don't have to worry 
about things like this, where things are arranged ahead of 
time. And, again, our objective is to make certain that we best 
serve customers who are the members.
    Mr. Ganske. Mr. Chairman, I see my time has expired. I 
would be hopeful that we could come back around for a second 
round of questions.
    Mr. Coburn. [presiding.] We will let the sitting 
subcommittee chairman make that direction.
    Mr. Barrett. Mr. Chairman?
    Mr. Coburn. I would just inquire that two things that you 
mentioned, did you want them placed in the record?
    Mr. Ganske. With unanimous consent, Mr. Chairman.
    Mr. Coburn. If there is no objection.
    Mr. Barrett. Mr. Chairman, maybe just do--if we could get 
copies of the contract that Mr. Ganske just read, I would 
appreciate it.
    Mr. Coburn. We will, and without objection, they will be 
entered in the record.
    [The information referred to follows:]
                        definitions in use today
``Medical necessity means the SHORTEST, LEAST EXPENSIVE, OR LEAST 
INTENSE LEVEL of treatment, care or service rendered, or supply 
provided, as determined by us [health plan], to the extent required to 
diagnose or treat an injury or sickness. The service or supply must be 
consistent with the insured person's medical condition at the time the 
service is rendered, and is not provided primarily for the convenience 
of the injured person or doctor.''
                                                     --Low Cost HMO
                from Medical Necessity Determinations by AMA, 1999.
                                 ______
                                 
                      American Academy of Family Physicians
                                                     March 19, 1999
The Honorable Greg Ganske
U.S. House of Representatives
1108 Longworth House Office Bldg.
Washington, D.C. 20515
    Dear Congressman Ganske: It is with considerable pleasure that I 
write to convey to you the support of the American Academy of Family 
Physicians for H.R. 719, the Managed Care Reform Act of 1999.
    As the largest of the nation's primary care physician 
organizations, with over 88,000 members, we have felt it very important 
to establish, define and support the rights of patients in the managed 
care environment. While we have long supported comprehensive managed 
care reform, H.R. 719 is the first bill that we feel secures these 
rights successfully without overregulating the practice of medicine, or 
compromising the role of primary care physicians in plans.
    We deeply appreciate your willingness to listen to our concerns 
about protecting the roles and responsibilities of family physicians 
and other primary care physicians.
    If there is a way that we can assist you in helping to secure 
passage of H.R. 719, we stand ready to help in whatever way we can.
            Sincerely,
                                          Neil Brooks, M.D.
                                          Chair, Board of Directors

    Mr. Coburn. The gentleman from--the gentlelady from 
California.
    Ms. Capps. Thank you very much.
    I want to touch--these 5 minutes go really fast. I want to 
touch on the comment of each of you, because it was so--we 
covered a wide range here today.
    I want to start with Dr. Braun, because you are here 
represent-

ing HMO's, and I have heard from many insurance providers that

99 percent of their customers, their clients, are fine and 
happy and getting good service. It is that blip, you know, that 
gets all the headlines and all the stories. Well, you happen to 
be the provider for one of my staff members. And this was no 
life-threatening issue, but he had an accident, and by the time 
the doctor--his provider said he was ready for physical 
therapy, the time allotted in the insurance had elapsed, so he 
didn't get that. And the disabling effect--I just want to make 
the point that it is not just a patient, the one individual. It 
is their family that bears the effect of denied care, and also, 
in this case, the entire office felt the burden of that.
    And so, I think these are not statistics that we are 
talking about, and you know this as well as I do, but human 
life. Doctor, I would like to give you time to respond, but I 
also have a question for Mr. Thomas.
    But my point with you is I think we here on our questioning 
confused giving emergency service with the payment, in some of 
our exchanges with you. And I think you have impressed me with 
the--back to the Hippocratic oath--that good service, good care 
is going to be given, except that with the changing climate of 
reimbursement.
    I think you are maybe seeing--and I hope that there is time 
for you to comment--patients not coming in because back in 
their mind, they are wondering, ``Is this really an emergency, 
and will I get the coverage?'' And that to me is the crisis--
one of the crises that we are facing.
    Mr. Thomas, I appreciated your testimony. And I am 
interested in a comprehensive bill of right--or however we are 
going to label this; it doesn't matter what we call--that talks 
about the gateway provider or the primary provider. And we seem 
to be making much of including OB/GYN, which I am totally 
delighted with, and the pediatrician, as well. But I am 
thinking of the whole array of individuals with chronic 
situations and the disabling conditions that can range from 
diabetes to cerebral palsy to a lot of situations where having 
to go through that primary provider is such an expensive, both 
in time and energy, situation.
    Can you comment on that briefly? And, hopefully, we will 
get to some others----
    Mr. Thomas. Yes, thank you for the opportunity to comment 
on that----
    Ms. Capps. [continuing] in this time.
    Mr. Thomas. [continuing] because a list of specialty access 
provisions would really be devoid of merit if it didn't really 
address the key problem and for people with chronic illness and 
disabilities, and that is, you know, people with multiple 
sclerosis, people with ongoing medical conditions. They get to 
know their disability or their chronic illness better than 
anyone, and they know when they need to access a specialist.
    I have two artificial legs and went through a number of 
rehabilitation specialists and prosthetists in getting 
artificial legs made throughout the years, and I can tell you 
that I know exactly when I need to go see a prosthetist and go 
see a rehabilitation doctor or when I need to go see a 
prosthetist to get an adjustment to my leg done. And anyone 
with a chronic, ongoing condition knows the same thing.
    So my view is that this is a very cost-effective way. It is 
not a stake in the heart of managed care. There are ways that 
you can link back the primary care case manager back into that 
treatment regiment and treatment plan. But to allow a certain 
amount of direct access visits to a specialist for a person 
with a chronic illness or disability, is just really critical. 
And I very strongly encourage this subcommittee to look at 
that.
    Ms. Capps. Thank you.
    Ms. Auer. You are absolutely right; patients are sicker 
when they come to the emergency department. And I thought it 
was my imagination, or I was getting old or maybe a little 
tired as working those shifts. But we looked at it in my own 
practice, and we see approximately 30,000 visits a year. And, 
indeed, the level of intensity of the services that we are 
having to provide have gone up. The patients are sicker now 
than they were several years ago.
    Ms. Capps. This is not really good managed care?
    Thank you.
    Would you care to comment, since I have maybe a couple of 
seconds left, Dr. Braun?
    Mr. Braun. Well I have to agree with Mr. Thomas. I mean 
when you do deal with people that have chronic illnesses, you 
often find they are probably more of an expert sometimes than 
the physician is, and you know that is part of the reason why I 
feel that the using of specialists in certain conditions is 
very important.
    Ms. Capps. Thank you.
    Mr. Coburn. The gentleman from North Carolina.
    Mr. Burr. The gentleman has no questions, but I thank the 
chairman.
    Mr. Norwood. Would the gentleman yield?
    Mr. Burr. The gentleman would be happy to yield.
    Mr. Coburn. The gentleman is recognized.
    Mr. Norwood. Thank you, Mr. Chairman. There is never enough 
time, as you know, and this gives me enough time to say to my 
good friend from New Jersey, Mr. Pallone, when you are 
referring to healthcare bills, managed care reform plans in 
this subcommittee, kindly refer to the number. There are three 
Republican managed care reforms bills, and it might confuse 
somebody if you think they are all three the same.
    With that, I want to----
    Mr. Coburn. Would the gentleman yield from Georgia yield?
    Mr. Norwood. Yes, sir.
    Mr. Coburn. You mean there are some people that think all 
three are the same?
    Mr. Norwood. That may be true, too.
    Dr. Braun, you have had a busy life.
    Mr. Braun. Yes.
    Mr. Norwood. How old are you, if I may be so bold?
    Mr. Braun. Well, there is days I feel 102, sir, but I am 
actually only 50.
    Mr. Norwood. Well, you have been a doctor, a lawyer, a 
preacher, and now you are running a healthcare plan.
    Mr. Braun. Yes, sir.
    Mr. Norwood. Have you been able to get more than 10 years 
in any one of those?
    Mr. Braun. I have run a few of them simultaneously.
    Mr. Norwood. Have you?
    Mr. Braun. And don't require much sleep.
    Mr. Norwood. Well, I want to talk to you, primarily, though 
I sure do have questions of the other witnesses.
    But I am interested in your concept of a market. And in 
your present occupation, it sounds to me as if you believe a 
market in healthcare is made up of those who buy the healthcare 
and those who sell the insurance plan. And that is, indeed, a 
type of market. There is no question about it.
    But the point I would ask you to consider in the future is 
that, if you are talking about healthcare and a market, 
therein; it really only requires a patient and a doctor. And 
there is no healthcare market today, generally speaking, 
between the patient and the doctor. And so, market forces may 
do a great job for the person who pays for the plan. And market 
forces may do a great job for the insurance company, but that 
is not what we are here about; is it?
    We are here about today--what will market forces, Federal 
forces, State forces, any forces do to help the patients in 
this country who are clearly--not at George Washington--that 
are clearly being denied benefits that their employer paid for?
    And I would ask that we all keep that in mind when we think 
about markets, because that is not what we are doing today.
    You made some interesting comments, and it was a little 
hard for me to follow your presentation. A lot of times you 
would say that, ``I can only speak for the ones I work for,'' 
meaning questions you were asked about emergency room. And you 
were not willing to go into that very far, other than those 
emergency rooms that you had had personal information with. 
Yet, many other parts of your testimony are laced with, ``Well, 
I have to speak for the mass majority of plans.'' And if you 
are going to speak for the vast majority of the plans in other 
areas and speak for just what you know for in some areas, it 
gets a little confusing to people like me as to how much and 
what of this--how can you speak for mass majority of plans?
    And I know your plan is great; I am not saying anything 
about that. But we are worried about some of those out there 
that aren't. And I am very impressed with the quality of work 
you do. I am certain that people in your plan are generally 
very well served.
    I have been talking about this issue now for a very long 
time, and in all that last 10 years that I have been talking 
about this issue, I have never had anyone ever come up to me, 
including any panel of witnesses, that would say, ``Gee, you 
know, we are really doing a rotten job in my plan, and I am 
here to make sure that we can continue to do a rotten job.'' 
Everybody comes in and says their plan is the greatest 
healthcare plan in the country, but the fact remains, there are 
plans out there not operating up to the standards that you 
operate in.
    Now, our job in Congress is to set a floor that plans 
cannot fall below. There has got to be, for God's sake, in 
medicine, a bottom line there.
    You are already meeting those standards you have said, so, 
regardless, it won't matter which one of these bills we pass. 
You are not going to be affected because you are already doing 
it. You are currently allowing your employees to go----
    Mr. Coburn. Will the gentleman yield?
    Mr. Norwood. [continuing] to an out-of-network emergency 
room in an emergency----
    Mr. Coburn. Your time has expired.
    Mr. Norwood. I ask for unanimous consent for 1 more minute 
to finish this line.
    Mr. Coburn. Objections to unanimous consent, so ordered.
    Mr. Norwood. This won't take but--unanimous consent, guys; 
this is important.
    Thank you, Mr. Chairman.
    You presently allow your enrollees to go to an out-of-
network emergency room in an emergency; right?
    Mr. Braun. Yes, sir.
    Mr. Norwood. Isn't that what you said?
    Mr. Braun. That is correct.
    Mr. Norwood. Your plans allow enrollees to see a specialist 
when a specialist is clinically indicated? You do that great 
work?
    Mr. Braun. Yes, sir.
    Mr. Norwood. Your plans allow women direct access to OB/GYN 
for routine care?
    Mr. Braun. Yes, sir.
    Mr. Norwood. Good work.
    Your plan allows parents to take children to see a 
pediatrician?
    Mr. Braun. Yes, sir; pediatricians or primary care doctors.
    Mr. Norwood. Mr. Braun, the bill you have endorsed is H.R. 
216, and we are grateful for your endorsement.
    Mr. Coburn. The gentleman from Wisconsin is recognized.
    Mr. Barrett. Thank you, Mr. Chairman.
    I would like to sort of look at a real world situation and 
get your thoughts on this.
    You have a woman who is pregnant--7, 8 months pregnant. She 
is in an employer-sponsored plan, and she is due to give birth 
around the turn of the year. She receives a notice from her 
employer that her HMO will no longer be part of the employee 
package; she has to move to another HMO. So, naturally, she 
calls the HMO and asks whether--if the baby is delivered after 
the first of the year, she will be able to have that covered 
under current HMO policy. She is told by the HMO that, ``No, 
she is not,'' and would have to switch to a physician that is 
covered under the HMO policy.
    I look at the different plans that we have before us, and 
it looks to me as though Mr. Dingell's bill, Mr. Ganske's bill, 
Mr. Norwood's bill covers this, although it does not look as 
though Mr. Bilirakis' bill does cover this.
    From your perspective--all three of you--is this something 
that should be covered? Or is this something that the market 
can deal with, and that an individual, a woman, in particular, 
who is 7 or 8 months pregnant, should be required to change her 
obstetrician at that stage of her pregnancy?
    Mr. Thomas, we will start with you.
    Mr. Thomas. Well, the Commission looked at this question 
and made a very strong recommendation that that person with the 
pregnancy should be able to maintain their current providers 
through the time of their pregnancy and some reasonable time 
thereafter and then have an opportunity to switch over to 
whatever new providers would be provided that would be 
available under the new plan.
    That same protection was extended to people undergoing a 
course of treatment with disabilities or serious or chronic 
illnesses, and I think it is just as important in that area as 
well, to have some bridge, some ability to arrange for a 
different or an alternative provider network while that 
involuntary change in plan or providers occurs.
    Ninety days, some would argue, is arbitrary and is just 
kind of a figure that was a compromise on the Commission. There 
are some who wanted that period of time to be much more. But it 
seems to me that 90 days is a reasonable point.
    Mr. Barrett. Dr. Braun?
    Mr. Braun. Well, my wife and I have four kids. I have never 
quite heard pregnancy being called a chronic disability, 
although she might disagree with me.
    In the situation that you are talking about, again, we do a 
case-on-case evaluations about that. I think some of the 
problem is people confuse the concepts of continuity of care 
which is what you are talking about here, with the idea of 
convenience of care. To the great part, when I have been 
involved in situations like this one, somebody has been in the 
last trimester of pregnancy, we have attempted, when at all 
possible, to continue that care with the original provider.
    Mr. Barrett. Well, let me be more specific, because my wife 
and I have four children, and the constituent I am referring to 
is my wife with our fourth child. And she was told that the 
plan would not cover it.
    Now, would your plans cover that?
    Mr. Braun. My plan would cover, in the last trimester, 
would cover the original provider; yes.
    Mr. Barrett. Do you think any comprehensive HMO bill of 
rights bill would cover that?
    Mr. Braun. Well, again, I mean I feel that legislation is 
not always the solution to things like this and----
    Mr. Barrett. So you think it would be more preferable, 
then, without legislation, if the HMO decided that she would 
have to switch obstetricians in the eighth month?
    Mr. Braun. Well, again, you know, the problem with 
legislation is that it ties you to the post, and, you know, not 
all legislation carries out the intent for which it was 
originally done.
    And, you know, we have seen this in some other cases like 
the drive-by delivery laws. I mean there has been legislation 
that has been passed that didn't exactly come out the way it 
was originally intended.
    I feel, again, that the way to resolve this is through 
contractual issues and through market issues.
    Mr. Barrett. So, you are going to tell a woman who is 8 
months pregnant that you and your contract----
    Mr. Braun. I am not going to tell her.
    Mr. Barrett. You want me to tell her?
    Mr. Braun. It is your wife.
    Mr. Barrett. I will have you tell my wife, and I am much 
calmer about this than she would be if she were sitting here--
she gave birth on December 27--but I find it unconscionable 
that we would tell an 8-month pregnant woman that she has got 
to switch obstetricians.
    Mr. Braun. Again, I don't know which plan you were in. It 
wouldn't happen in the ones I know.
    Mr. Barrett. Well, and that is the point. And when Dr. 
Ganske reads from a bad contract, do we, as Congress, just sit 
there and say, ``Well, that's a bad plan.'' We are dealing with 
real people.
    Mr. Coburn. Would the gentleman yield for a minute?
    Mr. Barrett. I would be happy to yield.
    Mr. Coburn. This is an area that I happen to have a lot 
of--and I will just give you an example--Blue Cross and Blue 
Shield of Oklahoma. Right now, in Wagoner County, they lost 
their only obstetrician. They have five patients that they 
won't assign to other qualified doctors, even though they are 
Blue Cross and Blue Shield doctors, but they are not their HMO-
qualified doctors. So we have five patients that are going to 
drop in with no prenatal care in the last 12 weeks of their 
pregnancy. That is the kind of problem Dr. Ganske and Mr. 
Barrett are referring to. It is an absence of real caring for 
the patient, and I would see that the gentleman's time is up, 
and would yield.
    Mr. Barrett. It is always a pleasure----
    Mr. Coburn. And I thank the gentleman for yielding.
    Mr. Barrett. It is always a pleasure to yield to you, Mr. 
Chairman.
    Mr. Coburn. Mr. Greenwood.
    Mr. Greenwood. Thank you, Mr. Chairman.
    Let me direct a question to Mr. Thomas, and that is the 
President's Advisory Commission did not address a couple of 
issues that seems to be in most of the bills that we have 
referred to today. It did not address liability, as I 
understand it, and did not address medical necessity. Why do 
you think that is? And from your experiences, can you tell us 
why the Commission decided not to touch those two highly 
controversial issues?
    Mr. Thomas. Well, while the final report did not discuss 
those issues in great depth, the Commission certainly 
considered them--in particular, the liability provision. This 
goes back to my initial remarks that I made talking about the 
diversity of the panel that was assembled and the rule that we 
established from the outset, which was consensus, which turned 
into unanimity, and, therefore, you really couldn't go forward 
with a recommendation that didn't have unanimous support. And 
there were at least four health plans represented on the 
Commission. There were at least three or four business 
representatives. There were others that had questions. There 
was a lot of support to do something about health plan 
liability, but we simply could not reach consensus on it.
    And so in the preamble of our Commission's report on the 
bill of rights, we specifically make reference to the fact that 
we are not recommending anything along the lines of 
implementing this bill of rights, but that that certainly could 
include Federal or State legislation, as well as voluntary 
means of implementing.
    Mr. Greenwood. Okay.
    Mr. Thomas. As for medical necessity, that issue was raised 
in the subcommittee that I chaired and quickly degenerated into 
a discussion about costs and that if you established a 
``medical necessity'' definition that we would ultimately be 
mandating benefits in a certain way. That is, I think, is a 
wild overstatement to the issue, but I do think that that was 
the approach that was used. And, unfortunately, with the rules 
that we had established, that effectively killed that debate.
    Mr. Greenwood. Okay.
    Let me address a question to Dr. Braun--and if you tell me 
you have a degree in psychiatry, I am going to want to start to 
see some diplomas.
    In your plan, who makes the decisions about medical 
necessity, in terms of their qualifications? Are they 
physicians? Are they healthcare providers? Are they just 
trained personnel? Who makes the initial decisions?
    Mr. Braun. We have a staff of trained medical people, 
nurses, that do the initial screenings. If the procedure is to 
be approved, they make those approvals. Anything that is in 
doubt is forwarded to myself or my medical director. We have 
certain guidelines that we apply to those determinations.
    Mr. Greenwood. So let me just understand--in your plan, the 
nurses can approve procedures, but only a physician can deny a 
procedure; is that correct?
    Mr. Braun. That is correct; yes, sir.
    Mr. Greenwood. Okay. Do you know how your association that 
you are speaking for today would feel about a requirement that 
it be that way across the board? And do you have knowledge as 
to what extent your practice is customary?
    Mr. Braun. I would refer you to the AAHP for their opinion 
on this, but I do believe that in the vast majorities of the 
plans, it is a physician only that can make a denial. I mean 
that is I think the general accepted practice in the industry.
    Mr. Greenwood. Okay. And when you make a denial and it is 
questioned by a physician--if the physician requests it, do you 
supply the physician with a standard that you used to make that 
decision?
    Mr. Braun. Yes, sir. In fact, we, and the plans that I have 
worked for, usually before I will issue a denial--I have got to 
tell you, we do hundreds and thousands of, you know, 
evaluations every year. The number we finally end up denying is 
a very small fraction--1 or 2 percent. Before I will do that, I 
will call, and my medical director will often call, and see if 
we can't get a hold of the physician involved, and have a 
discussion with them, and talk to them about it. Oftentimes, 
this will take, when we have the additional information, and 
turn something that might possibly be denied and turn it into 
something that will be approved. Or, in the alternative, there 
might be another course of treatment that we can mutually agree 
on.
    Mr. Greenwood. And, again, the same sort of similar 
question--do you see a problem in terms of a policy, if it was 
required that every plan provide a physician, upon request, the 
standard with which the denial was made?
    Mr. Braun. Again, I would like to see this be something 
that would be in the way of a code, in a way of something that 
is voluntarily enforced. I would prefer to see that rather than 
legislation, because, again, that would tie us too much to a 
standard that may not be appropriate.
    Mr. Greenwood. I am not necessarily--I didn't necessarily 
imply that one would legislate the standard----
    Mr. Braun. Yes, sir.
    Mr. Greenwood. [continuing] only legislate the notion that 
whatever standard is being used, it is shared, then, with the 
physician.
    Mr. Braun. Possibly.
    Mr. Greenwood. Thank you, Mr. Chairman.
    Mr. Coburn. Dr. Braun, I would like for you to go to page 8 
of your written testimony.
    Mr. Braun. Yes, sir?
    Mr. Coburn. In the first paragraph, about the middle, there 
is a sentence that starts, ``It has become fashionable.''
    Mr. Braun. On page 8, sir? Maybe I am missing that, but on 
my page 8, I don't see that.
    Is this the one with the bullet points?
    Mr. Coburn. I have got a statement on ``Patient Access to 
Quality Care,'' by Dr. Joseph Braun, on behalf of AAHP. In the 
right-hand lower corner, it says page 8.
    Mr. Braun. Okay, and you say that there is a--but what was 
the----
    Mr. Coburn. It is the page before that.
    Mr. Braun. Oh, okay. The military page 8, right? Okay.
    Mr. Coburn. Is that the one that has the paragraph, about 
the middle of it, it says, ``It has become fashionable''----
    Mr. Braun. Hold on a second.
    Mr. Coburn. It will be on your page 7.
    Mr. Braun. Well, go ahead and ask the question, sir.
    Mr. Coburn. Okay. It is at the bottom--I am sorry; it is 
the bottom of page 6, roman numeral III.
    Can you start reading the last sentence and finish to the 
end of that paragraph?
    Mr. Braun. Yes, sir.
    ``It has become fashionable for health plan opponents to 
promote legislation by developing caricatures of health plan 
practices based on anecdotes and rarely are the facts about the 
quality of medical care delivered to health plan members 
considered or even offered.''
    You want to the end of the paragraph, sir?
    Mr. Coburn. To the last sentence.
    Mr. Braun. Yes, sir.
    ``These omissions harm patients by misleading them about 
their healthcare system and what to expect. However, the record 
refutes these myths.''
    Mr. Coburn. Thank you.
    I want to talk to you about medical necessity, as it 
relates to a specific case--one of these anecdotes and these 
myths that you are talking about in your paper here.
    Mr. Braun. Yes, sir.
    Mr. Coburn. A couple of years ago, a woman named Lomona 
Adams, 3 in the morning, had a 6-month-old baby, Jimmy Adams, 
crying, moaning, sweaty, looking really sick, temperature of 
104. She phones her 1-800 health number and describes this 
situation to the reviewer. The reviewer says, ``I will 
authorize you to go to the an emergency room, but the only one 
that we authorize is Scottish Rite Hospital.''
    So, Lomona Adams says, ``Where is it?''
    ``Well, I don't know; find a map.''
    Well, it turns out the Adams' family lives east of Atlanta, 
Georgia. Scottish Rite is on the other side. So at 3:30 in the 
morning, Lomona and her husband wrap up this really sick baby. 
They get in the car; they start driving. The kid really looks 
sick.
    They are driving through Atlanta; they pass three 
hospitals--Emery, Baptist, and another one. But you know what? 
They don't have authorization to stop. And they know that if 
they stop at that emergency room, they are liable to get stuck 
with a bill of thousands of dollars. So they keep pushing on.
    Twenty-three miles from Scottish Rite, little Jimmy has an 
arrest in the car. It is rainy out, stormy night--picture that. 
Mom and Dad resuscitating this little 6-month-old baby in the 
car, on their way to the only authorized hospital, miles and 
miles away.
    Well, little Jimmy is tough; they eventually get him alive 
to Scottish Rite--this is all outlined in a book called, 
``Health Versus Wealth.''
    However, because of the arrest, Jimmy ends up with gangrene 
of both feet and both hands which need to be amputated.
    The judge which reviews this case determines that the 
margin of safety by that health plan is, quote, ``razor thin.'' 
I would add about as ``razor thin'' as the scalpel that had to 
cut off his hands and feet.
    Today, little Jimmy--I have spoken to his mother about a 
week ago--has bilateral hand prosthesis which Mom and Dad have 
to help him put on. He is able to get his bilateral leg 
prosthesis on himself. He will never be able to caress the 
cheek of the woman that he ends up loving; he will never be 
able to play basketball. I guess this is one of those 
``anecdotes'' that you talk about; right?
    You know what, Dr. Braun? Those ``anecdotes,'' if you prick 
their finger, they bleed. Little Jimmy, the anecdote--which I 
never want to hear you talk about ``anecdotes'' in front of 
this panel again--little Jimmy will live the rest of his life 
with the mistake that that HMO made.
    And you know what? They can defend themselves, because you 
know the plan under ERISA and under the GOP language that 
passed last year in the House, gets to decide what is, 
``medically necessary.''
    Imagine the dilemma that this puts a young mother in. If I 
stop sooner, I may be faced with thousands of dollars of bills, 
but if I don't, maybe my little baby will end up like Jimmy 
Adams.
    Mr. Burr. Would the gentleman yield?
    Mr. Coburn. I will be finished--I will yield back in a 
minute.
    You know, when I see people argue against Federal 
legislation on the basics of anecdotes, I could give you one 
anecdote after another. And those anecdotes happen to be our 
employees, family members, friends. It is situations likes 
those that are why more than 80 percent of the people in this 
country think we need Federal legislation to correct those 
anecdotes, those horror stories.
    What kind of response do you have to a situation like that? 
Is this something that AAHP should just ask its plans to 
voluntarily fix, so that the market can work? I just point out 
that Lomona and her husband didn't have any choice.
    That, Dr. Braun, is the reason why we are here today. I am 
sorry, but I deeply resent your statement that was in the 
record about anecdotes. And I will be happy to allow you to 
respond.
    Mr. Braun. Certainly this is a human tragedy, and I really 
certainly feel sorry for these people. I mean, being trained as 
a physician, I can tell you that that certainly is a sad case. 
And there are human lives involved. I mean one of the reasons 
that I am in the profession that I am, is I feel that managed 
care has a way to evolve.
    I can trade anecdotes with you; I have practiced medicine 
in a time when we had indemnity medicine. I can tell you 
stories about people who declared bankruptcy under the 
indemnity system because they couldn't afford the co-pays under 
the system. There were problems back then with access. People 
that were uninsured couldn't get access to care either.
    I mean there has not yet been a suitable system developed. 
Where we are at in managed care is simply a weigh station along 
the way. I would hope that I can be part of a greater process--
that the AAHP, that the industry can be part of a greater 
process. And there can be a public and a private partnership 
that will move this crisis that we have that is called the 
``American healthcare system'' forward so this sort of story 
won't happen.
    Mr. Coburn. Well, I thank you for those comments. I would 
point out that the bill that I am sponsoring deletes some of 
the language from last year's bill that would have been 
``costers''--I am sensitive to the cost argument. I would also 
point out that a survey by the NFIB--the NFIB has pointed out 
that 95-98 percent of their health plans would not drop 
coverage for patients if you were talking about an increase in 
premiums of less than $3 per month per family, and that that 
type of coster is well within range of the type of bill we are 
talking about.
    And, Congressman Burr, I would yield to.
    Mr. Burr. If the chair would yield for one question. And I 
would certainly say that when we all hear a story like that, we 
look for what went wrong. I don't think that even the person 
who made the determination on that, given that they saw the 
situation, would want to rethink the process they have gone 
through.
    But I passed on an opening statement; I passed on questions 
to all of you, but I feel compelled to ask one very important 
question, so that it helps us to stay focused on why we are 
here and what we are doing. Let me just ask each of you to 
respond.
    Who has a greater opportunity at quality heath care? 
Somebody who is insured, or uninsured?
    Ms. Auer. Sir, today, it is easier for me to care for a 
patient who is uninsured than a patient who is covered by a 
managed care plan.
    Mr. Burr. Doctor?
    Mr. Braun. Well, again, this question has a lot of 
ramifications. I mean we are facing, again, a problem in this 
country in that we are finding the number of uninsured rising. 
And even in cases where people are working, we are finding 
people that are working and not being insured. This is 
certainly a great social calamity, and one that I, personally, 
am very concerned about.
    I mean, in addition to the other things that were 
mentioned, I also teach medical ethics, and there is a concept 
known as ``distributive justice'' that I think is a very 
important one for this country to be thinking about. I mean, 
here we are, the richest country in the world, and yet we have 
people who through parts of the years not insured.
    You know one of the things that we have always prided 
ourselves on is the fact though even that people who were 
uninsured, we had a great social conscience, and these people 
could find care. I know I do a lot of uncompensated care when I 
worked in emergency rooms. I mean, to me, it is a very sad 
question.
    I hope, certainly, that people, especially in my plan, that 
our insureds get the best of care, because that is the reason I 
am in this business, so they can get the best of care, so their 
lives can be made better.
    Mr. Bilirakis. The gentleman's time has expired.
    Mr. Burr. Could I just ask for the last one to respond?
    Mr. Bilirakis. Well, very quickly----
    Mr. Burr. This is the only question----
    Mr. Bilirakis. [continuing] if you would, Mr. Thomas.
    Mr. Burr. This is the only question I have asked in this 
hearing, Mr. Chairman.
    Mr. Thomas. Very quickly--I think the question really comes 
down to whether you can get the care when you need it and 
whether you are insured or not. And even--as I have seen, over 
the course with the Commission, even when people are insured, 
many people have difficulty getting the care they need, when 
they need it, for a variety of the reasons that we have talked 
about today.
    Mr. Burr. Clearly, since the question was stated, who can 
receive a better quality of care? Let me remind all of you that 
we don't judge you just solely off of emergency care. This is 
ongoing care. It can be preventative care, and that is 
certainly something that is provided in many avenues for the 
insured, and I don't limit that just to one product or the 
other. But, clearly, for an individual in an tragedy who goes 
to the emergency room, somebody picks up the costs, and I think 
it is important that we understand that somebody picks up the 
costs.
    I thank the chairman.
    Mr. Bilirakis. Well, the concern is that we have another 
panel. We have three individuals just sitting there cooling 
their heels, and it is unfair to them.
    Mr. Green to inquire.
    Mr. Green. Thank you, Mr. Chairman. I will be as fast as I 
can.
    Dr. Auer, and this was touched on earlier, but just as 
every managed care bill addresses the access to emergency care 
issues, I am always concerned about the details. And, for 
example, the bill that our chairman introduced this year, and 
it was the Republican leadership bill from last Congress, did 
not include ``severe pain'' as a legitimate health emergency 
that would allow a person to seek treatment outside their 
plan--in other words, to access an emergency room. Nor did it 
require plans to pay for anything other than stabilizing care. 
Would the emergency care provision, as drafted in that bill, 
adequately protect patients who are faced with what could be a 
life-threatening emergency?
    Ms. Auer. I am sorry, sir. Are you referring to the 
chairman's bill?
    Mr. Green. In the chairman's bill, as it is introduced at 
this time; yes, ma'am.
    Ms. Auer. I appreciate that the chairman has taken the time 
to introduce this bill and look at the subject, but it does not 
provide the same type of language or coverage that exists in 
EMTALA or the Balanced Budget Act, and that is what I would 
urge you all to look at--is providing that same care that 
exists under EMTALA and the Budget Balanced Act to the Medicare 
and Medicaid population, to all Americans.
    Mr. Green. Okay. Is----
    Mr. Norwood. Would you yield for a clarification on what 
you are asking?
    Mr. Green. Yes. I asked about ``severe pain,'' and is that 
included in the Balanced Budget Act? Maybe you didn't quite 
understand.
    Ms. Auer. Yes, it does.
    Mr. Green. Okay.
    Ms. Auer. That is included----
    Mr. Green. I will yield if----
    Mr. Norwood. I want to point out to you that the task force 
bill that came out and was voted on was incorrect in its 
emergency room language. And I don't think any of us would 
disagree with that. I also don't think it came out of the task 
force with that intention. And the staffers who are here who 
blew that, are no longer here.
    Mr. Green. Oh, okay. Now, I am glad to hear that, 
obviously.
    Mr. Bilirakis. Of course that isn't the reason they are no 
longer here.
    Mr. Green. Back to the question----
    Mr. Bilirakis. Please proceed.
    Mr. Green. The concern, as an emergency room physician, you 
know, do you feel like it should include ``severe pain'' as a 
legitimate health emergency for a layperson?
    Ms. Auer. Absolutely.
    Mr. Green. Okay. And I am sorry; I didn't understand the 
comparison you said to the Balanced Budget Act. Was that 
included in the----
    Ms. Auer. The Balanced Budget Act does include ``severe 
pain'' as a provision that it would cover.
    Mr. Green. So for the sake of uniformity, we probably 
should, too, in this committee and in this Congress?
    Ms. Auer. Yes, I would urge that.
    Mr. Green. Okay.
    Dr. Braun, you state in your written testimony that 
proposals that would set strict rules for health plan referral 
procedures may have the unintended and adverse consequence of 
forcing plans into a one-size-fits-all model for referrals. How 
does this concern apply to allowing pregnant women direct 
access to their OB/GYN?
    Mr. Braun. Well, I believe I already answered. I think we 
endorse it----
    Mr. Green. Well, I am sorry, because of my schedule here.
    Mr. Braun. Yes.
    Mr. Green. I didn't hear the response.
    Mr. Braun. We do endorse already the direct access to OB/
GYN's. I think that the thing is, again, about the referrals is 
we feel that this is something that we would like to see the 
member plans adopt voluntarily.
    Mr. Green. Okay.
    Dr. Thomas--or Mr. Thomas, in your----
    Mr. Thomas. Doctor is fine.
    Mr. Green. We are all doctors here.
    In your testimony, you advocate the creation of a basic set 
of consumer protections at the Federal level, and that all 
health plans, including self-funding ERISA plans, would be 
required to meet. Do you believe these protections to be 
applicable in both the PPO plans? And, if so, do you believe 
PPO's should be required to apply the same healthcare outcome 
data as the traditional managed care plans?
    Mr. Thomas. Yes, I do. The Commission's report applied to 
all consumers in all health plans. And so if you have got an 
indemnity plan that, obviously, doesn't have networking issues, 
then access to specialty care issues become less important than 
if you have a closed panel, and you have got some very strict 
reviews of that.
    But, yes; the point is to apply that to all plans, 
including ERISA plans. And, frankly, if you don't--if you have 
some plans that aren't covered by the bill of rights, what you 
will ultimately create is a disincentive to improve quality, 
because plans won't be apt to develop programs and to create 
new, innovative ways of treating complex patients, because they 
will be afraid that ultimately people with those conditions 
will join up on their plans, and it will be more expensive for 
them.
    So, ultimately, by applying this to all plans you level the 
playing field and let plans compete based on quality and 
consumer satisfaction, instead of avoiding risky patients.
    Mr. Green. Okay; thank you.
    Thank you, Mr. Chairman. I look forward to the next panel.
    Mr. Bilirakis. Dr. Coburn.
    Mr. Coburn. Thank you, Mr. Chairman.
    Dr. Braun, I just want to visit with you and make sure I 
understand. Your plan allows access for emergency services?
    Mr. Braun. Yes.
    Mr. Coburn. Outside of the plan; is that correct?
    Mr. Braun. For emergency service.
    Mr. Coburn. And how do you evaluate whether or not you pay 
for that?
    Mr. Braun. Well, again, you have to look at the totality of 
the situations. We try and take--if we are going to error, to 
error on the side of the patient. Part of the reason that the 
plan exists, that the insurance exists, is to take care of the 
patient, to make sure that their healthcare status has 
improved. We don't apply----
    Mr. Coburn. I am not asking about your motives. I want to 
know exactly how you do it. Do you have a set of guidelines 
that are determined by physicians? Or do you have a set of 
guidelines that is a prudent layperson guideline?
    Mr. Braun. A----
    Mr. Coburn. Do you have a prudent layperson guideline?
    Mr. Braun. No, sir; we do not.
    Mr. Coburn. The answer is, ``Not.''
    And the fact is, is lots of people go to an emergency room 
with what they consider, and most of their friends would 
consider, to be an emergency condition. So, in fact, your 
testimony is, your plans decides, after the fact, with a 
medical professional, rather than a patient, what somebody who 
is not used to those symptoms, who has not been in that 
experience, would decide otherwise?
    Mr. Braun. Well, I believe you are kind of misconstruing 
what I said. We, again, look at those. I mean, in fact, what 
has happened with most of the healthcare plans, we have tried 
to do two things. We have tried to take and, again, come up 
with contractual arrangements with the emergency room so that 
patients could be seen in these emergency rooms. I mean, the 
sad thing----
    Mr. Coburn. Do you have a contractual prearrangement with 
all the emergency rooms around the country?
    Mr. Braun. We are in the process of doing that right now; 
yes, sir.
    Mr. Coburn. Throughout the whole country?
    Mr. Braun. Well, throughout--for George Washington, 
throughout the metropolitan area of DC.
    Mr. Coburn. All right.
    Mr. Braun. When I was living in Houston, I was very active 
in trying to set the same process up down there.
    Mr. Coburn. But the point is, the guidelines aren't a 
prudent layperson guideline. So we are going to take somebody, 
after the fact, and decide that with medical personnel or 
professional, rather than patient; is that correct? Is that a 
fair statement of how that is decided?
    Mr. Braun. Well, again, what is happening in reality is 
many healthcare plans are being forced into a position where 
they are paying for just about all the emergency room care, and 
there is very little medical decisionmaking being done on 
either side.
    Mr. Coburn. Well----
    Mr. Braun. I mean, by the patient or by the medical staff.
    Mr. Coburn. I am not sure I agree with that. You know, 
don't misconstrue my opening statement. The reason you all are 
here today is because you haven't taken good care of the 
market. And the problems associated to access for care and 
quality care and specialist care have not been addressed, and 
so, therefore, your business is put at risk, and the Congress 
is looking at it because you haven't used the market.
    Mr. Braun. Certainly, I understand that.
    Mr. Coburn. And, you know, I want to make sure the record 
is clear, is what I heard earlier was that there wasn't a big 
problem with access emergency care in your plan--and I am not 
saying there is--but I think there is a pretty good unanimity 
among this panel that a prudent layperson definition is one of 
the things that should decide that. And that is not a hard 
thing. There are lots of things--I run my patients out of the 
emergency room on every weekend and say, ``Don't go to the ER. 
I'll see you in the office,'' or, ``We will see you Monday.'' 
So, not everybody is an over-utilizer when it comes to this.
    The second point that I would like to make with you, in 
terms of the practice--what are the problems that you see with 
Dr. Ganske's bill, in terms of what it says? Why couldn't the 
marketplace work with Dr. Ganske's bill in place, as well?
    Mr. Braun. Well, again, what I would like to see happen is 
there be a public and private partnership. I mean I think--to 
be honest with you, I think one of the biggest problems is 
there is an information mismatch. What is happening in this 
country right now is we would like to make our patients into 
consumers; we would like to make our doctors into informed 
providers.
    The problem is, is what has happened in the United States 
right now, is we have a system that has an awful lot of waste 
in it. And the reason the waste is there is because there is a 
lot of variation in the way people practice----
    Mr. Coburn. No.
    Mr. Braun. [continuing] medicine.
    Mr. Coburn. No. The reason the waste is there is you all 
have destroyed the doctor/patient relationship.
    Mr. Braun. Well, I----
    Mr. Coburn. The doctor is no longer accountable to the 
patient, who is no longer paying the bill; therefore, a third-
party is involved.
    Mr. Braun. Well, I would----
    Mr. Coburn. And everything we have done--let me finish my 
tirade and then I will let you have one.
    We have destroyed the obligation, through third-party, of 
the doctors' responsibility to the patient, and the patients' 
responsibility to the doctor, and, therefore, we get 
overutilization on the part of physicians and over-utilization 
on the part of patients, and overutilization when it comes to 
paperwork to try to control something. And that is why I 
referred to the ``Sovietization'' of managing our healthcare 
dollars in this country. We will never manage them if we 
continue to destroy the doctor/patient relationship.
    And, Mr. Chairman, I would just like the kindness to allow 
him to respond to that question--and yield back.
    Mr. Braun. I totally concur with you about the patient/
physician relationship. I feel this is a very important 
relationship. The relationship I would like to see built is one 
where the physician is informed and understands the best 
practices, and the patient is also totally informed, too. I 
mean the great, great promise that managed care holds is the 
fact that we are finally looking at what we do.
    You and I were both trained in a system where we saw one, 
we did one, and we taught one; nobody ever looked at which one 
was the best.
    What I am saying is managed care does offer the possibility 
of us looking to see what is the best way to do things. I mean 
if we don't do this, we are going to find ourselves in a 
position where there is going to be more demand on this system, 
than the resources that are there to fulfill it.
    Mr. Coburn. And I think you will see that I alluded to the 
positive benefits of managed care in my opening statement.
    I yield back.
    Mr. Bilirakis. Thank you.
    Mr. Whitfield.
    Mr. Whitfield. Thank you, Mr. Chairman.
    Dr. Braun, how many companies would you say contract with 
your health plan to provide healthcare for their employees?
    Mr. Braun. I believe it is about 400 or 500, sir.
    Mr. Whitfield. Four or five hundred companies?
    Mr. Braun. Yes, sir.
    Mr. Whitfield. And are these some Fortune 500 companies?
    Mr. Braun. I wish we were that big. The biggest one we have 
is the Federal Government.
    Mr. Whitfield. Federal Government?
    Mr. Braun. Yes, sir.
    Mr. Whitfield. But you have some medium-sized companies, I 
would assume?
    Mr. Braun. Yes, sir.
    Mr. Whitfield. Now--and how many individuals do you provide 
healthcare for?
    Mr. Braun. About 86,000.
    Mr. Whitfield. Eighty-six thousand?
    Now, I am assuming that periodically you set down with 
these companies and you enter into--you discuss the coverage 
that you will provide, and the amount of money that they are 
going to pay, and you enter into a contract with them.
    Now, how often do they complain to you about the service 
that you are providing their employees? I mean I am----
    Mr. Braun. It is very rare, in fact. I mean one of the 
things that we do talk to them quite a bit about is the fact 
that we have moved several of these plans from where they were 
insured with other entities to a place where they not only got 
better costs but better services. I mean we don't have a string 
of people coming in and telling us they are upset about what 
they are paying and what they are getting.
    Mr. Whitfield. So, at least from the companies that you 
deal with, they evidently are relatively satisfied with your 
coverage, I am assuming?
    Mr. Braun. Yes, sir, I would say. I have only been there 5 
months, but I would, yes, sir.
    Mr. Whitfield. Yes; Okay.
    Now, Dr. Auer, I think you said that maybe you treated like 
30,000 patients a year in the emergency room, or your group 
does. And of that, what percent would you say are covered by 
HMO's?
    Ms. Auer. The Seattle market is a very high-penetration of 
managed care, as you might imagine. And we treat approximately, 
in my area, 72 percent of managed care patients; not all of 
those are HMO's, but some form of managed care.
    Mr. Whitfield. But to help--to just have a little bit of 
better understanding of how pervasive this problem is, from 
your testimony, it appears that you do have significant 
problems with HMO's that you--I mean I think you even made the 
statement in here that they really are proving to be an 
obstacle to good healthcare. I mean, is that your honest--that 
is your feeling about it; right?
    Ms. Auer. Unfortunately, sir, there is not a day that goes 
by where we are not dealing with these issues. And if I could 
give you just one example.
    Your health plan sounds great.
    But, for example--and this is the reason that I think we 
need a Federal standard--is we had a patient come in from out-
of-plan. He was diabetic, had cut his hand, came to the Seattle 
area on business. His hand got painful, red, and sore. He 
thought it was infected; he was right. He came to see us; we 
had to take the stitches out, give him an IV antibiotic, send 
him on his way with oral. And his claim was denied for payment, 
and we appealed it.
    And the medical director sent us a letter that said, ``Yes, 
this was medically necessary, but you were supposed to call us 
in 3 days and you didn't, so we have denied it.'' Now, how were 
we to know that?
    Mr. Whitfield. Now what do you do in that situation? Do 
you, then, bill the individual? Or do you all just eat that 
cost?
    Ms. Auer. Well, it depends; we do both. We will bill the 
individual, but we often eat the cost.
    Mr. Whitfield. Yes.
    Now, of course, you, obviously, support the prudent 
layperson standard, and I assume, Mr. Thomas, you would support 
the prudent layperson standard?
    Mr. Thomas. Yes, I do.
    Mr. Whitfield. And, Dr. Braun, will you support it? Would 
you support that standard?
    Mr. Braun. At this point, I would say that the question of 
emergency medicine care, again, relies on the individual cases. 
And, you know, for the most part, the patient is best able to 
determine it. But as for legislation, I wouldn't say that I am 
particularly in favor of one form of legislature or another.
    Mr. Whitfield. Mr. Chairman, I yield back my time.
    Mr. Bilirakis. All right.
    I think in the interest of time here, we will go on to the 
next panel, but there will be--most certainly--additional 
questions that will be submitted to you in writing.
    Are you all willing to respond to them----
    Ms. Auer. Certainly.
    Mr. Thomas. Yes.
    Mr. Braun. Yes, sir.
    Mr. Bilirakis. [continuing] Within a reasonable period of 
time?
    Ms. Auer. Yes.
    Mr. Bilirakis. Mr. Bryant, you haven't had your opportunity 
yet? Please, feel free.
    Mr. Bryant. Mr. Chairman, thank you. That was my intent. I 
did have a question for Dr. Braun that I was going to ask that 
he submit in writing, and I will just go ahead and do that, 
with your permission.
    And then in the interest of time and out of respect to this 
panel and the next panel, I will waive any further questioning.
    Mr. Bilirakis. Thank you very much.
    Okay this panel is discharged. Thank you so much. You have 
been very helpful. And sorry it took us as long as it did to 
get through all this.
    Panel two consists of Dr. Thomas R. Reardon, president-
elect of the American Medical Association; Ms. Mary Nell 
Lehnhard, senior vice president, Office of Policy and 
Representation, Blue Cross and Blue Shield Association; and Mr. 
Ron Pollack, executive director of Families USA.
    Ms. Lehnhard and Dr. Reardon and Mr. Pollack, your written 
statement, of course, is a part of the record. I will turn the 
5-minute light on and would hope that you could stay as close 
to it as you might be able to. And I apologize for making you 
wait as long as--but that is the way it goes. Anyhow, Dr. 
Reardon, please, proceed.

  STATEMENTS OF THOMAS R. REARDON, PRESIDENT-ELECT, AMERICAN 
MEDICAL ASSOCIATION; MARY NELL LEHNHARD, SENIOR VICE PRESIDENT, 
BLUE CROSS AND BLUE SHIELD ASSOCIATION; AND RONALD F. POLLACK, 
          EXECUTIVE DIRECTOR, FAMILIES USA FOUNDATION

    Mr. Reardon. Thank you, Mr. Chairman, and members of the 
committee. I thank you for allowing me to testify.
    My name is Dr. Thomas Reardon; I am president-elect of the 
American Medical Association. I want to thank you for inviting 
me to testify today, and especially for holding this hearing on 
this critically important subject--patient access to healthcare 
information.
    At the outset, let me emphasis that virtually all patient 
protections are interrelated. Whether we are discussing 
information disclosure or anti-gag practices, other patient 
rights will be affected in some way. The AMA, therefore, 
strongly urges Congress to address all patient protections in a 
single, comprehensive bill.
    Consider, for instance, information disclosure requirements 
have prohibitions against gag practices. Congress could pass 
legislation to guarantee that patients have proper access to 
all necessary healthcare information. But if the plan can 
determine ``medical necessity,'' in an arbitrary manner, the 
information that patients will be rendered is meaningless.
    Congress could also prohibit gag clauses and gag practices 
to ensure open communication between patients and their 
physicians, but if plans can continue to arbitrarily define 
``medical necessity,'' patients will not benefit significantly 
from knowing their treatment options.
    Among the rights which are the most closely associated with 
patients' access to healthcare information are the following 
three: information disclosure, anti-gag practice provisions, 
and ``medical necessity'' determinations.
    Information disclosure requirements simply reflect that 
patients have a right to know what their money is buying them. 
Consequently, plans have an affirmative obligation to disclose 
to enrollees and prospective enrollees all pertinent and 
material information. This information needs to be in a easily 
understandable format and given to enrollees and prospective 
enrollees in a timely manner.
    The second right involves protecting patients against gag 
clauses and gag practices. Gag provisions, in general, are 
designed to control physician behavior. They also greatly limit 
a patient's access to information that is needed to make 
informed decisions and to provide informed consent. Although 
some people have alleged that gag clauses no longer exist, we 
have found otherwise. Gag clauses, business clauses, and gag 
practices do exist, and they continue to restrict physician/
patient communications and undermine trust and confidence. In 
fact, lawsuits continue to be filed, and they identify specific 
gag clauses that penalize physicians for candidly discussing 
coverage options.
    More prevalent are business clauses. These clauses prohibit 
physicians from speaking negatively about the managed care 
organization or from discussing the organization's financial 
arrangement with physicians. Though not explicitly gag clauses, 
business clauses have a dramatic chilling effect on patient/
physician discussions about legitimate non-covered treatment 
options.
    Plans also engage in other offensive gag practices. 
Consider one health plan bulletin, for instance, which stated, 
and I quote, ``Effective immediately, all healthcare plan 
participating physicians must telephone the pre-admission 
review department before conveying the possibility of an 
admission to the plan member.''
    Plans continue to implement policies and procedures that 
effectively gag physicians and undermine quality healthcare, 
and this must be stopped.
    We, therefore, strongly encourage Congress to pass a 
comprehensive patient protection bill that will ban both gag 
clauses and gag practices. And to adequately protect patient/
physician communications, we recommend the bill broadly define 
the term ``medical communication.'' When patients and 
physicians are discussing the patient's condition, they should 
be free to discuss any factor that may affect the patient's 
condition, treatment option, and including the patient's 
financial incentives.
    We also want to emphasize that any Federal patient 
protection bill must not preempt State laws that are more 
protective of patient rights. A Federal patient rights' bill 
must act as a floor, not a ceiling, for patient rights.
    The third patient right related to a patient's access to 
healthcare information involves ``medical necessity.'' Many 
plans in their information disclosure statements indicate that 
the plan will provide coverage for all medically necessary 
treatment. When the patient suffers an illness, though, plans 
sometimes deny coverage while relying on their own arbitrary 
definition of ``medical necessity.'' The AMA believes that 
``medical necessity'' decisions are ultimately medical 
decisions and should continue to be treated as such. ``Medical 
necessity'' decisions must always be made in the accordance 
with generally accepted standards of medical practice by 
independent, properly qualified, and licensed prudent 
physicians.
    I thank you very much, Mr. Chair, for allowing us to 
testify, and thank you for allowing us to be here.
    [The prepared statement of Thomas R. Reardon follows:]
  Prepared Statement of Thomas R. Reardon, President-Elect, American 
                          Medical Association
Introduction
    Mr. Chairman and members of the Committee, my name is Thomas R. 
Reardon, MD. I am the President-Elect of the American Medical 
Association (AMA). I am also a general practice physician from 
Portland, Oregon. On behalf of the three hundred thousand physician and 
medical student members of the AMA, we appreciate the opportunity to 
testify on these important patient protection issues--``information 
disclosure'' and ``gag practices.'' The AMA has always been a strong 
advocate for patient rights, and in the midst of a rapidly evolving 
managed care marketplace, the vigilance of all of us becomes even more 
critical.
    At the outset, we want to emphasize that virtually all patient 
protections are interrelated. Ensuring that patients have information 
about accessible grievance and appeals procedures, for instance, will 
mean little if the standards that the review entities would apply are 
arbitrarily defined by the plans. Similarly, guaranteeing that patients 
have access to specialty care, would be virtually meaningless if plans 
could arbitrarily determine that the specialty treatment was not 
medically necessary. And even though we may discuss only one or two 
patients' rights in a particular forum, we should realize that it would 
be inappropriate to barter or trade one set of patient rights at the 
expense of other legitimate patient rights. Patients deserve to have 
protected all of the rights which fairness and justice require.
    While discussing these two patients' rights--information disclosure 
and anti-gag practices, we must realize that there is currently no 
issue more pressing than the question of who determines the ``medical 
necessity'' of patient care. Nearly all other patient protections that 
have been discussed in recent years--and these two rights in 
particular--in some way turn on this single, critical issue. In the 
AMA's view, properly handling ``medical necessity'' is the linchpin to 
ensuring the promise of the full range of needed patient protections, 
including proper information disclosure and anti-gag clause and 
practice provisions.
Information Disclosure
    When a person purchases a product, he or she wants to know what is 
being purchased. Similarly, when patients contract with health plans, 
they should receive all material information about covered benefits and 
plan procedures. Patients have a right to know what their money is 
buying them.
    The AMA believes that legislation ensuring that plans properly 
disclosure all pertinent and material information to prospective and 
current enrollees should be enacted to help restore the nation's trust 
in the health care system and allay the public's fear. Plans need to 
disclose information on covered benefits, service areas, physician and 
provider access (including access to specialists), plan costs, cost-
sharing, financial incentives, restrictions that may limit services, 
and any requirements for enrollees. In selecting plans, individuals 
need information to understand how the plan operates, the benefits to 
which they are entitled, what they must do to ensure that services are 
covered, and where and from whom they can obtain services.
    Prospective enrollees also need to know how plans compare on items 
such as specific coverage exclusions, patient cost information, patient 
satisfaction, cost control programs, loss or medical expense ratios, 
number and mix of physicians and other providers, disenrollment rates 
and grievance and appeals procedures. When patients are given the 
ability to choose among plans, as they should be, they can make 
informed decisions only when they have the necessary information. 
People compare plans based on all of this critical information. 
Consequently, plans must provide this information to prospective 
enrollees in an easily understandable, standard format, allowing enough 
time for the prospective enrollees to review the information and have 
any questions they may have answered promptly and thoroughly.
    When considering information disclosure requirements, we urge 
Congress to reflect on the concerns of all enrollees, prospective 
enrollees, and most especially, enrollees as patients. We believe that 
Congress must act to require plans to actually provide and distribute 
essential information, rather than simply make it accessible. For 
prospective and actual enrollees, inconvenience and inability to locate 
the source of information can frequently make ``accessible'' 
information, in effect unobtainable. As a result, patients many times 
cannot exercise rights to which they are legitimately entitled. 
Moreover, when plans distribute information to enrollees and 
prospective enrollees, that information functions as a convenient 
resource to provide ready answers to patients' pressing questions.
    Some proposed patient protection legislation for instance would 
require that plans provide only ``summaries of'' or ``statements 
regarding'' or general ``descriptions of'' patient benefits and benefit 
exclusions. Some legislation would also permit plans to ``make 
available,'' rather than actually distribute, information that most 
patients would consider essential in comparing plans and benefits 
effectively. For prospective enrollees to make fully informed decisions 
when selecting plans, they must have all the necessary facts--not the 
plans' summaries of facts. Plans have all of the requisite information 
easily available; requiring disclosure of this information would not 
burden them. Patients have a right to receive this information, 
particularly as a prerequisite to enrollment and once enrolled--at 
least annually thereafter, so they can provide an informed acceptance 
of the plans' proposed coverage terms.
Gag Clauses and Practices
    Patients not only have a right to receive pertinent and material 
information regarding health benefits from their plan, they also have a 
right to be informed about their own health and all treatment options 
by their physicians. As an essential prerequisite, patients and their 
physicians must be able to communicate openly with each other, without 
unreasonable interference from the health plans.
    Frequently health plans, however, have incorporated clauses in 
their contracts with participating physicians which prohibit or 
restrict the physicians from discussing certain noncovered treatment 
options with patients. Even if the plans do not include these explicit 
clauses--so-called ``gag clauses,'' many plans maintain policies or 
practices that function to restrict open communications between 
physicians and patients--so-called ``gag practices.'' The AMA has 
historically been on record as vehemently opposing both gag clauses and 
gag practices, because they create an inherent ethical conflict of 
interest and strike at the heart of the patient-physician relationship.
    The AMA's Code of Medical Ethics, which lays out guiding principles 
for the entire medical profession, is very specific on this point. In 
it we find a very important section entitled Fundamental Elements of 
the Patient-Physician Relationship. The very first ``Fundamental 
Element'' is as follows:
    ``The patient has the right to receive information from physicians 
and to discuss the benefits, risks, and costs of appropriate treatment 
alternatives. Patients should receive guidance from their physicians as 
to the optimal course of action.''
    In addition, the AMA's Council on Ethical and Judicial Affairs, the 
AMA entity responsible for maintaining the Code of Medical Ethics and 
providing authoritative interpretations of its contents, has stated 
that:
        ``The physician's obligation to disclose treatment alternatives 
        to patients is not altered by any limitations in the coverage 
        provided by the patient's managed care plan . . . Patients 
        cannot be subject to making decisions with inadequate 
        information. That would be an absolute violation of the 
        informed consent requirements. If these clauses are carried out 
        and the physicians are subject to sanction, a reduction of 
        patient quality of care will result.''
    The AMA staunchly believes that patients must be able to trust and 
rely on the information their physicians provide to them regarding 
appropriate medical treatment and care. In short, physicians have an 
ethical and legal duty to ensure that their patients are fully informed 
of their options regardless of cost or potential treatment limitations. 
Unfortunately for patients, ``gag clauses'' create a real or perceived 
potential conflict of interest for physicians by placing a wedge 
between them and their physician. ``Gag clauses'' and ``gag practices'' 
undermine two fundamental elements of the healing process--trust and 
confidence.
Continued Use of Gag Clauses and Gag Practices
    Gag provisions are typically designed and implemented with the 
intent to control physician behavior and to limit a patient's access to 
the full range of information that is needed to make informed decisions 
and provide informed consent about the proper course of medical 
treatment. While the AMA acknowledges a legitimate business interest in 
addressing cost issues and avoiding unjustified disparagement of a 
plan's operations, we firmly believe that such efforts should not 
undermine the quality of care received by patients. We also readily 
acknowledge that not all health plan contracts contain written ``gag 
clauses.'' Nevertheless, some health plan contracts still do contain 
these insidious provisions. More typically, though, health plans have 
subtle, unwritten, plan policies and procedures that effectively impede 
physicians from discussing treatment options if the plan does not cover 
those treatments.
    The AMA is aware that the U.S. General Accounting Office (GAO) last 
year reported that based on its own study, it did not find explicit gag 
clauses in HMO contracts. When conducting its survey, though, the GAO 
asked 622 HMOs to forward to it copies of contracts they use for 
primary care physicians and specialists. In response, the HMOs 
voluntarily and perhaps selectively submitted 1,150 contracts. Of those 
submitted contracts, the GAO found that none of them contained 
``clauses that specifically restricted physicians from discussing all 
appropriate medical options with their patients,'' according to the 
report.
    Commenting on its own survey results, the GAO admitted, however, 
that ``the contracts sent to us [the GAO] may not be representative; 
[unsubmitted ones] may contain gag clauses.'' Consequently, the GAO 
survey results do not accurately reflect the types of contracts that 
physicians are currently being asked to sign or may be asked to sign in 
the future.
    Recent lawsuits further suggest that the GAO's findings may not be 
entirely accurate. Just a few months ago, the State of Texas sued six 
HMOs, and in the complaints against two of them (Aetna and Humana), 
alleged that their physician contracts ``contain gag clauses that 
penalize physicians for candidly discussing the coverage provided by 
these HMOs.'' 1 Humana imposes $1,000-$2,000 penalties on 
physicians who counsel patients to disenroll from a Humana plan, 
according to the state.2 In all of the complaints, the state 
claimed that the HMO contracts include illegal incentives to limit 
medical care to HMO patients.
---------------------------------------------------------------------------
    \1\ ``Texas Alleges HMOs Engaged in Illegal Incentives, Deceptive 
Marketing Practices,'' Health Law Litigation Reporter, January 1999, 
Vol. 6, No. 6, p. 3.
    \2\ Id.
---------------------------------------------------------------------------
    Appearing to confirm some of the HMO behavior patterns alleged in 
the Texas suits, GAO stated in its prior report that 60 percent of the 
contracts which HMOs did send included ``business clauses.'' Business 
clauses are contractual provisions that purport to protect the business 
interests of the contract drafters--the HMOs. They generally come in 
one of three types: non-disparagement (restricts the physician from 
speaking negatively about the HMO); non-solicitation (restricts the 
physician from encouraging patients to consider joining other HMOs); or 
confidentiality (prohibiting physicians from mentioning or discussing 
HMOs' financial arrangements with the physicians or HMOs' corporate 
policies).
    All of these ``business clauses,'' though not explicitly gag 
clauses, would likely have a dramatically chilling effect on patient-
physician communications, particularly as they relate to physicians 
discussing legitimate non-covered treatment options for their patients. 
The non-disparagement provisions would especially act to silence 
physicians. In fact, in response to the GAO survey, 64 percent of 
attorneys who represent physicians, 46 percent of those who represent 
both managed care organizations and physicians, and 25 percent of those 
who represent HMOs responded that nondisparagement ``stipulations 
`could have a moderate to great effect on a physician's discussion of 
patient treatment options.' '' 3
---------------------------------------------------------------------------
    \3\ ``How HMOs Still Gag Doctors; Health Maintenance 
Organizations,'' Medical Economics, March 9, 1998, Vol. 75, No. 5, p. 
42.
---------------------------------------------------------------------------
    In the past, the AMA has found various other examples of ``gag 
practices'' that also do not rely on explicit contract provisions. Some 
of our physician members, for instance, have told us that certain 
health plans were informing their participating physicians that 
``effective immediately, all referrals from Primary Care Physicians to 
Specialists may be for only one visit,'' and then threatening to 
terminate ``the contracts of physicians and affiliates who fail to meet 
the performance patterns for their specialty.'' As another example, a 
health plan bulletin regarding preadmission review guidelines stated 
that ``effective immediately, all [health plan] participating providers 
must telephone the Preadmission Review Department . . . before an 
admission occurs and before conveying the possibility of admission to 
the plan member.'' Although a follow-up memorandum blamed ``poor 
wording'' in the original announcement for any ``misinterpretation'' of 
the bulletin as a restriction of communication between physicians and 
patients, the AMA maintains that the original effect of the 
announcement was clearly chilling.
    The GAO report also indicated that the vast majority--72 percent--
of the contracts they reviewed incorporated a ``without cause'' or 
``at-will'' termination clause. The GAO concluded from this that ``[i]t 
is the contractual relationship itself--its short duration and 
provision for termination without cause--that may make physicians feel 
constrained from speaking openly with their patients.'' The AMA has 
opposed ``without cause'' termination clauses, for the very reason that 
plans can use them to unduly pressure physicians to comply with 
unethical managed care policies or practices.
    In general, the AMA believes that the term ``gag clause'' should 
not be viewed in an overly narrow, legalistic or restrictive manner. 
The AMA maintains that a more common sense approach to this issue 
should prevail because of the fact that ``gag clauses'' often go beyond 
the mere elements of contract law and include a pattern of practice 
that restricts physician-patient communications. We encourage the 
Congress therefore to resist the urge to adopt a narrow provision 
protecting solely against explicit ``gag clauses.'' The AMA believes 
that narrowing the important anti-gag provisions of any patient 
protection bill would allow plans to neglect those concerns reported by 
patients, physicians and others who treat and care for patients.
    The AMA further believes that if patients are to be truly free to 
make informed medical decisions, any patient protection legislation 
should be drafted to include at a minimum the following concerns:
    ``GAG'' CONTRACTS AND PRACTICES SHOULD BE BANNED. Legislation 
should ensure that health plans would no longer be allowed to ``gag'' 
physicians through policies and other unwritten conduct, which 
intimidate physicians and interfere with a patient's right to receive 
essential medical information. Patients need to be protected from plans 
retaliating against its participating physicians for advocating on 
their behalf and following ethical medical practices.
    THE DEFINITION OF ``MEDICAL COMMUNICATIONS'' SHOULD NOT BE 
UNNECESSARILY LIMITED. Legislation should ensure that physicians are 
free to openly communicate with their patients. Any clauses that 
expressly or impliedly prohibit or restrict physician-patient 
communications should be deemed as contrary to public policy and 
unenforceable. Moreover, legislation should prohibit plans from in any 
manner censuring physicians for medical communications or for 
functioning as patient advocates. To properly treat patients, 
physicians must be able to discuss the patients' health status, medical 
care and all treatment options, as well as any factors, such as 
financial incentives or utilization review procedures, that may affect 
the patient's treatment options. Patients have a right to receive this 
information from their physicians without undue interference from their 
health plans.
    In response to the GAO report, some legislators have suggested that 
the federal government should not move ``forward pre-empting state law 
or regulatory authority on any issue--and most especially on issues as 
crucial as health care--without full consideration of sound science, 
thorough research and data.'' In general, the AMA would agree with this 
statement, although we believe that the science and data more than 
adequately show the urgent need to pass federal legislation that would 
prohibit gag clauses and practices. We especially agree that federal 
patient protection legislation should NOT function to pre-empt state 
laws or regulatory authority which are more protective of patient 
rights. This protection, like all other federal patient protections, 
should act as a floor and not a ceiling.
Federal Legislation is Necessary To Correct ``Gag'' Problems
    In reaction to the loud public outcry caused by local cases where 
physicians have been ``gagged,'' thereby threatening patients, a number 
of states have begun enacting ``anti-gag clause'' legislation. For 
example, legislatures in forty-six states have already passed laws 
banning ``gag clauses.'' Some states have also chosen to address this 
issue through regulation. The National Association of Insurance 
Commissioners (NAIC) adopted a non-binding model bill more than a year 
ago that would, in part, ban plans from contracting to limit or 
prohibit a participating physician from discussing treatment options 
with patients regardless of the health carrier's position on the 
treatment options, or from advocating on behalf of patients within a 
utilization review or grievance process.
    Given the number of states that have moved forward with 
legislation, the NAIC's model bill and various private sector 
activities to educate the public about these provisions and practices, 
we expect some people may pose the question, ``is federal anti-gag 
clause legislation necessary?'' The AMA believes the answer is clearly 
``yes!'' Even if all the states enacted similar ``anti-gag clause'' 
measures, not all health plans can, or will, be reached by state law. 
Similarly, not all of the state legislation will effectively prevent 
``gag practices'' from continuing. Consequently, federal legislation is 
absolutely essential to eliminate ``gag practices'' and ``gag clauses'' 
from all health plans, in both private and public sectors, and ensure 
that every patient is adequately protected.
Information Disclosure and Anti-gag Provisions Affected by Medical 
        Necessity Determinations
    Information disclosure requirements can also be adversely 
influenced by how ``medical necessity'' is determined and by whom. For 
instance, many plans in their information disclosure statements 
indicate that the plan will provide coverage for all ``medically 
necessary'' treatment. As a result, patients and prospective enrollees 
believe that they are covered for all medical treatment which is 
clinically appropriate and reasonably necessary to treat their 
illnesses, conditions, or injuries, in accordance with generally 
accepted standards of medical practice. When the patient suffers an 
illness, however, plans that have arbitrarily defined the term 
``medical necessity'' can deny coverage for a wide range of accepted 
treatments that do not fall within their own arbitrary definition of 
medically necessary treatment.
    Or consider the importance of ``medical necessity'' determinations 
in light of anti-gag clause and anti-gag practice legislation. If 
managed care reform legislation were to protect patient-physician 
relationships by prohibiting gag clauses and gag practices, to what 
avail would open communications be to patients if they could still be 
arbitrarily denied the medical treatment they reasonably believe to be 
covered by the plan simply because the plan deems it ``not medically 
necessary?'' A ban on health plan gag clauses and practices admittedly 
would help to ensure that plans could not keep patients in the dark 
about their medical treatment options. But if the plan could still 
refuse treatment for any covered treatment option because of the 
arbitrary application of a plan's ``medically necessary'' definition, 
the patient would in fact have little real protection.
As In Gag Practices, Financial Considerations Affect Medical Necessity 
        Decisions
    Historically, most private insurers and third-party payers have 
viewed medical necessity as those health care products or services 
provided in accordance with generally accepted standards of medical 
practice. Accordingly, medical necessity decisions were typically made 
using specific review criteria and processes that applied generally 
accepted standards of medical practice and afforded clinical peer-to-
peer review. Today, however, this long-standing process is being 
challenged on a daily basis by health plans that determine medical 
necessity primarily in terms of financial considerations.
    Health plans have the ability to exercise tremendous leverage over 
physicians while influencing the care that they can render. When health 
plans contract with physicians, for instance, the physicians have to 
agree to the plan's standard contract terms, which typically require 
that the physicians comply with the plan's medical management program--
usually termed a ``utilization management'' (UM) program. While the AMA 
does not oppose UM programs that are conducted properly, many plans 
have not established UM programs which adequately involve physicians or 
place as their top priority improving health care quality for patients. 
Within the UM programs, some plans have even instituted guidelines that 
describe or define ``medical necessity'' using ``lowest cost'' 
criteria. Because of gag practices, physicians are frequently 
prohibited from discussing with patients these criteria.
    Health plan contracts and some information disclosure packets 
describe the terms ``medically necessary'' or ``medically appropriate'' 
in ways that leave most of the medical decision-making discretion with 
the health plan, as opposed to the patient's physician. A common plan 
practice is to overlap the definitions of ``covered services'' and 
``services that are medically necessary,'' as noted above, such that 
they essentially become one and the same. Then, the plan can include 
language in the contract granting itself final discretion over the 
determination of what is medically necessary. In this manner, the plan 
can always make the final decision of what is ``medically necessary'' 
and thereby always limit its own covered services.
    In other situations, managed care plans simply incorporate 
financial or cost considerations into the determination of ``medical 
necessity.'' Reviews of managed care contracts last year revealed that 
language imposing ``lowest cost'' criteria had been included in many 
contracts' definitions of medical necessity. Health plans' concern 
about their profits remains the driving force behind these definitions 
which emphasize cost and resource utilization over quality and clinical 
effectiveness. To say the least, this is alarming both to patients and 
to physicians.
    The AMA believes that health plans should not be allowed to 
unfairly deny medical care based on the application of such unfair and 
arbitrary medical necessity definitions. If health plans are able to 
define medical necessity in a review, the appeals process will be 
seriously undermined, if not rendered meaningless. The AMA does not 
oppose the ability of health plans and employers to establish health 
benefits packages, however, health plans must allow prudent physicians, 
not health plan bureaucrats, to make individual medical care decisions. 
Plan enrollees must know up-front what services are covered and not 
covered by their health plans. If publishing lists of ``covered'' 
services is too onerous, as some plans claim, then at a minimum, 
enrollees must know what is not covered. This is also why information 
disclosure requirements are so critical for patients and physicians.
    The AMA believes that ``medical necessity'' or ``medical 
appropriateness'' decisions are ultimately medical decisions and must 
continue to be treated as such. Permitting health plans to decide 
``medical necessity'' according to financial or cost considerations 
creates a dangerous precedent. This concern led the AMA in December of 
1998 to refine its policy on ``medical necessity'' at its Interim House 
of Delegates meeting. The AMA believes that ``medically necessity'' 
means:
        ``Health care services or products that a prudent physician 
        would provide to a patient for the purpose of preventing, 
        diagnosing or treating an illness, injury, disease or its 
        symptoms in a manner that is: 1) in accordance with generally 
        accepted standards of medical practice; 2) clinically 
        appropriate in terms of type, frequency, extent, site, and 
        duration; and 3) not primarily for the convenience of the 
        patient, physician, or other health care provider.''
    As indicated, this policy uses a ``prudent physician'' standard, 
which both medically and legally is an objective standard. It also 
requires that the treatment be ``clinically appropriate'' and 
consistent with ``generally accepted standards of medical practice,'' 
which is how it has traditionally been determined. To mute allegations 
that physicians would recommend treatment for their patients' or their 
own convenience, this definition expressly prohibits such a practice.
    We realize that some plans and insurers might express concern that 
allowing anyone other than themselves to make medical necessity 
decisions will eventually lead to such abuses as health club 
memberships being deemed ``medically necessary.'' This ``slippery 
slope'' argument, however, is nothing more than a red herring. As the 
AMA has always recommended, the external appeals process must permit 
physicians--independent of both the plan and the treating physician--to 
review the treating physician's medical necessity determination. We are 
not advocating that the treating physician be the ultimate decision 
maker, rather, we are advocating that independent, properly qualified 
and licensed prudent physicians make final and binding decisions. We 
challenge the health plans to adhere to such an equitable solution.
    Because ``medical necessity'' decisions are in fact medical 
decisions, the AMA firmly believes that only physicians who are 
properly qualified--that is, of the same specialty, actively practicing 
medicine in the same state as the patient or the treating physician, 
and having significant familiarity with the condition in question--must 
review other physicians' treatment decisions. In other words, the 
reviewer of medical treatment decisions must be knowledgeable and 
properly qualified--so that patients are not mistakenly or arbitrarily 
denied medical treatment to which they are entitled. Additionally, the 
reviewer must be independent of any health care professional who 
participated in the initial adverse benefit determination, and should 
not be affiliated with or employed by the same organization.
    Patients are also concerned that plans and insurers frequently deny 
coverage for medically necessary treatment based on information they 
have obtained after the tests and treatment were rendered. 
Determinations of medical necessity, however, must be based solely on 
information that was available at the time that health care services or 
products were provided. A physician may have to admit a patient for 
further observation, diagnosis, and treatment, and may only be able to 
complete his/her diagnosis upon receiving the patient's test results. 
Denying coverage of the initial treatment or diagnostic tests because 
the plan retrospectively alleges that they were not ``medically 
necessary'' is patently unfair and not good medicine.
Conclusion
    In conclusion, the AMA maintains that virtually all patient 
protections are integrally related, with each dramatically effecting 
several others. Legislation prohibiting gag clauses and practices, must 
also address medical necessity, for instance. Toward this end, we 
support legislation that would require plans to provide enrollees and 
prospective enrollees with essential information about the plan and its 
benefits, and that would prohibit plans from improperly interfering 
with patient-physician communications and medical decision making.
    Thank you again for the opportunity to testify today on these 
important patient rights issues. On behalf of the AMA, I offer you our 
services in working further with the Congress to effectively address 
these important and pressing matters. The AMA would be pleased to work 
with the sponsors of any patient protection legislation to protect 
these critical patients' rights.

    Mr. Bilirakis. Thank you very much, Doctor.
    Ms. Lehnhard.

                STATEMENT OF MARY NELL LEHNHARD

    Ms. Lehnhard. Mr. Chairman, members of the committee, I 
appreciate the opportunity to testify, and I am here 
representing all of the Blue Cross and Blue Shield Plans.
    Blue Cross and Blue Shield Plans are committed to providing 
patient choice. Our customers are demanding a very broad range 
of products in the market. For example, Blue Cross and Blue 
Shield Plans have 14 million enrollees in HMO's, 7 million in 
point-of-service plans, 25 million enrollees in PPO's, and 26 
million enrollees in traditional indemnity products.
    My message today is that a number of the bills that 
Congress is considering would have the unintended consequence 
of eliminating these broadly varied products and driving market 
choices to highly managed plans that have the basic design 
characteristics of HMO's.
    The provisions I am referring to would require all health 
plans to collect information on a patient's medical status, 
information available really only from patient medical records, 
and produce a report card on patient outcomes. All plans would 
also be expected to achieve an annual improvement in these 
clinical performance measures, essentially by changing 
physician behavior--and let me elaborate on that a little bit.
    In Blue Cross and Blue Shield HMO's, the expectation is 
that the plan is accountable for keeping enrollees as healthy 
as possible. Our HMO's actively engage in extensive quality 
assessments, quality improvement projects, and performance 
measurements.
    The key HMO design elements necessary to support 
essentially a partnership of physicians are: one, a guarantee 
in the contract with the physician that the HMO have routine 
access to patient medical records in physicians' offices so 
they can collect the clinical information; second, a more 
limited number of physicians in the network because of the 
intensive relationship with physician; third, payment 
strategies that can be used to change physician behavior, 
performance, capitation, and risk arrangements; fourth, limited 
or no use of physicians outside the network; and, fifth, a 
physician care coordinator; without this care coordinator there 
is no point of accountability for the medical management of a 
specific enrollee; they could be going to multiple primary care 
physicians.
    These design elements are critical, first, to effect the 
necessary changes to improve patient outcomes, and, second, 
just to support that collection of basic--of extensive patient 
medical record information.
    Our other products, without these HMO design elements, 
can't be held to the same objective. That is accountability for 
the health status of specific enrollees. The key design 
elements of broad choice plans which are demanded by many 
consumers and employers don't support this intensive medical 
record collection information activity and the expectation that 
the plan, itself, will be responsible for improving the 
outcomes of physicians.
    These non-HMO products are characterized by very large 
networks. Some of our plans have 30,000 to 40,000 physicians in 
the network to meet the demand for choice. They allow enrollees 
to use out-of-network physicians, often with nominal co-pays. 
They don't routinely abstract patient medical records for 
quality information. The cost in this size of a network would 
be prohibitive. They don't assign enrollees or ask them to 
choose a care coordinator, and they don't use physician payment 
strategies to influence physician behavior. For example, all of 
our PPO's are paid on a fee-for-service basis, not capitation.
    An expectation that all types of health plans meet these 
requirements for clinical information, extensive clinical 
information, and improvements, measurable improvements and 
outcomes, these are really HMO accountabilities, or have the 
consequence of creating overwhelming incentives for our plans--
in all plans to adopt HMO design features to meet the 
expectations.
    We urge you, rather than running the risk of limiting 
consumer choice through rigid Federal standards on what the 
health plan should be expected to do, we believe Congress 
should allow purchasers and private accrediting organizations 
to continue to develop the state-of-art in quality assurance 
and performance measurement.
    We look forward to working closely with you on these 
issues.
    [The prepared statement of Mary Nell Lehnhard follows:]
 Prepared Statement of Mary Nell Lehnhard, Senior Vice President, Blue 
                     Cross Blue Shield Association
    Mr. Chairman and members of the subcommittee, I am Mary Nell 
Lehnhard, Senior Vice President of the Blue Cross and Blue Shield 
Association. I appreciate the opportunity to testify before you on 
behalf of the 52 independent Blue Cross and Blue Shield Plans 
throughout the nation.
    Blue Cross and Blue Shield (BCBS) Plans collectively provide health 
care coverage to more than 71 million Americans. Significantly, BCBS 
Plans are in every market from large national accounts to small 
businesses to individual purchasers. BCBS Plans also believe in 
promoting patient choice. That is why our Plans offer choices that 
range from products that systematically coordinate care, such as Health 
Maintenance Organizations (HMOs), to broad access products that allow 
wide choice of providers, such as Preferred Provider Organizations 
(PPOs), to traditional fee-for-service products.
    To help purchasers and consumers choose among these health plan 
options and promote competition, federal lawmakers have become 
interested in uniform measurement of health plan performance, 
particularly in medical outcomes. Unfortunately, proponents of 
performance measurement do not realize that imposing uniform measures 
designed for HMOs on all products (including PPOs) would have the 
unintended consequence of narrowing the range of health plan choices 
available to consumers.
    In fact, several bills before the Congress could have just this 
effect. Some of these bills (such as S. 6/H.R. 358 and S. 374) call on 
all health plans--PPOs and well as HMOs--to collect and report detailed 
information from patients' medical records about health outcomes, and 
to improve these outcomes. Other bills, while far less proscriptive 
(such as the Chairman's ``Patient Protection Act of 1999,'' H.R. 448), 
could still lead to regulations that require PPOs and HMOs to collect, 
report, and ultimately to influence physician behavior to change 
outcomes.
    PPOs and HMOs are structured to meet very different consumer and 
purchaser expectations and preferences. In order to report and 
ultimately improve HMO-oriented performance measures, PPOs would have 
to restructure to become more like HMOs. This would, in essence, take 
choice away from the four in ten Americans currently enrolled in PPO. 
Put simply, you cannot impose rigid standards to collect, report, and 
influence medical outcomes without inadvertently eliminating choice of 
broad access PPOs.
    In the testimony that follows, I shall elaborate on the fundamental 
differences between HMOs and PPOs, discuss private sector approaches to 
assessing health plan performance, and make apparent the consequences 
for PPOs of imposing rigid, clinical standards.
Fundamental Differences Between PPOs and HMOs
    Health insurers have developed a wide array of innovative health 
plan options to meet the demands of consumers and purchasers. These 
health plan options offer varying care coordination strategies that 
range across a continuum from traditional fee-for-service benefit plans 
to PPOs to highly integrated, closed panel HMOs.
    No one type of health plan can fit the diverse demands of the 
marketplace. Consumers and group purchasers have different preferences 
regarding provider choice, ease of access, care coordination, range of 
benefits, cost-sharing, and premium level. PPOs of various designs are 
in the middle of the product continuum. Although individual PPOs may 
differ in the details, they generally differ in fundamental ways from 
HMOs:

 PPOs and HMOs sell very different services to consumers. PPOs 
        do not promote themselves as managing the health of their 
        members, but rather, as providing broad and easy access to 
        providers. In keeping with the preferences of their customers, 
        many PPOs have not developed care coordination strategies to 
        manage the health of their members.
 HMOs have broader benefit packages than many PPOs. Some PPOs 
        do not provide coverage for preventive services, well-child 
        visits, or pharmaceuticals.
 Broad access PPOs tend to have relatively simple contracts 
        with their physicians that do not require participation in 
        quality management activities, submission of medical outcomes 
        data or auditing of medical records for measurement purposes. 
        HMO physician contracts include extensive provisions on data 
        collection on medical outcomes and medical records auditing.
 PPOs members are free to see the physician of their choice. 
        PPOs do not coordinate care through primary care gatekeepers 
        and members may have multiple physicians for different 
        conditions. No one physician maintains a comprehensive medical 
        record and no one physician is accountable for health 
        maintenance or improvement of the consumer. This wide access to 
        providers--in and out of the network--makes it extremely 
        difficult for PPOs to collect the type of patient-specific 
        medical data from providers that is required by HMOs.
 PPOs are not structured to influence provider behavior through 
        the mechanisms used by HMOs, such as capitation, referral 
        systems, and care coordination.
    These differences are distinctly designed to satisfy different 
consumer preferences. HMOs emphasize clinical accountability for the 
quality of care they sponsor and for the health of their members. 
Accountability is achieved through coordination of care by primary care 
physicians, use of smaller integrated networks of providers, care 
management initiatives such as risk appraisal and disease management 
programs, analysis of medical records information, and use of 
guidelines and incentives to influence provider practice.
    In short, PPOs' key feature is broad choice of physicians at a 
reduced cost to enrollees and employees (i.e., negotiated payment rates 
and protections against balanced billing). Enrollees have an incentive 
to use providers--hospitals and physicians--under contract (the 
negotiated rates are based on the promise of volume for providers). 
However, enrollees can go outside the network and pay a higher level of 
cost sharing. PPOs usually do not expect an enrollee to select a single 
primary care physician to be accountable for managing all their health 
care needs. An enrollee can see any physician or specialist in the 
network or an enrollee can seek care outside the network.
    Importantly, PPOs are reliant primarily on information generated 
from claims (bills for care provided). These claims data can indicate 
that a service was rendered, but do not indicate the outcome of the 
service. PPOs do not perform the routine collection of patient medical 
record information that is critical to HMOs in assessing medical 
outcomes.
    Consumers and purchasers who give the highest priority to broad 
choice of provider, ease of access, and limited plan influence over the 
physician-patient relationship gravitate to PPOs. Among Blue Cross Blue 
Shield Plans' 71 million enrollees, for example, about one-third belong 
to PPOs, one-third belong to HMOs or point-of-service (POS) plans, and 
the rest to traditional, ``participating physician'' fee-for-service 
plans.
Private Sector Developments in Health Plan Performance Measurement
    Over the last decade, the private sector has generated a system of 
health plan measurement and oversight. Voluntary accreditation 
organizations such as the National Committee for Quality Assurance 
(NCQA) and the American Accreditation HealthCare Commission/Utilization 
Review Accreditation Commission, (AAHC/URAC) have been established to 
assess and promote quality of care among various types of health plan 
products. At the same time, large employers have taken a lead in 
advancing health plan performance measures for HMOs. Indeed, large 
employers launched systematic health plan performance measurement in 
1989 with the development of the Health Plan Employer Data and 
Information Set (HEDIS) measures for HMOs.
    Prior to that time, large purchasers of health care routinely 
compared health plans largely on the basis of their benefit costs and 
non-standard metrics. However, the growth in HMO enrollment and the 
limitations that enrollment placed on patient choice of physician gave 
rise to concern over the quality of care members were receiving and the 
``value'' of the health plan purchase. Because HMO members had limited 
ability to ``vote with their feet'' when unhappy with their physician 
panel, group purchasers felt a responsibility to monitor the medical 
care on the member's behalf.
    In developing HEDIS measures, a group of large national purchasers 
reached consensus on the elements of HMO performance they wished to 
measure and the methods for measuring them. HEDIS was developed to meet 
the information needs of the purchasers. Among other measures, HEDIS 
includes measures that try to offer insight into the medical 
effectiveness of care (e.g., the percentage of diabetic enrollees 
receiving a retinal eye exam, etc.).
    HEDIS is controlled by NCQA, the main private sector organization 
accrediting HMOs. HEDIS has become the standard benchmark for medical 
quality indicators in HMOs. To obtain accurate HEDIS data--indeed, to 
obtain any accurate and meaningful data about health care outcomes--
requires access to patients' medical records. The types of claims data 
that PPOs have readily available are simply not sufficient. Numerous 
studies raise caution against using insurance claims data to measure 
and evaluate health care outcomes because insurance claims data lack 
important diagnostic and prognostic information when compared with 
concurrently collected clinical data in patients' medical 
charts.1
---------------------------------------------------------------------------
    \1\ See for example, Jollis JG, Ancukiewicz M, DeLong ER, Pryor DB, 
Muhlbaier LH, Mark DB, ``Discordance of databases designed for claims 
payment versus clinical information systems. Implications for outcomes 
research,'' Annals of Internal Medicine, 119(8):844-50, October 15, 
1993 Malenka DJ, McLerran D, Roos N, Fisher ES, Wennberg JE, ``Using 
administrative data to describe casemix: a comparison with the medical 
record,'' Journal of Clinical Epidemiology, 47(9):1027-32, September 
1994.
---------------------------------------------------------------------------
    In fact, private accrediting organizations and private employers 
hold PPOs to different standards from HMOs. For example, NCQA 
exclusively accredits HMO-style health plans. In contrast with NCQA, 
the leading private sector organization for accrediting PPOs (AAHC/
URAC) does not collect HEDIS measures or HEDIS-type measures from PPOs. 
PPOs do not have to produce a core set of clinical performance measures 
to become accredited.
Federal HMO-Type Quality Standards Will Force Broad Access Products to 
        Become More Like HMOs
    What would happen if the Secretary of Health and Human Services 
could dictate that all health plans collect uniform data on health care 
outcomes and have a continuous quality improvement program to address 
these outcomes? Such requirements are included in several bills before 
the Congress, including ``The Patients' Bill of Rights Act of 1999'' 
(H.R. 358). In essence, the outcome would be similar to what we see in 
the Medicare+Choice program: no PPOs.
    Medicare+Choice illustrates what would happen if the Congress gave 
the Secretary extraordinary authority to define what types of health 
plans are available in the private market. In the interim final 
regulations for Medicare+Choice, HCFA translated the law's broad 
quality assurance language into strict requirements for PPOs as well as 
HMOs to achieve arbitrary quantitative improvements in clinical 
outcomes. But HCFA's HMO-type quality standards are fundamentally in 
conflict with broad network access products, hence, HMOs are virtually 
the only choice in Medicare+Choice.
    The Medicare Payment Advisory Commission (MedPAC) has expressed 
concerns about HCFA's approach. HCFAHCFAIn a letter commenting on the 
Medicare+Choice program, MedPAC stated, ``The quality assurance system 
set forth in the [Medicare+Choice] rule will pose significant barriers 
to participation by all but the most tightly managed coordinated care 
plans. For example, plans with large, loosely organized networks may 
face challenges reporting certain types of quality measures or 
influencing practice behavior . . . Despite such limitations, these 
types of plans may be attractive to beneficiaries who value a wide 
variety of provider choice and minimal gatekeeper restrictions . . .''
    Although some bills would allow the Secretary to vary the 
requirements for health plans ``based upon differences in the delivery 
system among such plans and issuers as the Secretary deems 
appropriate'' [Section 111 and 112 of S. 6/H.R. 358], the 
Medicare+Choice experience raises serious doubts about the application 
of this provision. Moreover, the power to define what types of plans 
are available in the health care market is too much discretion to leave 
to the Secretary.
    Other bills, such as H.R. 448, appear on the surface to be far less 
proscriptive (i.e., ``group health plans and health insurance issuers 
must provide the latest information, if any, relating to quality of 
performance of the delivery of medical care''). However, because this 
provision is vague in defining quality performance measure, it could be 
interpreted by regulation to open health plans to a plethora of 
requests for data--the ``latest information'' is very open-ended 
because health plans continually collect information that is arguably 
related to performance.
    Every claim paid contains information that regulators might believe 
is related to the quality of performance. Moreover, health plans often 
collect and maintain huge amounts of information about individual 
physicians to profile their performance. These profiles are often 
proprietary and are used by health plans to educate physicians, improve 
practice patterns, and develop networks. Would regulators be able to 
demand such information: where would they draw a line?
    If PPOs and other loosely coordinated health plans were required to 
collect, report, and influence the same information as tightly managed 
HMOs, then all plans would invariably be pushed to act more like 
tightly managed HMOs. All health plans would be become accountable for 
continuously modifying and improving physician behavior to produce 
improvements in medical outcomes. All health plans would need to adopt 
the same tools as HMOs to effect measurable changes in physician 
behavior.
HMO ``Tools'' for Changing Outcomes
    Because the key feature of an HMO is clinical accountability for a 
defined population, HMOs are structured to support measurement of 
health indicators and improvement in enrollees' health status. HMOs can 
achieve these goals by assuring a central point of accountability for 
every individuals' health care (i.e., the enrollee's primary care 
physician), controlling the physicians that their enrollees use (i.e., 
managed access to physicians in the network), and assuring (by 
contract) that physicians will participate in the HMOs medical 
management and information collection program.
    HMOs achieve the improvement in health outcomes by measuring 
individual physician performance, assuring that physicians are 
following professionally accepted practice protocols, and using payment 
arrangements and incentives that foster improvement in patient outcomes 
(i.e., capitated and other payment incentives). Also, HMOs are 
dependent on information abstracted from patient medical records; 
health plan nurses work with physicians to collect the information.
PPO Compliance with HMO-Type Standards
    PPOs could comply with ``one-size-fits-all'' federal standards only 
by eliminating the very features that make them popular products in the 
private sector. PPOs would have to:

1. Incorporate mechanisms, such as          A designated physician
 gatekeepers, for coordinating and           gatekeeper is necessary to
 managing care of patients.                  coordinate care and to act
                                             as an essential collection
                                             entity for medical records
                                             information.
2. Introduce provider capitation and        Performance based payments
 incentive payments into PPO network         are the most effective way
 products that now use discounted or         to change physician
 modified fee-for-service payments to pay    practices.
 physicians.
3. Eliminate open access to non-network     Open access to physician
 providers.                                  outside the network would
                                             preclude a plan's ability
                                             to capture all medical
                                             record information for a
                                             given patient.
4. Recontract with providers and enter      Plans must ensure access to
 into a much more information-intensive,     all their enrollees'
 managed-based relationship, including       medical records in order to
 ongoing access to patient medical records.  collect mandated outcomes
                                             information which is simply
                                             not available through the
                                             claims data of most PPOs
                                             today.
5. Reduce significantly the number of       The cost and complexity
 physician and other health care             associated with extensive
 practitioners available within networks.    data collection and medical
                                             records audit would make it
                                             necessary for plans to
                                             reduce the size of their
                                             networks. In addition, a
                                             more focused network of
                                             physicians will make each
                                             physician more responsive
                                             to the health plan.


    In essence, PPOs would have to redesign fundamentally to become 
tightly-managed health plans.
                               conclusion
    BCBSA supports the rights for patients to have information about 
their health care and health plan. We believe that health plans should 
inform their members about how to use their benefits, and provide 
information about benefits, premiums, contributions, and cost-sharing, 
as well as basic information about health professionals and facilities 
in plan networks. BCBSA also supports the broad range of innovative 
activities in the private sector to promote high quality care. But we 
strongly oppose giving the federal government the power to dictate the 
collection and improvement of medical outcomes data.
    I would like to close with some observations that Professor Regina 
Herzlinger of Harvard University recently prepared for the Democratic 
Leadership Council's Progressive Policy Institute.2 She 
warned that giving the government the power to dictate disclosure and 
analysis of health care information might inadvertently cause 
government protection to cross the line from providing helpful 
information and oversight to causing ``paralyzing evaluation and 
micromanagement.''
---------------------------------------------------------------------------
    \2\ Regina E. Herzlinger, ``Protections of the Health Care 
Consumer: The `Truth' Agency,'' Progressive Policy Institute, March 
1999.

 When disclosure requirements are dictated by governments, not 
        the private sector, one voice may be substituted for many;
 When government agencies prepare benchmarks or standards of 
        achievement, and thus require insurers to sing out of the same 
        hymnal, innovations in health care may well be discouraged.
 When one managerial vision is substituted for many 
        entrepreneurial ones, ``wave goodbye'' to innovation.
    The potential for unintended consequences is very real. Federal 
mandates to collect, report, and improve medical outcomes is a 
blueprint for less choice for consumers. Rather than run the risk of 
limiting consumer choice through rigid federal standards, the Congress 
should allow purchasers and private accrediting organizations to 
continue pushing to expand the state of the art in quality assurance 
and performance improvement.
    Thank you for the opportunity to speak with you on these important 
issues.

    Mr. Bilirakis. Thank you.
    Mr. Pollack.

                 STATEMENT OF RONALD F. POLLACK

    Mr. Pollack. Mr. Chairman, distinguished----
    Mr. Bilirakis. Pollack--``Pollack?'' Is that not correct?
    Mr. Pollack. ``Pollack,'' yes.
    Mr. Bilirakis. Pollack.
    Mr. Pollack. Mr. Chairman, distinguished members of the 
panel, thank you for inviting me to testify today, and even 
more importantly, thank you for the good work that so many have 
done on both sides of the aisle on patients' rights. We very 
much appreciate it.
    I am going to focus on one narrow issue. And as a preface 
to that, I want to start from where the chairman opened the 
hearing. He said today we were not going to focus on perhaps 
the most contentious issue that is before this subcommittee--
the issue of liability.
    I happen to favor liability provision, but I am not going 
to speak to it. What I would--the reason I raise it, however, 
is that I recognize that this is one of the most difficult 
issues that will be before this subcommittee. And I think that 
although that issue may well turn out to be intractable, in 
terms of differences of different members of this panel, I 
think there is a matter where people who are proponents and 
opponents of the liability provision can come together, at 
least to soften some of the difficulties on that issue. And 
where I think people come together is, I think, irrespective of 
one's position on the question of liability. And, again, I say 
I strongly support the liability provision. Irrespective of 
where you come out on that issue, I think everybody agrees that 
it makes a great deal of sense for us to try to resolve issues 
as early as possible, in the least contentious setting.
    Clearly, it makes a great deal of sense to try to resolve 
problems before the harm really gets exacerbated and before 
somebody really experiences such significant healthcare 
problems that it ultimately resorts to litigation.
    And so what I would suggest to you, is that we need to 
strengthen the up-front mechanisms that exist. And I think 
there is a growing agreement that we should make sure that we 
have an effective external appeals mechanism that is truly 
independent of health plans that tries to get matters resolved 
at the earliest possible moment.
    Now, starting with that as a point of departure, I think it 
is important to note that in those States that have established 
these external rights to appeals, unfortunately, not that many 
people have availed themselves of their rights to external 
appeals.
    The Kaiser Family Foundation recently issued a report that 
looked at the States that have undertaken external appeals. And 
what they have found is that there is a relatively small number 
of people who have pursued their appeals rights. And the Kaiser 
Foundation study finds that there are essentially two reasons 
for it: No. 1, a lot of people are unaware of what their 
appeals rights are; and, second, when you have got a grievance 
with a health plan, it tends to be you are sick or you are 
frail, and you are not in a very good position to pursue those 
appeals.
    So, if we are going to make this right, which I think is 
becoming a consensus right, an effective right, we need to make 
sure that consumers have help when they feel that a health plan 
has improperly denied care to them.
    And it is for that reason that I think it is crucially 
important that we establish ombudsman or consumer assistance 
programs that are designed to support the needs of consumers 
that include, among their functions, helping them with their 
internal and their external appeals, not with their litigation 
rights, whatever they may be, but with their internal and 
external appeals rights, and that it provides other kinds of 
services as well.
    What kinds of services am I talking about? For those people 
who have a right to choose plans, that they have got more than 
one choice, they often are bewildered about those choices. They 
don't know the strengths and weaknesses of different plans. 
They need help in deciphering them. They need help once they 
get into a plan, when they have questions about their rights 
and responsibilities. They would set up 1-800 numbers; they 
would provide referrals to appropriate agencies, and they would 
document those problems that are coming into ombuds' offices so 
that we, all of us, can learn about what those problems are, 
and we can learn about it at an early stage.
    I want to be clear that we have many precedents for this, 
and they have worked very well. In the long-term care arena, we 
have for more than two decades had long-term care ombudsman 
programs, and they have worked well to deal with problems in 
nursing homes. We have this now to a limited degree in the 
Medicare program and the Medicaid programs. I think it would be 
very helpful to do this in the context of the issues we are 
talking about today.
    Thank you, Mr. Chairman.
    [The prepared statement of Ronald F. Pollack follows:]
 Prepared Statement of Ronald F. Pollack, Executive Director, Families 
                             USA Foundation
    Mr. Chairman and Members of the Committee: Thank you for the 
opportunity to testify. Families USA, the national organization for 
health care consumers, supports comprehensive, nationally enforceable 
managed care consumer protections. These protections must be designed 
to ensure that all health plan enrollees receive the care they were 
promised by their health plans, regardless of where they live or work. 
To this end, Families USA strongly supports S.6/H.R.358--the Patients' 
Bill of Rights Act of 1999.
    Today I would like to highlight the importance of one of these 
protections for you, the creation of a consumer assistance or 
``ombudsman'' program. The concept of the consumer assistance program 
is contained in S.6 and H.R.358 and has been more fully developed in 
S.496--the ``Health Care Consumer Assistance Act''--introduced in the 
Senate by Senators Reed (D-RI) and Wyden (D-OR). We expect that 
comparable legislation will soon be introduced in the House by 
Congressman Frank Pallone (D-NJ).
    Perhaps the most contentious issue facing members of Congress 
grappling with managed care reform is the ability of consumers to sue 
their health plans in court and receive a meaningful remedy. Families 
USA supports this right and believes it is an essential protection. 
However, no matter whether one supports or opposes the right of 
consumers to sue HMOs, there should be universal agreement that we want 
to solve consumer-health plan problems early--thereby reducing the 
impulse to litigate. That's why the establishment of effective 
independent, external review systems, coupled with an effective 
ombudsman program that enables people to pursue their appeal rights, 
are crucial. It is a way to provide non-litigative, non-lawyer remedies 
on a timely basis before significant damage is done.
    Today, there is a growing consensus about the need for a meaningful 
and effective external appeals system. We believe such an appeals 
system is crucial. Yet, from the consumer's perspective, a strong 
external appeals process may be meaningless if sick and frail people 
are unaware of their appeals rights and are incapable of pursuing them. 
A recent Henry J. Kaiser Family Foundation report, entitled External 
Review of Health Plan Decisions: An Overview of Key Program Features in 
the States and Medicare, indicates how important consumer assistance 
programs are in making external appeals systems work. In states where 
external appeals processes have been in existence, the number of people 
who availed themselves of these processes is very low--less than 250 
cases per year in the largest states and fewer in the smaller states. 
The report cites studies indicating that these numbers are low because 
consumers often are unaware of their rights to an external review and, 
when they are sick, they are unable to pursue their appeals rights. 
Consumer assistance programs are needed to make the system work 
properly.
    I believe that one of the greatest frustrations that consumers 
experience today is that their problems with their health insurance 
companies or health plans usually begin when they get sick. 
Understanding the fine print on one's insurance policy is challenging 
in the best of times, and to have to do battle with managed care 
bureaucrats when one is sick or frail is in many instances a war of 
attrition which the HMO is well positioned to win. Most consumers don't 
know about the limited rights they do have and, short of turning to 
expensive legal advice, they have nowhere to turn for help.
    In addition, as health care systems and products become more and 
more complex, patients across the country need help from trusted 
sources as they navigate their health care choices. When people choose 
their health plans, help is needed to identify information that is 
available and to sift through such information. People increasingly 
need assistance to understand complex terms, to decipher their options, 
and to assess the implications of plan choices on their families' 
specific health needs. This is why it is critical that Congress creates 
an ombudsman program.
                    functions of ombudsman programs
    I would like to turn now to a discussion of the role and functions 
of such consumer assistance programs. The structure of these programs 
is contained in S.496, the Reed-Wyden bill.
    The establishment of ombudsman or consumer assistance programs 
would serve the information, counseling and assistance needs of health 
care consumers in a number of ways. Ombudsman programs would provide 
consumers with the information they need to make a responsible, 
informed selection of insurance packages. Once consumers are in a plan, 
the ombudsman program could advise them of their rights and 
responsibilities.
    A toll-free telephone hotline set up and maintained by ombudsman 
programs would allow consumers throughout states to request 
information, advice or other health insurance related assistance easily 
and without cost.
    Consumer assistance programs would also be charged with producing 
and disseminating materials to further educate consumers about their 
rights in the health care system.
    A key function of an ombudsman program would be to provide direct 
assistance, including representation, to consumers who are appealing--
either internally within a health plan or externally to an agency 
authorized to handle independent appeals--decisions that deny, 
terminate, reduce, or refuse to pay for health care services. This 
assistance and representation does not include involvement in 
litigation or other court proceedings.
    In an effort to effectively and efficiently resolve questions, 
problems and grievances, consumer assistance programs would make 
referrals to other existing resources, including, as appropriate, 
employers, health plans, insurance agents, public agencies, health plan 
regulators and health provider organizations.
    Finally, ombudsman programs would collect data regarding the 
inquiries, problems and grievances addressed by the office, as well as 
the resolution of those problems. This data would be disseminated to 
all stakeholders in our health system, including employers, health 
plans, health insurers, regulatory agencies, policymakers and the 
general public.
                 why program independence is important
    To work effectively and with the full trust of consumers, ombudsman 
programs need to be independent of health plans, providers of care, 
payers of care and state regulators. This is crucial so that ombudsman 
programs are, and are perceived to be, totally responsive to the needs 
of consumers and have no conflicts of interest. Thus, ombudsman 
programs should be independent entities, not connected to health plans 
or state agencies.
    A 1995 study of Long-Term Care Ombudsman Programs conducted by the 
Institute of Medicine concluded that ombudsman programs should be 
contracted out to independent nonprofit agencies in order to ensure 
program effectiveness. The Institute of Medicine found that this 
independence elicits confidence in consumers and makes them feel that 
the advice and help being provided is in their best interest.
    In order for consumer assistance programs to perform successfully, 
they must be perceived by consumers as having no interests other than 
informing, advising and assisting the public. It is imperative that 
these programs gain the confidence of consumers so that they will feel 
comfortable seeking assistance and be assured that this assistance will 
be provided impartially. Programs associated with a health plan provide 
the least independence in that they are staffed by health plan 
employees, the very entity that consumers may have complaints against. 
While ombudsman programs housed within a state agency offer 
independence from health plans, the staff of such agencies often have 
related, sometimes even conflicting, agendas as they regulate health 
plans. Thus, a real or an apparent conflict of interest may arise if 
state agencies operate ombudsman programs.
                       how to ensure independence
    One process of ensuring the independence of ombudsman programs is 
to have states, using funds provided by the federal government, 
contract with non-profit organizations to serve as ombudsmen. Grants 
from the Department of Health and Human Services (HHS) would enable 
states to enter into such contracts with eligible organizations. In 
requesting funds from HHS, a state should be required to submit an 
application containing the state's plan for soliciting proposals from 
eligible organizations, as well as the method the state would use to 
ensure that organizations provide high-quality assistance services.
    Grant amounts would be determined based on the ratio of the number 
of individuals in the state with health insurance coverage to the total 
number of individuals with health insurance coverage in all states.
    Eligibility of the non-profit organizations should be based on a 
number of factors, including the organization's demonstrated ability to 
meet the needs of health care consumers, particularly those most in 
need of assistance. The organizations should prepare and submit a 
proposal to the state in which they outline their technical, 
organizational, and professional capacity to oversee and run the 
ombudsman program. Eligible organizations should clearly demonstrate 
their independence from health insurance plans, providers, payers and 
regulators of care, eliminating any questions of conflict of interest, 
and they should substantiate their ability to assist and advise 
consumers throughout the state, regardless of the source of their 
coverage.
                  how we know ombudsman programs work
    There are a number of different health ombudsman-type programs that 
serve as models for the type of ombudsman programs that should be 
created in patients' rights legislation.
    Of the various types of health-related ombudsman programs in 
existence today, the oldest, largest and best known is the Long-Term 
Care Ombudsman Program. Created more than two decades ago under the 
Older Americans Act as a result of well-publicized concerns about 
institutional care problems, states established ombudsman programs to 
serve people in long-term care facilities. These ombudsman programs are 
designed to advocate for nursing home residents, to help solve problems 
between patient/residents and institutional care facilities, and to 
bring systemic problems to the attention of state administrators and 
regulators. Long-Term Care Ombudsman Programs exist in all 50 states, 
the District of Columbia and Puerto Rico.
    A myriad of different health-related and specialized ombudsman 
programs also exist around the country. The most significant types of 
these programs include the so-called Information, Counseling and 
Assistance (ICA) programs that were funded under the Omnibus Budget 
Reconciliation Act of 1990 to serve Medicare beneficiaries. These 
programs differ significantly from state to state and are also heavily 
dependent on the use of volunteers.
    There are also a significant number of state and/or local-based 
ombudsman programs serving low-income people in the Medicaid program, 
especially those in the states of California, Michigan, Minnesota, 
Oregon, Tennessee, Texas and Wisconsin.
    More recently, a number of ombudsman programs have been created 
that are designed to serve the health care information, education, 
counseling, referral and assistance needs of the public and patients 
irrespective of the source of payment for their care. Three states--
Florida, Vermont, and Virginia--recently enacted legislation for the 
purpose of establishing ombudsman program services. Vermont enacted 
legislation requiring state officials to contract with a nonprofit 
organization to handle ombudsman functions. The ombudsman program 
responsibilities under the Vermont legislation include assisting people 
with plan selections by providing information, referrals and assistance 
about different health plans; helping plan enrollees understand their 
rights and responsibilities; identifying, investigating and resolving 
complaints on behalf of patients; and assisting patients with the 
filing and pursuing of internal and external administrative appeals 
concerning service delays and denials.
    Since its opening on January 4 of this year, the Vermont Office of 
the Health Care Ombudsman has received nearly 300 calls from consumers 
within the state. The majority of the calls have been from consumers 
seeking assistance dealing with commercial insurance purchased through 
employers, individual plans, or Medicaid managed care.
    As of mid-February, 40 percent of the consumer inquiries received 
by the office have required counselors to take some kind of action on 
behalf of the consumer, such as calling the client's insurance company 
or health plan, assisting consumers in preparation for plan appeals or 
fair hearings, and helping consumers draft letters. Of the inquiries 
received, only 23 percent could be answered during the initial phone 
call to the office.
    Florida's ombudsman program is a volunteer-based entity that 
consists of local ombudsman committees that serve consumers in their 
specific areas. Consumers are referred to their local ombudsman 
committees by the state's Agency for Health Care Administration.
    The state of Virginia enacted legislation last month that creates a 
state-based managed-care ombudsman to assist policyholders with appeals 
to health insurance companies. It is financed by a premium assessment 
on health plans.
    There has been tremendous support for the establishment of 
ombudsman programs across the country. The President's Advisory 
Commission on Consumer Protection and Quality in the Health Care 
Industry made several references to the need and importance of creating 
ombudsman programs. Several HMO executives--including the chief 
executive officers of Kaiser Permanente, HIP Health Plans, and the 
Group Health Cooperative of Puget Sound--joined together in a statement 
indicating that patients ``should have access to an independent, 
external nonprofit ombudsman program'' and that health plans should 
cooperate with those programs. Approximately one dozen states have 
bills pending in their legislatures to create such ombudsman programs. 
Clearly, this is a mechanism that is receiving growing recognition as 
an effective way of helping consumers at an early time and in a non-
confrontational manner.
                               conclusion
    Consumer assistance programs help to resolve problems at earlier, 
less formal stages and obviate the need for more contentious 
proceedings, such as litigation. Consumers need to have someone to go 
to for help when they think they are not getting the care they need. A 
knowledgeable person who can explain the obligations of the patient and 
the plan may be able to run interference and solve a consumer's problem 
before a formal grievance is necessary--saving time and money for both 
plans and consumers. Additionally, providing assistance throughout the 
appeals process could make the system work more efficiently and thereby 
lessen the need for further proceedings, such as litigation.
    As a result, any legislative proposal that seeks to deal with 
problems early and uses external review mechanisms to achieve that 
objective should include a provision for the creation of consumer 
assistance programs. We have ample, high-quality precedents in the 
states for these programs, and we should implement them as part of a 
patients' rights system.
    I would like to close by stating the obvious. A consumer assistance 
program designed to assist consumers cannot, on its own, solve the 
serious problems patients face today when dealing with their managed 
care plans. It must be part of an overall consumer protection system, 
such as the one that would be created by H.R.358--the Patient's Bill of 
Rights Act of 1999. As part of such a system, consumer assistance 
programs can help ensure that patients get the care they need, when 
they need it.

    Mr. Bilirakis. Thank you, sir.
    The issue of the gag rule is very significant, but I know 
there are people up here who will delve in that much deeper 
than I would.
    And I might also add that all of us should be grateful to 
Drs. Norwood and Ganske, particularly. Because a lot of this is 
happening out there already. This is not to say that some of it 
hadn't been happening before they actually got involved in it, 
or that it would not have happened. But I think some of it is 
happening as a result of an interest on the part of the 
Congress. So we are very grateful to them.
    But I would like to concentrate more on this information 
area and the ombudsman.
    Mr. Pollack, you talked about the appeal process and 
liability very briefly; you said you weren't going to go into 
that, and I appreciate it. But I suppose if we had a better 
informational process, if we an ombudsman-type of a situation--
perfected it in some way--that probably we wouldn't have to 
worry as much about the liability areas and the appeal areas. 
Would you agree?
    Mr. Pollack. I do agree. I----
    Mr. Bilirakis. And we talk about the costs, and there is 
something in here that talks about the President's Commission. 
It was rejected in part, the ombudsman idea.
    Mr. Pollack. No, it did not. I want to be very clear on 
this, Mr. Chairman. Because I served not just on the 
President's Commission, but I also served on the subcommittee 
that crafted the Patients' Bill of Rights. And, in fact, if one 
takes a look at the President's Commission's report, you will 
see on numerous pages--and I will reference them for you rather 
than read the materials--if you will look on pages 2, 15, and 
22, and 23, you will see that the Commission spoke very 
favorably about the creation of ombudsman programs.
    One last point I want to make; your home State of Florida 
is one of the States that has developed an ombudsman program. 
There are three States that have enacted legislation to this 
effect: Vermont, Virginia, and Florida. And I think that the 
experiences, to date, with the ombudsman programs that are in 
operation show that they are an effective tool for resolving 
differences in early and non-confrontational ways.
    Mr. Bilirakis. Well, all right. I was really going to refer 
to the fact that apparently it was rejected--at least that is 
the information I received--because the costs were expected to 
exceed $2 billion. That is not true?
    Mr. Pollack. No. No, that is absolutely----
    Mr. Bilirakis. Well, were they adopted?
    Mr. Pollack. Absolutely incorrect.
    Mr. Bilirakis. All right, then.
    Mr. Pollack. No. 1, there was no estimate ever about the 
cost of an ombudsman program, $2 billion or otherwise.
    Mr. Bilirakis. But was it adopted?
    Mr. Pollack. Yes.
    Mr. Bilirakis. All right.
    Mr. Pollack. If you would like----
    Mr. Bilirakis. Okay.
    Mr. Pollack. [continuing] I am happy to read some of the 
appropriate provisions.
    Mr. Bilirakis. All right. But let me ask you, who would 
incur the costs of that? Would it then be the insurance 
companies?
    Mr. Pollack. In the State of Vermont, which created a 
financing mechanism, and in the State of Virginia, they went 
about it in two different ways. And Congress can do it in more 
than--in at least these two ways.
    In Virginia, recently enacted, there was a surcharge 
leveled on health plans--and it is a modest surcharge--to 
finance the costs of ombudsman programs.
    Mr. Bilirakis. And that was passed on to the beneficiaries?
    Mr. Pollack. To the payers of the plans; yes. And it is a 
very modest sum. In Vermont, it was established through general 
revenues. And there, too, it was a very modest sum.
    Mr. Bilirakis. Well, I guess what I am going to is the 
costs, whatever it might be--whether it be this exceeding $2-
billion figure or whatever it might be.
    Mr. Pollack. I really want to put this to rest, because 
never----
    Mr. Bilirakis. All right.
    Mr. Pollack. I was involved, literally, in every discussion 
on this issue. And not only did the Commission not find that it 
would cost $2 billion, there never even was a discussion about 
it with that dollar figure. There never was----
    Mr. Bilirakis. All right.
    Mr. Pollack. [continuing] in the entire proceedings of the 
Commission.
    Mr. Bilirakis. Okay; I am misinformed. But that is really 
beside the point. There is going to be a cost involved?
    Mr. Pollack. Yes.
    Mr. Bilirakis. Okay. And somebody is going to have to incur 
that cost somewhere along the line.
    Mr. Pollack. Right.
    Mr. Bilirakis. Okay. Now that is, again, another question.
    But could we say that this ultimate savings, in terms of 
the appeals and possibly the liabilities aspects--the court, 
going to court, et cetera--that the costs would be considerably 
less, if you have an ombudsman-type of a situation?
    Mr. Pollack. I believe----
    Mr. Bilirakis. You would think so?
    Mr. Pollack. I believe that is true, Mr. Chairman, because 
the savings by preventing the kinds of contentious procedures, 
irrespective of whether there is a liability provision or not, 
I think would be considerable. And I think it is in everyone's 
interest--health plans, as well as consumers--to try to get 
these issues resolved up front, at the earliest stage as 
possible. And, yes, there would be considerable savings for 
doing that.
    Mr. Bilirakis. Thank you, sir.
    Mr. Green.
    Mr. Green. Thank you, Mr. Chairman.
    Ms. Lehnhard, in your testimony--I understand that HMO's 
and PPO's are different and structured differently--and in your 
testimony, you state that requirements to collect uniform data 
on healthcare outcomes and have a continuous quality 
improvement program to address these outcomes would essentially 
eliminate PPO's. There would be no more PPO's.
    Do you believe that PPO's should not be subject to any 
quality improvement requirements?
    Ms. Lehnhard. We believe the whole thing should be--the 
question of quality measurement should be left to the private 
sector. Right now, the private accreditation organization for 
PPO's does not require PPO's to do clinical improvement, 
because of the--you know, when you tell a health plan it is 
accountable for improving quality, you are telling the health 
plan they have to change behavior of physicians. And our plans 
tell us to do that, you have to have the tools that you have in 
an HMO.
    Our plans will improve quality in PPO's, but the strategies 
they use are very diverse--very varied. And there is no 
consensus in the industry at all, in terms of what PPO's should 
be doing to affect quality.
    Mr. Green. Well--and I want to follow up, then I will get 
onto the other part. And along those same lines, you suggest 
that the provision in the Patient's Bill of Rights that 
required group healthcare plans and health insurance officers 
to provide the latest information on the quality of the 
delivery of medical care is also a threat to the existence of 
PPO's--Congressman Dingell's bill?
    Ms. Lehnhard. We are concerned about that language, not so 
much for the language per se, but what could happen in 
regulations. For example, the Secretary could say that the 
latest information is your claims information, or the latest 
information is whatever you have--in PPO's we will, for 
example, profile physicians--very crude profiling. We look for 
gross outliers, for example, because all we have is claims 
data. That would mean we might have to make that public.
    For some PPO's it might mean they might not do it, because 
it is a very crude tool. And you also often have to have 
individual follow-up with the individual physicians you have 
identified.
    There is no state-of-the-art in PPO quality measurement 
like we have in HMO measurement.
    Mr. Green. Well, and I understand, you know, but the PPO--
you have your list of your physicians that are available. And 
shouldn't it be just prudent business practice that a provider 
would, if that physician is on the list, that they could have 
some standard. Now, granted, not as much as an HMO because of 
the contracting basis. But for the PPO, there should be some 
type of oversight from the insurance company who could list 
that physician or that provider on that list.
    Ms. Lehnhard. I think when you get into these very broad 
networks of 30,000, 40,000, 50,000 physicians, there is a very 
high per-physician cost in doing any of that. Even finding out 
when the doctors' office hours are, the background on their 
education, and keeping it current is a very high cost. As soon 
as you start down that road, you start to create incentive for 
health plans to narrow their network.
    And there has not been a real discussion about the balance 
between large networks, lots of choice for subscribers, versus 
going down a path like we have gone down on HMO's, which is 
making the health plan accountable for quality rather than 
leaving it to the physicians.
    Mr. Green. Okay. And, again, my concern I guess is for that 
physician to be on that PPO list, you had to make some decision 
for them to be on there, other than they were just licensed to 
practice medicine?
    Ms. Lehnhard. In some of our PPO's, we will have 98 percent 
of the licensed physicians in the State. These are very broad, 
very broad choices, and it is what the market wants.
    Mr. Green. Well--and, again, my only experiences is in the 
Houston area, and looking at some of the PPO lists, in fact, 
for Blue Cross, it would get nowhere near the 98 percent of the 
physicians in the Houston area that would be on PPO list, you 
know, because I have looked at that list over a number of years 
and watched it change. I don't want to locate unnecessary 
regulation, but I also want to measure quality, and for a 
physician to get on that list, I would hope somebody is looking 
at it to make sure that, the physician is providing the highest 
possible level of care.
    Ms. Lehnhard. Some of our PPO's--we will have different 
kinds of PPO's. Some PPO's look at quality; some PPO's are 
strictly discount arrangements. For example, some State 
employee groups have said, ``We want as many physicians that 
you can get, any physician that will take a discount and not 
bill the subscriber.''
    Mr. Green. I appreciate it.
    Let me--Mr. Chairman, if I could just ask Mr. Pollack if--I 
know you were shaking your head during just now and I have run 
out of time and I have other colleagues you need to answer 
questions, but if you could just make a comment----
    Mr. Pollack. Well, I was just shaking my head at the same 
thing you did about the 98 percent. I am in a PPO and, Lord 
knows, it has quite a bit fewer percentage of physicians in it.
    And really, what a PPO does is it selects its physicians 
largely on one major factor, and that is those that are willing 
to accept the discounted payment for the service they provide.
    Ms. Lehnhard. That is part of it.
    Mr. Green. Okay. So there is no look at quality at all.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. Yes.
    Of course, Ms. Lehnhard agrees. She says, ``Part of it.''
    Ms. Lehnhard. Well, you will have as many different kinds 
of PPO's--when you see one PPO, and you have seen one PPO. And 
it is a tremendous benefit for people to have a network of 
physicians who will take a discounted payment, not bill the 
patient, and then you pay 20 percent to go outside the network 
to see any physician you want.
    It is the fastest growing product, and it is what the 
market is saying, absolutely, that they want. And if we have to 
begin to impose quality-type measurements like we do in our 
HMO's, we can't have that large number of physicians in the 
network.
    Mr. Bilirakis. Dr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman.
    My good friend and colleague from Georgia here, to my 
right, earlier expressed a sense of frustration at the details 
of some of the language that came out in the Patient Protection 
Act--I might say, early in the morning on the day that the bill 
was debated on the floor. And so I want to focus some of my 
questions on the details of legislation, because the devil is 
in the details.
    This question will be addressed to you, Dr. Reardon. For 
instance, you might think that since Congress has already dealt 
with, in the form of Medicare and Medicaid, banning gag rules, 
that it would be a ``slam dunk'' to adopt the language that we 
passed in the Balanced Budget Act, as it related to Medicare, 
banning that type of prohibition on patient/physician 
communication and simply put that language which was fully 
vetted in this committee into a patient protection bill that 
would cover all patients in the country.
    But I want to point out that the language that we have in 
Balanced Budget Act, which the members of this committee voted 
for, says that health plans could not, ``prohibit or otherwise 
restrict,'' medical communications between providers and 
patients.
    But all we had in the original Patient Protection Act was 
``could not prohibit.'' Those three words, ``or otherwise 
restrict'' are those details, those devil details that make all 
the difference in the world whether you have a patient 
protection act or an HMO protection act.
    Dr. Reardon, I want to ask you, whether the AMA is 
concerned about legislation allowing plans to restrict but not 
completely prohibit medical communications? In other words, is 
there such a thing as a little first amendment right?
    Mr. Reardon. Congressman, no. We feel that physicians 
should have the right to discuss all treatment options and 
disclose fully to patients and discuss all items. What you are 
describing that happened in the Managed Care Act last year, we 
would not support.
    Mr. Ganske. Dr. Reardon, can you pull that just a little 
bit----
    Mr. Reardon. I am sorry.
    Mr. Ganske. [continuing] closer and make sure that it is 
turned----
    Mr. Reardon. Yes. I am agreeing with you, Congressman. We 
would not support what happened in the Managed Care Act last 
year. We think that physicians should have the right to discuss 
everything with the patients.
    Mr. Ganske. Thank you.
    Ms. Lehnhard, we have hours of questions that I could ask 
you, but I want to specifically talk about some legislation 
that is working its way through my State of Iowa right now, 
dealing with a patient protection bill.
    Now, Iowa Wellmark, Iowa Blue Cross Blue Shield, has been a 
leading member of a coalition of insurers, business interests, 
professional groups, in support of a patient protection 
legislation that just passed the Iowa Senate with only two or 
three dissenting votes.
    Now, in that legislation, when you are dealing with the 
definition of ``medical necessity'' as it relates to external 
review, the standard that was used was ``clinical standards of 
care.'' That was supported by John Forsyth, the CEO of Iowa 
Wellmark. It will probably become law in Iowa.
    My question to you is, since we already have one Blue Cross 
plan in the country supporting a definition of ``medical 
necessity'' that specifically includes ``clinical standards of 
care,'' can national Blue Cross Blue Shield do the same?
    Ms. Lehnhard. We have a number of plans that have supported 
legislation in the States, and that has been one of our 
points--that the States are adopting these protections.
    The Iowa plan is concerned about Federal legislation and is 
opposed to Federal legislation because of a number of issues, 
including the problems in dealing with two sets of regulations.
    It is like the old story in Medicare, where the Federal 
Government would say, ``Put the fire extinguisher in a blue 
box,'' and the State government would say, ``Put it in a red 
box.'' So you have three fire extinguishers up there. One is a 
mix of red and blue.
    Mr. Ganske. Can you just address this, the question of the 
Iowa Blue Cross Blue Shield Wellmark support for----
    Ms. Lehnhard. I would have to get back to you. I believe 
they did have problems with the--I know they had problems with 
your ``medical necessity'' language, and I don't remember the 
specifics. But we have something in writing that we can share 
with you.
    Mr. Ganske. And my understanding is that they ultimately 
came on board with the coalition for an acceptable definition.
    Ms. Lehnhard. I don't know how that State language compares 
with your language. I know they had problems with the ``medical 
necessity.'' I believe they had problems with ``medical 
necessity'' language in your bill, and may have had problems 
with the State language.
    Mr. Ganske. Maybe, Mr. Chairman, since there are so few of 
us, we will be able to come back for a second round?
    Mr. Bilirakis. Well, let's play it by ear and see what is 
happening on the floor, et cetera.
    Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman.
    In my opening statement today, I made the point that I felt 
that if we did not address the issue of ``medical necessity'' 
and who defines it, that these other patient protections that 
we are talking about today really would be rather meaningless.
    Now, Dr. Reardon, you sort of made that point in your 
written statement, where you said that consider the importance 
of ``medical necessity'' determinations in light of anti-gag 
clause and anti-gag practice legislation. And you basically 
said that--that if we didn't address the issue of ``medical 
necessity,'' then the gag rule, per se, would be meaningless.
    Would you just clarify that, again? Because that is one of 
the points that I have been trying to make here today, why we 
need to address ``medical necessity,'' because of all these 
other things.
    Mr. Reardon. Well, I think traditionally ``medical 
necessity'' has been determined by a physician, and we support 
strongly that ``medical necessity'' should be based on best 
practice, best science. If the physician does not have the 
right to make the ``medical necessity'' determinations and do 
that with a patient, and they are going to be second-guessed, 
or there is arbitrary decisions made by the health plan, then 
the ability to talk with the patient and make decisions to the 
patient is eroded.
    This does not mean, however, that we do not respect 
utilization management and medical management and oversight. 
And with that, of course, with utilization management, if there 
is a denial, then we feel strongly there should be an appeals 
process, both internal and external, for that review by the 
health plan.
    But the ``medical necessity'' decision is a medical 
decision, and should be made by medical personnel.
    Mr. Pallone. The other thing you bring up in this context 
in your testimony is that, basically, what you find is that the 
determination of ``medical necessity'' is increasingly being 
determined by financial considerations.
    And that was my point in some of my questioning in the last 
panel which is--I mean, if the bottom line is profit here, and 
that is what is determining, you know, what a lot of the HMO's 
do, once again, it brings up the point of why we need to 
define, you know, who is going to define ``medical necessity'' 
in an effective way.
    I don't know if you want to comment on that again.
    Mr. Reardon. Just very briefly, I think what we are 
referring to is, one size does not fit all. And there may be 
multiple treatment modalities for a given condition or a given 
patient, but you need to match that with the patient's needs. 
Not every patient is the same.
    Mr. Pallone. I wanted----
    Mr. Coburn. Would the gentleman yield for just a second? 
And I will be happy to yield some of my time to him when the 
time comes. I just want to ask a question that follows that 
same line, because it is----
    Mr. Pallone. Well, normally, I would be glad to, Mr. 
Chairman, but I have another couple of questions and I don't 
want to run out of time. Can we----
    Mr. Coburn. I will yield you my time. I still have time 
coming.
    Mr. Pallone. All right. Let me just get through what I am 
doing and then I will come back to----
    Mr. Coburn. All right.
    Mr. Pallone. Because, otherwise, I am going to run out of 
time, because I have to go to another meeting, too.
    On the ombudsman issue, I just wanted to mention to Mr. 
Pollack, frankly, I used to work--I used to be a counsel for 
protective services to the elderly in New Jersey, which was 
like the ombudsman, so I don't even have a problem with the 
idea that the ombudsman, you know, were to get involved in 
lawsuits. But my understanding is just the opposite.
    And if you could just stress, again, that it is not the 
intent of the ombudsman actually get involved in suing, it is 
the opposite. You are trying to do--you see this as a 
preventative measure, as a way of trying to resolve suits 
beforehand. And that reflects back on the cost issue of trying 
to save costs in the long run.
    If you would just comment on that.
    Mr. Pollack. I would even say something stronger than that, 
Mr. Pallone, and that is that in legislation, creating an 
ombudsman program, I would even prohibit the ombudsman program 
from being involved in litigation.
    The purpose of the ombudsman program is to try to get these 
things resolved before litigation becomes an issue. And I think 
all of us agree, whether people like the liability provision or 
dislike the liability provision, we all agree. Let's get these 
problems resolved early; let's do it in a way that gets people 
help when they need it, as opposed to having to go to court, 
then wait a few years to get something resolved.
    And so the ombudsman provision is designed to avoid 
litigation, even if you have a right to litigation.
    Mr. Pallone. Okay. Now I just want to ask Mr. Pollack and 
Dr. Reardon. This is a clarification. I know you were both on 
the President's Quality Commission. And I believe, Ron, that 
you were on the task force that Peter Thomas chaired. That is 
correct?
    I would like to clarify what the task force came to 
recommend regarding ``medical necessity.'' Mr. Thomas is 
correct that the Commission did not have a separate consumer 
right on ``medical necessity,'' but it did incorporate some 
thinking on this issue in the grievance and appeals section.
    Is that correct?
    Mr. Pollack. That is absolutely right. Actually, I was 
looking at the President's Commission's recommendations that 
was crafted in Peter's subcommittee that I served on, and one 
of the things we said was that the external right of appeal 
would apply to decisions of ``medical necessity,'' and that 
these would be independent of what the plan's decision was and 
would be made by competent professionals who are specialists in 
the area that is in controversy.
    I want to just make one point, because maybe that 
anticipates Mr. Coburn's question. I think this issue of 
``medical necessity'' is not a question about, should we use 
protocols or clinical guidelines? I think everybody agrees that 
it is a useful thing to have those things, and the more they 
proliferate, the better that is. The real question is, is 
somebody who is actually looking at the patient involved in the 
process of determining ``medical necessity?''
    And, unfortunately, what we have today in too many 
instances is that the decisions albeit whether it is made by a 
physician or whether it is made by a nurse, that decision is 
made by somebody who has never seen the patient. And that is 
why it is very important to clarify this ``medical necessity'' 
decision so that we involve the attending physician in that 
process. And I think that is what this ``medical necessity'' 
issue, ultimately, comes down to.
    Mr. Bilirakis. Before we get over to the next panelist--
Doctor?
    Mr. Reardon. Yes.
    Mr. Bilirakis. Obviously, it is controversial. Are you 
suggesting that if we can't get that done, we should not do 
anything with gag and within the informational and maybe 
ombudsman--which really appeals to me--or some of these other 
things that we are talking about? Are you suggesting that, 
Doctor?
    Mr. Reardon. Well, let me put it this way, Mr. Chairman; we 
look at the Patients; bill of rights as a lifeboat for patients 
as they navigate through an increasingly complex healthcare 
system.
    Mr. Bilirakis. Yes.
    Mr. Reardon. And a lifeboat without one part of it is not 
going to float.
    Mr. Bilirakis. All right. So that is what you are 
suggesting?
    Mr. Reardon. Not going to meet patients' needs and----
    Mr. Bilirakis. That is what you are suggesting?
    Mr. Reardon. [continuing] therefore, we think there should 
be a comprehensive bill.
    Mr. Bilirakis. All right.
    Mr. Pollack. There is one other facet of this.
    Mr. Bilirakis. Well, it is really not my time here, and I 
really shouldn't take advantage of it.
    Mr. Coburn. Well, maybe the Chair will yield time to me?
    Mr. Bilirakis. We may go around again.
    Mr. Coburn. All right.
    Mr. Bilirakis. If you are patient enough.
    Let's see, Dr. Norwood.
    Mr. Norwood. Yes, sir, Mr. Chairman; I do hope we go around 
again. And I will yield to Dr. Coburn to follow up on ``medical 
necessity.''
    Mr. Coburn. I just wanted to make two points. What Mr. 
Pollack was talking about is, you know, as I tiraded about the 
loss of doctor/patient relationship, the thing to remember is 
not all medicine is science. A good portion of it is art. And a 
great deal more portion is art than we want to admit when you 
talk to good physicians. And I can tell you I have done a lot 
of things that people in the medical community said I was nuts, 
and I found disease that was there that everybody else said 
wasn't there because of the art of medicine.
    The second point I would make in defense of managed care 
is, they aren't the only ones that have been greedy in 
healthcare. And one of the reasons that we are seeing some of 
the things that we are seeing is because physicians have been 
greedy. And all you got to do is go look at HCFA's numbers on 
echocardiograms by cardiologists that are done that aren't 
necessary. And you can see that there are two people who have 
played this game. So, medicine is not without some due 
criticism for its motivation.
    Why is it there?
    Because the doctor/patient relationship has been disrupted. 
The person paying the bill isn't the person getting the 
service.
    And so, you know, there is a lot of blame to go around to 
how we found ourself in the shape where somebody, a third-
party, is making a medical determination, based on a protocol 
that has no knowledge about the patient whatsoever, and doesn't 
necessarily have the patient's best interests at heart.
    And so I would just thank the gentleman for yielding. I 
think those points are important, and I am sorry Mr. Pallone 
doesn't want to hear that. Because everybody has made plenty of 
errors as we formulated and manipulated the market, as our 
healthcare has come forward.
    And I yield back to the gentleman from Georgia----
    Mr. Norwood. Thank you very much, and I will----
    Mr. Coburn. [continuing] and thank you very much.
    Mr. Norwood. [continuing] follow in that same line of 
questioning and see if I can say this in a simpler way.
    What we speak of is, who actually diagnoses and then 
determines the treatment for the patient? Who physically does 
that?
    And I would think that, Ms. Lehnhard, you believe that for 
managed care to work, the insurance companies have to take that 
over?
    Ms. Lehnhard. No, not at all. And I am glad I finally get 
to say something on this.
    Mr. Norwood. Then you----
    Ms. Lehnhard. I would just say, first of all, this is not a 
managed care issue. This is a fee-for-service issue; this is a 
Medicare issue, and it is the fundamental issue. And it is not 
solely about evening out practice patterns. This is your basic 
abuse.
    If you were to do in Medicare what you are proposing to do 
in private health plans, the burden of proof would be on 
Medicare to prove why they shouldn't pay a physician. The 
physician would always be right, unless Medicare could prove 
they were wrong. The stacks and stacks of Medicare coverage 
guidelines would all end up in court because there would be 
charges being arbitrated.
    Mr. Norwood. Ms. Lehnhard, I am sorry. I am going to let 
the chairman let you have the time; I don't. I am not going to 
have but a minute, and I want to make this point I am trying to 
make.
    It is about all kinds of patients, about who determines the 
treatment. And you control that in every aspect of the 
insurance industry by denying or not denying payment.
    Now my question to you, basically, is this--because I think 
Dr. Reardon would say, and I tend, certainly, to agree with--
that the practicing physician who puts his hands on that 
patient, actually sees that patient, is the person most apt to 
get it right about what the diagnosis is and what the treatment 
would be?
    Now I know that you think that doctor----
    Ms. Lehnhard. No.
    Mr. Norwood. [continuing] doesn't use outcomes----
    Ms. Lehnhard. No.
    Mr. Norwood. [continuing] doesn't use mathematical science 
because it is a little cottage industry, and all they have got 
to work with is medical science and the art of medicine, but 
they don't use the outcomes.
    We think that all you use is outcomes. In other words, all 
you us is mathematical science. I know you don't touch the 
patient; I know you don't see the patient; yet, frequently, 
your people deny the treatment for the patient, that the doctor 
who touched the patient says, ``This is what I believe, from my 
experience.''
    Now, if we defined ``medical necessity,'' as Dr. Reardon 
wants to do, meaning the primary healthcare physician 
determines the diagnosis and the treatment, and all you do is 
pay for it because you are the third-party----
    Ms. Lehnhard. Nobody could afford health insurance.
    Mr. Norwood. Wait a minute.
    Now, let me finish.
    What do you think that does to the term ``managed care?'' 
What does that do to managed care in America?
    Ms. Lehnhard. Again, it is not just managed care. If you 
look at some of the things--they haven't gone on for a few 
years----
    Mr. Norwood. Humor me for this discussion, and just tell me 
what it does to managed care.
    Mr. Bilirakis. And let's do it briefly now, because if we 
want to go to Mr. Towns before we break----
    Ms. Lehnhard. It makes all health insurance----
    Mr. Bilirakis. [continuing] we will break for the vote, 
then come back for a quick second round.
    Ms. Lehnhard. It makes all health insurance unaffordable. 
We will go back to the days where everybody got a chest x-ray 
when they went to the hospital. Everybody got a whole battery 
of tests. If you put the burden of proof on the health plan in 
every single case to prove why we shouldn't pay for something, 
you will have procedures come out of the woodwork that you 
haven't seen for 20 years.
    Mr. Norwood. Mr. Chairman, when we come back, Dr. Coburn 
gets his first round question. Then, maybe I can get to Dr. 
Reardon for an answer on that.
    Mr. Bilirakis. Ms. Lehnhard, I heard Dr. Coburn, or I think 
I heard him correctly when he made comments about a lot of 
these cardiologists ordering ``unnecessary''--I think he used 
that word--``unnecessary'' echocardiograms. I might add that a 
lot of non-cardiologists, family practitioners are also 
ordering echocardiograms, and I have no idea whether they are 
necessary or not.
    Mr. Coburn. I was quoting HCFA data and not my opinion.
    Mr. Bilirakis. Not your opinion? Okay.
    Mr. Coburn. I was quoting HCFA data.
    Mr. Bilirakis. All right. But you don't agree with that 
opinion?
    Mr. Coburn. I don't agree that most primary care physicians 
are ordering echocardiograms. Most of those are----
    Mr. Bilirakis. Well, I didn't say ``most,'' but there are 
many.
    Are we basically saying that we no longer trust the 
physicians to make the right decision on behalf of the patient? 
And we basically think that they are just going to take 
advantage?
    Ms. Lehnhard. No. No, I don't want to be construed as 
saying that.
    When we use our guidelines--first of all, the guidelines 
are developed by the medical professionals, and when our 
medical directors looks at a guideline and see the information 
from a physician that doesn't fall under the guideline, he will 
call the physician and say, ``You don't meet the criteria. Is 
there something I am missing?''
    The physician may say, ``This person weighs 400 pounds.''
    And our medical director would say, ``Fine; put him in the 
hospital.''
    I think what you have to look at is the cost of a total 
flipping of who is in charge of deciding what is covered.
    And I use the example of Medicare. If you look at the 
Inspector General's reports on Medicare, the big savings yet to 
be achieved are in the ``medical necessity'' area.
    We were some of the innovators, in Blue Cross and Blue 
Shield, but it used to be, literally, every time you went to 
the hospital, you got a chest x-ray and a whole battery of 
tests.
    When we first said, ``We are not going to pay unless the 
physician can show us that it is needed,'' this was a health 
plan saying we are going to use our burden, the fact that the 
physician has the burden of proof to come to us and say, ``We 
will pay when you can show us that we need to pay.''
    If you flip that, you are going to have not only outmoded 
or inappropriate or unnecessary services, you will have cases 
of going back to abuse.
    Mr. Bilirakis. Well, but again--and we are going to have to 
go over and vote--so we have lost complete confidence in the 
medical doctor making the decision for basically ``medical 
necessity,'' that it is medically necessary? We have lost 
complete confidence----
    Ms. Lehnhard. No. We always----
    Mr. Bilirakis. [continuing] in that?
    Ms. Lehnhard. [continuing] go back to the physician to see, 
you know, have we missed something in the guidelines? Have you 
forgotten to give us some information?
    We wouldn't--our medical directors don't just say, ``No.'' 
They call the physician and find out what additional 
information is needed or is missing.
    Mr. Ganske. Mr. Chairman, I would point out that those 
guidelines were ones that mandated same-day mastectomies and 
drive-through deliveries--which subsequent medical studies have 
shown have been contrary to the health of the patients--that 
Milliman & Robertson's guidelines were recommending. But we are 
not talking about doing away with the fact that managed care 
can do appropriate utilization review. Of course they can. Just 
like traditional indemnity plans have always done utilization 
review.
    As a physician, I did utilization review for a number of 
insurance plans, and when recommended care steps out of bounds 
from clinical standards of care, you can certainly deny that. 
And, if you have the scientific facts, and the clinical 
standards of care to back up your decision, you will be just 
fine.
    Mr. Bilirakis. Let's go vote. And would you mind waiting a 
little while longer? I mean if one has to leave, I mean we 
certainly understand, and we appreciate your patience.
    Ms. Lehnhard. Yes, I can stay.
    Mr. Bilirakis. Thank you.
    We are going to vote, and we will be right back.
    [Brief recess.]
    Mr. Bilirakis. The hearing is back in order.
    We understand that they are going to have a few minutes of 
debate, and then I think it is motion to recommit and then 
final passage, which would mean two votes. So, hopefully, we 
can get this second round finished up.
    Have we lost Ms. Lehnhard?
    Mr. Pollack. She just stepped out for a moment. She will be 
back.
    Mr. Bilirakis. Okay. We just lost her temporarily.
    All right. Mr. Towns, you are recognized, sir.
    Mr. Towns. Thank you very much, Mr. Chairman.
    You know I am having some problems moving along on this 
whole thing, because the point of that, I see some things that 
need to be addressed before we even get to the level that we 
are discussing here today.
    Now I am concerned about the uniformity, in terms of 
recordkeeping and what happens to records. You know we now have 
health facilities that are closing, and there is no uniform way 
of dealing with the medical records. You know you have 
physicians who, in practices, in terms of single practices and 
of course--and they expire. And it is not like the old days 
where somebody would just become a part of the estate, and then 
they would sell it off, and somebody would buy it and come back 
and take over the office. You know, those records are just sort 
of left hanging there in many instances. There is no uniform 
way to deal with this. And if a clinic closes--and let's fact 
it, in terms of the fact that--and there will be hospitals that 
are going to close because you don't need the beds anymore. 
There is no uniform way to deal with these records.
    So we talk about information and quality care and all of 
these kind of things, you know, how do we get past that stage?
    And the other part was, you know, I am thinking very 
seriously about offering some legislation, and I would like to 
get your input in it.
    Yes?
    Mr. Reardon. And I will certainly speak to that first, Mr. 
Congressman.
    We do have a way of handling medical records at the present 
time, and that is a physician has a moral and ethical 
obligation, if he is going to close his practice, to make those 
records, No. 1, available to the patient as they make an 
orderly transfer and advise that patient ahead of time.
    Mr. Towns. Doctor----
    Mr. Reardon. Now if there----
    Mr. Towns. [continuing] if the physician expires, in other 
words----
    Mr. Reardon. If the physician----
    Mr. Towns. [continuing] in other words, he dies.
    Mr. Reardon. If there is suddenly the end of practice, such 
as the physician dies, then there is a moral obligation by the 
family and by the medical society to step in and maintain those 
records and keep them available. They aren't thrown away. And 
eventually they are stored in a place, a known place, so that 
the patient can access those and they will be shipped.
    Mr. Towns. Doctor, who enforces that? I mean is that a law 
that is somewhere, or is that something that, you know, a code 
or ethics, in terms of the medical profession to--I mean there 
is no--what I am saying to you is that I know hospitals, 
Doctor, that have closed, and they threw the records out in the 
street.
    Mr. Reardon. Oh, I am very sorry to hear that. But from the 
physicians perspective, it is an ethical obligation to make 
those records available.
    But more, I think, what you are talking about, as we move 
to electronic records and better information systems, I think 
that will be one of the solutions to the problem we have.
    Ms. Lehnhard. I am sorry; I wasn't here when the question 
was asked.
    Mr. Towns. I am sorry.
    Ms. Lehnhard. That is okay.
    Mr. Towns. Thank you.
    I am trying to get into, you know, all of the things we are 
talking about, but I am having trouble getting to that level 
because I see some very basic kinds of problems that are going 
on with--there is no uniform way to deal with health records. 
For instance, when a medical facility closes, there are 
different things that happen in different States, different 
places of doing things. Some people just walk away from them; 
they just leave them.
    Also, the other point was that when a physician expires 
today, you know, it is not like the old days when that office 
would become a part of the estate, and the family would sell 
it, and another person would come in and take it over and live 
happily thereafter until that person expires. And then somebody 
else would do it. You know, that is not happening today, that 
once the physician expires, nobody, in many instances, are 
coming back into those offices. So what happens to those 
records? You know, nobody can tell me, in terms of a uniform 
way, they are being dealt with. Some States have rules; some 
cities have rules as how they should be dealt with, but there 
is no uniform way. And we are talking about Federal dollars 
that are going into this.
    Mr. Reardon. If I may comment on that, sir. I think what 
you are speaking of, is a solo practicing physician, and that 
is becoming less and less common. Most practices are group 
practices or with other partnerships, partners, so the records 
become part of the office.
    Now you are entirely right if the practitioners has to be a 
solo practitioner, then it creates more of a problem. But, I 
think there are fewer and fewer of the solo practitioners. 
There are more and more group practices.
    Mr. Towns. I understand that, but what happens to those 
that are still out there, Doctor? That is all I am saying. I 
mean I agree with you, but the point is that, how do we get to 
the next level when we know this is going on? A doctor dies and 
the records die, too?
    Mr. Reardon. Well, as I said, at the present time, we feel 
there is an ethical responsibility for the family and the 
estate to maintain those records and make them available for an 
orderly transfer.
    Ms. Lehnhard. In other words, the patients would have to 
notify the--hopefully, the office would be left open for 
awhile, and they would have to notify the office and say where 
to transfer your records.
    And that is all I know.
    I am not a--I don't know the details of State law on this.
    Mr. Bilirakis. So the State medical societies, let's say, 
or the AABA, or both, don't have a responsibility, a sort of a 
positive responsibility to reach right on in and try to get 
these records protected, unless they are notified by patients 
or whatever?
    Mr. Reardon. Actually a mechanism would be for the county, 
more the county society, in this instance perhaps. But most 
usually, as Ms. Lehnhard has said, the offices remains open for 
a period of weeks, and then those records that are still there 
are maintained by the family or by an entity until--a known 
entity--so they can be transferred.
    But I don't think there is anything, if the question is 
legislation or any hard rules and regulations, I don't know of 
any.
    Mr. Bilirakis. Should there be?
    Mr. Reardon. Well, I think--I suppose I would rather see 
you turn that question to us and let us talk about it within 
the medical society first and see if we can't set up a 
mechanism through the county medical associations to deal with 
that. Because I think that is where it should be dealt with, is 
at the county level, in the local area.
    Mr. Towns. Right. I would appreciate that, because it is a 
real concern, because I know of situations where hospital have 
closed. There was a fight between the union and the hospital, 
or finally, they made the decision that the hospital would 
close, and the records were just thrown out.
    Mr. Bilirakis. Would you get back to us on that, Doctor?
    Mr. Reardon. We will.
    Mr. Bilirakis. Good. I know Mr. Towns--along with the rest 
of us.
    Mr. Bilirakis. The Chair recognizes Mr. Dingell.
    Mr. Dingell. Thank you, Mr. Chairman. Dr. Reardon, welcome 
to the committee; and, you, Mr. Pollack, welcome to you, Ms. 
Lehnhard, thank you for being with us; we appreciate your 
presence.
    Dr. Reardon, I want to talk to you about the question of 
``medical necessity.'' We heard testimony from two disabled 
individuals yesterday in this committee about the difficulty in 
achieving covered services or receiving treatment that the 
individuals concerned believed they'd paid for through their 
insurance premiums. I happen to know very well that the 
American Medical Association is much concerned about the way 
that some insurance companies are limiting access to covered 
services by addressing the question of ``medical necessity,'' 
essentially saying they are not medically necessary or by 
creating definitions that make it impossible for those kinds of 
services to be delivered.
    Doctor, could you please explain to everybody how some 
health plans are using the concept of ``medical necessity'' to 
deny treatment to patients in what I believe is an unfair way?
    Mr. Reardon. Certainly, Congressman.
    What happens, I think, is that they hide under the facade 
of coverage and they say, ``Well, this is not medically 
necessary, therefore, it is not a covered service.'' In 
essence, though, they are making a medical decision, and either 
the medical director of the plan, the administrator of the 
plan, is making a decision, a medical decision, by hiding 
behind the facade of coverage.
    We think it is very important that if there is any question 
about ``medical necessity,'' that they deal with the physician 
with both an internal appeals process and, depending on the 
issue, an external appeals process, so they find a way so that 
the patient gets the necessary coverage which they are entitled 
to under the plan.
    Mr. Dingell. Now this question of ``medical necessity'' is 
not a new concept? It goes back, I think--I think you have been 
telling at one point or another, it goes back to the 1700's. 
Can you just describe what this really means? It describes the 
behavior of what a prudent medical professional would prescribe 
for the patient; isn't that right?
    Mr. Reardon. Well, I think--yes; the definition of a 
prudent medical practitioner, but more than that, we want the 
best clinical practice, the best science. We believe in the use 
of guidelines, practice parameters, as an aide to physicians to 
make decisions.
    I think the issue is that the treating physician who sees 
the patient, takes the history, does the physical exam, puts 
hands-on to that patient, has the best knowledge of what is 
going on and should be the ultimate decisionmaker of what is 
best for that patient.
    Now, there may be more than one treatment option. There may 
be three or four different treatment options for a given 
condition, but the physician is in the position of being able 
to determine which treatment option is best for that particular 
patient. So we feel very strongly.
    We have no objection to working with the plans, but, 
ultimately, that decision should remain with the physician.
    Mr. Dingell. Now, again, Doctor, there are some who do not 
think we need a definition of ``medical necessity'' in the 
Patients' Bill of Rights. Without a fair and uniform definition 
of ``medical necessity,'' what is the guarantee that any of the 
other protections that might be included, with regard to 
specific sets of circumstances, could be meaningful?
    For example, if you guarantee access to a specialist 
without a definition of ``medical necessity,'' based on the 
principles of good medical practice, the plan could still 
arbitrarily decide that access to the specialist was not 
medically necessary. Is that a fair statement?
    Mr. Reardon. Yes. And let me use the analogy I used a few 
moments ago, and that is, we feel that the Patients' Bill of 
Rights is like a lifeboat. And that to make it complete and 
make it float and make it navigational through these complex 
healthcare systems, you need all aspects of the Patients' Bill 
of Rights, including ``medically necessity.'' If you take one 
out, we think you are going to deprive the patients of the 
necessary care that they should receive.
    Mr. Dingell. Thank you.
    Ms. Lehnhard, you had a comment?
    Ms. Lehnhard. If I could make a comment--and you were here 
when I said this is not just a managed care issue; this is a 
fee-for-service issue, and I would ask you to think about 
Medicare as an example. Medicare would be just like a private 
health plan in this. And there are two issues here; one is the 
definition of ``medical necessity,'' which is consistent with 
generally accepted medical practice.
    We think the bigger issue is, the language says the health 
plan may not interfere with the physicians' decision. It is, 
may not--blank--interfere, arbitrarily interfere, but that 
becomes a point of litigation every time you apply your 
guideline. And if you were to do that in Medicare, all of those 
stacks and stacks of coverage guidelines you--how many pairs of 
shoes does a diabetic get? When do you get elastic stockings? 
When do you get an air conditioner in your home? When do you 
get a chair lift? All of those are going to be--could be 
challenged as arbitrary. And in the worst scenario, they could 
all be challenged as arbitrary at the same time and all the 
Medicare dollars would walk out the door. The same thing could 
happen in a private health plan. And that shift in the burden 
of proof is what is being overlooked here. The physician makes 
all coverage decisions and we have to prove he is wrong in 
every single individual case, if we think it shouldn't be paid 
for.
    Mr. Pollack. I just would like to illustrate what the 
difficulty would be if the health plan is the final and only 
determinate of what ``medical necessity.'' I will give you two 
examples.
    A health plan can say that we are only going to provide--we 
are only going to consider something ``medically necessary'' if 
it improves the healthcare condition of a particular 
individual. Now that may sound pretty reasonable. There might 
be an individual for whom a particular procedure is necessary 
so that that condition does not deteriorate. Now I would think 
that we would want to make sure that the plan does not 
determine that just because that person's condition is not 
being improved, but we are preventing deterioration, that we 
could have that reviewed.
    Another kind of example--these are not issues about trying 
to contest what are the benefits provided in a health plan, but 
it can determine, as Dr. Reardon was saying, how you interpret 
these. For example, somebody has mouth cancer, might be 
determined by the health plan to need dental care, and the plan 
may not actually cover dental care, while I think a more 
careful determination may find that that person needs 
odontology services.
    So you don't want these final decisions to be determined 
exclusively by the health plans. And I think the purpose of 
creating a standard there, is to make sure that there is a 
careful decision made through the preponderance of evidence by 
competent professionals.
    Ms. Lehnhard. And I think you could match anecdote for 
anecdote here. I think, for example, on cosmetic surgery. There 
is a fine line between plastic surgery that is medically 
necessary and surgery that becomes cosmetic, and there are some 
guidelines there. So I think you could match anecdotes on each 
side.
    I think what you have to weigh is, what is the potential 
effect on premiums if all of a sudden we put the physician in 
charge of deciding what the health plan should cover, and would 
you be willing to do that for Medicare?
    We will go back to the days where--and I don't mean to 
disparage physicians at all, but physicians put patients in the 
hospital because it was more convenient to go see them. That is 
a ``medical necessity,'' potentially arbitrary guideline.
    Mr. Pollack. And I am so happy with this example that Ms. 
Lehnhard has offered, because Dr. Ganske has offered a number 
of examples where the plan has said this was really cosmetic 
surgery, and after a more dispassionate view, it was found that 
it was medically necessary.
    I don't want the plans to be the final determiner or 
arbiter of whether it is medically necessary. They obviously 
have a role to play, but they should not be the final word.
    Mr. Reardon. And, Mr. Chairman, may I respond, too?
    Mr. Dingell. I would like to hear from you, Doctor, of 
course.
    Mr. Reardon. I don't think we are too far apart on this. We 
are never going back to the old days, I think, as Ms. Lehnhard 
said, where physicians put patients in the hospital because it 
is convenient to work them up, do laboratory tests.
    For instance, when I went into practice, if any of you on 
this panel had had a hernia surgery, any of you gentlemen, you 
would have been in the hospital 6 or 7 days. Today, you go home 
in the evening. If any of you had had a heart attack when I 
went into practice in the 1960's, you would have been laid in 
bed 21 days and gone home for 21 more days; now you are home in 
7 days and you are jogging in 3 weeks. When we learn that 
something is better for patients--better practice, better 
care--we are quite willing to do that. We are constantly 
looking for innovative, creative ways, in a cost-effective 
manner, to provide better care for patients.
    So, we are not going back to those days. The practicing 
physician, whether it is fee-for-service, an HMO, PPO, we--when 
I started to practice for my patients, I never knew whether my 
patients were a HMO patient, a PPO patient, or a Blue Cross 
patient; I treated them the same, and I think that is the way 
it should be.
    Ms. Lehnhard. I would just urge the committee to be sure 
that you would be willing to do this for Medicare, if you do it 
for private plans. And it is just not physician service; it is 
durable medical equipment, supplies, a lot of goods that people 
can use just because they are nice. Cans of Ensure, for 
example--who gets food replacement? Some physicians would find 
it very hard to say ``no'' to people if they don't have any 
means to buy food, in Medicare, and they say, ``Gee, this is 
medically necessary.''
    There are stories in Medicare of huge fraud and abuse, and 
people going to nursing homes, giving people cartons of Ensure. 
It is very hard to say ``no;'' 75 percent of physicians say 
``yes'' when people come in and ask for a brand prescription 
drug. It is not abuse. It is just, how do you say ``no'' to 
somebody who could use it? And your insurance company pays for 
it.
    Mr. Bilirakis. There must be an in-between here. There must 
be some way to----
    Mr. Ganske. Well, Mr. Chairman, let me suggest to you----
    Mr. Bilirakis. Well--yes.
    Mr. Ganske. Let me suggest an in-between.
    The in-between is in my bill.
    Now, wait a minute--let me finish.
    When you have a dispute on a denial of coverage, and you go 
to an independent peer panel for review, none of those members 
can have a fiduciary relationship or benefit from a 
determination. So the referring physician's recommendation can 
be taken into consideration, just like the health plan's 
guidelines can be taken into consideration, as long as they are 
public, they are not secret, they are not proprietary, they can 
be backed up by science, NIH consensus statements, peer review 
literature. All of that enters into what is a standard 
definition of ``clinical care.''
    It evolves; it evolves, but what we want to get away from--
--
    Mr. Bilirakis. All right, now. I don't want to let this 
hearing get out of hand here now.
    Mr. Dingell. Regular order.
    Mr. Bilirakis. Regular order.
    Mr. Dingell. Mr. Chairman, I note the red light is on, 
but----
    Mr. Bilirakis. Are you basically satisfied, Mr. Chairman?
    Mr. Dingell. I am sorry, Mr. Chairman?
    Mr. Bilirakis. May I go on to others?
    Mr. Dingell. Mr. Chairman, you are the chairman----
    Mr. Bilirakis. The chairman--I know, I am the chairman.
    All right. Dr. Coburn.
    Mr. Coburn. Thank you. I want to get one thing out of the 
way that I want to make I get into the record--and this is for 
Dr. Reardon.
    The Office of Personnel Management state that providers, 
healthcare workers, health plans, sponsoring organizations are 
not required to treatment options that they would not 
ordinarily discuss in their customary course of practice 
because such options are inconsistent with a professional 
judgment or ethical or moral or religious beliefs.
    The current administration has provided that language as a 
basic protection plan for health plans and providers who have 
moral objections to certain procedures.
    What is the AMA position on that? Would you support that?
    Mr. Reardon. Certainly. A conscience clause or whatever, we 
would respect the moral and ethical differences that the 
physicians have or hospitals have; yes.
    Mr. Coburn. I want to make one more point, in terms of 
anecdotal. You know, a lot of my patients, the vast majority of 
my patients, 60 percent, are women. And much to the 
disagreement with Ms. Lehnhard, I had lots of patients who were 
denied reconstructive breast surgery who had breast cancer. And 
any woman who has had her breasts removed, I can tell you it is 
in her best physical health to have reconstructive breast 
surgery, just in her self-esteem and her happiness with 
herself. And that is a medical necessity, in terms of caring 
for the whole patient. And yet we fought and struggled, and we 
have now passed laws to say that that has to be mandated.
    So the point is, is there is a somewhere in-between. And I 
understand; you know, I think you can tell from what I said, I 
understand the cost-side of this; I understand the abuse-side 
of this, but we should be sure that we are all honest about the 
motivation that money too often makes us to go the wrong 
direction.
    And I would like to--unless you want to comment on that--I 
would like to yield back the balance of my time to Mr.----
    Ms. Lehnhard. I would just say----
    Mr. Bilirakis. We do want to finish up before we run over 
for the votes, because it would be unfair to have you wait 
another 45 minutes to an hour.
    So, if you have a comment, maybe make it brief, will you, 
please?
    Ms. Lehnhard. I would just say that peer review of the 
guidelines is very different than review in court of all the 
guidelines.
    Mr. Coburn. I agree with you.
    And I would yield the balance of my time to Mr. Norwood.
    Mr. Bilirakis. All right. I will get to you.
    I just wanted to say--Mr. Pollack, I would have used my 5 
minutes--but I am not going to use it now--strictly on the 
ombudsman. I would like to know who they are, who they should 
be, what States have that in practice now, and how they 
function, and maybe a step-by-step process of how they would 
function. And will you furnish that to the committee?
    Mr. Pollack. Absolutely.
    Mr. Bilirakis. If you can do that----
    Mr. Pollack. Delighted to do it.
    Mr. Bilirakis. [continuing] no period of time is magic, but 
I would appreciate that very much.
    Mr. Coburn. And then I yield my time to Mr. Norwood.
    Mr. Towns. I would like to ask Dr. Reardon to do the same 
thing in reference to what we might be able to do, in terms of 
coming up with some uniform way of dealing with records.
    Mr. Bilirakis. Yes, okay.
    Mr. Reardon. We will get back to you.
    Mr. Bilirakis. All right. Dr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman; I will be brief.
    Ms. Lehnhard, my bill drops some of the reporting 
requirements for plans that were in the bill of rights, in 
order to reduce some of the paperwork for non-HMO-type staff 
model entities, like PPO's.
    But I would like you to just briefly answer ``yes'' or 
``no'' to what you think is the type of information that a 
health plan should provide its subscriber.
    The plan service area?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Covered benefits, including limits and 
exclusions?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Cost-sharing and any limit on out-of-pocket 
costs?
    Ms. Lehnhard. Yes.
    Mr. Ganske. The extent to which service is available at 
non-network providers?
    Ms. Lehnhard. Yes.
    Mr. Ganske. The extent to which enrollees may select from 
among participating providers?
    Ms. Lehnhard. Yes.
    Mr. Ganske. How the plan determines whether a treatment is 
experimental?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Whether the plan uses a drug formulary?
    Ms. Lehnhard. Yes.
    Mr. Ganske. The number of mixed and distribution of 
providers?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Any out-of-network coverage provided by the 
plan?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Whether there is a point-of-service option and 
the cost associated with it?
    Ms. Lehnhard. Yes.
    Mr. Ganske. A description of how participants select and 
change providers?
    Ms. Lehnhard. Yes.
    Mr. Ganske. An explanation of how to obtain referrals to 
specialists?
    Ms. Lehnhard. Yes.
    Mr. Ganske. The name and location of participating 
providers and their credentials and whether they are accepting 
new patients?
    Ms. Lehnhard. I have to qualify that. It depends--some of 
our plans will say for their huge networks, 50,000 physicians, 
keeping that current is a----
    Mr. Ganske. It would be a goal.
    Ms. Lehnhard. What?
    Mr. Ganske. It would be a goal that if a patient were 
presented with a list of providers----
    Ms. Lehnhard. And there also would----
    Mr. Ganske. [continuing] there would be an asterisk or 
something that would say, ``These are not accepting new 
patients.''
    Ms. Lehnhard. In the spirit of the kinds of things you are 
asking, this is a plan description that certainly any plan can 
look at. It depends on how you define ``credential'' for 
example, how much research you have to do and to each 
physician.
    Mr. Ganske. How about how the plan deals with the needs of 
those who don't speak English?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Whether a plan covers out-of-area care?
    Ms. Lehnhard. Yes.
    Mr. Ganske. How the plan covers emergency care?
    Ms. Lehnhard. Yes.
    Mr. Ganske. The percentage of premium dollars used for 
healthcare compared with other overhead and expenses?
    Ms. Lehnhard. I don't know the answer to that.
    Mr. Ganske. Okay.
    An explanation of rules relating to utilization review or 
prior authorization, and a general description of how the plan 
does that?
    That is a yes?
    Ms. Lehnhard. Yes.
    Mr. Ganske. An explanation of grievance and appeal rights, 
and aggregate information on the number filed and their 
disposition?
    Ms. Lehnhard. Yes.
    Mr. Ganske. A summary of the types of financial payment 
incentives given to providers?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Information about how participants contact the 
plan if they want authorization for treatment?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Last one, and the plans' procedures to keep 
medical records private?
    Ms. Lehnhard. Yes.
    Mr. Ganske. Thank you very much.
    Mr. Bilirakis. I thank you.
    Mr. Dingell. Mr. Chairman, could I just ask Ms. Lehnhard 
one question?
    Mr. Bilirakis. If you will----
    Mr. Ganske. I yield to the chairman.
    Mr. Bilirakis. If you will make it quick, sir.
    Mr. Dingell. I am curious. I listened to you in extensive 
of--I am not sure--really, two questions. One, are you for or 
against the doctor making a decision with regard to ``medical 
necessity?''
    Ms. Lehnhard. First of all----
    Mr. Dingell. Just ``yes'' or ``no.'' You are for the doctor 
making the decision or you are for the health plan making the 
decision?
    Ms. Lehnhard. We are for the physician making his own 
decision about ``medical necessity.'' We think----
    Mr. Dingell. Well, then you are in favor of the physician 
making the decision? Or you are in favor of the healthplan 
making the decision? Which----
    Ms. Lehnhard. We are in favor of the health plan being able 
to use guidelines, in our case, developed by professional 
physician organizations----
    Mr. Dingell. Well, let me put it to you this way.
    Ms. Lehnhard. [continuing] to decide whether it is----
    Mr. Dingell. Are you in favor of the doctor making the 
decision, or are you in favor of the health plan making the 
decision?
    Ms. Lehnhard. We are in favor of the health plan having the 
ultimate decision about whether the health plan will pay for 
the service.
    Mr. Dingell. All right. Thank you.
    Now just one other question. Are you--where did you see in 
the Patients' Bill of Rights anything about purchase of durable 
medical goods?
    Ms. Lehnhard. If a physician decided--under these bills, it 
says the health plan may not interfere with the decision of the 
physician, arbitrarily.
    Mr. Dingell. Does that tell you that the physician can 
order, then----
    Ms. Lehnhard. The physician can order all kinds of supplies 
and durable medical equipment, and, for example, in Medicare--
if Medicare decides----
    Mr. Dingell. We are not talking about Medicare. We are 
talking about the health plan.
    Ms. Lehnhard. The same in health plans. It is a medical----
    Mr. Dingell. We are talking about any plan. Do you have any 
plan where the doctor is permitted to order the purchase of 
durable medical goods?
    Ms. Lehnhard. Yes, lots of health plans.
    Mr. Dingell. Are you----
    Ms. Lehnhard. And it is a ``medical necessity'' decision.
    Mr. Dingell. Are you, then, for or against that?
    Ms. Lehnhard. We are for the health plan being able to, 
subject to internal and external reviews, being able to make 
the decision.
    Mr. Dingell. Is that a medical decision or is that an 
insurance decision?
    Ms. Lehnhard. Subject to any review procedures we have and 
appeals procedures we have, we think it should be the health 
plan, and if it is not the health plan, we will see premium 
dollars walking out the door in mass.
    Mr. Dingell. With respect and affection, I am driven to the 
conclusion that you are not in favor of the doctor making the 
decision on ``medical necessity.''
    Mr. Chairman, I thank you.
    Mr. Bilirakis. I thank the gentleman.
    We are going to finish up now. I would ask if, Ms. 
Lehnhard, I didn't really mean to overlook you as far as this 
ombudsman thing. I mean, obviously, we would be very pleased to 
get some sort of an input from you, and from you, Dr. Reardon, 
on your opinion of ombudsman. The role that they might play, 
and how significant they might be.
    Ms. Lehnhard. I will be glad to put it in writing.
    Mr. Bilirakis. I would appreciate that.
    And then, of course, as usual, we may have further 
questions. We probably will have further questions, so you 
would be willing, I am sure, to respond to those in writing.
    Thank you very much. Thanks for your patience.
    This hearing is adjourned.
    [Whereupon, at 5:40 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

                                                     April 27, 1999
The Honorable Michael Bilirakis
Chairman
Subcommittee on Health and Environment
Committee on Commerce
U.S. House of Representatives
Room 22125, Rayburn House Office Building
Washington, DC 20515-6115
    Dear Chairman Bilirakis, I am writing to respond to your questions 
that arose from my appearance before the Subcommittee on Health and 
Environment on March 24, 1999. I would like to thank you for the 
opportunity to testify before the Subcommittee on behalf of the 
American Association of Health Plans and to answer these additional 
questions. I have provided my responses below.
    Question 1. When health plans include non-physician providers in 
their networks is it fair to assume that these providers have been 
appropriately licensed to practice in the plans' service area?
    Response. Credentialing is an integral part of a health plan's 
quality assurance program. Health plans review the credentials of all 
potential network providers, whether they are a physician or non-
physician provider, to ensure that the providers meet the health plan's 
standards and are qualified to provide appropriate, quality medical 
care to health plan members. One aspect of the credentialing process is 
to verify that a provider, including a non-physician provider, is 
licensed per state regulations, which define the scope and limitations 
of a non-physician provider's practice.
    Question 2. When health plans have included non-physician providers 
in their networks, do you support patients having direct access to 
these providers in the areas of ob/gyn services and pediatrics?
    Response. State regulations define the scope of practice and 
limitations of non-physician providers, and these regulations vary 
widely among states and among types of non-physician providers. Some 
examples of areas in which the scope of practice differs include the 
ability to admit patients to the hospital and the ability to prescribe 
medications. For example, in a number of states, there are no 
restrictions on a certified nurse-midwife's (CNM) ability to prescribe 
medications. In other states, CNMs are not allowed to prescribe 
controlled substances, and still other states prohibit CNMs from 
prescribing medications altogether. Similar differences in prescriptive 
authority exist with regards to nurse practitioners (NPs).
    Given this variation in scope of practice, it is imperative that 
individual health plans be permitted to determine whether or not direct 
access to non-physician providers is appropriate for their members. 
Because different non-physician providers are licensed to perform 
different activities in each state, the care delivered by non-physician 
providers could differ significantly among states and provider types. 
Health plans must be afforded the flexibility to evaluate whether or 
not direct access to non-physician providers in their service area(s) 
promotes appropriate, high-quality ob/gyn and pediatric care for their 
members, and whether or not the scope of practice of a non-physician 
provider will allow a provider to meet the plan's requirements for 
providers who deliver ob/gyn and pediatric care.
    As I described in my written and oral testimony, health plans are 
responding to the needs and preferences of their individual members by 
developing a wide variety of innovative direct access programs. In the 
area of non-physician providers, for example, some plans allow members 
to choose non-physician providers, such as NPs and physician assistants 
(PAs) as their primary care provider. However, mandating access to non-
physician providers could have the unintended consequence of forcing 
plans into a ``one-size-fits-all'' model that limits plans ability to 
develop innovative approaches to facilitating ob/gyn and pediatric care 
that best meets the needs and preferences of their members.
    Thank you for giving me the opportunity to respond to your 
inquiries. If you have any questions concerning these responses, please 
do not hesitate to contact me at (301) 941-2164.
            Sincerely,
                                  Joseph Braun, MD, JD, MPH
    Chief Medical Officer, George Washington University Health Plan


         AMERICA'S HEALTH: ACCESS TO AFFORDABLE HEALTH COVERAGE

                              ----------                              


                        WEDNESDAY, JUNE 16, 1999

                  House of Representatives,
                             Committee on Commerce,
                    Subcommittee on Health and Environment,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 p.m., in 
room 2322, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Greenwood, 
Deal, Burr, Bilbray, Whitfield, Ganske, Norwood, Coburn, Cubin, 
Shadegg, Bryant, Brown, Waxman, Pallone, Green, DeGette, 
Barrett, Capps, and Dingell (ex officio).
    Staff present: Carrie Gavora, majority counsel; Patrick 
Morrisey, majority counsel; Jason Lee, majority counsel; and 
Bridgett Taylor, minority professional staff member.
    Mr. Bilirakis. I am pleased to call this hearing to order. 
This is the second in the most recent series of hearings 
focusing on the state of our Nation's health care system and 
proposals for reform.
    As we consider changes to improve protections for insured 
individuals, we must also recognize that millions of Americans 
have no health coverage at all. Each year the Census Bureau 
measures the levels and types of health coverage for Americans 
in the previous calendar year. Its most recent survey concluded 
that 43.4 million Americans, about 16 percent of the 
population, lacked health coverage for the entire year in 1997.
    Clearly, access to affordable health coverage is a 
considerable problem in our Nation. Last year the House 
considered and approved legislation to increase protections for 
patients in managed-care plans, while expanding health care 
access to the uninsured.
    Unfortunately, the Senate failed to approve similar 
legislation. This year, however, Congress again has a 
tremendous opportunity to improve the quality and availability 
of health care for all Americans.
    A number of measures have been proposed to address problems 
faced by individuals and small employers in obtaining 
affordable health coverage. These include the formation of 
community health organizations, the creation of HealthMarts and 
Federal subsidies for State high-risk pools.
    None of these proposals will solve the problem of the 
uninsured, but they do represent a responsible starting point 
in this debate. Together they have the potential to expand 
access to care for a significant number of Americans without 
busting the budget or expanding government regulation of the 
health care system.
    Before we begin, I would note that our colleagues in the 
Subcommittee on Employer-Employee Relations of the Committee on 
Education and the Workforce are voting today on a number of 
individual reform proposals. Contrary to some recent reports, 
it is my intention and my goal that this subcommittee will also 
act on a bipartisan basis to consider and approve health care 
legislation.
    Tomorrow, majority and minority committee staff will begin 
meeting to discuss the development of a legislative vehicle. A 
time has already been established, and discussions have taken 
place. In the meantime, today's hearing and our hearing next 
week on external appeals will increase members' understanding 
of these issues in preparation for legislative action.
    Our witnesses today represent a range of diverse 
perspectives in the problems facing the uninsured, as well as 
some possible solutions. I want to thank them in advance for 
joining us. I look forward to hearing their views on this key 
issue and now yield to the ranking member, Mr. Brown, of Ohio.
    Mr. Brown. Mr. Chairman, thank you. And thank you for doing 
this hearing today. All of us on this side of the aisle 
appreciate that. I would like to thank today's witnesses, 
especially extend a special welcome to Ray Arth who runs a 
successful business in Avon Lake not far from my home, Lorain, 
Ohio.
    There are three ways to respond to the uninsured. One way 
is we can ignore them, second we could take incremental steps 
that may help some of them, or we can establish guaranteed 
universal coverage that eliminates the problem once and for 
all. Today's hearing will focus on incremental strategies, 
HealthMarts and association plans, community health centers and 
centers in State high-risk pools. I am sure tax credits will 
enter the discussion at some point also.
    So let's talk about incremental steps. They can make the 
situation better or they can make it worse. Unless every 
individual in every small and large business have equal access 
to coverage at affordable rates, incremental solutions like 
HealthMarts can be a double-edged sword.
    They can increase coverage for certain small businesses; 
but by segmenting the market, they can erode the broad pooling 
of risks that--of risk that makes insurance work. Fewer plans 
in the privately insured pool means more volatility in cost and 
higher rates which will drive more plans out of the pool 
leading to even more volatility, even higher rates, and on and 
on and on.
    The insurance industry calls this a death spiral, and it is 
a function of segmenting the insurance pool. The price ever-
increasing, being access to coverage for some small businesses, 
would be a decrease in access for many others.
    The purpose of insurance is to share risk, not to avoid it. 
As our system has strayed further and further from this basic 
tenet, the gaps in coverage have grown wider. And if Congress 
condones the attempts of certain plans to bypass State 
insurance laws, we are effectively saying these laws serve no 
purpose.
    In fact, these laws are critical and have been critical for 
some time. Before State insurance laws, health plans could deny 
pregnant women health benefits. They could operate without 
solvency standards. They could target certain small businesses, 
forcing them to drop coverage by imposing unlimited rate 
increases. State insurance laws obviously over the years have 
been there for a reason.
    Let's talk for a moment about high-risk pools. 
Theoretically the United States could channel all high-risk 
individuals into a separate pool leaving healthy individuals 
and groups in the private insurance market. But why should a 
low-risk individual or group buy insurance when the minute they 
need it, they would be transferred into the high-risk pool? 
They might as well pay for their care out of pocket until they 
become sick and enter the high-risk pool.
    You can see where that goes: publicly funded health care 
for the sick, private health care for those individuals, 
healthy individuals who can afford it. And who knows what for 
those in between, different classes of medicine for the sick 
and the well, the rich, and the poor. I don't think that we 
want to go down that road.
    One more point about these approaches. If we pursue 
expanded coverage to more individuals without establishing 
fundamental patient protections, we are perpetuating insurance 
that can disintegrate the moment it is actually needed. That is 
the critical link between managed-care reform and access to 
insurance.
    The insurance industries tried to convince us that patient 
protections will have such a dramatic effect on costs that 
employers will drop their coverage. Not only is there no reason 
to expect this result, but it is incredible that insurers would 
try to convince Americans, especially American businesses, to 
pay less for Russian roulette coverage rather than more for 
coverage that actually delivers on its promises.
    It makes no sense to ignore a fundamental weakness in 
insurance coverage while seeking to expand that coverage to 
more individuals. Coverage that may or may not pay for needed 
care is not coverage, no matter how many individuals are 
enrolled. Whether you look at tax credit or HealthMarts or 
high-risk pools or insurance through community health centers, 
unless coverage is inclusive, affordable, and meaningful, the 
uninsured problem will persist.
    There is one incremental step, Mr. Chairman, we can take 
that meets all of the criteria and helps a particularly 
vulnerable population. We can pass the Medicare Early Access 
Act. This self-funded proposal enables insured individuals ages 
55 to 64 to buy into Medicare and extends COBRA coverage for 
retirees whose employer reneges on retiree benefits.
    Whether covered under Medicare or COBRA, individuals would 
pay their own way and secure coverage at a time in their life 
when health care protection is particularly important, as they 
reach the age of 55, 60, 62. This proposal makes sense.
    Unlike tax credits and HealthMarts and high-pool risks, it 
guarantees access to coverage and treats all individuals 
equally. Still, even though this proposal is on the table last 
year and part of the President's budget this year, the majority 
has chosen to ignore it for the purposes of this hearing and 
for the purposes of moving this bill through the process.
    It is disappointing because unlike other incremental 
proposals this one would actually help a particularly 
vulnerable group of individuals, people between 55 and 64, who 
have lost their health insurance for a variety of reasons 
without hindering access for others.
    But the fact that this proposal wasn't on today's agenda, 
and I understand not on the Ways and Means agenda today also, 
does not mean that this bill is a nonstarter. No one thought in 
this Congress we would achieve expanded coverage for children. 
No one thought this Congress would pass Kennedy- Kassenbaum. No 
one thought we would win an increase in the minimum wage 2 or 3 
years ago.
    In all of these cases, the public's demand for positive 
action ultimately won out over self-serving partisanship. This 
initiative, this buy-in for Medicare, should be bipartisan. We 
should pass it this year. Unlike many other Medicare proposals, 
the Early Access Act will not take us one step forward and two 
back. It is an unambiguous step in the right direction.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. I think I thank the gentleman. Mr. Ganske 
for an opening statement.
    Mr. Ganske. Thank you, Mr. Chairman. I am glad we are 
having this hearing. I think the issue of the uninsured is 
important. It is also important that Congress do it right and 
not make things worse. In order to talk about this 43 million 
people who don't have insurance, I think rather than looking at 
sort of a global number you need to look at who they are.
    Well, who are the uninsured in this country for health 
insurance? Twenty-five percent of them are under the age of 19. 
Twenty-five percent are Hispanic. Twenty-five percent are poor, 
below the poverty level.
    Now, the number of these figures that I am giving you some 
of these groups are in more than one category. Twenty-five 
percent are noncitizens. And about 43 percent have incomes two 
times poverty. But who are they? They are largely those who are 
aged 19 to 24. So if you start looking at the groups who aren't 
insured, then you need to start thinking about, and if you 
understand who those groups are, you need to start thinking 
about what could be possibly effective strategies to reduce the 
insurance.
    Okay. If you are looking at the poor, roughly speaking half 
of those poor qualify for Medicaid and are not on Medicaid. 
They should be. Why aren't they? Well, it is because a number 
of States have very complicated requirements for signing up.
    My own State of Iowa, for instance, requires a monthly 
certification. I don't think that is right. I think if we are 
looking at providing insurance for the poor, this Congress 
ought to make a commitment to getting those who qualify into 
Medicaid, into Medicaid and start holding some oversight 
hearings with the States about doing that.
    What about the Hispanic population that doesn't have 
insurance? Well, many of them are not citizens. That doesn't 
mean they are illegal. We ought to look at ways to encourage 
insurance for them. Many of them are below the poverty line. 
This government ought to reach out to make sure that they who 
are legal can take advantage of the health care systems that we 
have got; Medicaid is one of them.
    What about those who are young, the 19 to 24 group? Many of 
them are in college. Some in college are still covered by their 
parents. Many are not. Why aren't they? You know you can buy 
catastrophic coverage for a college student for about $500 a 
year. What can this Congress do to encourage that sort of a $60 
billion commitment to the insurance industry?
    Well, some of the things that we could do that could be 
very harmful, as we look at this situation, have been mentioned 
by my colleague, Mr. Brown. I am not the only one who has 
concerns about association health plans and HealthMarts.
    When they were proposed as part of the Patient Protection 
bill last year, they drew significant opposition from 
BlueCross/BlueShield plans and the National Association of 
Insurance Commissioners. BlueCross has traditionally been the 
insurer of last resort in many States.
    They have the legitimate fear that multiple employer 
welfare associations and association health plans and 
HealthMarts will undermine the State programs that many of 
those BlueCross and BlueShield and State legislatures have 
worked on to try to kept health insurance affordable in those 
States, joined by the Health Insurance Association of America, 
a group that sometimes I disagree with.
    They wrote: ``Association health plans, MEWAs, HealthMarts 
would undermine the most volatile segments of the insurance 
market, the individual and small group markets. The combination 
of these with HealthMarts would lead to a massive market 
segmentation and regulatory confusion.''
    Rod Turner, a constituent of mine and an insurance industry 
professional, wrote to express his concerns about MEWAs. He 
wondered why these plans can sell whatever level of benefits 
they want and provide coverage for any type of plan they want 
and can provide coverage for any type of benefit the plan might 
want to cover.
    Some say that these concerns might reflect a self-interest 
of industry insiders; but before buying into that argument, 
consider the editorial in the Washington Post a year ago, 
criticizing multiple employer welfare association--Mr. 
Chairman, I would ask for 1 additional minute.
    Mr. Bilirakis. A very strict 1 additional minute without 
objection.
    Mr. Ganske. The Post pointed out--thank you, Mr. Chairman--
``if you free MEWAs, you create a further split in the 
insurance market which will likely end up helping mainly 
healthy people at the expense of the sick.'' I could go on, Mr. 
Chairman. We have a big potential for enacting legislation that 
could have the opposite effect, that could actually increase 
the number of uninsured.
    Some States have, in trying to do good, passed bills that 
were community-rating bills. I have opposed those. Those have 
had the opposite effect. They have increased the number of 
uninsured. Mr. Chairman, if we pass legislation that moves 
large groups of healthy patients out of State insurance risk 
pools and into a largely unregulated ERISA pool, then I 
guarantee you you will see more uninsured, because the prices 
of the premiums for those who are left in that State insurance 
risk pool will go up.
    Mr. Bilirakis. The gentleman's time has expired.
    Mr. Ganske. And they'll drop their insurance.
    Mr. Bilirakis. Mr. Pallone for an opening statement.
    Mr. Pallone. Thank you, Mr. Chairman. Increasing access to 
health insurance is perhaps the most important health issue 
confronting Congress today. With 43 million Americans lacking 
health insurance and despite the passage of some well 
intentioned and good legislation over the last two Congresses, 
the problem is getting worse. The ranks of the uninsured 
continue to grow and the lack of affordable health insurance in 
this country, in my opinion, is truly a crisis.
    Now you may not agree with the President and Mrs. Clinton's 
approach from 6 years ago, but I have to stress today that he 
had the right idea. The Federal Government needs to develop a 
system that will ensure every individual in the country has 
access to health insurance. We need universal coverage. The 
cost of ignoring the problem will be staggering in both human 
and financial terms if a solution is not developed.
    In the wake of the failure of the President's plan, 
Congress has been trying to address the problem in a piecemeal 
fashion. In 1996, we passed the Kennedy-Kassenbaum bill. In 
1997, we created the State Child Health Insurance Program. And 
I and my colleagues on this committee all worked hard on these 
bills.
    Unfortunately, even these bills have fallen short in some 
respects. Kennedy-Kassenbaum has failed to stop price gouging 
in the individual market. Insurance companies are getting 
around the bill's requirement that coverage be offered to 
individuals losing group coverage by pricing individual 
policies so high that virtually no one can afford to purchase 
them. Premiums range from 140 percent to 600 percent of the 
standard rate or $10,000 to $15,000 a year. And this practice 
was detailed in a well-documented GAO report released last 
year.
    Democrats recognized this potential problem in 1996, but 
Republican opposition blocked efforts to draft the bill in a 
manner that would prevent such abuse. And to that end, in the 
105th Congress, I introduced legislation to fix this problem, 
the Affordable Health Insurance Act, which limits what 
insurance companies can charge eligible individuals to no more 
than 150 percent the rate charged individuals in good health. 
And I would like to see that bill passed.
    There are also problems with the State Child Health 
Insurance initiative. Many States, including New Jersey, are 
having problems with outreach leading to the underutilization 
of an excellent Federal program. Another problem that has 
emerged with the State Health Insurance Program in my home 
State is an overly restrictive waiting period for enrollment.
    But in the absence of any commitment by the Republicans to 
develop a system that provides for coverage of all Americans, 
we have to continue to forge ahead with efforts to make 
insurance more accessible for key sectors of society. And 
Democrats have been crafting proposals to accomplish this goal.
    My colleague, Mr. Brown, mentioned the bill that was 
reintroduced yesterday to make insurance more accessible to 
individuals in the 55 to 64 age group. And I strongly support 
this plan. I have introduced similar legislation that would 
also help individuals meet the cost of the premiums, which I 
think is an important aspect of that as well.
    As important as the buy-in legislation is, though--and I do 
want to stress it is really crucial--it doesn't get to the real 
heart of the problem. The ranks of the uninsured continue to 
grow today because of the lack of health insurance on the job. 
People depended on their employer and employer-sponsored plan 
in the past to make sure that they had health insurance.
    And the key to reducing the range of the uninsured is 
making insurance available through the work place. In short, I 
think what we need is a mandate for employers to offer 
insurance to their employees. Last year, I introduced 
legislation to accomplish this goal called the Health Care for 
Working Families Act. It would cover approximately 15 of the 
Nation's 43 million uninsured by requiring employers with 50 or 
more employees to provide health insurance to their employees.
    Now I just want to say, Mr. Chairman, I know this is very 
partisan; but I believe that time and time again the 
Republicans have shown that they are not serious about 
addressing the Nation's most pressing health care reforms in 
any meaningful way.
    You mentioned that the Education and Workforce Committee is 
marking up eight separate managed-care reform bills today. I 
think to me that is nothing more than an effort to deny 
Democrats a full fair and open debate on the comprehensive 
Patients Bill of Rights.
    You mentioned that that committee is going to take up the 
issue of internal or external appeals next week. This piecemeal 
approach is not going to work. We need to bring up the Patients 
Bill of Rights. The Democrats are now forced today to duly 
discharge a signed petition which ripened today which we are 
going to more forward on in order to bring a comprehensive 
patients bill of rights to the floor.
    When I listen to what this committee has done, it seems to 
me if I look at last year or this year the example is the same. 
Six months we do nothing, then we move to some piecemeal 
approach and say we are going to try to solve the problem by 
dealing with some piecemeal approach.
    In the final endrun, rather than allowing us to bring up 
the Patients Bill of Rights and pass that bill, we get some 
kind of muddling by throwing in HealthMarts or malpractice 
reform or medical savings accounts. That is what is going on 
again here today.
    This idea of HealthMarts is being pushed in this hearing. 
All it is going to do is drive up costs for everyone, make it 
more difficult and more expensive for the sick and the injured 
to get any----
    Mr. Bilirakis. The gentleman's time has expired.
    Dr. Norwood.
    Mr. Norwood. Thank you, Mr. Chairman. Good morning to you. 
I appreciate very much you holding this hearing on the 
uninsured in America. And I look forward to the testimony of 
our witnesses and thank our witnesses for coming.
    I will place most of my testimony in the record, but 
suffice it to say that a lot of people think that we should 
pass meaningful bipartisan legislation regarding health care 
protection of patients as well as the uninsured.
    And my personal belief is that it adds nothing to the 
argument for the other side to make such partisan statements to 
the point that it makes it more difficult for us to even work 
together in any way.
    Now, if you want to pass laws that actually do help 
patients, insured and uninsured, we need to work together and 
quit demagoguing the issue. And that is all I have heard from 
the other side. It is high time we worked together on this and 
quit trying to make political hay.
    It is hard for me to believe that you want to help patients 
when it sounds from the opening statements thus far you are 
more interested in trying to obtain votes.
    With that, Mr. Chairman, I will submit the balance for the 
record and I thank you.
    Mr. Bilirakis. I thank the gentleman. By the way, the 
opening statements of all members of the subcommittee will be 
made a part of the record without objection. Ms. Capps for 
opening statement.
    Ms. Capps. Good morning. I want to thank the Chairman for 
holding this hearing and the panelists for testifying before us 
today. The 43 million nonelderly Americans who go without 
health insurance in this country comprise 18.3 percent of our 
population. Compare that with 17.3 of the population in 1993 
and 14.8 percent in 1987. Clearly this problem is not getting 
any better.
    As a school nurse in a school district in my community for 
over 20 years, I dealt on a daily basis with children without 
health insurance. In fact, for the bulk of my professional life 
I have been working with families struggling to meet the needs 
of children without health care.
    I can see clearly in front of me children coming to school 
with swollen cheeks from abscesses and no place to go for 
treatment. I have literally picked up children off the 
playground with fractured arms, taken them to the emergency 
room, had emergency services done, their arm put in a splint, 
and then had the family told to come back in 6 days to the 
county clinic when the bone specialist can be there to set this 
child's arm. It is expensive. It is terrifying for families. It 
is not a small deal.
    It means when children get sick, families reach a crisis 
point, encountering out-of-pocket expenses that they can't 
afford, lack of treatment and often times poor treatment, as 
children are shuttled from one waiting room to another.
    The good news is that many of our 11 million uninsured 
children are now covered under the Children's Health Insurance 
Program. The program provides $24 billion over 5 years and 
expects to increase children's coverage. Most States have 
implemented this program.
    In my State I know we have had a lot of trouble getting it 
off the ground and getting children actually enrolled. We also 
need to keep in mind that as we begin to insure more children, 
we have to include the whole family. If children have health 
insurance and their parents have none, it is unacceptable.
    The truth is that most of the growth in the uninsured has 
been among adults, particularly those who work for smaller 
companies, who are forced into early retirement, or who are 
self-employed.
    According to the Kaiser Family Foundation, about half of 
working uninsured Americans experience problems with access to 
care and with paying their medical bills. These people are 
slipping through the cracks. It is costly to have this happen. 
Preventative early care is much less expensive than delayed 
treatment, resulting in emergency care later on.
    Today, we are going to hear about several approaches to 
dealing with the uninsured such as HealthMarts associations, 
health plans, high-risk pools, and tax credits. Our goal is to 
ascertain whether these approaches will result in new 
individuals obtaining access to insurance.
    The concern is that these approaches could encourage 
employers to drop health insurance as a benefit or enable them 
to circumvent State or Federal protections and undermine the 
concept of pooling that is fundamental to a health insurance 
market.
    Finally, Mr. Chairman, I would like to state that health 
coverage of the uninsured is a critical issue which I know 
first hand and I generally do appreciate your holding this 
hearing. But I want to express my disappointment that this 
subcommittee has not continued its hearings on managed-care 
reform. The two should go together.
    Our only hearing on this issue was in March. I believe we 
are losing our opportunity to make quality health care a 
reality for the millions who have insurance that is not working 
for them by delaying action on managed-care reform.
    I urge the majority to bring in legislation before the 
committee for a hearing, both the Patients Bill of Rights and 
the Norwood-Coburn bill so that we can have a thorough 
discussion of this matter. I yield back the balance of my time.
    Mr. Bilirakis. I thank the gentlelady.
    Mr. Bryant for an opening statement.
    Mr. Bryant. Thank you, Mr. Chairman. Good morning. I want 
to commend the committee for holding this hearing today, which 
is the second on the subject of America's health. I know the 
subcommittee also intends to hold additional hearings in the 
next 2 week. I am pleased to be a part of this effort, and I 
take our responsibility as legislators to address the problem 
within our Nation's health care system seriously.
    As Ms. Capps has mentioned this morning with personal 
experience that she has had, I agree; and that is why I think 
we ought to move, as this committee is moving, in a cautious 
way to make sure that we get this right.
    I know a couple--well, several years ago, some talked about 
a government-based universal care which now we all learned was 
genuinely an unpopular idea and something that we do not want. 
But I am particularly pleased today that the focus of the 
hearing is on the problem of the uninsured.
    Current estimates, as has been said many times today, put 
the number at some 43 million; and to me it seems only logical 
that this issue should be addressed simultaneously with the 
issue of managed-care reform. Finding ways to get these people 
health coverage is at least as important as addressing the 
problems that some people have had with health insurance they 
already have in HMO's. And I think a reasonable argument can be 
made that the issue of the uninsured should be even given a 
priority.
    Others this morning have indicated that perhaps Medicare 
expansion would be a solution to this uninsured problem. CBO 
has estimated that Medicare expansion would cover only 768,000 
people, aged 55 to 64, this by the year 2009. That is less than 
2 percent of the uninsured.
    The vast majority, as we have heard, too, particularly from 
Dr. Ganske, of the uninsured are under the age of 55 years old. 
Even HealthMarts, as we have talked about today, are estimated 
to expand coverage by as much as 10 to 20 percent, much more so 
than the Medicare expansion would. That is 4 to 8 million 
people.
    And I think we will hear testimony from Dr. Nichols on that 
today. But in any event, I am looking forward this morning to 
examining the barriers which keep people from getting health 
insurance and to explore several innovative proposed solutions.
    I want to thank the witnesses for taking time to be here. I 
am eager to listen to your comments on these issues. I thank 
the Chair and yield back the balance of my time.
    Mr. Bilirakis. I thank the gentleman. Mr. Green for an 
opening statement.
    Mr. Green. Thank you, Mr. Chairman. Just to follow up 
briefly before I talk about my opening statement, Mr. Norwood, 
concerned about the partisanship that he's hearing from the 
Democrat side kind of reminds me of Harry Truman saying one 
time he said the Republicans are telling me I am giving them 
hell, but I am just telling the truth. They just think it is 
hell.
    I think the frustration we have is that this is our second 
hearing and both the number of even insured--and I am glad we 
are doing this hearing. I am glad we are going to continue it, 
but also the managed-care issue is important. I first want to 
apologize, Mr. Chairman, for not being able to stay here for 
the full hearing because there is a markup now in the 
Telecommunications Subcommittee going on, and I will have to 
leave.
    But I want to thank you for calling this hearing on how to 
get affordable and quality health care coverage to over 40 
million growing Americans who currently have no health 
coverage.
    Over the past 3 years, this body has taken several 
important steps to help improve access to key groups, including 
workers who change jobs, individuals who have preexisting 
conditions, and low-income children.
    Two key groups that have been left out are low- and middle-
income workers whose employers offer no health insurance and 
the near-elderly, the 55 to 64. Tax credits and deductions have 
been proposed by several members to help offset the bills. I 
have--offset the cost.
    In fact, I have introduced H.R. 145, the Health Insurance 
Tax Deduction, which would allow individuals to deduct from 
their Federal taxes the amount they pay for health and long-
term care.
    This Congress over the last few years has increased the 
deductions for the sole proprietor, the person buying their 
own, but we haven't provided any assistance for a person who 
works for a company and the employer may only pay for that 
individual but not for the dependent care. So the employee pays 
for that dependent care on their own without providing any tax 
incentives like we do for the sole proprietorship or the self-
employed.
    While this proposal is not the perfect solution, it would 
be an important step to deal with that segment of the market 
who would with the incentive of a tax deduction to buy health 
insurance or to provide it for their family.
    Other proposals, like I mentioned Congressman Stark's early 
Medicare buy-in, would give people over 55 to 62 the option of 
purchasing quality health care. And again my colleague from 
Tennessee talked about 700,000. Well, that is 700,000 more than 
we would cover now, and hopefully it would be even more than 
that.
    When this Congress considers different options to expand 
access to health coverage, we have to be sure not to do so at 
the expense of quality. Proposals that would preempt State 
insurance laws in favor of limited or inadequate protections 
under ERISA are simply inadequate. You don't get what you pay 
for.
    That is why this committee needs to honor its commitment to 
the rest of Congress, especially the American people, and pass 
meaningful managed-care reform like the Patients Bill of 
Rights. If this bill is passed, every American with health 
insurance would be guaranteed quality health care coverage. 
Without it, a growing number of Americans will spend their 
hard-earned money on insurance that continually falls short of 
their expectations and their family needs. Again thank you, Mr. 
Chairman for holding this hearing.
    Mr. Bilirakis. Mr. Bilbray for an opening statement.
    Mr. Bilbray. Thank you, Mr. Chairman. I would like to first 
compliment my colleague from Texas, Mr. Green, for talking 
about ways that we can sort of rethink our participation in the 
health care formula and looking at our tax structure. I think 
the biggest problem we have too often for those of us in 
Washington is that we are always talking about how to mandate 
that somebody else change their ways rather than taking a look 
at what we can do as government.
    And a lot of times it happens to be much like Mr. Green 
would say, we just need to get out of the way sometimes, quit 
requiring that we get our pound of flesh in taxes, and start 
looking at the fact that sometimes the best way to be able to 
use money is to leave it in the consumer's pocket long enough 
so they can buy their own services directly in the most 
efficient way, and that is individually.
    I would like to say, Mr. Chairman, that in following that 
up, there are things that my background, working in county 
health and providing services to the working class, I was very 
frustrated with the fact that those who tend to want to 
demagogue health issues are a lot of times the last ones who 
are willing to get government out of the way as an obstruction.
    That is why I wanted to point out Mr. Green's proposal. I 
think that when we talk about how we handle this issue, we need 
to look at where the problems are that we have allowed 
historically to exist.
    One of the things that in California we have tried to 
address is the fact that the huge overhead that physicians and 
hospitals have to carry just because there are those in our 
society who would love to make a fortune in lawsuits based on 
somebody else's tragedies has been a huge problem.
    And I say that as somebody who has tried to provide health 
care to working-class women and make sure their children are 
born healthy. Our physicians have to carry insurance policies 
of $60,000 to $80,000, and this was way back in the olden days, 
during the 1970's and early 1980's. That is $60,000 or $70,000 
or $80,000 that could have been providing public health 
services.
    But the trouble is that traditionally, and especially in 
this town, there are people that basically say that the right 
to sue and the right for punitive damages supersede everything 
else, even if it means being born healthy.
    The State of California just went through a real testing 
period, and we maintained our tort limitations. And that is 
going to help the working-class people get their health care. I 
know that makes some people around here just cringe to hear me 
say that. I think we got to recognize that expanding Medicare 
will only expand maybe 2 percent. We are talking about the 
HealthMarts themselves go out 10 to 20 percent, but all these 
things can't be looked at in isolation.
    I think, Mr. Chairman, that I would ask as we talk about 
this we are going to have representatives from the Hispanic 
Business Round Table, and when you have an underserved 
community like the Latino community like we have in my district 
and my county, but at the same time have 41 percent of the 
public health finance burst in the State of California being to 
illegal immigrants, the Federal Government ought to recognize 
that 40 percent of the cost being born by the State of 
California should be paid for by the Federal Government.
    That means that that money could be then used by the State 
in the local governments at providing health care to those who 
are legally in the country who are not insured today. And we 
can expand our services in our State to those who legally are 
there and asking just for help in providing their health care 
system. The system is so convoluted right now, those of us in 
California get frustrated with the fact that we are spending 
billions on Federal mandates and the Federal Government is 
still saying that we are not doing enough.
    I think that this hearing ought to bring up that issue that 
the whole big picture should be what is the Federal Government 
doing wrong that can help physicians, health care systems and, 
yes, insurance companies provide the type of comprehensive 
health care that we all claim that we want for our 
constituents.
    Mr. Chairman, thank you for having this hearing and thank 
you for this member being able to express his frustration with 
the histories of the past; and hopefully we will learn from our 
mistakes and in a bipartisan way work together to provide 
services for the next generation. Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman for that opening 
statement. Mr. Dingell for an opening statement.
    Mr. Dingell. Mr. Chairman, thank you. I want to thank you 
for your comments in your opening statement announcing that the 
majority and the minority staff are meeting to discuss the 
Patients' Bill of Rights. That is a desirable step. It is one 
which I applaud. I note that it comes 6 months into the 
Congress.
    I would observe, Mr. Chairman, that I would applaud with 
greater fervor if the Chair could announce that we had a firm 
markup date so that we could begin to provide our constituents 
with the protections that they want and deserve within the 
framework of the Patients' Bill of Rights. That would afford 
the Congress a fine opportunity to work its will, to afford all 
members an opportunity to come up with an amendment within the 
rules which would allow them to express their particular 
thoughts and concerns and would allow us to finally report some 
kind of bill upon which the committee had worked its will to 
the House so that this subcommittee, the full committee, and 
ultimately the House of Representatives could pass a bill of 
some sort and send to the Senate.
    I have to think that we would pass something very close to 
that which I have sponsored. But I am willing to cast a throw 
of the dice to permit any and all colleagues to have the 
opportunity to have their say and allow the committee after 
listening to the concerns of our people in proper hearing 
process to write the necessary piece of legislation to 
accomplish the purpose of moving the process forward.
    In any event, I thank you. I commend you. I certainly hope 
that the announcement will be forthcoming at an earlier time, 
and I ask with that that I have opportunity to extend my full 
remarks into the record. They are excellent. I know everybody 
will enjoy reading them. And I yield back the balance of my 
time.
    [The prepared statement of Hon. John D. Dingell follows:]
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Today the Health and Environment Subcommittee is discussing an 
issue that is of great importance to me: providing health care coverage 
for the uninsured. Many members of this Subcommittee have also proposed 
various legislative solutions to address this problem, including 
Chairman Tom Bliley, Subcommittee Chairman Mike Bilirakis, Rep. Sherrod 
Brown, and Rep. Frank Pallone. I thank the majority for holding a 
hearing on this crucial topic.
    What motivated Congress to propose the Medicare program three-
quarters of a century ago was an appalling lack of health insurance 
among the elderly. Today Medicare is the most popular and most 
successful health insurance program in the country, guaranteeing 
virtually every senior citizen affordable health care coverage. But 
millions of Americans do not enjoy a similar guarantee. I think they 
should, so in every Congress since 1954, I have introduced H.R. 16, a 
bill originally authored by my father, which would provide meaningful 
health care coverage to all Americans.
    Today we discuss less comprehensive proposals, which are modified 
versions of past ideas. First, HealthMarts are a variation of Health 
Insurance Purchasing Cooperatives, which currently exist in a number of 
states, including California, Florida, and Ohio, and were the 
foundation of President Clinton's 1994 health care reform plan. Second, 
Community Health Centers have been fulfilling their mission of 
providing care to the uninsured for over three decades. Third, a 
majority of states fund high-risk insurance pools to subsidize coverage 
for people with health problems who would otherwise have to pay 
astronomical rates in the individual market.
    Any solution to provide health insurance to more Americans must be 
designed carefully so that the current fabric of health care coverage 
is not undone. Appropriate safeguards must be in place to ensure that 
risk-pooling arrangements do not upset the fragile balance in the small 
group and individual health insurance markets. Community Health Centers 
are already under a great deal of strain, both from rising numbers of 
uninsured and payments cuts, and we must not add to their burden. 
Finally, high-risk pools cannot effectively serve individuals unless 
they are adequately funded and provide comprehensive, meaningful 
benefits.
    Yesterday, a number of my Democratic colleagues, including ranking 
Subcommit-

tee member Sherrod Brown, introduced a bill that would allow people 
ages 55 to

65 who are uninsured to buy-in to the Medicare program. The near-
elderly are

among the most vulnerable of the uninsured. This bill builds on a 
successful program that has already helped millions of Americans obtain 
needed health care, and is worthy of this Subcommittee's attention.
    However, lack of insurance coverage is not the only health care 
problem Americans are facing. Many Americans who are currently insured 
find their coverage lacking some of the basic protections that make 
health insurance meaningful: access to specialty care; access to 
emergency care; an independent external appeals procedure to resolve 
disputes; care provided according to good medical practice; reliable 
accounting principles; and a mechanism to ensure that these protections 
are enforceable.
    I look forward to discussing options to promote meaningful health 
care coverage for more Americans, and I hope that our Committee will 
soon move from talk to action.

    Mr. Bilirakis. Without objection. Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman, thank you very much. I can't 
think of any more important issue to have a hearing on than 
this issue because we do have such a large number of people who 
are uninsured. As a matter of fact, I think it is even more 
important than the Patient Protection Act because those people 
are generally covered with some insurance, and we are talking 
about a problem here where people are uninsured.
    I must say that I am sorry that the gentleman from New 
Jersey left, because he, more than any other member on the 
other side that I am aware of, always likes to try to make this 
a partisan issue. And I think he talks about it as partisan 
because we have philosophical differences on the way you solve 
the problem. But the mere fact that we may differ on the way 
you solve the problem does not mean by any stretch of the 
imagination that we are not interested in trying to solve the 
problem.
    Now, people who are 65 and above, they have the Medicare 
program; and we recognize that there are a lot of problems with 
the Medicare program, but at least they have basic health 
coverage. If your income is below a certain level, you have 
Medicaid, which is a very good program. It provides almost all 
the health care needs that a person has.
    I notice in the testimony of the Hispanic Business Round 
Table they are talking about a--not the legal immigrant here 
who may be unemployed who may not have any income because he is 
even covered by Medicaid, but we are talking about people who 
are making just over--just enough money that they don't qualify 
for the government programs. And that is the sector where we 
have a significant problem.
    And I think that one thing that has been shown clearly 
throughout America today is that the mandates, State-mandated 
benefits are not the answer. There are already over 1,000 
State-mandated benefits in America. And we still have this huge 
segment that is unemployed.
    Now, my home State of Kentucky became one of the most 
aggressive States on mandating health care coverage. They had a 
guarantee issue clause; they had community rating. They had--
you can not exclude someone if they had a preexisting 
condition. And as a result of that, we have 107,500 people 
uninsured today who were insured in 1990. So the mandated 
benefits are not always the answer.
    And contrary to my friend from Iowa who seems to be opposed 
to HealthMarts, the one thing that I do like about HealthMarts 
is that it starts removing the decisionmaking and the control 
of health care from employers to give employees the opportunity 
to make some decisions on their own. And I think that is the 
kind of step that we need to make.
    And I am delighted that the gentleman from Texas talked 
about incentives that we need to provide people health coverage 
for their employees. Tax benefits, tax deductions. We need to 
explore all of those things. So I am delighted that we are 
having this hearing. And I am delighted that we have so many 
excellent witnesses who can shed some light on how we can 
hopefully start solving the problem.
    Mr. Bilirakis. I thank the gentlemen from Kentucky.
    Mr. Waxman for an opening statement.
    Mr. Waxman. Thank you, Mr. Chairman. Nobody on this 
committee, Democrats or Republicans, can find it acceptable 
that in this country we have some 43 million people without 
health insurance coverage, and that is a number that continues 
to grow. This shouldn't take us by surprise. It is a situation 
that has been with us for years. In fact, some 25 years ago 
both the Carter and the Nixon administration proposed 
comprehensive national health insurance plans. It was clear 
even then that we had a serious problem and it would only get 
worse if we did nothing.
    President Clinton, to his credit, tried to remedy the 
situation with a proposal that would have assured all Americans 
comprehensive quality coverage; but the concerted efforts of 
special interest groups stopped that bill dead in its tracks. 
Today we see the result. We have more people uncovered, and 
that number of uninsured continues to grow. We face an even 
higher price tag to try to remedy the situation for the 
uninsured.
    Additionally, there is a real and growing dissatisfaction 
among many people who have coverage, particularly in managed-
care plans, who are not getting the medical care they need. We 
need to address both issues. Clearly we need to take action on 
the Patient Bill of Rights. We have to give people the tools to 
assure that they are treated fairly by their plans and receive 
the medically necessary care they need.
    I would make two observations as we enter into this debate. 
First, we must not use the continuing problem of millions of 
American without coverage as a rationale to fail to act to 
protect the rights of persons with coverage. To do that would 
be cynical in the extreme.
    Second, we must be sure that the actions we do take to 
provide coverage are effective. We cannot adopt proposals 
which, in fact, only help those with only a relatively high 
income or simply provide fiscal relief to people who are 
already covered, and we cannot adopt solutions that fail to 
reform the insurance market or make the situation worse by 
fragmenting the risk pool and leaving the older and sicker 
without affordable coverage.
    And perhaps most importantly, we need to be sure that the 
actions we take do not have the result of exacerbating the 
already troublesome trend of reductions in the provisions of 
health care coverage by employers for their employees.
    And finally, I would note that one fact about the uninsured 
is very clear. Older people who lose their employment-based 
coverage are one group clearly in need of help. We have 
legislation that could help here, introduced yesterday by 
Congressman Stark, Brown, Dingell, and myself, among others, to 
allow early buy-in into Medicare. We should also act on that 
legislation.
    The Breaux-Thomas Commission proposal to raise the age of 
eligibility for Medicare to 67 surely would only add to the 
problem of the uninsured. And I hope that would find little 
support in this committee.
    Mr. Chairman, I look forward to hearing from our witnesses 
and, I am not here because of conflict, to have a chance to 
review their testimony and their answers to questions. And I 
look forward to this committee exercising its jurisdiction and 
its responsibility to markup a patient bill of rights and to 
address these very difficult issues that, left unaddressed, 
will only lead to hearings next year, the year after, 5 years, 
or 10 years from now talking about the growing problem of the 
uninsured. At that point, it won't be 43 million but maybe 50 
million. And the effect of the rest of the health care system 
will be so dramatically negative. Thank you for calling this 
hearing. I yield back the time.
    Mr. Bilirakis. Thank you. Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman, for holding this 
extremely important hearing today. The subject of health care 
quality, health care access, and health care affordability is 
an extremely important one and one which I spent considerable 
time during the last several years.
    Mr. Chairman, there are very serious problems which need to 
be addressed in how health plans administer and provide 
service. In addition, many plans are protected by Federal 
legislation which provides minimal regulatory oversight and 
virtual complete immunity from lawsuits for consequential 
damages even when the plans are clearly at fault.
    Congress and many States legislatures, including my own 
home State of Arizona, have dealt with managed-care reform 
liability and other types of patient protection legislation.
    As we consider the myriad proposals that will come before 
us today, I would urge us to remember the Hippocratic Oath and 
first do no harm. We must recognize, I believe, that some of 
the most important protections we can give patients are 
individual choice and improved access.
    Providing choice in providing improved incentives for 
better consumption of health care and helping the uninsured, 
the subject of today's hearing, obtain coverage will do more to 
improve quality and affordability of health care than 
Congressional directives which do not address the causes of our 
country's health care problems.
    For these reasons, as many of the members of the committee 
know, I have introduced H.R. 1687, the Patients' Health Care 
Choice Act. While some groups oppose any Congressional action 
in the area of health care, I vehemently disagree.
    Congress has a significant responsibility to reduce the 
problems in the health care market because it is Federal law 
that has led to reduced choice, has led to decline in quality, 
and has led to more insured--more uninsured and a lack of 
accountability.
    But for true health care reform we must change the way we 
view the system. People should have the ability to choose their 
own health care based on their individual needs and priorities.
    Until Congress removes the current tax burdens and hurdles 
which discourage individual ownership and control of health 
care coverage, we will never truly reform health care in 
America; we will only build a bigger, more complicated 
bureaucracy and further regulate a fundamentally flawed system.
    My own legislation, H.R. 1687, responds to the lack of 
choice and the problem with tax equity that Americans have when 
purchasing health care. One of the most egregious problems 
created by our current health care laws is the unintended 
consequence of our tax policy creating 43 million Americans, 
Americans excluded from the ability of having health insurance.
    The tax code is biased against these millions of uninsured 
Americans. Because their employers do not offer them taxpayer 
subsidized employer-based health care, they are punished. We 
say to those in the employment market we will subsidize your 
health care by giving your employer a deduction for the amount 
he spends on your health care.
    But to the other side of the coin, to those not fortunate 
enough to get employer-based health care, we say to them as a 
matter of public policy we think you should be insured. Indeed, 
I would argue as a Nation we came to a conclusion long ago that 
no one in this country should go without health care.
    Having said that they should be insured, Mr. Chairman, and 
having said they shouldn't go without health care, we give them 
the back of our hand because we tell them they must go out and 
buy coverage on their own. But we punish them--we don't 
subsidize them--we punish them by saying they must use after-
tax dollars to buy that health care coverage.
    What that means is that for America's uninsured, the people 
we will talk about today, the cost of obtaining insurance is 
anywhere between 30 and 50 percent higher than the cost for 
those who just happen to be lucky enough to get their health 
care coverage through their employer.
    The Patients' Health Care Choice Act addresses this current 
inequity in our Tax Code, which excludes the 43 million 
Americans from health insurance by giving them a refundable tax 
credit for the purchase of health insurance. This tax credit 
provides tax equity to those Americans who receive their health 
insurance without respect from their employer. Someone who 
doesn't have insurance through their employer would simply have 
to go out and buy health insurance, and they would get the tax 
credit.
    For low-income Americans that many people are concerned 
about the tax credit is fully refundable and functions through 
the withholding system so that even if though do not have the 
tax liability they can receive the credit. It is high time that 
we made the Tax Code fair and equitable for both those who are 
employed and getting employer-based insurance and those who are 
unemployed.
    Let me tell you the story of Sabrina Roberts, a single mom 
living in Chandler, Arizona. Like Mary Horsley, whose testimony 
we will hear, Ms. Roberts is just getting by trying to provide 
for all the needs of herself and her four children.
    Right now, she pays for private health insurance for her 
children with after-tax dollars 30 to 50 percent more than it 
is for rest of us. Unfortunately, she is not eligible for the 
Arizona program set up under SCHIPs, a program called kid care, 
because that program says that she must allow her children to 
go 6 months uninsured before they are eligible for the SCHIPs 
program. She refuses to allow her children to go uninsured.
    Mr. Chairman, we can do better. We must provide tax equity, 
and I urge my colleagues to support this legislation; and I 
commend the committee for moving forward, and I commend the 
committee for considering the two bills which myself, 
Congressman Coburn, and Congressman Norwood have put before the 
committee to address these issues.
    Mr. Bilirakis. I thank the gentleman. Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman. I would like to 
submit my statement for the record.
    Mr. Bilirakis. Without objection.
    Ms. DeGette. And just to note that one of my neighbors, not 
my direct constituent, but my neighbor to the south in 
Englewood, Bob Morehead, is here. I know his testimony is going 
to be illuminating, and I thank the committee for inviting him. 
I yield back.
    Mr. Bilirakis. Mr. Burr.
    Mr. Burr. No statement.
    Mr. Bilirakis. Mr. Greenwood? Dr. Coburn?
    Mr. Coburn. Well, thank you, Mr. Chairman for having the 
hearing. We do have 43 million Americans that are uninsured but 
half of them don't want insurance. So let's talk about----
    Mr. Bilirakis. Is your mike on, Tom?
    Mr. Coburn. Mr. Chairman, I don't know that I control 
whether my mike is on or not.
    So we really ought to talk about those who don't have 
insurance who want insurance. The other thing, the latest 
numbers that we have really good numbers in 1996, we spent 
$1.36 trillion on health care in this country. And $180 billion 
of that didn't go to help anybody get well. And we are going to 
hear all sorts of ways about addressing the unmet needs of 
those that are uninsured.
    One the first things we ought to do as a Congress is to 
open up this $180 billion by lessening the stranglehold of 
government agencies, neutralizing the tax effects that we don't 
have now, and clearing the way so that the market can have some 
impact.
    Congressman Shadegg's bill on access is designed to 
eventually do that, to eventually allow individuals to own 
ultimately--that is where we ought to be--to own their health 
insurance product and then allow them to make the choices that 
fit them rather than a group of people deciding what is best 
for them without their choice. We don't need more government, 
we don't need more HCFA.
    As a matter of fact, the last two HCFA administrators, 
including the last one that I think is the best one we ever 
had, Nancy Ann DePaul said that nobody understands HCFA and we 
are as a Congress responsible for that. So anything that we do 
in terms of improving access ought to have something to do with 
cleaning up HCFA and making the regulations understandable, 
usable, and efficient.
    I often wonder if a Martian came to Earth and said you are 
going to have health care, how are you going to design it, they 
would look at us and say this is the opposite way to design it, 
and that is just criticism in terms of what we have done in 
terms of government agencies and the amount of dollars that are 
consumed in our health care budgets each year that don't go to 
help people get well.
    And if you take $180 billion--and that money--and I have 
personal insurance. I have 33 employees in my medical practice 
with four other doctors, and eight of those people don't do 
anything to help people get well. And that is a crime because 
that is money that is being spent to not improve somebody's 
health care or to treat their disease.
    We continue to want to ignore those facts. But health care 
is too important for this Congress to ignore the inefficiencies 
that we have mandated through government regulation and the 
tort system into the health care system.
    So I am happy that you are having this hearing. I am 
extremely pleased with the work Mr. Shadegg has done. I don't 
know what is going to happen with those bills. But I will tell 
you one thing, we have to start down the road to increasing 
access and restoring individual freedom about choosing.
    And I want to say one last thing. We are never going to let 
the free enterprise model work as long as we have a middleman 
between the employer and the patient. And we have all these 
health care firms who supposedly care for patients, but their 
No. 1 goal is making money. And that is why they are in 
business. Otherwise they wouldn't be there.
    And we need to keep that in our mind, that we have a profit 
center between the person buying the health care for somebody 
and the person getting the health care. And that deserves a 
good long, hard look at whether or not that is a legitimate way 
to deliver health care in this country. And I yield back.
    Mr. Bilirakis. I thank the gentleman. I think that 
completes the opening statements. And as I said earlier, those 
who wish to submit their opening statement in writing, without 
objection will be made a part of the record.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Mr. Chairman, I want to thank you for holding this important 
hearing today. The focus of today's hearing is how to promote access to 
health coverage for the estimated 43 million Americans who are 
currently lacking health insurance.
    Approximately 85% of these individuals are employed and either opt 
to forego such coverage (healthy young individuals) or work for 
companies who cannot afford to provide such benefits to their 
employees.
    Most people who have health insurance are covered by a health 
insurance policy chosen for them by their employers. If they work for 
small companies/businesses that cannot afford to pay for health 
coverage, they often have no coverage at all. If they are fortunate 
enough to have employer provided coverage, the possibility remains that 
if they lose their jobs or decide to change jobs, this valued benefit 
can be lost. Individuals who are self-employed currently get a 60% tax 
credit for purchasing their own health insurance, unlike the major 
corporations who get a 100% credit for purchasing health coverage for 
their employees.
    Tax benefits should be moved out of the workplace and shifted over 
to the individual or family. Everyone--the self-employed as well as 
those who work for small firms--should get a tax credit to enable them 
to purchase coverage for themselves and their families. These credits 
should be larger for those whose medical expenses make up a greater 
share of their income. These credits should be refundable so that low-
income individuals and families should get assistance if they have no 
tax liability.
    One of the proposals to expand access to health coverage is through 
the establishment of HealthMarts which would shift the decision making 
power over to the individual or family. Everyone--the self-employed as 
well as those who work for small firms--should be allowed to purchase 
coverage for themselves and their families. The consumers would be 
given the ability of making their own choices. This gives consumers a 
sense of empowerment and a sense of responsibility which will encourage 
them to wisely use medical services.
    It could be modeled after the Federal Employee Benefit Program 
(FEHBP). This plan would give Americans the same option of choice now 
enjoyed by U.S. Senators and Representatives and the President. The 
FEHBP's annual cost increases have averaged one third less than other 
private health insurance programs.
    We will also look at risk pools for high risk individuals. There 
are some who advocate the use of risk pools to provide insurance 
protection to individuals who are sick and not insurable.
    To afford protection to those who become sick and uninsurable while 
without coverage, states could establish risk pools for the uninsured. 
These pools would provide coverage but the costs for the insurance 
premiums would be above average. How such a system would be financed is 
still unclear.
    The financing mechanism is crucial since risk pools are targeted 
toward individuals who are already sick and can't afford even a bare 
bones insurance policy, and/or individuals who wish to switch health 
plans but are prohibited from doing so because, in all likelihood, they 
would be experience rated to reflect the ``true cost'' they will bring 
to the new insurer. Risk pools also have the potential for increasing 
the problem of adverse selection because there is no incentive for 
individuals to enroll in a plan on the open market.
    The other option we will look at is a pilot program to create 
Community Health Organizations to give community health centers greater 
control of their resources and to provide comprehensive coverage to the 
people they assist.
    Community health centers offer a valuable service by providing 
primary health care in our rural and urban communities. I have toured 
these community health care centers and know full well the valuable 
services they provide and it is one of the most cost-effective programs 
in which our government invests to meet the growing demands of the 
uninsured and underinsured.
    I look forward to hearing from our distinguished panelists and 
receiving their views on the reasons we have so many uninsured people. 
I also am interested in hearing about possible solutions to providing 
coverage to these individuals.
                                 ______
                                 
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming
    Mr. Chairman, I would like to thank you for calling this hearing 
today. Finding ways to improve access to health care is a vitally 
important, and complicated, issue that we must address. Like every 
other member of this subcommittee, I have heard from small business 
owners in my district regarding the obstacles they face in providing 
affordable health insurance.
    I am particularly interested in learning how health marts and the 
other access options we are considering today will affect health care 
in rural areas like my home state of Wyoming. People living in rural 
areas don't have as many health coverage options available to them as 
people living in more populated areas.
    I would like to know the pros and cons of exempting any health 
plans from state mandated benefits. In addition, I would appreciate 
hearing any thoughts our witnesses might have about the effects health 
marts and other plans might have on risk pools and long-term costs.
    Congress must move carefully and deliberately so that we do not 
inadvertently drive up health care costs or limit access in other ways. 
Our common goal is to improve access to health care coverage, and I 
appreciate the insight and comments from our witnesses today. Your 
contributions to this debate will be extremely helpful to all of us.
                                 ______
                                 
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    I'm pleased the Subcommittee is holding this hearing today. I 
welcome all the witnesses, many of whom bring with them first-hand 
knowledge of the problems Americans face when it comes to affordable 
health coverage.
    Access to quality health coverage is a concern of every American. A 
recent poll asked respondents which they would prefer, that federal 
surplus dollars go to a new drug benefit for Medicare recipients or to 
providing basic health insurance for the uninsured. The results are 
telling--most said they would want to use funds for the uninsured. Even 
among seniors on Medicare, the results were in favor of coverage for 
the uninsured.
    The Commerce Committee doesn't need polls to know the importance of 
the topic of today's hearing. There are now over 43 million Americans 
without any type of health insurance whatsoever. Every year, despite 
our growing economy and low unemployment, this figure grows. Now it is 
time to address this problem with solutions that work.
    As we listen to the witnesses testimony today we must keep a few 
thoughts in mind, access, affordability and accountability:

 The affordability of health coverage for all Americans is 
        directly linked to consumers exercising choice in the health 
        care market place. We should not assume there has to be a 
        trade-off between having quality health coverage and affordable 
        health coverage. Americans deserve the best possible coverage 
        at the best price.
    As much of today's testimony will reveal, mandates on health 
insurance add costs to premiums and may have the unintended consequence 
of reducing access to coverage for many Americans--making today's 
problem worse.
 Today the tax code discriminates against the waitress at the 
        corner diner whose employer provides no health coverage. 
        Employer-purchased health coverage is 100 percent tax free to 
        the employer and employee, but you are out of luck if your 
        employer cannot provide you that coverage.
    Ron Pollack, President of Families USA, made the comment a while 
back that there was not a true marketplace to drive quality in health 
care today. As great as our health care system is, I believe this is 
true. Just like in every other sector of our economy, when consumers 
are given choice they will seek value in their purchases. This, in 
turn, forces insurers to compete vigorously for the health care 
consumer's business.
    I urge Members to listen to testimony that will be offered today 
about HealthMarts. The purpose of the HealthMart is threefold:

 To increase access to health insurance by giving small 
        businesses the opportunity to join large purchasing pools;
 To bring the major stakeholders in the health care system--
        insurers, employers, employees, and health providers--together; 
        and
 To give individuals choice and the ability to ``fire'' a 
        health plan if it does not meet their needs and choose a new 
        one.
    Today's hearing is a fair and deliberate approach to the problem of 
the uninsured. I thank the Chairman of the Subcommittee for holding 
this hearing and I thank our witnesses for providing their much needed 
insight on this critical issue. This is about access, affordability and 
accountability, and I am pleased to yield back my time.

    Mr. Bilirakis. We will call the first panel. Ms. Grace-
Marie Arnett, president of The Galen Institute; Ms. Terry 
Neese, past president and public policy advisor of the National 
Association of Women Business Owners; Mr. Roberto Garcia de 
Posada, executive director of the Hispanic Business Roundtable; 
Mrs. Diane Rowland, executive director of the Kaiser Family 
Foundation; and Ms. Mary Horsley, consumer on behalf of 
Families USA.
    Welcome to all of you. Thank you for being here, for your 
patience. Your submitted written testimony, your statement is a 
part of the record, and the Chair will give you 5 minutes to 
expand upon that in any way that you wish. Obviously, there 
will be a lot of questions coming from the panel up here so 
there may be a lot of points that you wish to make that you 
will have the opportunity to make even if you don't have time 
in your opening statement. We will kick it off with Mary 
Horsley. Proceed.

  STATEMENTS OF MARY HORSLEY, CONSUMER, ON BEHALF OF FAMILIES 
USA; GRACE-MARIE ARNETT, PRESIDENT, THE GALEN INSTITUTE; TERRY 
   NEESE, PAST PRESIDENT AND PUBLIC POLICY ADVISOR, NATIONAL 
ASSOCIATION OF WOMEN BUSINESS OWNERS; ROBERT GARCIA DE POSADA, 
  EXECUTIVE DIRECTOR, HISPANIC BUSINESS ROUNDTABLE; AND DIANE 
     ROWLAND, EXECUTIVE DIRECTOR, KAISER FAMILY FOUNDATION

    Mrs. Horsley. Mr. Chairman and members of the committee, my 
name is Mary Horsley; and I am from Cape Charles, Virginia. 
Thank you so much for inviting me to testify this morning about 
my family.
    I hope that our story will help convince you that families 
need health insurance. My husband is Kenny Horsley. He has 
lived on the Eastern Shore his whole life. He could not join me 
today because he didn't want to take a day off from work. We 
have been married for almost 15 years and we have one daughter, 
Laura, who is 10 years old.
    We are a classic uninsured family. My husband is employed 
full-time at Ewell's Furniture Store in Cape Charles, where he 
sells new and used furniture, appliances, and odds and ends. He 
makes $250 a week gross and gets no benefits through his job. 
The owner of the store employs two other people and cannot 
afford to give his employees health insurance.
    I do sporadic contract work teaching in arts programs when 
I can get it. Health insurance has never been offered to me by 
any of my employers.
    Our annual income is about $13,000 to $14,000. We live very 
conservatively. We do not take vacations or go out to eat. I 
sew and, therefore, we do not spend a lot of money on clothes. 
We have an old car, we have some bills including a loan we 
needed to pay for a new furnace that we must pay on a monthly 
basis. I am not complaining. I just want you to know we are 
doing okay, but just barely.
    My husband had a small skin cancer about 20 years ago. But 
by the time we were married, we were both healthy. At that time 
my husband ran his family's small restaurant and we could not 
afford to buy coverage. Shortly after my daughter was born, I 
learned that health insurance is essential if someone in your 
family gets sick.
    At that time, Laura was not getting enough milk. It took a 
while for the doctors to figure out what was wrong. The problem 
was corrected, but we wound up with a lot of bills. We learned 
that one health problem can be very expensive and devastating 
to a family's budget. I was told that Laura was eligible for 
Medicaid, and she has been on the program since then.
    As it turned out, we have had to use Medicaid for a couple 
of eye surgeries for Laura. She has an inherited disease which 
causes one eye to move out. We are very grateful for the help 
Medicaid gave us because without it we could be in significant 
debt. Unfortunately, Medicaid does not cover adults.
    About 2 to 3 years ago, my husband's cancer started growing 
back. When my husband suspected his cancer had returned, he 
knew we could not afford to pay the medical bills so he put off 
getting care. He did not tell me about it until last fall. In 
February, he had surgery.
    Because he delayed getting care, the damage was much worse 
than it might have been if he had seen a doctor earlier. The 
care was much more expensive also. He had part of a cheek bone, 
one eye and part of his skull removed. He is now facing two 
more surgeries, including plastic surgery and 5 weeks of 
radiation therapy.
    We are struggling to pay the remaining medical bills. We 
are very fortunate that so far we have had some help. The 
doctors wrote off part of their bills for the first surgery and 
our church and the Lions Club helped out. I am also applying to 
the Lion's Club for additional help.
    Our income and resources are low enough so that we qualify 
for the Virginia State Local Hospital plan, called the SLH 
plan, which pays the hospital bills. And, of course, I am very 
worried about the future. I don't know how long the doctors 
will be willing to write off some of their bills or how much 
other help I will be able to get.
    I also don't know if my husband will still get paid when he 
takes off more and more time from work. I will try to get more 
contract work, but if I make much more than I do now, then we 
will not qualify for SLH and our bills will be overwhelming.
    I feel very stuck and frustrated. Sometimes I feel like I 
am spinning in circles. I know that we should have health 
insurance, but we cannot get it. I called around to many 
insurance companies. They told me that my husband had a 
preexisting condition and they would not sell me insurance. 
Even if he was not sick and they would sell it to me, I was 
told it would cost around $400 a month. We do not have money 
left over each month to pay premiums of this magnitude. We 
cannot afford to pay about $5,000 out of our annual income of 
around $13,000.
    I know we are not the only family in this predicament. My 
sister and her husband who has recently been ill are facing the 
same questions about how to keep the family going and pay large 
medical bills. We are hard-working families. Seems to us that 
in a country like ours, hard-working families should not have 
to go without health insurance.
    I hope you can figure out a way to get insurance to 
families that need it. Thank you.
    Mr. Bilirakis. Thank you very much, Ms. Horsley. Ms. 
Arnett.

                STATEMENT OF GRACE-MARIE ARNETT

    Ms. Arnett. Thank you, Mr. Chairman, and the distinguished 
members of the committee for inviting me to testify today. I 
also commend you for inviting Mrs. Horsley to come to present a 
really poignant and real-life story that makes this work very 
real for all of us.
    As you say, I am the president of the Galen Institute, a 
not-for-profit health and tax policy research organization in 
Alexandria, Virginia. It is frustrating to all of us; and it is 
even more frustrating to the American people that despite years 
of effort by law makers at all levels of government, and 
especially during a strong and sustained period of economic 
growth, that the problem of the uninsured not only persists but 
continues to get worse.
    At the State level, lawmakers have been passing thousands 
of laws with a very good intent of trying to force health 
insurers to offer good coverage that contained decent benefits 
at reasonable costs and with protections for policyholders. 
Additional insurance regulations, as you well know, have been 
passed at the Federal level with many of the same intent.
    The data, however, increasingly show that despite this good 
intent, the effect these laws are having is increasing the cost 
of health insurance and is, in fact, driving up the number of 
people who are uninsured.
    As we have heard from Mrs. Horsley, people who are on the 
tightest budgets must make the hardest choices in deciding how 
to allocate their resource after paying the rent and the 
mortgage, and putting food on the table. Millions of Americans 
simply can't afford to buy health insurance. Some are faced 
with the choice between sending their children to a good school 
and buying health coverage, and we increasingly see the choices 
that they are forced to make.
    When asked by the Kaiser Commonwealth Fund survey recently, 
a majority of Americans cite cost as a reason for not having 
health benefits. In fact, the cost of health insurance has 
grown dramatically faster than the overall consumer price 
index: 111 percent increase in the cost of health insurance 
between 1988 and 1996 as opposed to a 33 percent increase in 
overall prices.
    The Congressional Budget Office estimates that every 1 
percent increase in the cost of health insurance throws 200,000 
more people off the insurance rolls. Uninsured are 
disproportionately young, minority, lower income, and either 
work for small companies or are their dependents. The research 
that I have done, which is validated by numerous other experts, 
has convinced me that there is a causal connection.
    The growing benefit mandates and regulation in the health 
sector leads to higher cost for health insurance and in turn 
drives more people into the ranks of the uninsured. I would 
invite you to look at my testimony for specifics on the studies 
that I cite there.
    For example, Gail Jensen of Wayne State University and 
Michael Morrisey of the University of Alabama at Birmingham 
found that as many as one in four Americans lack health 
insurance because of benefit mandates and yet the number of 
mandates has increased 25 fold in the last quarter century.
    Mandates in insurance regulation don't show up on the 
Federal ledger, but they are not without cost to the American 
people. They are paid for by workers and their dependents who 
receive lower wages or lose coverage altogether.
    Each mandate may increase cost only by a percentage or 2 
but others add much more and every one of these benefit 
mandates can be justified by its constituency as a legitimate 
item for coverage, but cumulatively they are condemning more 
and more people to being without health insurance.
    Small businesses and people attempting to buy health 
insurance on their own are most vulnerable because they don't 
have the opportunity to escape by self-insuring through the 
provisions of ERISA. The Galen Institute conducted a study to 
determine the effects of State efforts to regulate their health 
insurance markets and shape coverage to help their citizens get 
affordable coverage.
    Using GAO studies, we determined that between 1990 and 1994 
16 States were most aggressive in passing health laws 
regulating their health insurance markets with the intent of 
helping their citizens get better health insurance.
    We found that by 1996, these 16 States were seeing their 
uninsured populations grow an average of eight times faster 
than the 34 States that did little or less. Before the health 
care reform legislations began, the two groups of States had 
been virtually equal. One of the biggest regulators was 
Kentucky and the Governor said in spite of good intentions and 
noble purposes the project didn't work. The entire cost of the 
system went up.
    Just to conclude, Mr. Chairman, the fact that regulation 
has failed at the state level does not mean that Federal action 
is not needed. But in the battle over patient protection 
legislation the uninsured may very well be shoved aside in 
favor of a small percentage of those who have health insurance 
who are unhappy with it. Instead of helping the 43 million 
Americans with health insurance, the data strongly suggests 
that patients rights legislation will hurt them by driving up 
the cost coverage and throwing even more people off the health 
insurance rolls.
    I commend you to look at the ideas of tax cuts for the 
insured. I can think of no better example than Mrs. Horsley of 
someone who could benefit from a targeted tax credit to an 
individual who does not have the option of job-based health 
insurance to get affordable coverage. Thank you.
    [The prepared statement of Grace-Marie Arnett follows:]
  Prepared Statement of Grace-Marie Arnett, President, Galen Institute
    Thank you, Mr. Chairman, and members of the committee for inviting 
me to testify today as you address the challenge of why, despite years 
of effort to try to reverse the trends, more and more Americans are 
without health insurance.
    My name is Grace-Marie Arnett, and I am president of the Galen 
Institute, a not-for-profit health and tax policy research organization 
based in Alexandria, Virginia. The Galen Institute was founded in 1995 
to promote a more informed public debate over individual freedom, 
consumer choice, competition, and diversity in the health sector. The 
Galen Institute also facilitates the work of the Health Policy 
Consensus Group, which is composed of nearly 20 health policy experts 
from the major free-market think tanks, whose work I will discuss later 
in my testimony.
    For decades, policy makers at all levels of government have been 
searching for ways to help Americans gain greater access to affordable 
health care. You and your colleagues in Washington and lawmakers in the 
states have spent untold thousands of hours trying to achieve that 
goal.
    It is frustrating to you and to virtually all Americans that, 
despite these efforts and especially during a period of strong and 
sustained economic growth, the number and percentage of Americans 
without health insurance continues to rise. In 1987, there were 32 
million Americans under age 65 without health insurance at some point 
during the year. A decade later, the number has risen to more than 43 
million or 16.1% uninsured.
    At the state level, thousands of new rules and regulations have 
been passed with the intent of forcing health insurers to offer 
coverage that contained good benefits, at reasonable costs, and with 
protections for policyholders. Some insurance regulations and mandates 
recently have been passed at the federal level, as you know, and even 
more are being debated. However, the rule that governs the practice of 
medicine should also govern lawmakers in addressing health reform 
issues: First, do no harm.
    The data show that these laws have the effect of increasing the 
cost of health insurance and are driving up the number of uninsured.
Insurance costs and the uninsured
    People who are on the tightest budgets must make the hardest 
choices in deciding how to allocate their resources. After paying the 
rent or the mortgage and putting food on the table, millions of 
Americans simply don't have enough money left to buy health insurance. 
Some are faced with the choice between sending their children to a 
good, safe school or providing the family with the security of health 
insurance. These are terribly difficult choices, but we see from the 
numbers the choice that more and more Americans are making.
    When asked by a Kaiser/Commonwealth Fund survey, the majority of 
Americans cite cost as their reason for not having health insurance.
    Over the last decade, health insurance costs have increased much 
faster than overall consumer prices. The General Accounting Office 
reported in 1997 that the average annual premium for employment-based 
family health insurance coverage increased by 111%, from $2,530 in 1988 
to $5,349 by 1996. During this same period, overall consumer prices 
rose by 33%.1 Now, after several years of leveling off, 
health insurance premiums are on the rise again. This does not bode 
well for the uninsured.
---------------------------------------------------------------------------
    \1\ U.S. General Accounting Office. ``Private Health Insurance. 
Continued Erosion of Coverage Linked to Cost Pressures,'' GAO/HEHS-97-
122. July 1997. Washington, D.C.
---------------------------------------------------------------------------
    The GAO concluded that the continued erosion of health insurance 
coverage is directly linked to cost pressures.
    The Congressional Budget Office estimates that every one percent 
increase in the cost of health insurance throws 200,000 more Americans 
off the insurance rolls. The result: Those who can least afford the 
inevitable premium increases will lose their health insurance. The 
uninsured are disproportionately young, minority, lower income, and 
either work for small companies or are their dependents.2 
Hispanics and minorities are the most likely to be uninsured. Among 
working-age Americans, 14% of whites, 24% of blacks, and 38% of 
Hispanics are uninsured.3 The uninsured numbers are even 
higher for lower-income minority group members, reaching 52% for 
Hispanic families whose incomes are below the federal poverty level.
---------------------------------------------------------------------------
    \2\ Hall, Allyson G., Karen Scott Collins, and Sherry Glied, 
``Employer-Sponsored Health Insurance: Implications for Minority 
Workers.'' The Commonwealth Fund, February 1999. New York.
    \3\ Commonwealth Fund analysis of 1997 Current Population Survey.
---------------------------------------------------------------------------
    The research that I have done, which is validated by numerous other 
experts, has convinced me that there is a causal connection: the 
growing burden of mandates and regulation in the health sector leads to 
higher costs for health insurance which, in turn, drives more people 
into the ranks of the uninsured.
Mandates and the uninsured
    The link between insurance mandates and the uninsured has been 
established by numerous researchers.

 Using data from 1989 to 1994, Sloan and Conover 4 
        found that the higher the number of coverage requirements 
        placed on plans, the higher the probability that an individual 
        would be uninsured, and the lower the probability that people 
        would have any private health insurance coverage, including 
        group coverage. After more than 100,000 observations, they 
        conclusively demonstrated that the probability an individual 
        will be uninsured increases with each mandate imposed by 
        government.
---------------------------------------------------------------------------
    \4\ Sloan, Frank A. and Christopher J. Conover, ``Effects of State 
Reforms on Health Insurance Coverage of Adults,'' Inquiry. 35:280-293, 
1998.
---------------------------------------------------------------------------
 Gail A. Jensen of Wayne State University and Michael Morrisey 
        of the University of Alabama-Birmingham 5 found that 
        as many as one in four Americans lack health insurance because 
        of benefit mandates. Each additional mandate significantly 
        lowers the probability that a firm or an individual will have 
        health insurance.
---------------------------------------------------------------------------
    \5\ Jensen, Gail A., Michael A. Morrisey. ``Mandated Benefit Laws 
and Employer-Sponsored Health Insurance.'' Published by the Health 
Insurance Association of America, January, 1999. Washington, D.C.
---------------------------------------------------------------------------
 Professor William S. Custer of Georgia State University 
        6 found that state guaranteed issue requirements, 
        coupled with either community rating or rate bands in the small 
        group insurance market, increase the probability that a person 
        will be uninsured by nearly 29%. These laws hit small firms and 
        individuals purchasing insurance in the open market the 
        hardest.
---------------------------------------------------------------------------
    \6\ Custer, William S. ``Health Insurance Coverage and the 
Uninsured.'' Published by the Health Insurance Association of America, 
December 1998. Washington, D.C.
---------------------------------------------------------------------------
    The number of mandates has increased 25-fold over the last quarter 
century, with more than 1,000 state mandated benefit laws on the books 
today. Most are an attempt by lawmakers to correct inefficiencies or 
inequitable practices in the market. Unfortunately, they are having the 
unintended effect of increasing the ranks of the uninsured.
    Mandates and insurance regulations do not show up on the federal 
budget ledger, but they do show up in the paychecks and in loss of 
coverage by individual workers. Jensen and Morrisey say, ``Mandates are 
not free. They are paid for by workers and their dependents, who 
receive lower wages or lose coverage altogether.'' 7
---------------------------------------------------------------------------
    \7\ Jensen, Morrisey.
---------------------------------------------------------------------------
    In a study, conducted in 1989 even before the explosion of state 
mandated benefit laws in the 1990s, Acs et al found that mandates 
significantly raised premium costs. Even then, insurance was found to 
be 4 to 13 percent more expensive as a direct result of benefit 
laws.8
---------------------------------------------------------------------------
    \8\ Acs, Gregory, Colin Winterbottom, and Sheila Zedlewski, 
``Employers' Payroll and Insurance Costs: Implications for Play or Pay 
Employer Mandates,'' in Health Benefits and the Workforce. Washington, 
D.C. U.S. Department of Labor, 1992.
---------------------------------------------------------------------------
    Each mandates may increase costs only a percentage or two, but 
others add much more. Every one of these benefit mandates can be 
justified individually, and each has a constituency that can and does 
argue passionately for its merit. But cumulatively, they are condemning 
more and more people to being without health coverage.
Hitting the most vulnerable the hardest
    Small businesses and individuals attempting to purchase health 
insurance are hit with the full force of these mandates and insurance 
regulations. The small group and individual insurance markets have 
become fragile and expensive as a result. Most large companies avoid 
benefit mandates and state insurance regulation laws because they are 
protected by ERISA, the Employee Retirement Income Security Act of 1974 
that allows companies that self-insure to escape the reach of these 
state insurance laws and regulations. Few small business can afford to 
self insure and are therefore subject to all of the mandates and 
regulations imposed by the states.
    Surveys conducted by the National Federation of Independent 
Business show that the great majority of small business owners would 
like to offer health insurance, but say high costs make it prohibitive. 
About 40% of businesses with fewer than 50 workers do not offer health 
insurance. A person working for a company with fewer than 10 employees 
is three times more likely to be without health insurance than someone 
working for a company with more than 1,000 employees.
    Even small companies that do offer insurance often must make the 
choice between keeping their business going and offering health 
benefits. Many walk the line--offering insurance but requiring 
employees to pay a larger share of the premiums. Unfortunately, an 
increasing number of people offered health insurance through their jobs 
are declining coverage, again citing costs as the primary reason.
    For this and other reasons, the number of people with private 
health insurance has been declining for nearly two decades. Since 1980, 
the number of people with private health insurance coverage obtained 
either through the workplace or purchased individually has been 
declining, from 79.5% in 1980 to 70.5% in 1995.
State insurance regulations and the uninsured
    The Galen Institute conducted a study last year,9 which 
was published by The Heritage Foundation, to determine the effect of 
state efforts to regulate their health insurance markets and shape 
coverage to help their citizens get affordable health insurance 
coverage.
---------------------------------------------------------------------------
    \9\ Schriver, Melinda, and Grace-Marie Arnett. ``Uninsured Rates 
Rise Dramatically in States with Strictest Health Insurance 
Regulations,'' The Heritage Foundation, August, 1998, Washington, D.C.
---------------------------------------------------------------------------
    Using GAO studies, we determined that between 1990 and 1994, 16 
states were most aggressive in passing laws regulating health 
insurance. By 1996, these 16 states were seeing their uninsured 
populations grow an average of EIGHT times faster than the 34 states 
that passed less comprehensive regulations. Compare this to 1990, 
before the blizzard of health-care reform legislation began, when the 
two groups of states had nearly equal rates of growth in their 
uninsured populations.
    Could the increase in the number of uninsured in these 16 states be 
caused by something other than regulation? Not likely. The regulating 
states had employment and income characteristics similar to the rest of 
the nation. Their only distinguishing feature was the passage of these 
sweeping health insurance regulations.
    One of the biggest regulators was Kentucky. ``In spite of good 
intentions and noble purpose, it didn't work . . . The entire cost of 
the system went up,'' Gov. Paul Patton said last year. Kentucky 
citizens paid the price: 107,500 fewer citizens, out of a population of 
3.4 million, had health insurance in 1996 than in 1990. ``In my 
opinion, most of the general assembly believes that we in Kentucky have 
experimented enough for the time being,'' Patton said.
    In addition to Kentucky, the other states that imposed the most 
aggressive regulations were Idaho, Iowa, Louisiana, Maine, Minnesota, 
New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, 
Oregon, Utah, Vermont and Washington. Their new laws included: mandates 
on insurers to sell policies to anyone who applies and agrees to pay 
the premium--even if they wait to buy insurance until they are already 
sick (guaranteed issue); prohibitions on excluding coverage for some 
medical conditions (pre-existing condition exclusions); and 
requirements that insurers charge the same price to everyone in a 
community, regardless of the differences in risk posed by individuals 
(community rating); plus others.
    The findings from our study have been validated in part by other 
studies, including the Urban Institute.10
---------------------------------------------------------------------------
    \10\ Marstellar, Jill A., Len M. Nichols, Adam Badawi, et al. 
``Variations in the Uninsured: State and County Level Analyses.'' Urban 
Institute, June 1998. Washington, D.C.
---------------------------------------------------------------------------
    Recent federal legislation--the Health Insurance Portability and 
Accountability Act of 1996 and the Balanced Budget Act of 1997--have 
imposed at the federal level some of the insurance rules that had been 
enacted by the states, including guaranteed renewal and some of the 
most common coverage mandates, making it difficult to do a differential 
study now.
    However even now, 11 of the 16 states we studied still has a rising 
number of uninsured, and for all but two, the growth in their insured 
populations is under 1%.
    The fact that regulation has failed at the state level does not 
mean federal action is unneeded. But in the battle over Patient 
Protection legislation, the uninsured are being shoved aside in favor 
of the small percentage of those who have health insurance but are 
unhappy with it. Instead of helping the 43 million Americans with no 
health insurance, the data strongly suggest that patients' rights 
legislation will hurt them by driving up the cost of coverage and 
throwing even more people off the insurance rolls.
More regulation is not the answer
    The health sector is the most heavily regulated industry of the 
American economy. In every other industry, Americans recognize that 
regulation drives up prices, restricts innovation, dries up 
competition, and forces businesses to cater to regulators and not 
consumers. That is exactly what is happening in the health sector.
    These data show that American citizens are paying a high price for 
the mistakes of well-intended but flawed legislation that has backfired 
in its intent. A poll released last year by the Charlton Research 
Company showed that 66% of respondents said they thought health care is 
regulated enough. Only 25% said more regulation was the answer, and the 
majority of them changed their minds if the regulations would increase 
government bureaucracy or health care costs.
A fresh approach to energize the free market
    As costs and the number of uninsured continue to rise, a different 
approach clearly is needed. In a forthcoming book, entitled Empowering 
Health Care Consumers through Tax Reform,11 the Health 
Policy Consensus Group explores the intersection of health and tax 
policy for solutions. This group of economists and other health policy 
advisers, business group and union representatives, physicians, and 
political leaders describes the distortions to the health care system 
caused by a 50-year-old provision in the tax code.
---------------------------------------------------------------------------
    \11\ Arnett, Grace-Marie, Ed. Empowering Health Care Consumers 
through Tax Reform, University of Michigan Press, Ann Arbor. 
Forthcoming.
---------------------------------------------------------------------------
    The central, structural defect impacting the market for private 
health insurance is the discriminatory tax treatment of health 
insurance. To begin to stem the flow of problems that wind up on their 
doorsteps, legislators can begin by providing broader access to health 
insurance through tax credits and other fixed incentives for 
individuals.
    In today's information age economy, an increasing number of people 
work part-time, are contract workers, or are starting their own 
businesses. These are the people who are disproportionately likely to 
be uninsured because the system is working against them.
    The federal tax code heavily favors workers fortunate enough to get 
their health insurance through the workplace. That is because workers 
do not pay taxes on the part of their compensation package that they 
receive in the form of health benefits as long as their employer 
purchases the policy for them. This generous subsidy, worth an 
estimated $111 billion a year, is the cornerstone of the system in the 
United States that ties private health insurance to the workplace.
    However, this tax provision distorts the efficiency of the health 
care market in a number of ways: (1) It restricts employees' choices to 
the selection the employer offers; (2) It undermines cost consciousness 
by hiding the true cost of insurance and medical care from employees; 
(3) Because the full cost of health insurance is not visible to 
employees, it artificially supports increased demand for medical 
services and more costly insurance; (4) As a result, inefficient health 
care delivery is subsidized at the expense of efficient delivery; (5) 
Cash wages are suppressed; (6) Many employees with job-based coverage 
are frustrated because they have little choice and control over their 
policies and their access to medical services; (7) The self-employed, 
the unemployed, and those whose employers do not offer health insurance 
are discriminated against because they receive a much less generous 
subsidy, if any at all, when they purchase health insurance on their 
own.
Trapped in the Galen Gap
    The Galen logo is a conceptual depiction of a central problem in 
the health sector that affects Americans under age 65. The vertical 
axis of the graph in the logo represents the value of the taxpayer-
supported health benefits a given individual may receive. The 
horizontal axis represents the individual's income.
    Those with the very lowest incomes are most likely to qualify for 
taxpayer-supported health programs, especially Medicaid. But as an 
individual moves up the income scale, the likelihood of qualifying for 
public programs to receive health benefits drops off. Working Americans 
with incomes of less than $25,000 are most likely to be uninsured and 
are caught in the troth, which we call the ``Galen Gap.'' They earn too 
much to qualify for public programs but are less likely to have the 
good jobs that provide health insurance as a tax-free benefit.
    As people move up the income scale, they are much more likely to 
have both the good jobs and the higher incomes to qualify for the 
generous tax subsidy for employment-based health insurance, worth an 
estimated $111 billion this year.
    John Sheils of the Lewin Group estimates that families making less 
than $15,000 a year reap just $71 in tax benefits from job-based health 
insurance while families making $100,000 or more get a $2,357 in tax 
break for the purchase of health insurance.12 This is a 
highly regressive subsidy that drives many of the problems involving 
cost and access in the health sector today.
---------------------------------------------------------------------------
    \12\ Sheils, John, and Paul Hogan. ``Cost of Tax-Exempt Health 
Benefits in 1998,'' Health Affairs. March/April 1999. Volume 18, No. 2. 
Bethesda, MD.
---------------------------------------------------------------------------
    The great majority of the uninsured are in the ``Galen Gap.'' Some 
have been trying to fill this gap from the left by creating and 
expanding government programs, such as the $48 billion State Children's 
Health Insurance Program and working to expand Medicare to middle-aged 
Americans.
    We believe real solutions will come from exploring solutions on the 
right side of the chart--by focusing on tax policy. We believe that 
many more people would have access to medical services and health 
insurance that would be more affordable and more innovative if the tax 
treatment of health insurance were reformed.
    Federal legislators can begin building incentives for a better 
system and also undo some of the damage done by federal and state 
regulation by providing targeted tax credits to the uninsured to 
purchase their own health insurance.
    States can do their part by taking advantage of an immediate 
opportunity to provide tax credits and vouchers for uninsured children 
and their families through the Children's Health Insurance Program.
    There is a need to provide alternative grouping mechanisms for 
individuals in purchasing health insurance to give them an opportunity 
to take advantage of group rates. A number of provisions are being 
debated today, such as HealthMarts and Association Health Plans, 
designed to address the supply-side of the equation.
    Today, consumers are denied the choice of health plans best suited 
to their needs when mandates force plans to provide an array of 
benefits designed more to please lobbyists than consumers. Mandates 
also drive up health care costs making insurance more costly for 
individuals and families. Congress would be well advised to put a 
moratorium on more mandates until the cost and implications can be 
fully explored.
    The results examined in these studies show that regulation at the 
state and federal level is counterproductive in responding to the 
challenge of increasing access to health insurance in the individual 
and private health insurance market. If health care access and 
affordability are genuine goals, a far better approach would be to 
empower individuals and families to make health care choices that suit 
their own needs, restore the independence and integrity of the medical 
profession, and force the health care industry and insurance companies 
to compete for consumers' dollars. The health care delivery system at 
all levels should be accountable directly to the individuals and 
families being served.
    Thank you for the opportunity to present this testimony, and I 
would be happy to answer questions or provide additional information.

    Mr. Bilirakis. Thank you very much, Ms. Arnett.
    Ms. Neese.

                    STATEMENT OF TERRY NEESE

    Ms. Neese. Good morning, Mr. Chairman and members of the 
committee. Thank you very much for holding this hearing. My 
name is Terry Neese, and I am a small business owner in 
Oklahoma. I am also past national president of the National 
Association of Women Business Owners and serve as a consultant 
to them on public policy issues.
    NAWBO represents this country's 9 million women business 
owners. We are employing about 27.4 million workers today and 
generating $3.2 trillion in annual revenues.
    Today, I want to discuss access to health care and ways 
Congress can assist small business owners with their health 
care needs. The Employee Benefit Research Institute, EBRI, has 
reported that about 80 percent of the 40 million uninsured 
Americans live in families with an employed worker who is 
likely to work for a small employer or be self-employed.
    Over 80 percent of all uninsured children are in families 
with working parents. Clearly the problem of the uninsured, 
both children and adults, is predominantly a problem of small 
businesses lacking access to affordable coverage.
    For example, at Terry Neese Personnel Services in Oklahoma 
City, our insurance was recently canceled. I employ 12 people 
and a thousand temporaries on an annual basis. In 1998, we 
carried health insurance with a large national insurer. Our 
monthly insurance premium for 12 employees was extremely high. 
For one employee, over $800 a month. Terry Neese Personnel 
Services covered 80 percent of all costs. We had been insured 
by a national insurance company for about 3 years with no 
claims being filed on the insurer. Pretty remarkable.
    One day out of the clear blue we received a call from the 
insurer that they were canceling our insurance due to the small 
number of people employed in the firm. We were pretty 
devastated and spent 3 months trying to find a firm that would 
insure the staff. This incident made it clear to me and my 
employees that something had to be done to assist small 
business owners in making insurance available at a reasonable 
cost without unfair and unjust cancellation.
    The most egregious of the inequities in the system is the 
fact that incorporated businesses can deduct 100 percent of 
their health care premiums while the self-employed business 
owners can only deduct 60 percent. The solution: Allow self-
employed individuals to deduct 100 percent of their cost of 
their health insurance premiums now. Allow small business 
access to association health plans. New insurance coverage 
options for both the self-employed and those workers in small 
businesses will also promote competition and greater choice in 
the health insurance market.
    By giving workers new sources of coverage through trade and 
professional associations, it will make it easier and cost 
effective for many Americans to continue coverage under the 
same plan when changing jobs. And last, preempt costly State 
benefit mandates. Mandating health benefits raises costs. 
Mandates, therefore, defeat the very purpose of health care 
reform, which is to lower health care costs and to insure more 
people.
    I couldn't help but think when Congressman Coburn talked 
about the middleman between the patient and the doctor that it 
was just a short, short--very short--30 years ago when I could 
go see my doctor and there was not a middleman between me and 
the doctor. And I had no problems with medical care. So we 
might digress just 30 years and look at what has really 
happened in this 30-year period of time that has brought us to 
where we are today.
    Women-owned businesses want to recruit the best talent on 
the market. And with the unemployment rate at 4.2 percent, 
excellent benefit packages are key to attracting and retaining 
employees.
    Thank you very much for allowing me the opportunity to 
present ideas to the committee. NAWBO members stand ready to 
assist you in finding the tools necessary to ensure the workers 
they care about have the insurance that they deserve. This 
Congress can help provide those tools. Thank you very much.
    [The prepared statement of Terry Neese follows:]
Prepared Statement of Terry Neese, CEO & Founder, Terry Neese Personnel 
     Services & Terry Neese Temporaries on Behalf of the National 
                  Association of Women Business Owners
    Good morning, Mr. Chairman and members of the committee. Thank you 
for the opportunity to appear before you today to discuss access to 
health care issues.
    My name is Terry Neese and I am the CEO & Founder of Terry Neese 
Personnel Services and Terry Neese Temporaries in Oklahoma, and 
GrassRoots Impact with offices in Washington, D.C.; Detroit, Michigan; 
and Oklahoma City.
    In addition to being a small business owner, I am past national 
president of the National Association of Women Business Owners (NAWBO) 
and serve as a consultant to NAWBO on corporate and public policy 
issues. NAWBO represents this country's 9 million women business owners 
and advocates on their behalf from our city halls to international 
forums. Women business owners today are employing over 27 million 
workers (voters) and generating $3.2 trillion in annual revenues. 
NAWBO's sister organization, the National Foundation for Women Business 
Owners tells us what our women-owned business community looks like with 
its ongoing, ground breaking research. NFWBO's statistics are quoted by 
the business and mainstream media, as well as government officials. 
NAWB0's other sister organization, the National Women Business Owners 
Corporation, has established the full national certification program 
for women business owners and created a national database of women-
owned businesses for procurement opportunities with the Federal 
Government and the private sector.
    Today, I want to discuss access to health care and ways Congress 
can assist small business owners with their heath care needs.
The Problems for Small Business
    The Employee Benefit Research Institute (EBRI) has reported that 
about 80 percent of the 40 million uninsured Americans live in families 
with an employed worker who is likely to work for a small employer or 
be self-employed. Over 80% of all uninsured children are in families 
with working parents. Clearly, the problem of the uninsured, both 
children and adults, is predominantly a problem of small businesses 
lacking access to affordable coverage. Sadly, the choice is too often 
between paying for a Cadillac health insurance package or having no 
health insurance whatsoever. Too many Americans are paying for benefits 
they do not need, and too many others cannot get even the most basic 
coverage.
    Small businesses, unlike large firms that can self-insure, have to 
endure costly state insurance mandates.
    Approximately 2.9 million self-employed Americans are currently 
uninsured.
    Small firms are more likely to feet the brunt--both economic and 
emotion--of the preexisting condition exclusion, the 20 to 300 percent 
premium hike when an employee becomes sick, or the sudden cancellation 
of insurance.
    For example, at Terry Neese Personnel Services in Oklahoma City, 
our insurance was recently canceled. We employ 12 people and 1000 
temporaries on an annual basis. In 1998, we carried health insurance 
with a large national insurer. Our monthly insurance premiums for 12 
employees were extremely high, Terry Neese Personnel Services covered 
80% of all costs. We had been insured by a national insurance company 
for about three years with no claims being filed on the insurer. Pretty 
remarkable! One day out of the clear blue, we received a call from the 
insurer that they were canceling our insurance due to the small number 
of people employed in the firm. We were all devastated and spent three 
months trying to find a firm that would insure the staff. This incident 
made it clear to me and my employees that something had to be done to 
assist small business owners in making insurance available at a 
reasonable cost without unfair and unjust cancellation.
The Small Business Perspective
    One of the most egregious of the inequities in the system is the 
fact that incorporated businesses can deduct 100 percent of their 
health care premiums, while the self-employed business owners can only 
deduct 60 percent. This percentage will increase to 100%, phased in 
over the new few years. But I have to ask: why does small business have 
to wait? Why do all those employees of small business have to wait? The 
profit margin of a small business is so slim, 100 percent deductibility 
would be a huge financial relief that would lead to more insured 
Americans.
    Small businesses do not enjoy the economies of scale that large 
businesses do when they purchase health insurance. The National 
Association of Women Business Owners (NAWBO) supports Association 
Health Plans. Small business that offer health benefits must comply 
with costly state and federal mandates. The huge companies that self-
insure are exempt from those mandates. This is an enormous bias against 
smaller firms. The playing field must be leveled by allowing small 
businesses to band together, across state lines, to purchase health 
insurance through Association Health Plans.
Potential Solutions
    Allow self-employed individuals to deduct 100% of the costs of 
their health insurance premiums NOW.
    Allow business access to Association Health Plans. New insurance 
coverage options for both the self-employed and those workers in small 
businesses will also promote competition and greater choice in the 
health insurance market. By giving workers new sources of coverage 
through trade and professional associations, it will make it easier and 
cost effective for many Americans to continue coverage under the same 
plan when changing jobs. The ERISA law has played an important role in 
driving down costs for medium and large employers and allowing virtual 
universal coverage for their employees. ERISA also allows employers and 
unions the option not only to insure but also to self-insure, giving 
them the low cost, quality, and choice advantages of uniform health 
benefit plans for all of their employees.
    Preempt costly state benefit mandates. Mandating health benefits 
raises costs. Mandates therefore defeat the very purpose of health care 
reform, which is to lower health care costs and to insure more people.
    Statistics show that women business owners are dedicated to 
providing benefit packages to their employees. Fully 92% of NAWBO 
members with employees provide at least one among a list of benefits to 
their employees. Over eight in ten offer paid vacations and three-
quarters offer health and medical benefits. Women-owned businesses, 
want to recruit the best talent. Health benefits allow small business 
to attract and retain qualified workers. Today, with the unemployment 
rate at 4.2 percent, excellent benefit packages are key to attracting 
and retaining employees.
    Thank you for allowing me the opportunity to present these ideas to 
the committee. NAWBO members stand ready to assist you in finding the 
tools necessary to insure the workers they care about, have the 
insurance they deserve. This Congress can help provide those tools.

    Mr. Bilirakis. Thank you very much.
    Mr. Garcia de Posada.

             STATEMENT OF ROBERTO GARCIA de POSADA

    Mr. Garcia de Posada. Thank you, Mr. Chairman and members 
of the committee. I want to thank you for highlighting the 
problem in the Hispanic community and particularly Dr. Ganske 
and Mr. Bilbray on this issue.
    I am Roberto Garcia de Posada, and I am the executive 
director of the Hispanic Business Roundtable. And we were 
established in 1995 to address the policy issues that affect 
the well-being of Hispanics in the U.S.
    When it comes to health insurance, according to the U.S. 
Census, the highest uninsured rate in the U.S. is among people 
of Hispanic origin: 34.2 percent of Hispanics were uninsured, 
compared with only 12 percent for non-Hispanic whites. U.S. 
Hispanics also have the largest percentage of the working 
uninsured at 37.9 percent compared to only 14.9 percent for 
non-Hispanic whites.
    The main reason that many Hispanics do not have insurance 
is because they have lower incomes and work for smaller firms. 
As you know, employment and income level are the leading 
indicators of health insurance coverage in this country. And 
the lower the income, the more likely a worker is to not have 
coverage simply because he or she cannot afford it. Employees 
working for small firms are the least likely to provide health 
insurance.
    Hispanic per-capita income is $10,773; and Hispanics in the 
U.S. disproportionately work in the service industry or small 
business. An overwhelming majority of the uninsured in the 
Hispanic community are the working poor, not poor enough to 
qualify for Medicaid, but too poor to afford health insurance. 
In addition, there is a high degree of mobility in the Hispanic 
workforce. The current system of employment-based health 
insurance is simply leaving too many people behind.
    At the Hispanic Business Roundtable, we strongly promote 
policies to promote equality and equity between employer-based 
health insurance coverage and consumer-based coverage. We are 
here to call on Congress to end the discrimination that exists 
between people that buy health insurance outside the place of 
business.
    Low-skilled workers often do not command a wage that 
enables them to buy health insurance, and they get little, if 
any, assistance in purchasing it. If a worker decides to 
purchase individual coverage, he will soon realize it is 
prohibitively expensive.
    Think of it from the small business perspective. Once you 
hire an employee, before you consider paying health insurance, 
you have to pay general liability insurance, workers' 
compensation, unemployed insurance, Social Security, et cetera. 
Paying all of this, most small businesses cannot afford to 
provide health insurance to their employees.
    From the employee's side, let me use Martha Sanchez as an 
example. Martha is a mother of two in Miami who works as a 
receptionist for a small law firm who earns approximately $10 
annual hour. Her employer does not provide health insurance, 
and she cannot afford to buy individual health insurance.
    What can Congress do to help someone like Ms. Sanchez get 
health insurance? First, it has to have incentives for 
individuals without access to employer-sponsored coverage. You 
can enact refundable tax credits or vouchers to help low-income 
workers purchase health insurance.
    In order to make these tax credits truly accessible to 
workers in small businesses, we believe these tax credits or 
tax breaks could be blended into the withholding system.
    Second, Congress could equalize the tax laws so that 
associations and community-based organizations have the same 
tax breaks as large businesses when they provide health 
insurance. This would promote a more community-based insurance 
system that would have a better understanding of the community 
they serve.
    Congress and the administration should also work closely 
with the Hispanic health organizations to develop a public 
education campaign that promotes the importance of having 
health insurance. As Dr. Ganske just said, many just simply do 
not know of the concept, do not know that they can be covered 
by Medicaid and some other programs.
    Third, Congress should eliminate the obstacles to pooling. 
This would help promote a more affordable, accessible, and 
accountable coverage for consumers.
    Congress can promote changes in our tax laws to help low-
income workers and small businesses have access to health care. 
Small business could get a tax credit that could be phased in 
beginning with the smallest firms of fewer than 10 employees.
    Individual purchasers of health insurance and the self-
employed should be able to fully deduct their cost of premiums.
    Employee contributions for health insurance should not be 
considered taxable income.
    Finally, we cannot ignore the fact that reducing regulatory 
burden and government mandates, reforming liability laws, and 
promoting personal responsibility are also key components of 
any solution to this problem. Access to affordable insurance is 
a problem that disproportionately affects the Hispanic 
community, and the Hispanic Business Roundtable certainly 
commends this committee for addressing this issue. We look 
forward to working with you to break down some of the barriers 
and to build the necessary bridges to improve access to 
affordable health insurance and health coverage for the 
uninsured.
    One last thing. Most Hispanics in this country live in 
districts represented by Democratic members; and I was very 
disappointed that not one Democratic member highlighted 
Hispanics in this committee. And I hope that is going to change 
in the near future. Thank you.
    Mr. Bilirakis. Thank you very much, sir.
    Mr. Bilirakis. Ms. Rowland.

                   STATEMENT OF DIANE ROWLAND

    Ms. Rowland. Thank you, Mr. Chairman and members of the 
committee. I am pleased to be here today. I am Diane Rowland, 
executive vice president of the Kaiser Family Foundation and 
director of the Kaiser Commission on Medicaid and the 
Uninsured. I also am an associate professor at Johns Hopkins 
University.
    I am very pleased that you are focusing today on the 43 
million Americans without insurance. We all know too well that 
it is not just a matter of being without insurance, but that 
going without insurance makes a difference in how you receive 
care and when you receive care and your ultimate health 
outcomes and financial burdens.
    I think Mrs. Horsley has clearly pointed that out and 
dramatically pointed out to us who our uninsured population is 
and why it is such a struggle to figure out ways to provide 
coverage.
    Sixty percent come from families with incomes below 200 
percent of the poverty level, that is, an income of $26,000 for 
a family of three. They are largely working families as you 
heard. Eighty-four percent come from families with a full- or 
part-time worker; 72 percent from families with full-time full-
year workers.
    What is happening in our insurance system is that the 
employer-based system that we have depended on for so long to 
provide basic coverage is falling short, and it is falling 
short especially for some of the lowest-wage workers.
    Today if you look at the uninsured population, 70 percent 
of the workers without insurance are not offered coverage in 
the workplace. So for them, the only options are either to 
qualify for the Medicaid program or to turn to the individual 
insurance market, which is often extremely expensive and often 
has a lot of restrictive underwriting policies that may not 
even enable them to obtain coverage.
    So affordability has become a very critical issue in our 
health insurance system. At $5,000 for family coverage, whether 
you are in a regulated or a nonregulated State, it is not going 
to be an affordable thing for a family earning less than 
$26,000 a year to purchase such coverage.
    In the workplace today, only 55 percent of workers earning 
$7 or less an hour have access to insurance through their 
employer, in contrast to 96 percent of higher-wage workers 
earning $15 or more per hour. So we are clearly not making 
insurance available at the lower end of the income spectrum.
    When we look at trends in insurance coverage, what we see 
in our robust economy is that there has been some improvement 
in employer offerings at the higher income levels and a 
continued decline in offerings at the lower income levels. 
Moreover, in this economy that we live in, the new jobs are 
being created not in the large firms and manufacturing base 
where insurance generally came with the job, but increasingly 
among the self-employed and among small businesses, really 
leading to the fact that our employment-based system is failing 
not because employers are not willing to offer insurance but 
because we are now seeing employment in different parts of that 
sector.
    These trends are troubling, but they are even more 
troubling because our safety net providing coverage for the 
lowest income, Medicaid, is seemingly now beginning to erode 
its own coverage. In the last 2 years we have seen a decline of 
almost 2 million people covered by the Medicaid program.
    I would also point out, as Mrs. Horsley did, that while 
Medicaid has made many advances, along with the CHIP program to 
cover more and more children, we have not made similar progress 
in extending coverage to the parents of those children or to 
other low-income adults.
    The reason that half of the poverty population is not 
covered by Medicaid largely reflects the fact that single 
adults and childless couples are ineligible for Medicaid under 
almost all circumstances except for disability or pregnancy, 
and most children who are in the 13- to 18-year-old age group 
are not covered up to the poverty level yet.
    So we need to really look both at who is eligible for 
Medicaid and how to extend coverage to the poorest population, 
including low-income adults. As you have all pointed out, we 
also need to look at why people don't participate in the 
Medicaid program; why they don't know about the program; why 
they cannot get through the barriers to eligibility for the 
program and increasingly need to look at that for CHIP.
    In the absence of Medicaid and in the fallback of employer 
coverage, we also need to look at what is available through the 
individual health insurance market, and a lot of the proposals 
on the table today would ask people to go out and buy insurance 
in the individual market. That market really has been a very 
limited market. It is extremely expensive and very variable 
across the States.
    So I think in looking at the future, one ought to look at 
how to improve our coverage through the programs we have in 
place today, build on the CHIP program, make it and the 
Medicaid program more effectively able to reach out to low-
income children, and consider how to expand that coverage to 
their parents.
    No single incremental approach to restructuring and 
broadening health insurance coverage is likely to address the 
diverse needs of the 43 million uninsured Americans, but we can 
begin to build on the programs in place by making them more 
effective in trying to do better outreach. Thank you.
    [The prepared statement of Diane Rowland follows:]
  Prepared Statement of Diane Rowland, Executive Vice President, The 
   Henry J. Kaiser Family Foundation and Executive Director, Kaiser 
                Commission on Medicaid and the Uninsured
    Thank you for this opportunity to offer testimony today at this 
hearing on America's growing uninsured population and the options to 
improve coverage. I am Diane Rowland, Executive Vice-President of the 
Henry J. Kaiser Family Foundation and Executive Director of the Kaiser 
Commission on Medicaid and the Uninsured.
    Despite a strong economy and sustained economic growth with 
historically low levels of unemployment, the number of Americans 
without health insurance coverage continues to grow. My testimony today 
will provide a profile of America's uninsured population, discuss the 
factors contributing to the growth in the uninsured population, and 
review approaches to address this problem.
The Uninsured Population
    Today, 43 million Americans--18 percent of our non-elderly 
population--are without health insurance coverage (Figure 1). Over the 
last decade, the number of uninsured people has grown by nearly 10 
million. In 14 states, over 20 percent of non-elderly residents are 
without health insurance coverage (Figure 2).
    The growth in the uninsured population reflects a decreasing share 
of Americans with employer-sponsored health insurance coverage as a 
worker or dependent of a worker. Among the 43 million uninsured 
Americans in 1997, 84 percent were from families with a full or part-
time worker (Figure 3). Only 16 percent of the uninsured have no 
attachment to the workforce. Until recently, expansions in Medicaid 
coverage of children and pregnant women helped to offset some of the 
decline in employer -sponsored coverage, but new data show Medicaid's 
role may now be declining--further fueling the growth in the number of 
uninsured. The recently enacted Children's Health Insurance Health 
Program (CHIP) offers new assistance, but is limited to children.
    Medicaid and coverage policy for the low-income population is a 
significant factor affecting the size of the uninsured population 
because most uninsured people are from low or moderate income families. 
Over a quarter (28%) of the uninsured are from families with incomes 
below the poverty level and nearly a third (30%) are from families with 
incomes between 100 and 200 percent of poverty (Figure 4). Thus 6 in 10 
of the uninsured come from families earning less than $26,600 for a 
family of 3--families that can ill afford to purchase an individual 
insurance policy costing $5,000 or more per year without financial 
assistance.
    Medicaid provides assistance for some of the lowest income 
Americans, but Medicaid coverage for the non-elderly is directed 
primarily at coverage for children and some of their parents, most 
notably pregnant women. Single adults and childless couples are 
ineligible for Medicaid no matter how poor unless they meet the 
disability criteria or live in one of the few states with a waiver 
permitting broader coverage. As a result, Medicaid covers only 44 
percent of the poor and 16 percent of the near-poor, leaving a third of 
the poor and near-poor uninsured (Figure 5).
    Although Medicaid's coverage of the near-poor is limited by its 
eligibility criteria, many working families do qualify for Medicaid. 
About half of Medicaid's nonelderly beneficiaries (low-income, working 
age adults and children) are in working families. In 1995, 18% of 
Medicaid's nonelderly beneficiaries were in families where the family 
head worked full-time and full-year, while 34% were in families where 
at least one adult worked part-time or part-year.
Factors Contributing to the Growth in the Uninsured
    While Medicaid helps to provide some protection to the poorest 
Americans, it is employer-sponsored coverage that provides health 
insurance protection for most Americans. However, the employment based 
health insurance system has never covered all workers and their 
families and in the past decade its reach has declined.
    Most uninsured workers do not have health insurance coverage 
because they are not offered health benefits. Over 70% of uninsured 
workers, and consequently their families, are not offered job-based 
health coverage, either through their own or a family members' jobs. 
Although most (53%) of uninsured workers are in full-time, full-year 
jobs, they are often employed by firms that do not offer health 
benefits to any of their employees (frequently smaller firms). Others 
are self-employed or not eligible for benefits in their firm because 
they are part-time, temporary, or new employees.
    When offered health benefits by their employers, 85% of employees 
choose to participate in their employer's plan. Of the 15% of workers 
who declined to participate in their own employer's plans in 1997, most 
have an alternate source of coverage--a family member's employment-
based health insurance, a second job, individual health insurance or 
coverage from Medicaid or Medicare. Only 3 percent of eligible workers 
elected not to participate in their employer's plans and remained 
uninsured.
    Lack of employer-sponsored coverage is particularly a problem for 
low-paid workers who are also less likely to have health insurance as a 
fringe benefit then higher-paid workers. Only 55% of low-wage workers 
($7 per hour or less) have access to job-based coverage through their 
own job or a family member's job, compared to 96% of higher-wage 
workers (above $15 per hour) (Figure 6).
    Despite substantial costs, most low-wage workers participate in 
employer's health plans when they are available. Seventy-six percent of 
low-wage workers enroll for coverage compared to 94% among higher-wage 
workers (Figure 7). The percent of low-wage workers participating in 
their employer's plan has declined over the last decade, most likely 
due to the increasing share of insurance cost now being borne by 
workers themselves. As a result, only 42% of low-wage workers have 
employer-sponsored health coverage, compared to 90% of higher-wage 
earners (Figure 8).
    Coverage declines have led to a widening gap between low-and high-
wage workers. Low-wage and less-educated workers have borne the brunt 
of recent declines in employer-sponsored health insurance. Between 1987 
and 1996, the gap in health insurance coverage rates between low-wage 
and higher-wage workers increased as coverage for the lowest paid fell 
markedly from 54% to 42% with coverage at the same time as coverage for 
the highest paid increased from 87% to 90% of workers (Figure 9).
    Low-wage workers fared poorly for a number of reasons. As the cost 
of health insurance outpaced consumer prices generally, employers began 
to restrict eligibility for health benefits and also increased the 
share of premiums workers were required to contribute. This affected 
low-wage workers disproportionately, particularly because their real 
hourly wages have been declining while more-skilled workers have had an 
increase in real wages. In addition, employment has been shrinking in 
sectors that have historically provided better wages and benefits (in 
goods-producing industries) while growing in sectors that have 
typically provided lower wages and fewer benefits (e.g., service 
industries) (Figure 10).
    More of the new jobs being created in our economy today are in 
small businesses rather than the large manufacturing firms of earlier 
times. These small firms are less likely to offer health coverage. 
Nearly half of the nation's 25 million uninsured workers in 1997 were 
employed by firms of less than 25 workers (Figure 11).
    Although most workers do participate in employer health plans when 
they are offered, affordability is a major issue. Almost all employees 
are required to contribute to employer health premiums and for low-wage 
workers these costs can be prohibitive. Health insurance premiums have 
increased rapidly in the past decade and the share covered by workers 
has also increased.
    Workers' average monthly contributions for single and family 
coverage rose steadily between 1988 and 1996 as workers paid a larger 
share of higher premiums. In fact workers' contributions rose more 
rapidly than premiums as employers shifted more of the costs of health 
insurance to workers, especially for non-family coverage. While average 
premiums for non-family coverage rose an average of 7.5% per year 
between 1988 and 1996, employees' contributions rose much more rapidly-
increasing by 18.3% per year.
    Workers in large firms pay, on average, $348 per year for worker-
only coverage and $1,476 per year for family coverage in 1998. Those in 
small firms pay a larger share ($468 for worker-only coverage and 
$2,328 for family coverage annually). For low-income families, their 
share of employer-sponsored health insurance costs may consume over 10% 
of family income. For example, a family income of $20,000 from a job in 
a small business can make the employee contribution of over $2,300 
unaffordable even though the employer has contributed toward the 
overall cost of the family policy.
    The gap in health insurance coverage between low- and high-wage 
workers has widened in recent years, despite low unemployment and a 
dramatic slowdown in the growth rate of health insurance premiums. An 
economic recession or a marked increase in health premiums could result 
in a further decline in job-based health coverage. The gap between low- 
and high-wage workers' health coverage could grow even wider--further 
increasing the number of uninsured.
    These trends are particularly troubling when coupled with recent 
evidence showing that Medicaid's role as safety net for the low-income 
uninsured may be eroding. After steady growth during the past decade, 
particularly for low-income women and children, Medicaid is now 
experiencing a fall-off in enrollment. Medicaid coverage of adults and 
children declined in 1996 and 1997, reflecting, in part, changes 
resulting from welfare reform. Prior to 1996, individuals covered by 
the AFDC welfare program were automatically eligible for Medicaid 
coverage. The welfare law eliminated the enrollment link between 
Medicaid and welfare. Families leaving welfare, as well as those 
receiving benefits under TANF, may still be eligible for Medicaid, but 
are not necessarily being enrolled. Individuals who leave welfare to go 
to work are likely to be employed in low-wage jobs that do not offer 
benefits, including health insurance.
    For most families without access to employer-sponsored coverage or 
Medicaid, the individual health insurance market offers little promise. 
High premiums and, in many states, fairly restrictive underwriting 
practices make individual policies unaffordable, especially for those 
with modest incomes and health problems. For example, a 60 year old 
widow earning $20,000 annually could face health insurance premiums 
that exceed $300 per month, or nearly 20 percent of her income. Those 
with serious health problems could either be denied coverage altogether 
or face substantially higher premiums. The well documented problems of 
the individual health insurance market suggests that this source of 
coverage is unlikely to meet the needs of the growing uninsured 
population.
The Importance of Insurance Coverage
    The growth in the uninsured population would not be a problem of 
significant magnitude if having health insurance did not make a 
difference in access to care or affordability of care. But, health 
insurance does matter; it affects access to health care, health 
outcomes, and the financial well-being of families. It also affects the 
health care providers and institutions who struggle to provided needed 
care to the uninsured without the resources to finance the care 
delivered.
    The uninsured get care later, often get less care, and in many 
instances suffer adverse health outcomes as a result of delayed or 
foregone care. By all the standard measures of impaired access to care, 
the uninsured fare worse than those with insurance. One in 5 uninsured 
children have no regular source of care, and uninsured children are 30% 
more likely to fall behind on well-child care and 80% more likely to 
never have had routine care than children with insurance. Uninsured 
children are at least 70% more likely than insured children not to have 
received medical care for common conditions like asthma--illnesses that 
if left untreated can lead to more serious health problems.
    Over half of uninsured adults have no regular source of care. In 
addition, 55% of uninsured adults say they have postponed care and a 
quarter have not filled a prescription in the past year--because they 
could not afford it (Figure 12). Uninsured adults are also four times 
more likely than the privately insured to say they have not received 
medical care they believed to be necessary and less likely to use 
preventive services like check-ups and mammograms.
    Because their primary health care needs are not addressed, the 
uninsured are more likely than those with insurance to be hospitalized 
for conditions that could have been avoided, such as uncontrolled 
diabetes. The uninsured are also less likely to have a procedure that 
is relatively costly or where physicians exercise a great deal of 
discretion.
    Medical bills mount quickly if a person is uninsured. Over a third 
of adults who are uninsured report they have had a problem paying their 
medical bills in the past year. Fear of these debts is an important 
reason why many of the uninsured do not get the medical care they need.
Approaches to Broaden Coverage
    Because so many of the uninsured are from low-income families, the 
success of any policy to expand health insurance coverage largely 
depends on how well it addresses the barriers to health insurance faced 
by the poor and near-poor. Recent efforts have targeted expansions to 
low-income children, but low-income adults remain particularly 
vulnerable--often falling outside the reach of either Medicaid or 
private employer-sponsored insurance.
    Today, expanded coverage of children is a national priority. 
Expansions in public programs in the past have improved health coverage 
of low-income children, beginning with mandated expansions of Medicaid 
coverage in the late 1980s calling for a phase-in of Medicaid coverage 
for all children in families below the poverty level by 2002. With the 
enactment of the Child Health Insurance Program (CHIP) in 1997, States 
are provided additional resources to broaden coverage for children 
through Medicaid or a separate program.
    The key to improved coverage of children is to translate the 
availability of insurance into actual enrollment in Medicaid and CHIP 
for low-income children. Of the 11 million currently uninsured 
children, nearly 43 percent are believed to be eligible for Medicaid 
but not currently enrolled (Figure 13). Another quarter (27%) of 
uninsured children are now potentially eligible for health insurance 
under the new CHIP program. Finding improved ways to make families 
aware of these benefits, simplify the enrollment process and reduce 
barriers and stigma are critical to reducing the number of uninsured 
children and realizing the full potential of Medicaid and CHIP. 
Children account for nearly a third (31%) of the 25 million low-income 
people without health insurance (Figure 14).
    Extending Medicaid coverage to more low-income adults is equally 
important. Broadened Medicaid coverage and CHIP are essential steps to 
improving coverage of children, but 17 million low-income adults are 
uninsured and beyond the reach of existing programs. While Medicaid 
eligibility for children and pregnant women is tied to poverty levels, 
adults only qualify if they have dependent children or are disable and 
fit the stringent income standards for cash assistance. Since 1994, the 
number of families receiving cash assistance has declined markedly and 
with welfare reform in 1996, many adults (and their children) eligible 
for Medicaid coverage have been lost from the Medicaid rolls.
    One approach to broaden coverage beyond the current efforts for 
low-income children would be to permit states to expand Medicaid to 
cover the parents of children eligible for Medicaid or CHIP. These low-
income parents account for a third of the uninsured low-income 
population (Figure 14). Covering both low-income children and their 
parents through Medicaid or CHIP could insure \2/3\ of the low-income 
uninsured population--8.5 million adults and 8 million children. 
Childless low-income adults, traditionally outside Medicaid's scope, 
account for the remaining third of the low-income uninsured.
    Affordability is a critical issue for families with limited 
resources when facing premium costs for health insurance that often 
exceed $5,000 per year for even a modest policy. For those above 
Medicaid eligibility levels, experience tells us that for low-income 
uninsured people coverage is affordable only if a subsidy is available 
to cover the majority of the insurance premium. The effectiveness of 
direct subsidies or tax-deductions or credits to help finance coverage 
will be directly related to the share of the premium covered.
    The structure of tax-based approaches to broaden coverage are not 
particularly well-suited to the needs of the low-income population. 
Because the tax system is retrospective, it is difficult to provide 
financial assistance up front to low-income people so they have the 
resources to purchase insurance. Some workers may be able to adjust 
their withholding and eliminate end of the year reconciliation, but 
managing these adjustments provides added complications for families 
and may reduce willingness to participate. A prospective system like 
Medicaid or CHIP provides families with guaranteed coverage for a 
defined period of time based on current or prior income and thus is 
more manageable as an approach for most low-income families.
    Approaches that focus on providing incentives or financial 
assistance to enable the uninsured to purchase health insurance 
directly also require reliance on the individual insurance market for 
the insurance products. The individual market as currently structured 
does not provide affordable coverage for people with on-going health 
conditions. Broadening coverage through individual purchase of health 
insurance necessitates reform of the individual health insurance market 
to assure that people who are sick have access to meaningful and 
affordable assistance.
Conclusion
    Health insurance matters for the millions of Americans who lack 
coverage. Decisions made by the uninsured to delay or forego needed 
care because of its cost, coupled with health providers who tend to 
order less or different treatments for patient's without coverage, 
ultimately can lead to poorer health outcomes. Extending coverage to 
the million of Americans without insurance is an important policy and 
health objective.
    No single incremental approach to restructuring and broadening 
health insurance coverage is likely to address the diverse needs of the 
43 million uninsured Americans. However, substantial progress can be 
made by improving outreach and participation in current efforts to 
provide health insurance to children through Medicaid and CHIP and by 
extending the scope of Medicaid to reach more of the 17 million low-
income uninsured adults. These improvements coupled with efforts to 
maintain and extend employer coverage, especially for low-wage workers, 
will help to stem the erosion in coverage and establish a foundation 
for health insurance for all.
    Thank you for this opportunity to testify today. I welcome any 
questions.

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    Mr. Bilirakis. Thank you, Ms. Rowland.
    The Chair yields to Dr. Ganske to start the inquiries.
    Mr. Ganske. I thank the panel. I appreciate the comments of 
all of you, but particularly Ms. Rowland your comments on 
Medicaid and CHIP because it ties in with my comments at the 
beginning. And yours Mr. Garcia de Posada. I would add another 
reason why I think that there are a large number of people who 
qualify for Medicaid that are not in it and that is 
bureaucratic government red tape. For example, in California, 
you have to fill out a 25-page application for Medicaid. That 
is for people who can barely read many times. In fact, 
frequently English is their second language. So, look, why can 
we not simplify that?
    In Texas, you have to apply in person at the Department of 
Health and Human Services, which is usually not very easily 
accessible. It is usually well off the beaten track, and if you 
show up you don't have all of your papers, you have to come 
back another day.
    Just to show that I can be fair, as I mentioned in my 
statements in Iowa, my own State, to add insult to injury, the 
application isn't only long, but it is difficult to understand, 
and you have to report your income each month. I think those 
are all things, Mr. Chairman, that we ought to be looking at, 
in addition to I think we ought to hold a hearing--a hearing in 
conjunction with oversight with Mr. Upton and look at why isn't 
CHIP being implemented better? Why do we have such a large 
percentage of the poor who qualify for Medicaid not getting the 
message? Why are they out there without it?
    I would like to work with you and Mr. Upton in organizing 
that. Maybe sometime we could also look at why insurance 
companies haven't pushed medical savings accounts as well.
    But I have to go back to some comments that I made 
originally and that has to do with the factor of risk selection 
and ideas such as association health plans and multiple 
employer working associations.
    The American Academy of Actuaries had this to say about 
MEWAs. In a letter to Congress June 1997 they wrote: While the 
intent of the bill is to promote health association plans as a 
mechanism for improving small employers' access to affordable 
health care, it may only succeed in doing so for employees with 
certain favorable risk characteristics. Furthermore, this 
bill--in reference to the Republican bill--contains features 
which may actually lead to higher insurance costs.
    And just to expand on this, you know, in any year about 10 
percent of any large population group accounts for about 70 
percent of the medical expenses of that group. If you 
oversimplify, that means that if an insurer that is 
contemplating insuring 100 people can avoid covering just one 
of the 10 people that will be the sickest, the insurer can save 
approximately 7 percent in total medical claims. If the insurer 
can identify and exclude half of the people who will be sick, 
that is 5, the insurer can further reduce claims cost by 35 
percent.
    That is the easiest way insurers have to keep their 
premiums down to attract new business to make profits. And any 
small groups with below-average risk have then strong 
incentives to seek out an insurer that will group them with 
other below-risk groups and charge them a lower premium.
    The problem is that when those healthier people leave that 
larger insurance pool, the rates remaining for those in the 
pool will rise. And although those remaining in the pool will 
have higher risks, there will still be differences in those 
with lower risk. You are going to end up, in my opinion, with a 
potential to do harm rather than good.
    Mr. Chairman, I just have to use my time to make this 
comment, and that is that there is an old saying: Those who 
don't know history are bound to repeat it. Now look at what 
happened. Under court interpretations of ERISA in 1974----
    Mr. Bilirakis. Please finish your point.
    Mr. Ganske. State insurance officials can't regulate health 
coverage provided by self-insured employers. That regulatory 
loophole created a lot of problems with association health 
plans. In the 1970's and 1980's, hundreds of thousands of 
people, Mr. Chairman, were stranded without coverage and 
providers with unpaid fees, because of unscrupulous 
entrepreneurs whose only incentive was to make a quick buck. If 
you don't believe it, read Carl Polser's article, ``Preempting 
state Authority to Regulate State Association Plans.'' It is in 
National Health Policy Forum, 1997.
    And, Mr. Chairman, those rash of failures led in 1983 to an 
amendment to ERISA which gave states authority to regulate 
those self-insured MEWAs. That has helped prevent some of the 
problems. I am afraid that we are looking at legislation that 
is going to go back to the problems that we saw in the 1970's 
and 1980's with those association health plans. I don't know if 
anyone on the panel has any comment on that or not.
    Mr. Bilirakis. The gentleman's time has expired, and I 
would rather yield now to Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. Ms. Arnett, I 
apologize. I have never heard of the Galen Institute. Can you 
tell me who funds you?
    Ms. Arnett. We have a number of donors. We have individual 
contributors; we have some foundation funding, and some company 
support. It is very diverse. We are a new think tank.
    Mr. Brown. What is your annual budget?
    Ms. Arnett. About $178,000.
    Mr. Brown. Do you get more than $50,000 from any one think 
tank or individual or company?
    Ms. Arnett. We have a large grant from the Robert Wood 
Johnson Foundation to produce a book. So, yes, we do. We 
produced a book called Empowering Health Care Consumers Through 
Tax Reform. It is a publication composed of articles and 
chapters by members of the Consensus Group, which is a free-
market think tank community comprised of members all the way 
from the Heritage Foundation to the Progressive Policy 
Institute and the Urban Institute.
    Mr. Brown. Could you give to this committee, or at least to 
me, your funding sources?
    Ms. Arnett. Of course.
    Mr. Brown. Ms. Arnett, in the absence of regulation you 
seem to think that the cost of health insurance, the 
overwhelming part of the increase, is because of mandates and 
regulations. In the absence of regulations, if there was object 
regulations that prevented insurers from dropping individuals 
when they became especially ill, do you think insurers would 
voluntarily keep those individuals on the roll?
    Ms. Arnett. I think we need to rethink the whole system of 
how people get health insurance. If people think in terms of 
being insured for periods of months, then I think the 
likelihood of this game plan----
    Mr. Brown. Wait, wait, wait. I only have 5 minutes. If 
there were not regulations saying that insurance companies 
could not drop people when they were sick, if we could get all 
of these burdensome onerous regulations off the backs of the 
American people that you suggest, do you think those insurance 
companies could act that way?
    Ms. Arnett. I think that the insurance companies should 
have to abide by contract enforcement, and I believe that 
individuals should have the opportunity to contract with their 
insurers for coverage that would not be dropped when they are 
sick----
    Mr. Brown. So the insurance companies with very expensive 
lawyers and individuals buying insurance that don't read 
contracts quite as well and probably can't afford to hire 
lawyers quite as good as the big insurance company have and 
that is still an even match? You still want to put that in the 
marketplace with no government involvement?
    Ms. Arnett. Contract enforcement or government rules and 
regulations, those are two choices. Right now we see what 
happens with Medicare when we have 111,000 pages of regulation 
governing the Medicare system in order to get people to do the 
right thing.
    If we had contract enforcement that was much more effective 
and people had health insurance that they owned and kept over a 
long period of time that they owned themselves, I believe that 
there would be more market discipline on those companies to 
provide continuity of care and not to lose the public relations 
war that they would have if they saw that. If insurance 
companies dropped people when they got sick, they would not get 
any more business.
    Mr. Brown. Ms. Rowland, do you want to comment on that?
    Ms. Rowland. The problem with insurance is that it is not a 
permanent thing that you can own like an automobile or 
something else. It is something that is offered on an annual 
basis by a company. And as my own small business, the Kaiser 
Family Foundation, experiences every year we have different 
companies pulling in and out of the market. And so we have some 
regulation of insurance in California. But we have no guarantee 
that our policy in any given year will cover the same benefits 
for the same premiums.
    So I think, clearly, you need some protections for 
consumers in any market in which the insurer has the ability to 
pull out. And just as Mr. Ganske talked about, if you can pull 
out when there is a high-risk person in the pool or you can 
change the premiums there, then we really have a system in 
which instead of insuring people for illness, we take the sick 
out of our insurance market.
    Mr. Brown. I would contend it is not really insurance then. 
Ms. Arnett, you mentioned government regulation over and over, 
that that is the problem. No mention of insurance company 
executives' salaries. No mention of the drug company profits, 
the hugest profits of any industry in America, I believe. 
Again, it is all government regulation.
    Yet one of the most unregulated industries in America, 
unregulated in terms of price, is the drug companies; $22 
billion in profits last year. That is what is driving a big 
part of health care inflation. What am I missing? With no 
government regulation, can you blame huge drug company profits, 
huge drug company price increases? Can you blame that on 
government regulation?
    Ms. Arnett. No. This hearing is not about drug company 
prices. I am not an expert on this issue. It is a very large 
industry. I do think that there is an awful lot of invisibility 
of cost in the system and a lot of undisciplined costs. Because 
the market is so disconnected, because consumers are isolated 
from the full cost of the purchases, because it is such a shell 
game with costs being passed from one person to another, from 
employers to insurance companies to the taxpayer to 
uncompensated care.
    Mr. Brown. Sorry to interrupt and I know that the time has 
run out--except ironically in the place with consumers are most 
connected with the industry without any insurance company 
between them or any place else, is drug pricing. And the 
consumers in the free market have no real ability to say no to 
this drug, I will get something else, unless it is a generic 
drug, and that is where prices have gotten so out of control.
    Ms. Arnett. I would hope that that would be a subject for a 
hearing of another day.
    Mr. Brown. Thank you, Mr. Chairman.
    Mr. Bilirakis. Mr. Bryant will inquire.
    Mr. Bryant. Thank you, Mr. Chairman. I want to thank the 
panel and especially Ms. Horsley for your testimony. Let me 
just ask a couple of questions, Mr. Garcia de Posada. It has 
been discussed that the Hispanic segment of our population is 
uninsured for a number of reasons. I think there are other 
people out there that are uninsured for the reasons that you 
highlighted in addition to Hispanic people, and that is low 
income people and small employers.
    I know that it has been suggested that we change the tax 
laws and give complete 100 percent deductibility to self-
employed individuals. And I know Mr. Shadegg has a provision in 
his bill that he suggests a tax credit to individuals for their 
health insurance coverage. Would that be beneficial?
    Mr. Garcia de Posada. Absolutely, because part of the 
problem, aside from the issue of understanding and public 
information and outreach to this community, you cannot ask--and 
I am a big supporter of tax credits--but you cannot ask an 
individual making $12,000 to wait until the end of the year to 
then collect the money to be able to pay because you have to 
pay it as time goes on. And I think whether it is a refundable 
tax credit or whether you allow the individual or self-employed 
people who are buying insurance outside of the market to be 
able to deduct it 100 percent you are going to be giving an 
incentive for them to actually get in the process.
    In preparation for this testimony, I talked to a lot of our 
members who have small businesses, and many of them do provide 
insurance, but they have a hard time providing it. And they are 
trying to identify ways their employees can get access to it in 
an affordable way. So I think definitely Mr. Shadegg's bill 
would be very helpful.
    Mr. Bryant. Let me ask the panel in general, comments on 
this argument about HealthMarts and risk segmentation 
occurring. Anyone have a response to that as a problem to 
HealthMarts? No one wants to jump in on that one?
    Ms. Arnett. It is my understanding that the next panel is 
going to be talking about that more. I think we were more 
prepared to talk about access and the uninsured.
    Mr. Coburn. Will the gentleman yield?
    Mr. Bryant. Certainly I will yield.
    Mr. Coburn. A statement was made a minute ago, and I can't 
just let it go to say that the Federal Government hadn't 
created an inducement for high-priced drugs is ludicrous. It 
costs $400 million to get through the bureaucracy and testing 
on average for a drug in this country, about twice what it 
should cost, because of the FDA. In spite of the FDA, we still 
have the best drugs. And I am not defending the profits. Don't 
get me wrong. I think there is tremendous greed in the drug 
industry. But to not recognize that we have created a false 
nonmarket through FDA rules and regulations is ludicrous.
    Mr. Brown. Would the gentleman yield on that?
    Mr. Coburn. It is not my time to yield. I would like to 
finish my point. The fact is that we do have great drugs, and 
we do have safe drugs; but we could have more of them and we 
could have them less costly. There is a drug out there right 
now, a Premarin substitute, that the FDA will not allow 
approval. Not on any good scientific basis, but on some type of 
political favor basis. And, therefore, we have women paying two 
and three and four times for what they should be for estrogen 
supplementation simply because of some bureaucratic decision to 
do a power play and a favor for someone. Don't tell me that 
drugs don't cost more because of bureaucracy in this country. 
It is not true. I yield back, and I thank the gentleman for the 
time.
    Mr. Bryant. I would yield to the gentleman.
    Mr. Brown. Thank you. I appreciate that very much. I would 
not dispute that totally that the cost of--that the FDA in 
protecting the public tends to keep for a while, keep the drug 
company's drug off the market for some period while the 
research is done to protect the public. But I would also remind 
the gentleman that some of us went to NIH last week, and you 
can see the kind of research that government does with our tax 
dollars; and we all support a doubling of the NIH budget. The 
chairman has shown great leadership on that in the last 3 or 4 
years. And a good bit of the research that is done for those 
drug companies is done by taxpayers.
    So the subsidy there works both ways that we clearly as a 
Congress have decided as a tax policy that we should spend 
taxpayer dollars to do a lot of basic research that these drug 
companies can then turn around to use to help the public and to 
make profits. And I think we have made that decision, but let's 
not let the drug companies off the hook is saying that we are 
not helping them in that way too. And I know that the gentleman 
from Oklahoma has worked on this.
    Mr. Coburn. I would be happy to work with you to make sure 
that some of those dollars come back to the taxpayers.
    Mr. Bilirakis. Mr. Dingell to inquire?
    Mr. Dingell. Thank you, Mr. Chairman. These questions first 
for Ms. Rowland. Ms. Rowland, the study with regard to the--
that was referenced here by the Galen Institute, isn't it fair 
to say that some of the States they used could be significantly 
affected by other events like a large employer pulling out of 
the market?
    Ms. Rowland. In general, in reviewing the study that was 
done by Heritage and the Galen Institute, one would have to 
look at the fact that in these studies we typically do what we 
call multivaried analysis where we control for a variety of 
factors. This is just looking really at one variable, rather, 
State regulation.
    And you are exactly right, there could be a number of other 
factors that explain the deficiency between the States and a 
study should really take into account all of those factors.
    I could make an association between the number of 
Republican versus Democratically controlled legislatures and 
the number of uninsured and that would be an equally flawed 
study.
    Mr. Dingell. I would think you could also, for example, 
deal with weather too.
    Ms. Rowland. You could.
    Mr. Dingell. Am I fair?
    Ms. Rowland. The other thing I think that should be pointed 
out is that the rate of uninsurance in the states with 
regulation was somewhat lower than in the states without 
reforms, although they experienced a somewhat greater increase 
over the time, and I think it really points out how complex 
what shapes any State's uninsurance rate is. It depends at any 
given time on the economy, on the nature of the jobs in the 
economy. Motorola, as you said, can pull out of one state and 
take with it a large part of the insured base.
    Mr. Dingell. Now, let's go to another thing. Would it be 
fair to inquire, did the study examine the effect of specific 
reform on the populations when those--and what those reforms 
were intended to address? Did the study examine specific 
reforms compared to coverage rates in the larger market which 
include markets that these insurance reforms did not affect?
    Ms. Rowland. Well, my understanding of the study--and I am 
not the author of the study--was that it really looked at the 
changes in the rate of uninsurance in the State in contrast to 
the implementation of a number of legislative reforms, some of 
which may have had little to do with the insurance changes.
    Some of them may very well have been directed almost 
exclusively at giving people coverage for existing prior 
conditions through insurance pools, and you would not have 
picked up those kind of changes in the broad aggregate 
statistics being used in the study.
    Mr. Dingell. Was there any effort to relate the questions 
to the events that were studied?
    Ms. Rowland. In my reading of the study, it was looking at 
it State by State, but it was not looking at some of these 
other events or really categorizing the nature of some of the 
legislative changes.
    Mr. Dingell. Now, I gather that the study then considered 
data on covered populations which state reforms cannot and do 
not reach; is that correct?
    Ms. Rowland. Well, it would be on the broad--it included 
both those in ERISA plans as well as those in general plans and 
obviously state regulation at this point doesn't reach people 
with ERISA----
    Mr. Dingell. I was going to come to the question of ERISA 
plans as well as the large group market. Would you want to 
comment on that?
    Ms. Rowland. I think my major comment would be that I think 
there are more intensive ways of examining the questions that 
the study proposed and that future work should really look at a 
wide variety of the variables that influence whether or not a 
State has an increase or a decrease in the number of uninsured.
    Mr. Dingell. Would you want to define your opinion of the 
study? Would you rely on this study as a piece of accurate 
academic research?
    Ms. Rowland. I would say it needs a lot more work to be a 
piece of academic research.
    Mr. Dingell. So in your estimation, what kind of effects 
have market reforms had on coverage?
    Ms. Rowland. I think the effects of market reforms on 
coverage have been extremely mixed. I think in many places they 
have helped to increase the number of people with preexisting 
conditions who have access to an insurance pool. And I think in 
other places we have seen, in New York and other places, 
community rating has caused some increase in premiums. So I 
think you really need to look at really very carefully the 
effects in individual States.
    Overall, market reforms have helped to protect people from 
some of the abuses identified especially in the individual 
insurance market. But they have also come with some costs 
associated.
    Mr. Dingell. I think my time has expired. Thank you very 
much.
    Mr. Bilirakis. Thank you. Ms. Arnett, would you care to 
follow up on the ranking member's questioning regarding your 
study which you did not have an opportunity to speak to?
    Ms. Arnett. Thank you, Mr. Chairman. We looked at the six 
variables, identified by the General Accounting Office in two 
different studies, as the most common insurance regulations 
that were being enacted by the States, including community 
rating, guaranteed issue, guaranteed renewable, portability, et 
cetera, to look at the impact of those six provisions that were 
so generally accepted as being able to help people access 
affordable health insurance.
    So we looked at the States that had done the majority of 
those provisions. Every State was different; every state 
implemented them differently, we looked in aggregate to begin 
to see what was the overall effect.
    And when we saw that in the first year after all of those 
provisions were in effect in the 16 States doing the analysis, 
perhaps the majority of them, we found their uninsured rates 
were increasing eight times faster than other States.
    That told us that perhaps there is evidence that we need to 
look further at the impact of those reforms. Absolutely, we 
should look further at the impact of those regulations whether 
or not they really are, in fact, helping people as they were 
designed to do.
    Mr. Bilirakis. Thank you, Ms. Arnett. Mr. Garcia de Posada, 
among Hispanics there is a disproportionate share of the 
uninsured. There are a lot of reasons for that, I suppose. One 
of the reasons that has been suggested--and I would like to get 
your comments on that--is because of the reluctance of many to 
seek out government assistance programs which they may be 
eligible for. You have heard that mentioned by members up here 
and witnesses on your panel. Any comment on that?
    Mr. Garcia de Posada. Well, I think that you are dealing 
with--particularly with the very poor, you are dealing with 
possibly a foreign-born immigrant population that does not 
understand the concept of health insurance or the concept of 
government helping you in these areas. You are starting from 
there, and that is why Mr. Ganske's comments about trying to 
reach out are so critical and I think that is one of the 
reasons that that the community-based associations could be 
very helpful in trying to reach out because they have much 
closer ties to these communities.
    Aside from that, I think the whole debate last year over 
legal, illegal, et cetera, scared a lot of people. They do not 
understand what they can apply for and what they cannot apply 
for. And it is sad to say that the whole issue of immigration 
was demagogued beyond belief in a way that legals do not 
understand that they do have access to a lot of these programs.
    Once again, whether you use language, whether you use how 
hard it is to reach out to these programs, I think those are 
things that need to be addressed because they are critical 
factors.
    Mr. Bilirakis. There is only so much that government can 
do. Don't you think that much of that can be done and should be 
done, with some assistance from us, through your Hispanic 
coalitions or organizations.
    Mr. Garcia de Posada. Absolutely.
    Mr. Bilirakis. For instance, years ago--God rest his soul, 
our former Florida Governor who was then a United States 
Senator--and I worked together on the infant mortality problem. 
We came to the conclusion that it was terrible in the United 
States. No question about it. We came to the conclusion we had 
the resources, but we could not get the resources to the people 
who needed them, that they were just not making themselves 
available.
    And so, we came up with mobile vans and ways to bring the 
resources there.
    Mr. Garcia de Posada. I completely agree with you. I think 
that the onus should be placed on organizations or groups like 
mine to be able to go to these communities and to promote this 
effort. It shouldn't be government. However, I think government 
has a role maybe in starting to provide that first assistance 
or that little push so that associations and groups do go out 
there and start promoting this.
    Mr. Bilirakis. Will you communicate with us, this 
committee, ideas that you may have? Because whatever we might 
be able to do along with you--and it can't be done without your 
help--is also going to be available to other minority groups. 
And I know what you are saying about the language problem. I am 
Greek American, and we have experienced the same problems.
    Mr. Garcia de Posada. And the institutions are in place. We 
don't have to reinvent the wheel. The community-based 
organizations are there.
    Mr. Bilirakis. Any ideas that you have, please communicate 
them with us so that we may take those into consideration. Ms. 
DeGette.
    Ms. DeGette. Thank you. Ms. Horsley, I especially 
appreciate you coming to talk to us today about your family 
situation. I know it is always hard for individuals. I have 
relatives myself who have had these struggles with health 
insurance, so I appreciate it.
    I don't mean to pry, but if I could ask you just one more 
question. You said that you and your husband made about $13,000 
last year. Do you recall how much you paid in Federal income 
tax?
    Mrs. Horsley. Actually, every year changes a little bit as 
far as our income. Every year it changes according to what we 
are making too. Last year we may have earned just a little bit 
more. This year we may not earn that much. Last year I was 
working say 6 weeks in the summer. Also we had a brief 
separation, and I worked 2 months in Richmond. So----
    Ms. DeGette. Do you have an idea, roughly?
    Mrs. Horsley. We don't pay much tax. We get pretty much all 
of our tax refund back. We have the earned income credit.
    Ms. DeGette. So you really are not paying any Federal 
taxes. You get it back.
    Mrs. Horsley. Not really. I think we are getting most of 
our taxes back.
    Ms. DeGette. Mr. Garcia de Posada, in your testimony you 
said that what would help low-income working Latinos and others 
like Ms. Horsley would be tax incentives for individuals, 
either tax credits or vouchers. And I certainly think that is a 
tool we could use.
    But the concern I have is for people who are working with 
low incomes, they just don't pay that much tax. Therefore, 
there is not that much you could give back to them. I am 
wondering for someone like Ms. Horsley, who would have to pay 
$5,000 a year in insurance premiums, how is that tax voucher 
system going to work exactly?
    Mr. Garcia de Posada. Well, I mean, from her check there is 
money being taken in the withholding.
    Ms. DeGette. But she gets that back at the end of the year 
because her income is not high enough. What is the added 
benefit to her for the $5,000 in premiums that she is going to 
have to pay to get private insurance.
    Mr. Garcia de Posada. Maybe government should look at 
people like her, and there should be that extra incentive.
    Ms. DeGette. What would it be.
    Mr. Shadegg. Would the gentlewoman yield?
    Ms. DeGette. Not right now. Let me finish.
    Mr. Garcia de Posada. Well, there should be--whether it is 
a voucher program----
    Ms. DeGette. But she is not losing that money to the 
government now. She gets all that back.
    Mr. Garcia de Posada. Maybe she should get the money.
    Ms. DeGette. She does. She doesn't pay taxes.
    Mr. Shadegg. Will the gentlelady yield?
    Ms. DeGette. Just a minute, please. Now, I have been 
struggling with this for a long time, particularly with 
uninsured kids. I think we should eliminate government red 
tape, and I think we should do tax credits if they work, for 
someone who makes $13,000 a year and would have to pay $5,000 
in insurance premiums, I just don't see how this would work.
    Mr. Garcia de Posada. Well, I am sure you could not pay at 
all because of the level which she is at. I think if we start 
instituting some kind of assistance whether--I mean, specific 
programs where they can get some additional benefit or some 
additional source of income to do that, through the government 
tax system it is worth looking at.
    Ms. DeGette. Let me make one more comment to you, sir, 
which is, I am always saddened and dismayed when a witness or 
another Member of Congress makes a purely partisan comment as 
you did in this hearing today, because many us do not believe 
that providing insurance benefits for lower-income Americans is 
a partisan issue. And, in fact, I have got a bill, H.R. 827, 
which I would ask Dr. Ganske to look at, because of his 
concerns about CHIP and Medicaid. This is the bill I introduced 
on a bipartisan basis. We have Democrats and Republicans on the 
bill.
    The goal of the bill is to get the States to look at more 
streamlined administration of the CHIP bill and Medicaid 
program so we could get the 9 million uninsured kids in this 
country into some kind of insurance program. All of us on this 
committee, while we might think of different approaches, 
believe that low-income Latinos, of which I represent many, 
low-income African Americans, Anglos, everyone in this country 
regardless of race or ethnic background ought to have health 
insurance.
    Mr. Garcia de Posada. But it is a problem that is 
disproportionately affecting my community. And I think it is--
people like Mr. Green and yourself who have very large 
community constituency within your district, this is something 
that should be highlighted.
    Ms. DeGette. Sir, believe me, we do. And it is not helpful 
to make partisan remarks.
    Mr. Shadegg. Mr. Chairman, I would like unanimous----
    Mr. Bilirakis. You are up next.
    Mr. Shadegg. I would first like to ask unanimous consent to 
extend the lady 1 additional moment.
    Mr. Bilirakis. I would rather not do that because 
unfortunately we have a large panel coming up. But you'll have 
an opportunity. We do have votes on the floor too as a matter 
of fact. But the Chair will yield to you now for your time, 
John.
    Mr. Shadegg. Thank you, Mr. Chairman. I just would begin by 
pointing out to my colleague from Colorado that under a 
refundable tax credit, as in my legislation which is currently 
being looked at by the committee as perhaps a committee mark, a 
refundable tax credit means the taxpayer would get cash back 
even if they owed no tax.
    So, for example, in Miss Horsley's case, if she had no 
income tax liability, she and her family would nonetheless get 
dollars from the government, affirmative dollars, out of the 
government to go buy a health insurance policy.
    Ms. DeGette. Will the gentleman yield?
    Mr. Shadegg. No, I will not, because you didn't yield to 
me, and I have got a lot points I would like to make. I would 
like to begin with Mrs. Horsley and talk about her particular 
situation. Mrs. Horsley with her husband and one child is right 
at the Federal poverty level with a three-person family. The 
Federal poverty level is 13,650 for a family of three.
    She indicates in her testimony that her health care 
coverage she was quoted would cost her about $400 a month. I 
simply want to point out some aspects of the legislation we are 
considering which would be a value to you. The first one is it 
provides tax equity and that is it is a refundable tax credit 
which would mean dollars in your pocket to go buy health 
insurance coverage. We think you should have that.
    We think it is very important that it is unjust that the 
government today subsidizes someone who does the same job as 
your husband, but whose employer offers him health care 
coverage. We subsidize that by allowing the employer to deduct 
the cost of the coverage and to say to the employee that it is 
not income. But for you, we force you to go out and use after-
tax dollars, which you obviously do not have, to buy your own 
health care.
    So a refundable tax credit like is in our legislation I 
think would give money in your pocket to go buy health 
insurance.
    I would like to point out that the alternative was 
discussed on the other side of aisle. For example, expanding 
Medicare clearly will not help you. There is no one in your 
family eligible for Medicare. And while expanding Medicaid 
might help because your income level is such that if it were to 
rise to simply 1.2 times the Federal poverty level you would 
not be eligible for Medicaid assistance either so that wouldn't 
do you a lot of good.
    So I do believe that we can help you by, for example, 
getting you some coverage through this refundable tax credit by 
association health plans, HealthMarts, or individual membership 
associations. For example, right now you can't join a health 
insurance plan sponsored by your church or by some other 
organization you belong to. When you don't get employer 
coverage, you don't have the chance to do that.
    As the testimony indicated from the gentleman from the 
Hispanic Business Roundtable, we ought to make it possible for 
your church to sponsor a plan for you or for any other 
voluntary association that you belong to.
    I would also like to point out that the legislation the 
committee is looking at and that the committee chairman is 
considering at least as he looks at his mark, would include 
high-risk pools. That would put you in a position where your 
husband, even if you were excluded as a result of a prior 
condition, would be able to participate.
    But I do want to tell you that last night after looking at 
your testimony we went on the Internet and went out to look for 
some policies that might be available to you. We found two 
categories of policies on an Internet Web site set up by Dr. 
Koop, the former surgeon general.
    Looking at high-deductible policies, we found 16 different 
policies that would cover you and your family and would have 
been able for you to get coverage at prices as low as $78 a 
month, which would have meant the refundable tax credit in our 
legislation would have fully covered the cost of your health 
care other than the high deductible and the copayments which 
you might have to pay.
    We also looked at lower deductible in the range of $1,000 
to $1,500 deductible and we found 48 different policies in a 
range of $76 to $180. You would not be able to afford the 
higher end of those, but when I listened to the testimony with 
regard to question of your husband's preexisting condition, we 
looked back at those policies and we found, for example, in the 
high-deductible policies there was one available from, I 
believe it is Fidelity Security Life Insurance Company, 
currently available with a premium of $88 a month. And while 
they do exclude preexisting conditions--they specifically 
exclude cancer. However, they specifically do not exclude a 
preexisting condition of skin cancer.
    So that would be a policy that you may want to look at, and 
you might want to talk to my staff about when we finish this 
hearing.
    Mr. Garcia de Posada, I want to thank you for your 
testimony. In Arizona I have a significant Hispanic proportion 
throughout the State, and I am very concerned about them being 
able to get coverage. I certainly agree with the points in your 
testimony and want to just point out that our legislation, the 
legislation the chairman is looking at, first of all we do do 
equality and equity between employer-based health care 
insurance and consumer-based health care coverage. We create 
the tax incentives so that employer-sponsored coverage doesn't 
have the only subsidy. And I think we can work that into the 
system.
    I also appreciate your support of HealthMarts. I think 
HealthMarts would help Mrs. Horsley quite extensively.
    Mr. Chairman, obviously I have a series of other questions 
and points to make which, perhaps, I will get a chance to in 
the second round.
    Mr. Bilirakis. Well, I am not sure we are going to have a 
second round or not. We will play that by ear. But we do have a 
vote on the floor. So we will break for half an hour, maybe 
give us a chance to grab a fast sandwich on the run. The panel 
is unfortunately not discharged, though. We appreciate your 
patience. But there will be people returning who I know will 
want to ask you questions. Thank you.
    [Brief recess.]
    Mr. Bilirakis. Okay. We will come to order. Our apologies 
to the panel and to the audience. We appreciate your patience. 
Let's see. We finished up just before the break with Mr. 
Shadegg. So Mr. Barrett. You are on, sir.
    Mr. Barrett. Thank you, Mr. Chairman. I thank you for 
allowing the panel to return and apologize to the panel also 
for put putting you to the inconvenience of having to sit 
through that vote.
    I want to sort follow up on some the questions pertaining 
to the tax credit notion to make sure that I have an 
understanding where we are on it, because it is certainly an 
intriguing proposition.
    Again, Mrs. Horsley, my understanding is that your family 
income is in the $13,000 to $14,000 range. You do benefit from 
the earned-income tax credit. So I am frankly assuming that you 
might have, in essence, a negative income tax that you might, 
in fact, be receiving money from the Federal Government. Is 
that correct? Do you recall?
    Ms. Horsley. I think we have some income taxes just, you 
know, what is taken out in the income credit is above that. So 
we do get a pretty good refund. We usually get--I think we got 
$1,100 back this spring.
    Mr. Barrett. And Mr. Garcia de Posada, if I am pronouncing 
your name correctly, your testimony or some of your questions 
and answers to Ms. DeGette's questions indicated to me that you 
support a refundable tax credit; is that correct?
    Mr. Garcia de Posada. Correct.
    Mr. Barrett. At what level? In other words, we have a 
situation here where Mrs. Horsley pays little, if any, in 
Federal income tax. She might have a negative income tax in 
terms of getting a refund under the income tax credit. Would 
you tack this directly on top of that?
    Mr. Garcia de Posada. Absolutely. I think we need to figure 
this out. I couldn't come here and tell you specifically what 
level or what amount, but I think this is something that is 
worth looking at because it is something that is very much 
needed. And it is something that if we are going to look at a 
cost effectiveness from the government investment this is 
definitely an area worth doing.
    Mr. Barrett. And Ms. Rowland, I think that you have some 
misgivings about that approach. Can you share those with us?
    Ms. Rowland. Well, I think a tax credit approach works the 
best for those that are able to pay out for the purchase of the 
insurance policy and then get assistance at the end of the year 
or through the withholding system. My concern is for the lowest 
income part of the population, those like Mrs. Horsley, they 
may not have the cash on hand to purchase the insurance policy 
in the first place; and, therefore, the tax credit would have 
to be very, very substantial for them to be able to afford 
$5,000. So a $1,000 tax credit against a $5,000 insurance 
policy would not provide the level of assistance that she would 
need to be able to purchase that kind of coverage.
    Mr. Barrett. So your opposition, if I can use that phrase 
or that word, is not philosophical as much as it is logistic?
    Ms. Rowland. My concern is that it is not as workable an 
approach for people with lower incomes as it is for people with 
higher incomes.
    Mr. Barrett. What would you propose instead?
    Ms. Rowland. Well, I currently think the Medicaid program 
can be improved, especially for children at the low income of 
the economic spectrum. We need to make the program more 
affordable and more workable, we need to reach more children 
through that approach. And I think for some of their parents 
like Mrs. Horsley it may make more sense to extend coverage 
through that vehicle than through a tax credit where she would 
have to go purchase insurance in the individual market.
    Mr. Barrett. So you would build off the CHIP program?
    Ms. Rowland. The CHIP and Medicaid program.
    Mr. Barrett. What are your comments?
    Ms. Arnett. Thank you, Mr. Barrett. The chart over here is 
a depiction of exactly this problem. Where, if you look at the 
vertical axis--it is on page 8 of my testimony--the taxpayer 
subsidies for health coverage, and the horizontal access is 
income, it really does show the two choices we have.
    If somebody makes enough--is poor enough, the likelihood of 
being on some sort of Federal aid----
    Mr. Barrett. I understand the graph. What is your point 
then?
    Ms. Arnett. Either we can move toward expanding that, 
filling that gap of 43 million uninsured disproportionately 
$20,000 to $40,000 income, by expanding more government 
programs or we can look at the right side of that chart to 
where so many people that have job-based health insurance get 
very generous tax breaks.
    Mr. Barrett. So what is your proposal?
    Ms. Arnett. So my proposal is let's look at it in providing 
direct tax assistance to those who completely are shut out of 
the equation right now. They make too much to qualify for 
public programs, and they make too little to get good job 
benefits.
    Mr. Barrett. How do you respond to Ms. Rowland who says it 
is a logistic problem?
    Ms. Arnett. The National Health Underwriters Association 
has done a lot of work--they have been studying this problem 
for about 10 years--to figure out how you actually deliver 
assistance to people so that they can purchase the health 
insurance in real time. And they have done some excellent work 
on that issue. The difficulty lies in the refundability of the 
tax credit and getting it to people in time in order to be able 
to purchase health insurance and to make it generous enough so 
that it really does provide a big enough part of the premium.
    Mr. Barrett. But you are still not saying how we deal with 
the logistic problem of a person who has a very low income. 
Giving them $5,000 in April or May of the year 2000 doesn't 
help them with their health care needs in 1999.
    Ms. Arnett. But it doesn't have to be done annually. It 
could be either advanced so the premium could be paid all at 
once; or it could be done monthly. There are a lot of different 
ways. It is complicated to deliver it, but it is no more 
complicated than Medicaid.
    And the National Association of Health Underwriters has 
done a lot of really good work about the delivery mechanism so 
it doesn't have to be refunded at the end of the year, but it 
could be provided in real time.
    Mr. Bilirakis. The gentleman's time has expired, but it is 
a point that has been made by others; and I think it is a very 
meritorious point. And my understanding is that, as Ms. Arnett 
says, refundable tax credit doesn't necessarily mean lump sum 
the following year; that it can be done in incremental basis. 
And Mr. Shadegg may or may not be returning, but I believe that 
that is his intent.
    Mr. Barrett. Thank you.
    Mr. Bilirakis. Mr. Greenwood. I believe you were here 
first.
    Mr. Green. Do you have a time problem?
    Mr. Coburn. No.
    Mr. Green. Thank you, Mr. Chairman. Everybody up here wants 
to solve the Horsley family problem. And it is a real problem. 
We want to solve it. And what we don't want to do is pass the 
law that we pass most often which is the law of unintended 
consequences and make matters worse for other folks.
    And I think that the hardest part of this--and I hope some 
of the panelists would have some suggestions--is no matter how 
we--the only way to get her family, Mrs. Horsley's family 
insurance is for--somebody has got to pay for it. Because they 
don't have the income to pay for it.
    And you can deregulate it as much as you want; it still 
isn't going to be a free--it still isn't going to be 
affordable. So somebody has to pay for it.
    Now, if the taxpayers pay for it, whether they pay for it 
with, as Mr. Shadegg would, with a refundable tax credit or 
whether we pay for it by raising the level of Medicaid, the 
unintended consequence that we haven't figured out how to deal 
with is somewhere down the road. There is another shop 
employing other people at the same wages who is paying health 
care benefits.
    And the guy down the street who isn't--who is paying health 
benefits is going to say to himself, when we take care of the 
Horsley family, well they ought to take that burden off of my 
shoulders then. Because if the taxpayers will pay for it, one 
way or another through a tax credit or Medicaid, why am I doing 
it? And I will just dump that.
    So it becomes a slippery slope. And I think we are sort of 
afraid to pull that brick out for fear of the consequences.
    So do any of you have any comments about how we fill the 
gap without creating more of an incentive for employers to drop 
coverage or disincentive, if you will, to provide coverage, 
thereby making the burden suddenly double or triple or 
quadruple? And if you can answer that question, you win.
    Ms. Rowland. Well, in the world of mandates, one of the 
ways you prevent that from happening is you impose an employer 
mandate where employers are required to provide coverage to 
certain individuals or to maintain coverage. But that is in the 
world of mandates.
    Mr. Green. It is convenient that the woman from the center 
is not here because she probably would disagree with that.
    Mr. Garcia de Posada. Well, I do too. Imposing more 
mandates on small businesses is not the way to do it. But I 
think that you do have some incentives in the tax system for an 
employer who can afford to provide health insurance. In some 
cases, taxwise, it is convenient for that employer to provide. 
And I don't think that employer will automatically drop 
somebody because it is also partly a tax benefit for him.
    So, you know, that could happen in some instances, but it 
is not overwhelmingly the pattern that is going to continue. 
However, I think that ultimately if we are looking at the 
mobility that we have in the work force, that the idea of 
allowing self-employed or individuals who buy outside of the 
work to be considered the same, you know, to be able to fully 
deduct their wages, that is going to be also a----
    Mr. Ganske. Would the gentleman yield?
    Mr. Green. Briefly.
    Mr. Ganske. I think another situation frequently occurs and 
that is that an employer will offer insurance but for the 
employees who are at the lower income scale in terms of his or 
her business, the employee then makes a choice that I am not 
going to take that benefit because I don't want to pay my 
share, cost share of it.
    I think that Mr. Shadegg if he were here would probably 
make the argument that his tax credit could actually be 
considered a help to that individual to help them then manage 
their cost share of that individual insurance.
    Mr. Green. Yes. Our other two witnesses.
    Ms. Horsley. Well, something I just--I think I got on the 
e-mail through Families USA, I think, somewhere on the 
Internet, but is there a program that just came about in 
California where they have raised the minimum wage to $7 or $8 
an hour and then enabled them to help pay for a State program 
in order for the individual to help?
    You know, if my husband's wage was raised--and I know down 
in Newport News where they have been striking for like--you 
know, they want to be paid like $20 an hour, at the shipyards; 
and I think, my gosh, $20 an hour and he makes $5 something an 
hour or $6, somewhere around that, you know, just even the 
raise to $7 or $8 an hour would give him that much extra to be 
able to pay some on health insurance.
    Mr. Green. Okay. Thank you.
    Ms. Arnett. It really is a cost issue. If people have 
money, some percentage of them--I think it depends on how much 
money it is, we would have to do the demographics--will 
purchase health insurance. And one of the most important things 
about health insurance is pooling risk and having large pools.
    And if the tax credits were directly targeted to 
individuals, then a large percentage of them are going to use 
that to purchase health insurance. So they are buying insurance 
rather than gaming the system as many do when they don't have 
subsidies, and they just wait until they get sick and purchase 
health insurance. And then the premiums go up. So getting 
people the money so they buy it is the critical factor.
    Mr. Bilirakis. I thank the gentleman.
    Dr. Coburn.
    Mr. Coburn. I am reminded of President Clinton's statement 
talking about taxes. We can't give it back to you because you 
may not spend it right. And the philosophy is we can't give you 
a tax credit for your health because you may not make the right 
choice that we think you should make with your money. Isn't 
that ironic.
    Dr. Rowland, what is the Kaiser Commission on the Future of 
Medicaid? And what is its mission statement?
    Ms. Rowland. The Kaiser Commission on the Future of 
Medicaid was established in 1991 to do research and analysis on 
the Medicaid program and coverage to the low-income population. 
And in 1996 the commission was reestablished as the Kaiser 
Commission on Medicaid and the Uninsured.
    It is a 15-member national commission chaired by James 
Hallon of New York. And the commission membership meets, 
reviews, and discusses the analyses prepared by the commission 
staff. And then they are policed.
    Mr. Coburn. What is its mission statement?
    Ms. Rowland. Its mission is really to look at health care 
coverage for the low-income population, the role Medicaid plays 
in covering the low-income population, and the extent to which 
Medicaid is meeting health needs and long-term care needs for 
low-income families, the elderly, and the disabled. So it 
really is a policy institute, and its mission statement is to 
look at how adequately low-income populations are covered 
today.
    Mr. Coburn. It is not a federally funded commission.
    Ms. Rowland. It is not federally funded, no.
    Mr. Coburn. So part of it is to make sure Medicaid is 
meeting the needs that are out there for those that do not have 
health care and cannot get health care.
    Ms. Rowland. Correct. It is to analyze the way in which the 
Medicaid program is operating in the 50 States and 
jurisdictions.
    Mr. Coburn. In your history, you heard me make my statement 
about HCFA, which I make at every opportunity I get. You having 
been employed at HCFA, what is your thought of HCFA?
    Ms. Rowland. I was employed at HCFA at its creation. At the 
time, I thought that the Health Care Financing Administration 
had an important role to play in trying to set standards for 
the provision of services under Medicare as it was charged by 
Federal legislation to try to implement the Medicaid program.
    I think today it is struggling under a lot of different 
charges and different burdens, and it could do a lot of things 
better, and it could do a lot of things worse.
    Mr. Coburn. And you also worked for this committee?
    Ms. Rowland. I worked for this committee until 1991.
    Mr. Coburn. What years did you work for the committee.
    Ms. Rowland. I believe it was 1987 or 1986 to 1991.
    Mr. Coburn. All right. I am sorry that Terry Neese isn't 
here and had to leave. She should have been the Lieutenant 
Governor of the State of Oklahoma and lost in a very close 
primary. But she has done great work for women business owners 
in terms of raising their issues.
    But as the gentleman from Puerto Rico has stated, it is not 
just women business owners; it is small business. We are 
innately unfair in how we treat them, especially if they are 
unincorporated because we say you don't have any tax benefit 
that is equal to what we are going to give somebody who is 
incorporated.
    I wonder if any of you all would offer any suggestions on 
things that--we have asked a lot of questions about what the 
studies have shown, and I tend to agree with most of what I 
have heard, especially from Ms. Arnett having known--with the 
knowledge that I continue to practice in a small community that 
has a ton of small businesses who cannot afford insurance for 
their employees. What else could we be doing? What else could 
we be doing? Yes, ma'am.
    Ms. Horsley. Well, I did want to say that so much of what 
we have a problem with is trying to get coverage for hospital 
and specialized care. I do want to point out that the care we 
have on the Eastern Shore as far as basic care and going to the 
doctor for a checkup, we have the Eastern Shore Rural Health 
System, which I am very pleased with as far as what it provides 
my family. We can go to the doctor and get a basic checkup on a 
sliding scale. Now, I don't know how and what the State and 
Federal----
    Mr. Coburn. It reminds me of a question I was going to ask 
you. So basically you are getting preventative care if you 
need; is that correct?
    Ms. Horsley. Yeah.
    Mr. Coburn. When you delivered your baby, did you have 
title 19 or Medicaid to assist with your delivery?
    Ms. Horsley. At that time, I did have some insurance with 
Nationwide.
    Mr. Coburn. Well, I guess I will yield back. I thank the 
chairman.
    Mr. Bilirakis. Mr. Burr. I know you are on a roll, there, 
Tom. I was interested in some of the responses, but we have a 
panel of seven people coming up.
    Go ahead, Richard.
    Mr. Burr. Let me thank all of you, and I am going to be 
very brief because I think there is one thing that I do 
understand from today. Even if you--even if you drop health 
insurance and you capped drug cost, health care is not free. I 
mean, that is a reality and that in American society, 
businesses strive every day for new devices.
    Pharmaceutical companies along with the help of NIH and 
many research teaching hospitals around the country strive to 
try to find the breakthrough for terminal and chronic illness 
toward which we have made a tremendous amount of progress. And 
somebody has to pay the cost of that. And the American people 
want the best. They want the absolute best.
    I watched a show last night that talked about a new 30-
second CAT Scan--I think General Electric is the manufacturer--
and it was used in trauma cases. And when that trauma victim 
comes in, in 30 seconds they have scanned the entire body, have 
a three-dimensional view. They know exactly where to go for 
what the problem is.
    Dr. Coburn told me that in some cases it is eliminating 
angioplasty--or, excuse me, catheterization because of the 
option that exists. This is a good thing. But it costs 
something. It will make the cost of health care increase, but 
it also makes the quality increase.
    And I think the reason that we hear about this is that a 
lot of members feel there is a disconnect between the cost and 
quality. I think, in fact, it is something that we should 
question. It is something we should look at. We should strive 
for new efficiencies if, in fact, they are available and, yes, 
we should get the Federal Government out of the way if, in 
fact, it is a hurdle or a contributor to that cost increase.
    I was looking--Mr. Garcia, is he still here? I was looking 
at North Carolina. The Hispanic population of uninsured since 
1998, 1999, has gone from 23.8 percent to 52.7 percent at a 
time when coverage by most definitions has doubled if not 
tripled for the population. And I think one of the questions 
that we should ask of you how much of it is a communication 
breakdown.
    Mr. Garcia de Posada. I think a good chunk of it is--and I 
think that a good part of it is a communications breakdown in 
the fact that a lot of these people, first, don't know about 
are not familiar with the process of buying health insurance.
    I think a lot of people could not comprehend the government 
giving them some services when you are very poor, and they do 
not understand the concept of health insurance when you are a 
low-income worker.
    I think we need to begin the process of communicating to 
them. That is why we are such strong supporters of the idea of 
equalizing the employer based on the individual purchase 
because that way we will start putting a lot more 
responsibility on the individual.
    And if we start working in some of the community-based 
organizations and some of the associations to start 
participating and be responsible, I don't think that the 
government should be providing this all by itself.
    I think there has to be a strong component into this 
program that has to be personal responsibility. And the 
individual working poor or middle income should be paying part 
of the cost because it is to their benefit. But I think the 
communication part is critical.
    Mr. Burr. Ms. Rowland, how much of the cost of health care 
is the threat of litigation today? Have you looked at that?
    Ms. Rowland. We haven't looked specifically at that. It is 
a share of the cost. But a lot of the cost of health care is, 
as you pointed out, are advances in technology and drugs and 
devices today--are the two largest contributors to most of the 
cost increases facing hospitals and a lot of the physicians' 
offices.
    Mr. Coburn. There is an interesting study done by the 
University of Indiana--if I could just take a second, I think 
this is very insightful for everybody to know. They compared 
doctors who said I don't do any tests based on the threat of 
litigation to those who say, man, I am scared to death. But 
what they found is there is no difference.
    They all do a bunch of tests because they are afraid they 
are going to get sued. The cost in 1989 in 1989 dollars was $33 
billion just in unneeded tests on the basis of trying to 
document something that they knew they couldn't document. So 
you can extrapolate that is about $100 billion right now in 
terms of 1989 dollars. So it is significant.
    Mr. Burr. One last question, Mr. Chairman, to Ms. Horsley. 
And if I don't state your position right, correct me. You don't 
want something for free. You just like to have a choice of 
something that fills the need at a price that is affordable. Is 
that an accurate statement?
    Ms. Horsley. I would like to be able to afford something, 
yeah. But right now, I mean, we are in a situation that the 
only chance there is is this SLH. But we--in order to get by, 
we depend on my little bit that I bring in; and if I bring in 
any more, we won't get SLH again in July. I mean, that is how 
it is. I have to reapply in July.
    Mr. Burr. You see your position as SLH; and I see it as SOL 
and I won't define it for you.
    Ms. Horsley. That is the other thing in Virginia.
    Mr. Bilirakis. Ms. Horsley you mentioned Rural Health Care. 
Was that a community health center?
    Ms. Horsley. It is Eastern Shore Rural Health System 
Incorporated. And it is a series of clinics up and down in 
Northampton and Accomack Counties. In each little area on the 
Shore in those two counties there is a clinic. Now, I know--I 
think they do have one X-ray machine in only--although my 
doctor sent me to Shore Memorial which means it costs $223 for 
an X-ray.
    Mr. Bilirakis. Did you have to pay that?
    Ms. Horsley. I do. Out of my pocket. And I believe from 
their Web site, they are looking for a dentist currently so 
that they can include a dentist in their system. But as far as 
basic care though, you know, they do really well. Maybe not 
enough doctors. They provide a place for doctors to work at 
after they come out of medical school. So that some of their, 
you know----
    Mr. Bilirakis. So you get the basic care there. Did you 
want to respond?
    Ms. Arnett. One last point and also to answer Dr. Coburn's 
question, all health care is local. And there are so many 
opportunities at the local level to provide access to care that 
are unique to those communities.
    But the Federal Government by providing tax credits to the 
uninsured, refundable tax credits and also perhaps allowing 
some of the kid-care money to be able to--that is not being 
used now to be able to be targeted through vouchers and through 
tax credits that supplement at the State level would provide 
many more resources for people to be able to get access to the 
system and then allow the communities to supplement as well.
    Mr. Bilirakis. All right. Well, we----
    Mr. Brown. I am not going to ask questions. I have a 
unanimous consent request.
    Mr. Bilirakis. Okay.
    Mr. Brown. I have two letters that I would like to submit, 
one was to Congressman Norwood from the CBO about the issue of 
health insurance private premiums going up, is there any impact 
on the amount of coverage. And there seems to be no real 
evidence there according to these two things--I would like to 
enter into the record.
    Mr. Bilirakis. Without objection.
    Mr. Brown. Third is a couple of people on the panel cited 
the Commonwealth Fund study, and I would like to point out one 
page that I would like to enter into the record and that is 
that Medicare beneficiaries of all of the providers of health 
care, the employer, Medicaid, and uninsured for that matter, 
the question of the number of people satisfied with health care 
services Medicare had the highest percentage of satisfaction. I 
think that is significant in light of sort of the tilt of this 
subcommittee hearing today.
    Mr. Bilirakis. Without objection.
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    Mr. Bilirakis. It is interesting that Medicare even had a 
higher degree of satisfaction than Medicaid; and Medicaid is 
considered to be a higher quality program in terms of the 
benefits.
    Thank you so much. I think you can see how much help you 
have been. You have been very patient. There will be questions 
from the panel to you in writing. I know Dr. Coburn and others 
didn't get an opportunity to go into it deeper. So we would 
appreciate your responding to those in a very quick time 
because we are on a quick path here. Thank you very much.
    I would ask panel two to come forward. Dr. Daniel H. 
Johnson, president of the World Medical Association; Mr. 
Raymond Arth, Phoenix Products, Inc., on behalf of the Council 
of Smaller Enterprises; Mr. Robert M. Morehead, area president 
of Gallagher Byerly, Inc., of Englewood, Colorado; Mr. Richard 
Carlson, the executive director of the Illinois Comprehensive 
Health Insurance Program from Springfield, Illinois; Ms. 
Christine Baumgardner, executive director for the Alcona Health 
Center, Lincoln, Michigan; Mr. Len Nichols, principal reserach 
associate of the Urban Institute; and Mr. Jack Meyer, president 
of the Economic and Social Research Institute based here in 
Washington, DC.
    Ms. Baumgardner and gentlemen, welcome. We again appreciate 
your patience sitting there for what is 3-plus hours. Your 
written statements, which have already been turned in to us, 
are a part of the record. And the Chair will give you 5 minutes 
to supplement them or read them if you wish, whatever the case 
might be.
    We will kick it off with Dr. Johnson, president of the 
World Medical Association.

STATEMENTS OF DANIEL H. JOHNSON, JR., PRESIDENT, WORLD MEDICAL 
ASSOCIATION; RAYMOND ARTH, PHOENIX PRODUCTS, INC., ON BEHALF OF 
COUNCIL OF SMALLER ENTERPRISES; ROBERT N. MOREHEAD, CEBS, AREA 
 PRESIDENT, GALLAGHER BYERLY, INC.; JACK A. MEYER, PRESIDENT, 
ECONOMIC AND SOCIAL RESEARCH INSTITUTE; CHRISTINE BAUMGARDNER, 
 EXECUTIVE DIRECTOR, ALCONA HEALTH CENTER; RICHARD W. CARLSON, 
  EXECUTIVE DIRECTOR, ILLINOIS COMPREHENSIVE HEALTH INSURANCE 
  PROGRAM; AND LEN M. NICHOLS, PRINCIPAL RESEARCH ASSOCIATE, 
                        URBAN INSTITUTE

    Mr. Johnson. Thank you, Mr. Chairman. My name is Daniel H. 
Johnson, Jr., M.D. I am a practicing diagnostic radiologist 
from Metairie, Louisiana; and I would like to express my 
appreciation for the opportunity to testify.
    I would like to summarize the written testimony that I have 
submitted as follows. We have three things: a significant 
problem, a need for change, and, in my view, a remarkable 
opportunity. I would like to emphasize, Mr. Chairman, that I am 
testifying as an individual, not representing any organization, 
despite the current and previous activities that are listed.
    Mr. Bilirakis. So you are not testifying on behalf the 
World Medical Association.
    Mr. Johnson. No, I am not. I am here as an individual 
testifying from the perspective of a practicing physician and 
from the perspective of a small business person with 12 full-
time employees in my medical practice.
    With respect to the significant problem, nearly everyone is 
miserable. The patients are angry and/or terrified, business is 
worried about the return of double digit escalation of cost, 
insurance companies are complaining about the loss of profit in 
the provision of their products, and physicians--I list them 
last because no one seems to care about us--but physicians are 
angry about the disruption of the patient-physician 
relationship which has occurred over the years as we seek to 
solve a cost problem.
    And we are now in an era of unprecedented prosperity. We 
have an ever increasing number of uninsured. If that system is 
not broken, Mr. Chairman, I don't know what is. The need for 
change is clear. And as a physician, in my view, I would like 
to see all patients be able to get the appropriate care and the 
appropriate setting at the appropriate time in their illness or 
injury. And I believe every individual ought to have some 
mechanism of financing his or her health care to get that 
appropriate care.
    As a small business person, I want my employees to be able 
to choose their own doctors, whichever doctors they feel are 
desirable for them to see, to be able to choose their own 
insurance plan, and to be able to change if they don't like the 
choice that they made. I want my employees to own and control 
their own insurance.
    And I would like to continue to provide the benefit for 
them, but it is very important to me to know how much it is 
going to cost next year and in the years ahead for providing 
that benefit.
    And those things don't necessarily exist in the environment 
that we have today. And the result is that those patients who 
have insurance are insulated from the cost of their care by 
third-party payments. So we have a disconnect that doesn't 
occur anywhere else in our economy.
    As one of my colleagues from St. Louis pointed out, 
employees in this country have become commodities to be 
auctioned off to the lowest bidder. This is not a desirable 
situation for them, in my judgment. And the costs of insurance, 
nevertheless, are again beginning to increase at unacceptable 
rates. And what is more, the number of uninsured is increasing.
    Now, Mr. Chairman, I spoke earlier about having a 
remarkable opportunity for solution. I believe that opportunity 
is there and it is real. It has been my experience that there 
is widespread understanding of the potential of expanding 
choice, creating a better marketplace by having a competition 
between imperfect financing mechanisms, by taking advantage of 
individual selection and ownership of insurance with a periodic 
right to change if dissatisfied, and with the notion of defined 
contribution, having the employer put up the same amount of 
money no matter which plan the individual picks.
    And the same thing is true in the government programs. The 
government should provide that individual with a defined 
contribution no matter which plan the person takes.
    Now, the discussion about how to accomplish those things is 
the result of a variety of subjects one of which has been 
discussed at some length earlier in the first panel, the notion 
of tax credits. I support tax credits. It is not the subject of 
this panel. I will answer questions about it, but I am not 
going to go there unless you ask me to.
    What I do want to emphasize is the notion of voluntary 
choice cooperatives. I would like to explain that term a 
little. Voluntary means for those employers or others who want 
to use it, that they would be able to. No one would be forced 
to. Choice, the name is implicit there, some mechanism of 
giving people the opportunity to choose between these different 
kinds of plans.
    And the cooperative term refers to pooling people together 
so they can take advantage of the large numbers. The pooling 
concept has been addressed in the earlier panel, and it is very 
important.
    I make the distinction in my own thinking about this 
between voluntary choice cooperatives and voluntary purchasing 
cooperatives. To me a purchasing cooperative entails 
micromanagement by the employers who come together to put that 
together.
    A choice cooperative would function simply as a clearing 
house, qualifying the plans much as is described in Congressman 
Shadegg's plan, as I understand it, for HealthMarts. And it 
certainly is my opinion, Mr. Chairman, that HealthMarts should 
be adopted but they should look more like voluntary choice 
cooperatives than voluntary purchasing cooperatives.
    Mr. Bilirakis. Well, finish your point.
    Mr. Johnson. Simply the only other point I want to make, 
Mr. Chairman, was a personal plea to you. I have had the 
opportunity in my experience in organized medicine to see you 
and your colleagues on the committee at work, and I am aware of 
your interests in these issues; and I am also aware that there 
are unbelievable conversations going on in these halls between 
very diverse members without respect to partisanship toward 
crafting solutions. And my plea to all of you is to take 
advantage of that opportunity and to realize that. Thank you.
    [The prepared statement of Daniel H. Johnson, Jr. follows:]
Prepared Statement of Daniel H. Johnson, Jr., President, World Medical 
                              Association
    Mr. Chairman and Members of the Subcommittee: My name is Daniel H. 
Johnson, Jr., M. D. Although I have been privileged to serve my 
physician colleagues in a variety of capacities, I appear before the 
Subcommittee this morning as an individual practicing physician. I 
would like to express my appreciation for the opportunity to testify. 
As a Diagnostic Radiologist owning and operating a small outpatient 
diagnostic imaging facility in Metairie, Louisiana, a suburb of New 
Orleans, I wish to provide the perspective of one who is both a 
practicing physician and a small business person.
    At Clearview Medical Imaging, we have twelve full-time employees. I 
have long considered my practice an ongoing opportunity to study what's 
wrong with American medicine as well as what's right. My remarks today 
will address significant problems that I believe can easily be 
corrected and I propose to offer you some suggestions for making those 
corrections.
The Current Situation
    In out health system today, nearly everyone is miserable. Employers 
are faced with a return to double-digit escalation of premium costs for 
insurance for their employees. Employees have suffered through ever 
reducing choice of both physicians and health plans. One colleague put 
it beautifully, ``Employees in this country have become commodities to 
be auctioned off to the lowest bidder.'' Physicians are frustrated 
because of the ever-increasing intrusion into the patient physician 
relationship resulting from an understandable desire to control the 
cost of health care. Widespread dissatisfaction with the system has 
lead to a clamor for greater regulation of the system. Think about it. 
The idea that employers chose to get a handle on increasing cost is 
such a wonderful idea, we have to pass laws to protect the patients 
from the idea! Yet, in an era of unprecedented prosperity, the number 
of uninsured is escalating significantly.
What's the Problem?
    Of the three issues of cost, access and quality, the issue that I 
believe is driving the change in the country and has provoked so much 
anxiety is cost. Patients are interested in quality of care and 
physicians are desirous of providing quality care. However, inability 
to control cost has threatened the quality of care. The most important 
single facet of the access problem is cost. Therefore, when attempting 
to solve the problem of the increasing number of uninsured, doesn't it 
make sense to more thoroughly examine the cost problem?
Why Do We Have a Cost Problem?
    It is true that the aging population, rapidly emerging new 
technologies and the ongoing professional liability insurance crisis 
contribute significantly to escalating costs. But, it is my view that 
the single most important (and most easily corrected) factor is that 
the person consuming the services, which is to say the patient, is 
insulated from the cost of those services because someone else is 
paying for them.
Food For Thought
    Several questions come to mind. Is it better to link the individual 
to the cost or insulate the person from the cost? If one wishes to link 
the person to the cost, is it better to reward the individual for using 
our health care system in a cost-effective way or punish the individual 
for not doing so? Is it better to motivate or to regulate? Is it better 
to entice or coerce? Can market solutions work if you limit choice?
What could we do to change the current situation?
    A substantial, broad-spectrum consensus seems to be developing 
around the following four points: 1. Expanding the choices. 2. 
Individual selection and ownership of insurance. 3. Defined 
contribution. 4. Some way to accomplish the above three points. Let's 
examine those in greater detail.
Expand the Choices
    There is no perfect way of financing the delivery of care and there 
is no perfect delivery mechanism. Financing mechanisms include HMOs, 
PPOs, Point of Service Plans, Traditional Insurance, Benefit Payment 
Schedules and Medical Savings Accounts. Each of these has advantages 
and disadvantages. The way to bring out the strong points and suppress 
the weak points is through an improved marketplace. Instead of 
government or employers dictating to beneficiaries which one of these 
mechanisms is best, the beneficiary should have access to an expanded 
array of choices. Each should operate without discrimination from 
employers or government. For example, Medical Savings Accounts are one 
way to directly reward individuals for using the system in a cost-
effective way. Every beneficiary should have an equal opportunity, 
without prejudice, to choose a Medical Savings Account or an HMO or 
whatever plan seems to make the most sense to that person. Having these 
various imperfect mechanisms competing with one another in a better 
marketplace will have the same result that competition has in other 
marketplaces for goods and services: increased quality and decreased 
cost.
Individual Selection and Ownership
    The individual should be given both the opportunity and the 
responsibility to choose and own his or her insurance, but with the 
periodic right to change if dissatisfied with the previous choice. The 
ability to change if dissatisfied represents a safety valve for the 
beneficiary and causes the accountability in the system to flow to the 
beneficiary.
Defined Contribution
    Whether the employer, in the private sector, or the government, in 
the public sector funds the benefit, the employer/government should put 
up the same amount of money no matter which choice the individual 
makes. If the individual wants more or different coverage, he or she 
can supplement that defined contribution as desired. This gives the 
employer and/or government predictability as to cost next year or even 
over the next several years. It also offers an opportunity for the 
individual to be rewarded for selecting wisely.
Some Way to Make It All Happen
    Two significant problems exist with the above three proposals, tax 
inequity and disadvantage to the individual purchasing health 
insurance. Current tax law discriminates against someone who buys 
health insurance as an individual and that needs to be changed. 
However, that is not the subject of this hearing and, other than 
offering strong support for tax equity, I have no further comment to 
make on that subject at this time. The other issue is very relevant and 
the Committee on Commerce has shown great leadership in this area.
    To put the issue in perspective, how can I as an employer offer my 
twelve employees a choice of multiple different kinds of insurance and 
how can each of them purchase insurance at group rates rather than 
individual rates? Some mechanism needs to be developed to facilitate 
that process. Two methods of doing this have been proposed, voluntary 
purchasing cooperatives and voluntary choice cooperatives.
    The distinction between purchasing cooperative and choice 
cooperative is an important one. In a purchasing cooperative, employers 
band together to micro-manage the insurance benefits. Typically, the 
employers determine what the plans should look like and even engage in 
negotiation over the price. The result is a distorted marketplace that 
may continue to limit the choice through a cookie cutter mechanism so 
that the individual chooses between a variety of similar plans rather 
than a variety of different plans. Negotiating the price between the 
cooperative and the insurance plans means that the individual is still 
insulated from variations in cost from one delivery setting to another. 
Using an automotive metaphor, we'll provide you the car. You can have 
any color you want as long as it's black. You can have however many 
doors you want, as long as it's two. You can have whatever transmission 
you want, as long as it's three-speed manual, etc.
    On the other hand, a voluntary choice cooperative would function 
simply as a clearing-house. It would qualify the plans to make certain 
that they are solvent and that they adhere to truth in advertising, 
covering what they say they will cover and living up to the contract 
they make with each individual who picks the plan. Rather than becoming 
immersed in the micro-management of the process, the employer is 
entirely out of the health insurance management loop. The term 
``voluntary choice cooperative'' is significant, in that employers 
should have a choice, as well. They should not be forced to participate 
in a voluntary choice cooperative but should have the option to do so 
if they like the idea better than the way they are currently providing 
the benefit. ``Choice'' implies the beneficiary being able to select 
from among a variety of different plans. The term ``cooperative'' 
implies a pooling of individual employees in order to take advantage of 
the rule of large numbers to spread the risk. In my view, the Health 
Mart concept developed by the Commerce Committee should take on the 
characteristics of a voluntary choice cooperative rather than those of 
a voluntary purchasing cooperative. As the committee develops the 
concept, attention should be paid to fairness. If I am going to send my 
twelve employees down to the local voluntary choice cooperative, with 
multiple different plans offering themselves, the plan should have to 
take whoever signs up with that plan, without respect to considerations 
such as pre-existing conditions. But, to be fair to the plans, 
shouldn't I have to send all twelve of my employees and not just the 
sick ones?
Conclusion:
    As a practicing Physician offering high tech services, I want to be 
able to compete in a marketplace that recognizes my commitment to cost-
effectiveness. A marketplace that allows a physician to send a patient 
to me to take advantage of some subspecialty expertise I might have in 
a particular situation, without requiring the patient or my staff to 
jump through all kinds of hoops. As an employer, I want to provide a 
benefit to my valued employees that will give them adequate protection. 
But, I want them stop and think about how to take better care of 
themselves and how to use the system in the most cost-effective way 
possible when they become ill or injured. I want my employees to be 
rewarded for using the system well. I want them to be motivated to do 
the right thing. I want them to be enticed to do the right thing. I 
don't want any kind of price controls that insulate them from the cost 
of any services they need. I value my employees and want them to have 
the benefit. I want system accountability to flow to them, not to me. 
Yet, at the same time, like any other businessperson, I am continually 
concerned about the cost of that benefit. I want to be shielded from 
significant escalation in cost and want to know how much the benefit I 
am providing my employees is going to cost me next year. In my 
judgment, the points I have outlined accomplish all of that and more by 
putting the patient in the driver's seat.
    Every person in this country should have health insurance. We have 
two long running experiments in this country for providing universal 
coverage. One is a defined benefit plan and one is a defined 
contribution plan. One has tens of thousands of pages of regulations, 
the other around a hundred pages. One threatens to bankrupt the country 
and the other has outperformed the private sector over the last fifteen 
years or so. One is called Medicare and the other is the Federal 
Employees Health Benefit Plan and both are run by the same government. 
We don't have to reinvent the wheel to solve the problem of the 
uninsured. We are spending more than enough money today to provide the 
coverage. We just have to spend it more wisely.
    Thank you again for the opportunity for input.

    Mr. Bilirakis. Thank you so much, Doctor.
    Mr. Arth.

                   STATEMENT OF RAYMOND ARTH

    Mr. Arth. Thank you, Mr. Chairman and members of the 
committee. I am glad to be here today. I am Raymond Arth. I am 
the president of Phoenix Products, located in Congressman 
Brown's district in Ohio. We are a manufacturer of plumbing 
faucets and employ about 100 people.
    As a volunteer, I serve as the chairman of Group Services, 
Inc., which manages the benefit plans offered by the Council of 
Smaller Enterprises, or COSE, in the greater Cleveland area. I 
also serve as a member of the board of National Small Business 
United, the country's oldest small business advocacy 
organization.
    We are pleased that you are trying to review options to 
expand coverage for the uninsured. And, quite frankly, I am 
pleased to be able to talk about a model that really works.
    We think that the HealthMarts might be a good solution if 
they are done right and looked more like our plan, but we are 
presently concerned about the Federal regulation composition of 
the boards and some other things.
    And before I describe COSE's plans, let me make two points. 
What we have accomplished in Cleveland did not require any 
Federal legislation. And one of the things that makes our 
organization unique is that the board members who govern our 
plans are actually the consumers, small business owners who get 
their own health insurance through the COSE plans.
    Let me tell you about the COSE success story. Today we have 
16,000 members in the seven-county area that we serve near 
greater Cleveland. This is a tribute to our 25 years of hard 
work to deliver small business insurance. As evidence of that 
success, 13,000 of our members and over 200,000 lives are 
covered under the COSE health plans. And I should mention that 
2,500 of those companies did not offer insurance to their 
employees before they joined COSE.
    We also manage health benefit plans for several other 
chambers in northern Ohio, and all told we have over 15,000 
companies and almost 250,000 covered lives in northern Ohio.
    The COSE plan provides up to 18 plan options, everything 
from fee for service to PPO's, triple option plans, HMO's, and 
MSA. Any individual employer could offer more than one option 
to their employees. And we focus on companies typically with 
150 employees down to and including one. Sole proprietors would 
be covered.
    What makes GSI, Group Services, Inc., and the COSE plan 
different is that GSI is actually the customer. We negotiate on 
behalf of our members. We manage the administration. We buy the 
insurance from our providers. We are not a multiple-employer 
trust, a Taft-Hartley Trust, a VEBA or MEWA. We are basically a 
not-for-profit purchasing co-op and we are negotiating on 
behalf of ourselves for the product we are buying and using.
    We believe our program works because first of all we know 
our customers. We are them. And we also poll them regularly. We 
track the utilization and costs of services that are used by 
our members. We have centralized the administration function. 
We do the billing. We remit payment to carriers. Our 
administrative costs are about 13.5 percent in an industry 
where rates as high at 30 percent are common.
    Our members get one bill regardless of how many benefit 
plans they offer. They pay us with one check. We have 
standardized paperwork and forms across our carriers to try to 
take out inefficiencies and unnecessary costs.
    We have also taken a long-term look at our objectives, have 
long-term commitments with our carriers, and this has produced 
more stable and predictable rates for all of our members, that 
get better prices than they can get on their own. And we have 
had a history of providing very stable pricing and rate 
increase that is typically about half what the industry 
averages are.
    As you consider the HealthMarts, I would like to identify 
six factors that have made us successful. Today, we have the 
benefit of size, which is the result of 13,000 companies and 
all those lives. And we leverage that size in the purchasing 
power where we sit down and negotiate with our carriers.
    We have two primary health insurance carriers. We are the 
largest customer for both. So when we sit down and negotiate, 
we have got a lot of clout. We have made long-term commitments 
with these carriers. We have a proactive management approach. 
We have a very active board of volunteers and consumers who are 
very aware of the problems that may exist and opportunities to 
improve our product.
    In addition to that long-term commitment to our carriers, 
we also try to maintain a decent and working relationship with 
them. When we sit down to negotiate, we know what the numbers 
are. They need to make money. We need to pay as little as 
possible. It has worked well in the long term.
    Finally, I want to emphasize again the importance of a 
board that is comprised solely of the consumers and the 
interested parties at the buying end and not every stakeholder 
who has a say in the proposition.
    It has been said before that health care is a local issue. 
We have addressed it in Cleveland as a local issue. We have 
brought health care in the Cleveland area down across the 
board, and we have built a very successful plan that serves the 
small business community, in particular.
    I should mention in closing that our average member employs 
6-1/2 employees. So this is a product that is really targeted 
at those smaller companies where we have identified a large 
proportion of the uninsured population being employed.
    Thank you very much.
    [The prepared statement of Raymond Arth follows:]
   Prepared Statement of Raymond Arth, President, Phoenix Products, 
  Chairman, Group Services, Inc. Council of Smaller Enterprises (COSE)
    Thank you Mr. Chairman and members of the sub-committee, I am 
Raymond Arth, President, Phoenix Products a 100 employee manufacturer 
of faucets for the manufactured housing and recreational vehicle 
industries located in Avon Lake, Ohio. I am also, Chairman, Group 
Services, Inc. Council of Smaller Enterprises (COSE) in Cleveland, 
Ohio. COSE is the small business division of the Greater Cleveland 
Growth Association, which is Cleveland's Chamber of Commerce. I also 
serve on the Board of Directors of National Small Business United. 
Based here in Washington, NSBU is the nation's oldest small business 
advocacy group. I am pleased to present the views of COSE on expanding 
health insurance coverage among employees of small businesses.
    COSE is a success story. We represent over 16,000 small businesses 
in the greater Cleveland area. Our health insurance program was adopted 
25 years ago and gives small business owners a chance to provide high 
quality, affordable health care benefits to their employees and 
families. Our efforts follow two simple principles, increase the access 
and the affordability of health insurance as an employee benefit for 
small business owners and their employees. Over the years, COSE has 
become a national model for group purchasing alliances. Today, in the 
Cleveland area, over 13,000 businesses and over 200,000 individuals 
receive their benefits through a COSE plan. Our research tells us that 
nearly 2,500 of these businesses did not offer health insurance as an 
employee benefit before joining our program. Additionally, we manage 
the health insurance programs of the Toledo Area Chamber of Commerce, 
The Mansfield/Richland Area Chamber and a consortium of smaller 
chambers in the Findlay, Lima and Tiffin area of our state. 
Collectively, we have increased the access and affordability of health 
insurance to over 15,300 companies and nearly 250,000 individuals in 
the northern half of Ohio. The average size company enrolled in the 
COSE program has 6.5 employees. Our plans are available to companies 
with as few as 1 employee.
    For years, COSE has advocated on the local, state and national 
level on issues of particular concern to small businesses. We are 
pleased that Congress is reviewing ways to address the problem of 
uninsured workers and we hope that any solution will be built on a 
stable health insurance market. We believe that HealthMarts are 
intended to be modeled after COSE's health program, and as such are a 
good concept that if done right will have the effect of increasing 
access to affordable health insurance coverage for small business. 
However, we still have some concerns because HealthMarts are federally 
controlled and the make up of their Board differs from our model.
    In my remarks, I will highlight several key points to our success: 
1. A general overview of our program; 2. The power of: information, 
centralized administration and acting like a customer; and 3. Our long-
term commitment.
    As I begin, I would like you to consider two points: First, COSE is 
completely a creature of the marketplace, we required no legislation to 
get started. Unfortunately, many people and institutions--including 
some with a tremendous impact on our society--still think and act as if 
our success is so unusual and our goal so impossible that it cannot be 
replicated. Our philosophy, objectives and achievements are based on 
sound principles. COSE is not unique; it does not exist in a strange or 
perfect vacuum. We have proven that the private sector can address the 
problem of small business health insurance in a creative and practical 
way.
    Second, in addition to being a volunteer for the organization, I 
have enrolled my company and my family in the COSE program and that is 
true of everyone one of my fellow Board members and our staff. We all 
live with our creation. This provides us with a very good reality check 
on the decisions we must make.
The COSE Health Insurance Program
    We offer 18 choices of group health insurance plans, which are 
available through Medical Mutual of Ohio and Kaiser Permanente. Our 
plans are representative of the type of plans in our community and 
range from traditional fee-for-service products through PPO's, Triple 
Option, HMO and Medical Savings Accounts. Our plans are managed to be 
flexible--one company can offer several different choices to their 
employees--and affordable. In addition to health insurance plans, we 
offer our members the ability to add group life and disability, dental, 
vision and Section 125 programs. COSE also offers small business 
education and training programs, workers' compensation, retirement and 
soon will offer an energy program to our members.
How We Manage
    In 1983, we created an independent entity called Group Services, 
Inc. This entity is the one centralized customer to which our insurance 
carriers would ultimately be accountable. We have found that our 
program is quite different from the programs offered by many other 
associations and chambers of commerce. We do not simply hand our logo 
over to an insurance carrier or broker and let them sell to our 
members. Often we must define ourselves by explaining what we are not. 
We are not a multiple employer trust, a Taft-Hartley Trust, a voluntary 
employee benefit association or a Multiple Employee Welfare 
Arrangement. Group Services, Inc. is a not-for-profit purchasing group 
or co-op. Our structure is that simple. On behalf of our members, Group 
Services negotiates the contractual terms of the insurance products 
made available to our members. Additionally, we negotiate both the 
medical and non-medical underwriting regulations, prices and we 
coordinate the billing, enrollment, communications and customer service 
aspects of the program. In a nutshell, we are the employee benefits 
division for our members. They look to us to keep their program 
affordable and up to date with the latest trends in health insurance.
Why Our Program Works
    As in any business, the more you know about your customers, your 
products and where and why the two meet, the better chance you have to 
be successful. What do we know about our members? Almost everything. 
Through regular surveying and close attention to their buying patterns 
we know what our members want from their insurance program. They want 
access to affordable and stable, high quality programs. Next, we pay 
very close attention to the costs. Through monthly, quarterly and 
annual reports, we monitor both how much a procedure costs and how 
often a procedure is used. We believe that it is our job to know as 
much, if not more than our carriers about our book of business so that 
when it comes time to negotiate we negotiate from a base of knowledge. 
We are a very educated customer.
    In order to maintain this information and establish a solid base we 
have centralizing key components of our administration. This includes 
billing and reimbursement to our carriers. Our members pay us and we 
pay our carriers. This is also a key component of our ability to save 
our members money and time. In a world where total administration costs 
can reach 30% or more, the administrative cost to our members averages 
about 13.5%. Regardless of how many products our members buy from us, 
they receive one bill once a month and pay by one check. Additionally, 
all carriers accept a common employer and employee addition, change and 
termination form that we have developed. We have also discovered, 
through random audits, that many of our members have problems meeting 
eligibility rules. In roughly half of the problem cases, people are 
enrolled who do not qualify--we want them off the plan. In the other 
half, we find full-time eligible (usually young and healthy people) who 
are not insured. We want them on the plan. Our products are group 
insurance and we demand the right mix of risk.
    Our management approach contains a long-term commitment to our 
members and our carriers. When we manage our programs we do not attempt 
to make the best deal for one year or the best deal for everybody for 
all time. What we do attempt to do is maximize the benefit for the most 
people for the most time. We seek stability and predictability. Our 
rates of increase have averaged roughly one-half the regional rate of 
inflation to health insurance costs over the last several years.
    As we think about additional ways to increase the number of small 
business owners who offer health insurance as an employee benefit, we 
urge you consider the benefits and costs to all health care 
legislation. We do not believe that increased benefits through 
patients' rights to be the best answers for health care reform. We urge 
Congress to keep health insurance affordable by:

 Enacting legislation to provide immediate 100% deductibility 
        of health insurance premiums for all businesses or individuals 
        who do not benefit from employer sponsored coverage.
 Granting tax credits for low wage workers in small firms.
 Not increasing costs by imposing liability on managed care 
        organizations or businesses for denial of experimental 
        treatment when the insurer acted within contractual provisions.
 Support a well defined and binding internal and external 
        review process, direct access to ob/gyn, pediatricians and 
        prudent layperson definition for emergency treatment.
 Oppose ``medical necessity'' language in current legislation 
        that would turn back the clock on managed care by elimination 
        the system of checks and balances that have developed between 
        providers and payers.
 Oppose mandated benefits that only tend to raise the cost of 
        insurance and add to the numbers of the uninsured.
 Support employee and consumer health care education efforts 
        aimed at maintaining wellness and proper use of our health care 
        system.
 Support a drive for a common definition of terms and language 
        used in insurance materials, and encourage the use of common 
        claims forms for all payers.
 Support the measurement of quality for insurance plans, 
        hospitals and physicians, which can be used by customers to 
        make better decisions.
    In summary, as you consider HealthMarts, Association Health Plans 
or any other efforts to bring small employers together please remember 
that COSE's success is built on six key factors:

 We have the advantage of tremendous size.
 Our size has in turn enabled us to exert maximum leverage.
 We have built long-term commitments into our contracts.
 We have taken a strong, proactive approach to management.
 We have a good working relationship with our carriers.
 We have small business owners--health care purchasers--on our 
        board of directors.
    As a result of these factors, COSE has produced an innovative 
program that produces a wide variety of options to our members at costs 
that are lower, year-in and year-out than what our members can obtain 
on their own. Please also remember that health care is primarily a 
local issue and that attempts to raise the governance to a national 
level should be done with careful consideration of who will regulate 
and who will manage the program on a daily basis, how the program will 
be funded (Fully insured vs. self-insured), who is eligible to enroll 
and who is keeping an eye on the integrity of the program.
    Our experience over a 25-year period, in a competitive environment, 
has convinced us that it is indeed possible for small business owners 
to provide good health care benefits at affordable and stable prices.
    Thank you for the opportunity to speak with you on this important 
topic. COSE looks forward to working with Congress as it continues to 
address the access and affordability needs of small businesses.

    Mr. Bilirakis. Thank you very much, sir. I am glad that 
there are at least five us of us here to have heard your 
testimony.
    Mr. Morehead.

                STATEMENT OF ROBERT N. MOREHEAD

    Mr. Morehead. I wish to thank the committee for this 
opportunity to present testimony on HealthMarts. I am the area 
president of Gallagher Byerly Incorporated, and I am also a 
small businessman. Gallagher Byerly is an employee benefits 
consulting firm, actively involved in multiple small-employer 
health plans for more than 20 years all across the country.
    We currently administer consumer choice health care 
purchasing cooperatives in four States: Washington, Oregon, 
Colorado, and Montana. In total, these cooperatives include 
2,150 employers and over 23,000 employees. And I might mention 
that the oldest of these, the Colorado Purchasing Cooperative, 
is 3 years old. So they are fairly recent developments.
    And the purchasing cooperatives we administer include both 
large and small employers. But the primary focus is aimed at 
giving small employers and their employees additional clout and 
choice in obtaining health care or health insurance coverage. 
With this concept employers are able to make more choices of 
plans and coverage available to their employees, and they are 
relieved of the burden of having to administer the coverage. 
You might think of this as a 401(k) health plan.
    In addition, the employer is not placed in the bind of 
having to seek out new health insurance carriers, often every 
year, in order to cope with sharply rising premiums. 
Cooperatives handle that problem, and the availability of a 
number of plans help to mitigate premium increases on the part 
of any one plan.
    Does the purchasing cooperative concept expand access to 
health insurance coverage? While we don't have figures for all 
of the States that we cover, we do know that in the State of 
Washington, 17 percent of the sales are with companies that 
didn't previously offer health insurance coverage. In Colorado, 
that figure is over 30 percent. The information from Oregon 
indicates that it is 20 percent in Oregon.
    Equally important, we are in most cases able to tailor 
plans to meet the coverage needs of the employee. These 
cooperatives have telephonic customer service that is available 
to all employees to assist them in selecting the proper benefit 
plan and also to determine the health plan that contracts with 
their own family doctors.
    In Washington, 90 percent of Washington physicians are 
participating in one or more of the plans offered to consumers 
through the cooperative. Because of that 90 percent figure, 
employees are virtually assured of the opportunity of retaining 
their family physicians when enrolling in the cooperative.
    Do purchasing cooperatives reduce the cost of insurance 
coverage? We think they have a positive impact on overall costs 
and coverage, even if actual premium costs in a number of cases 
may stay the same. We are finding out that the availability of 
a much wider range of choices is viewed as a positive factor. 
With the employee having the ability to participate in plans 
where their family physicians are participating providers, the 
employees' out-of-pocket claim costs are reduced even if the 
premiums are not.
    It should also be noted that the coverage we administer is 
still subject to state benefit mandates. We estimate that 
dropping the State benefit mandate requirements as is provided 
for in at least one of the plans under HealthMarts could save 
15 to 20 percent.
    The administrator of the purchasing cooperative such as 
Gallagher Byerly can help to limit costs in several ways with 
large numbers of participants. We have more clout in dealing 
with insurance carriers than does the individual small 
employer. In administering the daily activities of the 
cooperative, we have the benefit of experience, volume, and 
sophisticated computer systems that the employer does not have, 
thus allowing us to operate more efficiently and provide a more 
efficient expense component.
    We also act as a patient advocate and help the patient 
navigate through complex health care issues. It is important 
that this service be provided by experienced, impartial persons 
that are not affiliated with the health plans. That is another 
benefit of HealthMarts.
    Based on our experience, we think that the purchasing 
cooperative concept represents an important way to expand 
access and choice. Establishing broad national standards, as 
the HealthMart proposal would do, would make it easier to 
expand the concept nationwide. Often these programs have been 
blocked by State laws passed for other purposes that have 
unintended consequences.
    In establishing national standards, however, it is 
important to allow reasonable flexibility in order to permit 
innovation and the adaptation of purchasing cooperatives to 
meet local needs. We believe that purchasing cooperatives have 
a potentially bright future, but they are still in their 
infancy and need the flexibility to experiment in order to 
fully determine what works best. Legislation that provides too 
many specific requirements at the outset will make this 
experimentation more difficult.
    Mr. Bilirakis. Please summarize.
    Mr. Morehead. I have just a couple of points on the design 
of the bill itself.
    The revised version of the HealthMart proposal requires at 
least four plans be offered including a nonnetwork plan and two 
of those plans providing State-mandated benefits. We think this 
goes too far. It will tie the hands of those who may be 
interested in organizing a HealthMart.
    Frequently the number of plans that a carrier can offer may 
differ based on a lot of factors, further requiring the same 
level of benefits statewide, not allowing for adaptation within 
the State, such as in counties where there may not be a 
hospital or a doctor or any networks that we can work with. So 
we have to provide the best coverage which we can in each 
geographic location, but it may not be identical to the 
coverage that is available in the urban areas.
    So we think purchasing cooperatives or HealthMarts are a 
viable program. We think they should be subject to the 
competitive pressures of the marketplace, and we think the 
competitive marketplace allows the ideas to grow and we think 
is a proposal worthy of adoption by the committee with a few 
changes.
    [The prepared statement of Robert N. Morehead follows:]
  Prepared Statement of Robert Morehead, President, Gallagher Byerly, 
                                  Inc.
    I wish to thank the committee for this opportunity to present 
testimony on health insurance purchasing cooperatives, or HealthMarts 
as they are referred to in the legislation before the Committee.
    Gallagher Byerly is an employee benefits consulting firm that has 
been actively involved in multiple employer health plans for more than 
20 years, from California to South Carolina. In recent years, we have 
been active in the creation, operation, and administration of what we 
call Consumer Choice Healthcare Purchasing Cooperatives. We currently 
administer such cooperatives in four states: Washington, Oregon, 
Colorado, and Montana. In total, these cooperatives include over 1800 
employers and nearly 22,000 employees. With this experience, I think we 
are in a good position to advise you as to how the consumer choice 
purchasing cooperative concept is working out in actual practice.
    While the purchasing cooperatives we administer include both large 
and small employers, the primary focus of the cooperative is aimed at 
giving small employers and their employees additional clout and choice 
in obtaining health insurance coverage.
    Employers are able to make more choices of plans and coverage 
available to their employees, and they are relieved of the burden of 
having to administer the coverage. You might think of this as 401k 
medical. The employer remains an integral part of the plan, offering 
quality benefits and paying a portion of the premium, yet allowing each 
employee a wide variety of flexibility based on their individual and 
family needs.
    In addition, the employer is not placed in the bind of having to 
seek out new insurance carriers, often as much as annually, in order to 
cope with sharply rising premiums. The cooperative handles that 
problem, and the availability of a number of plans helps to mitigate 
premium increases on the part of any one plan.
    Does the purchasing cooperative concept expand access to health 
insurance coverage? While we do not have figures for all of the states 
we cover, we do know that in Washington State some 17% of the program 
sales are coming from companies that did not previously offer health 
insurance of any kind to their employees. In Colorado, of the first 
1271 groups entering the plan that we had records of previous coverage, 
398 had not offered coverage previously--31%!
    Equally important, we are in most cases able to tailor plans to 
meet the coverage needs of the employee. In Washington, for instance, 
we have a telephonic customer service that is available to all 
employees to assist them in selecting the proper benefit plan, and also 
determine the health plan that contracts with their own family doctors. 
With over 90% of Washington physicians participating in one or more of 
the health plans, employees are virtually assured of the opportunity to 
retain their family physicians when enrolling in the cooperative. In 
addition, they are not faced with the burden of having to change family 
doctors, sometimes annually, because the employer has had to change 
health plans in order to reduce costs. A stability is provided that 
otherwise did not exist.
    Do purchasing cooperatives reduce the cost of insurance coverage? 
We are not necessarily finding that is the case, but what we are 
finding is that the availability of a much wider range of choices is 
viewed as a positive factor, even if the premium costs are not less. 
With the employee having the ability to participate in plans where 
their family physicians are participating providers, the employee's 
out-of-pocket claim costs are reduced, even if the premiums are not. It 
should also be noted that coverage we administer is basically still 
subject to state benefit mandates. We estimate that dropping state 
benefit mandate requirements, as is provided for in at least one of the 
plans under HealthMarts, could save some 15-20%. We would suggest each 
plan in the HealthMart be required to offer at least one plan with all 
state mandates and one without any mandated benefits. This would allow 
consumers that cannot afford a full range of benefits to still have 
basic coverage, without lowering benefits on the other employees.
    For small employers, participation in the purchasing cooperative 
helps to stabilize the health care component of their business. They 
can determine the level of coverage they want to pay for, and then the 
employees can decide from a number of options as to what extent they 
want to contribute their own funds. The employees can get coverage that 
best suits their individual situation, and where they get the best 
service.
    The administrator of the purchasing cooperative, such as Gallagher 
Byerly, can also help to limit costs in several ways. With large 
numbers of participants, we have more clout in dealing with insurance 
carriers than does an individual small employer. In administering the 
daily activities of the cooperative, we have the benefit of experience 
and volume that the employer does not have, thus allowing us to operate 
more efficiently and provide a more efficient expense component. We 
also act as a ``patient advocate'' to help the patient navigate through 
complex health-care issues. It is important that this service be 
provided by experienced persons that are not affiliated with the health 
plans.
    Based on our experience, we think that the purchasing cooperative 
concept represents an important way to expand access and choice. 
Establishing broad national standards, as the HealthMart proposal would 
do, will make it easier to expand the concept nationwide. Often, these 
programs have been blocked by state laws passed for other purposes that 
have unintended consequences. It is important in doing so, however, to 
allow reasonable flexibility, in order to permit innovation and the 
adaptation of purchasing cooperatives to meet local needs.
    It is essential to keep in mind that while we believe purchasing 
cooperatives have a potentially bright future, they are basically still 
in their infancy as far as their development is concerned. We need the 
flexibility to experiment in order to fully determine what works best 
and to experiment with different approaches in order to work out the 
kinks. Legislation that provides too many specific requirements at the 
outset will make this experimentation more difficult.
    For instance, the revised version of the HealthMart proposal 
requires that at least four plans be offered, including a non-network 
indemnity plan and two providing state mandated benefits. Those 
requirements may very well tie the hands of those who may be interested 
in organizing a HealthMart as the number of plans a carrier can offer 
differ, based on several factors. Requiring the same level of benefits 
statewide will not allow for adaptation within the state, such as in 
counties where there may not be a hospital or available networks to 
offer identical coverage to urban areas. Using the word ``comparable'' 
in defining benefits would allow needed flexibility.
    Regarding the non-network plan, if this definition of ``non-
network'' is interpreted as representing an indemnity plan, that could 
prevent a HealthMart from forming, because it is very hard to find 
carriers that would be willing to offer indemnity coverage in the 
HealthMart environment. If ``non-Network'' coverage is intended to 
include PPO and Point-of-Service options, the law should say so.
    Purchasing cooperatives, or HealthMarts, are only going to be 
effectively developed if they are subject to the competitive pressures 
of the market place. The original Clinton health alliance concept was 
rejected in part at least because the alliances were to be government 
entities. The competitive market place allows ideas to grow, and the 
HealthMart proposal basically fosters that concept. With a few changes, 
we think it is a proposal worthy of adoption by the committee.
    Thanks for your attention, and I look forward to answering any 
questions you may have.

    Mr. Bilirakis. Thanks so much. Mr. Morehead.
    Mr. Meyer.

                   STATEMENT OF JACK A. MEYER

    Mr. Meyer. Thank you, Mr. Chairman. I will just summarize 
my remarks, and I have submitted for the record a longer study 
on HealthMarts and association plans that my colleague Elliot 
Wicks and I have done.
    Imagine that this pitcher were filled with water and that 
the water in this pitcher was all the 43 million uninsured. As 
background for what I want to say about these HealthMarts and 
association plans I want to point out that what complicates the 
problem is that every day more water is going into that 
pitcher. And it is coming from the employer sector where 
people, particularly employees, are turning down employer's 
offer because they can't afford the premium, people with 
incomes like the woman on the previous income of $13,000 cannot 
afford a $2,300 premium contribution, which I note in my 
testimony is the average for people in small business. So they 
say no thank you.
    In addition, only 49 percent of small firms under 10 
employees offer health insurance. So more people are coming 
into this pitcher, and they are also coming from Medicaid 
because of welfare reform which has done a lot of good things. 
The welfare rolls are down by 4 million, but a lot of people 
come off welfare are diverted; and they cannot get Medicaid any 
more after a period, and they do not qualify for private health 
insurance so they are all coming into this pitcher; and we 
haven't seen anything yet because most people haven't hit their 
time limits.
    Proposals like the ones we are here to discuss today in my 
view are likely to maybe drain 5 to 10 percent of the water out 
of this pitcher. I saw that there are some estimates that show 
there is likely to be no effect. There is some estimates as 
high as 15 to 20 percent, but I think the bulk of the range 
would be fair to say in the 5 to 10 percent range as a result 
of getting rid of mandates.
    I am not a fan of mandates. I don't think the government 
should load up the insurance package with a lot of 
requirements, but I am realistic and I believe that eliminating 
those mandates which would have some hardship for some of those 
people when the mandates cover mental health and substance 
abuse and so on, the likely effect is to maybe offset the new 
water coming in with the 5 to 10 percent reduction of water 
drained out so that we will be meeting in this room 2 years 
from now, and we will still have a water pitcher that is full.
    So I don't come up to ridicule or severely criticize these 
proposals, but to be realistic about what they are likely to be 
able to achieve and also to point out a few side effects that 
could be troublesome.
    I have to say that, in fact, to really drain half or most 
or all of the water out of this pitcher, we are going to have 
to revisit the terribly difficult and controversial options 
that have been considered by this Congress in the past. Those 
include whether to take that family with $13,000 of income and, 
as the gentleman from Arizona pointed out, really help them, 
not just waive their Federal taxes but to really help her and 
her husband buy health insurance. And that costs money, and 
whether to require an employer to at least make an insurance 
vehicle available, perhaps to contribute to it. That is 
controversial. It could lead to some layoffs, perhaps require 
people to accept that offer and certainly it has more insurance 
market reforms so we don't get all the risk selection. Those 
are the options we need to consider.
    Now, let me just comment very briefly on these two 
proposals, HealthMarts and association plans, and I want to 
underscore the point made by Mr. Arth about the HealthMarts. It 
is nice to have everybody in the same room from the point of 
view of cooperation. I don't believe in confrontation but the 
real progress--we have been studying business coalitions for 15 
years--the real progress comes when buyers are on one side of 
the table and sellers are on the other side of the table. Yes, 
they work cooperatively; but the buyers establish standards and 
they hold the sellers accountable for cost and quality, so I am 
concerned about having all the stakeholders as he said under 
the same umbrella. As I indicated, I also think that the 
ability of the mandate waiver to decrease the number of 
uninsured is quite limited.
    I want to say a few words about association plans. I will 
be happy to comment further in the question period if you want. 
What concerns me with the association plans is that unlike 
HealthMarts which do require entities to offer to all 
employers, in association plans some employers can be offered, 
some can be excluded and you can bet that the ones that are 
going to be attractive to the insurers out there are ones that 
have aerobics instructors who can bench press 300 pounds. That 
is going to be a very attractive risk group; and a group of 
older, sicker workers is not going to be attractive.
    My concern about that proposal is it will undermine some of 
the reforms that have been passed by the States and the Federal 
Government to try to broaden the risk pool. We ought to be 
putting more people in groups like COSE and business coalitions 
and not enticing them like the 16 million people that are 
already in the individual market into that market.
    And so I would just close--I see my time is up--by one 
comment on the tax subsidy. It is $125 billion in foregone 
revenue. There is a lot of money there if you wanted to help 
these families like this one that could be retargeted and my 
concern about some of the tax proposals on the table is that 
they are either insufficient to allow people to buy coverage or 
they would further undermine the employer group market. Thank 
you.
    [The prepared statement of Jack A. Meyer follows:]
  Prepared Statement of Jack A. Meyer, President, Economic and Social 
                           Research Institute
    There are several reasons why more than 43 million Americans are 
uninsured. First, a substantial number of employers do not offer health 
coverage; second, an increasing number of workers are declining 
employer-sponsored coverage, usually because they believe that they 
cannot afford it. Third, the transition from welfare to work often 
leaves people without health coverage.
    Employees of small firms are especially likely to be uninsured. 
Only 49 percent of firms with fewer than 3 to 9 workers were offered 
health benefits in 1998, compared to 95 percent of firms with 50 to 199 
workers.1 The average monthly employee premium contribution 
for all workers was $141 in 1998; for workers in firms with fewer than 
200 employees, however, the average monthly contribution was $194, or 
more than $2,300 a year.2 Particularly among low-income 
workers, the employee contribution toward health coverage can be 
unaffordable. According to one study, the ``take-up'' rate by workers 
who are offered employer-based health insurance fell by 8.2 percentage 
points between 1987 and 1996.3
---------------------------------------------------------------------------
    \1\ The Kaiser Family Foundation, Changes in Employee Health 
Coverage by Small Businesses, February 1999.
    \2\ The Kaiser Family Foundation, Health Benefits of Small 
Employers in 1998, February 1999.
    \3\ Philip F. Cooper and Barbara Steinberg Schone, More Offers, 
Fewer Takers for Employment-Based Health Insurance: 1987 and 1996 
Health Affairs, Vol. 16, No.6.
---------------------------------------------------------------------------
    In total, 44.9 million workers, or 36.5 percent of all workers in 
1997, were employed by firms that did not offer insurance or were 
ineligible for their employer-sponsored coverage (often related to 
insufficient number of hours or weeks they work). While many of these 
workers obtain coverage through a family member, another employment 
source, or individually purchased insurance, more than 40 percent of 
those in firms without health benefits and 37 percent of ineligible 
workers were uninsured.4
---------------------------------------------------------------------------
    \4\ Thorpe, Kenneth E., and Curtis S. Florence, Why are Workers 
Uninsured? Datawatch, Health Affairs, March/April 1999.
---------------------------------------------------------------------------
    Finally, about 16 million people buy coverage on their own in the 
individual market.5 They generally pay significantly more 
for it than those enrolled in group plans, and they enjoy fewer 
protections regarding the ability to get coverage initially, to renew 
coverage, and to avoid large increases in premiums related to a change 
in health status.
---------------------------------------------------------------------------
    \5\ Paul Fronstin, ``Sources of Health Insurance and 
Characteristics of the Uninsured: Analysis of the March 1998 Current 
Population Survey,--EBRI Issue Brief N. 204, Employee Benefit Research 
Institute, December 1998.
---------------------------------------------------------------------------
    Welfare reform is helping many Americans make the transition from 
dependency to work, but it is also beginning to exacerbate health 
coverage problems. ``Front-end'' policies to reduce cash assistance, 
such as diversion and lump-sum payments, coupled with ``de-linking'' 
TANF and Medicaid and ``back-end'' benefit exhaustions, will place many 
people in the gap between Medicaid and employer-sponsored coverage.
    A number of proposals are now under consideration in Congress to 
address these problems. In this testimony, I will briefly address three 
sets of proposals--those involving Health Marts, Association Plans, and 
extensions of health-related tax benefits to people who are not a part 
of employer group health plans or public programs such as Medicare and 
Medicaid.
                   health marts and association plans
    As noted, workers employed by small employers make up a 
disproportionate share of the uninsured. And small firms have had an 
especially difficult time buying reasonably priced health insurance. 
They have thus been a focus of numerous health insurance reforms. The 
proposals for Health Marts and Association Plans have been offered as 
one further step in this reform process.
    Let me say at the outset that I believe collective purchasing 
arrangements--such as the health purchasing cooperatives that have been 
initiated in many states--offer important advantages. They can help 
small employers to buy reasonably priced coverage and to offer 
employees a degree of choice among plans that would not otherwise be 
practical. But it would be a mistake to see Health Marts, Association 
Plans, or any other small-group purchasing arrangement as a major tool 
for reducing the number of uninsured. The reason is that these 
arrangements, by themselves, are unlikely to reduce the cost of 
coverage sufficiently to bring most small firms not now offering 
coverage under the insurance umbrella.
    In judging these proposals, it is also essential to determine 
whether they jeopardize hard-won state and federal legislative reforms 
that have already improved the equity and efficiency of the workings of 
the small-group insurance market. These reforms require health plans to 
sell coverage to all small employers seeking it. They guarantee 
portability of coverage as people move from employer to employer. And 
they limit variation of premium rates. Most people agree that these 
represent minimum conditions to make coverage accessible for higher-
risk groups. If not very carefully crafted, there is a danger that 
Health Marts and Association Plans could undercut these efforts.
Health Marts
    Health Marts, as outlined in the bill passed by the House in the 
last Congress, bear many similarities to purchasing cooperatives. They 
would offer multiple health plans (at least two), would conform to 
state rating laws, and must accept all small employers. But unlike 
cooperatives, they would be free of state mandates that require 
coverage of certain benefits and certain providers. Thus they might be 
able to offer a less costly benefit package. They would also not be 
required to offer a set of standardized benefits. And they would be 
governed by boards of employers, employees, health plans and insurers, 
and health care providers. Thus, they would not be agents of the 
purchasers of health care but would represent all the interested 
stakeholders.
    On balance, it is not clear that Health Marts would do much to 
entice small groups not now covered into the insurance market. Although 
organized small business has long objected to mandates, eliminating the 
requirement may not cause the price of coverage to fall sufficiently to 
induce many uninsured small employers to buy coverage. Many uninsured 
small firms are marginal operations that could not afford even a 
stripped-down plan. Even the most optimistic estimates of the impact of 
eliminating mandated benefits or implementing Association Plans suggest 
that perhaps 10 percent to 20 percent of uninsured people would become 
covered, leaving unaffected 80 or 90 percent of the currently 43 
million uninsured. Moreover, lean benefit packages that have been 
available in many states subsequent to small-group reform have not sold 
well. Such limited-benefit plans do not seem to have broad appeal, and 
they still may too costly to be affordable to many small employers.
    There is also reason to be concerned that, because they can operate 
in non-contiguous counties, Health Marts could engage in ``red-
lining,'' choosing to operate only where they can avoid high-risk 
groups. In addition, if they do not offer standardized benefit packages 
and leave the decision about benefits up to insurers, health plans will 
be tempted to craft benefits packages to attract primarily low-risk 
employees. Such risk segmentation endangers the reforms that have 
encouraged broader risk pooling.
    Finally, it is apparent that requiring that the governing board 
include providers and health plans builds in a severe conflict of 
interest: providers and insurers could not aggressively represent the 
interests of the people buying and paying for coverage--that is, 
employers and employees.
Association Plans
    Association Plans would not have to conform to state laws mandating 
coverage of certain benefits and providers. In addition, they would be 
able, under certain circumstances, to offer a self-insured health plan. 
They would thus generally not be subject to state insurance regulation. 
The expectation is that health coverage could be less expensive, for 
four reasons: no mandated benefits; no charge to cover premiums taxes; 
fewer costs of complying with state insurance regulation; and savings 
associated with not having to pay an insurer to take on risk.
    The feature of Association Plans that is unique is also the most 
serious cause for concern: they can self-insure and are not required to 
sell coverage to any small employer seeking it but only to members of 
the sponsoring association. That features poses a serious potential 
threat to the preservation of a broad risk pool. Association Plans 
could offer relatively low premiums if they provide coverage primarily 
to employers with below-average risk--for example, to firms employing 
younger, healthier workers. But this would raise the price of insurance 
for all those remaining in the ``outside'' risk pool and jeopardize 
small-group market reform.
    Even many existing associations will not represent a cross section 
of risk. If a high proportion of those with members who are relatively 
healthy decide to offer Association Plans--perhaps with the help of an 
enterprising consultant--that alone could cause a significant dilution 
of the small-group risk pool. And unless the law precludes doing so, 
lower-risk groups will have a strong incentive to join some existing or 
newly formed association for the purpose of getting less expensive 
health coverage for themselves by excluding from membership groups that 
exhibit higher-risk profiles. If there were no restrictions on who 
could form an association for purposes of getting health coverage, we 
would surely see a proliferation of associations that bring together 
just lower-risk employers who then self-insure.
    Those who wrote the proposal for Association Plans are mindful of 
the dangers of risk selection. They include several important 
provisions to limit the potential for excluding higher-risk groups and 
individuals. But the rewards for being able to risk-select and self-
insure are so great that there is still a danger that some insurers and 
entrepreneurs will find creative ways to skirt the intention of the 
legislation.
    On balance, it seems likely that implementation of Health Marts and 
Association Plans would not initially produce a massive shift from 
other kinds of coverage. But over the long run, there may be greater 
cause for concern that they will cause a dilution in the small-group 
risk pool and threaten access for firms with above-average risk. (For a 
more detailed analysis of the advantages and disadvantages of Health 
Marts and Association Plans, see Small Employer Health Insurance 
Purchasing Arrangements: Can They Expand Coverage? which my colleague 
Elliot K. Wicks and I prepared for the National Coalition on Health 
Care.)
    extending tax subsidies as a mechanism to reduce the number of 
                               uninsured
    There are significant health-related tax subsidies under current 
law, primarily benefiting the nearly two-thirds of non-elderly people 
insured under employment-sponsored health coverage.6 The 
subsidies take the form of income tax exclusions and deductions. The 
total value of these subsidies was nearly $125 billion in 1998. The 
bulk of this loss in tax revenue, $111.2 billion, was incurred by the 
federal government. The remainder, $13.6 billion, was foregone state 
income taxes.7
---------------------------------------------------------------------------
    \6\ Lyke, Bob. Tax Benefits for Health Insurance: Current 
Legislation, CRS Issue Brief, Congressional Research Service, The 
Library of Congress, Updated April 5, 1999.
    \7\ Sheils, John and Paul Hogan, Cost of Tax-Exempt Health Benefits 
in 1998, Datawatch, Health Affairs, March/April 1999.
---------------------------------------------------------------------------
    The largest health-related subsidy under current law is the ``tax 
exclusion.'' Health insurance contributions by employers are excluded 
from employee gross income when determining income tax liability. This 
exclusion applies to coverage in firms that self-insure as well as to 
conventional insurance premiums, and resulted in foregone federal 
revenues of $65.9 billion in 1998.8 Employer health 
insurance contributions are also excluded from employment taxes (both 
the employee's and the employer's share of Social Security, Medicare, 
and unemployment taxes).9 The value of this tax loss to the 
federal government was approximately $36 billion in 1998.10
---------------------------------------------------------------------------
    \8\ Exception: benefits received by ``highly compensated employees 
under discriminatory self-insured plans'' are partly taxable. (Lyke, 
1999, p.2); Sheils and Hogan, 1999.
    \9\ In addition, benefits paid under accident and health insurance 
policies purchased by individuals and under public insurance programs 
such as Medicare and Medicaid are excluded from gross income, with some 
exceptions (Lyke, 1999)
    \10\ Sheils and Hogan, 1999.
---------------------------------------------------------------------------
    Other health-related tax subsidies include 1) the medical expense 
deduction for households, which is geared only toward individuals or 
families who itemize their deductions; they may deduct unreimbursed 
medical expenses that exceed 7.5 percent of adjusted gross income; 2) a 
deduction for the self-employed; 3) health benefits provided through 
cafeteria plans and flexible spending accounts; and 4) certain medical 
savings account contributions.
    The tax exclusion fails tests of both ``horizontal'' and 
``vertical'' equity. The exclusion does not treat people with equal 
incomes equally (only people obtaining health coverage through 
employment benefit from the exclusion) and it is regressive--the 
subsidy rises as income increases.
    People in the highest marginal tax brackets--those most able to 
afford coverage and thus with the least need for subsidies--receive the 
largest tax subsidies. Those individuals without any tax liability--
often the working poor and near-poor--typically receive little or no 
subsidy. In 1998, the average tax subsidy was $1,031 per family; yet, 
families with incomes of $100,000 or more received subsidies averaging 
$2,357; families with income under $15,000 received only $71 on 
average. Nearly 70 percent of health-related tax subsidies went to the 
36 percent of the population with incomes of $50,000 or 
more.11
---------------------------------------------------------------------------
    \11\ Sheils and Hogan, 1999.
---------------------------------------------------------------------------
    The tax exclusion also leads to the overpurchase of health 
insurance and the overuse of health services.
Congressional Proposals
    Numerous federal tax reform bills have been proposed in both the 
last legislative session and the current one, and more are expected to 
be introduced by both Republicans and Democrats.12 The 
details and mechanisms in these proposals vary, but they generally 
share common goals. Their primary objective is to encourage more 
uninsured people to purchase individual insurance by reducing the net 
cost of the coverage. The reforms are also designed to improve equity 
by providing tax benefits to those outside of employer-based coverage 
that are similar to those already enjoyed by people inside this system. 
They tend to target individuals who do not have access to employment-
based insurance. Some proposals also would assist those with employer-
subsidized coverage to pay for the employee's share of the premium.
---------------------------------------------------------------------------
    \12\ See, for example, HR 1136 (Norwood); HR 1819 (McDermott); HR 
448 (Bilirakis) and HR 614 (Archer). These and other bills are analyzed 
in a forthcoming paper that Sharon Silow-Carroll and I have prepared 
for the Kaiser Family Foundation.
---------------------------------------------------------------------------
    While making insurance more affordable to some individuals, the 
overall scope of most of these tax reform proposals is limited. They 
represent incremental steps toward expanding health coverage. They 
leave intact the current tax exclusion, with its inherent inequities 
and inefficiencies, and they do not address the serious problems in the 
individual market.
    A longer term, more fundamental concern involves the potential of 
these proposals to erode the employer-based health coverage system. 
While the objective is to induce only the uninsured to enter the 
individual market, an unintended side effect could be to induce some of 
the people currently in the group market to switch to individual 
coverage. Those who could find it advantageous to make this switch are 
healthier, lower-risk people who might find it less costly to buy 
subsidized individual coverage than to pay their portion of their 
employer's group premium. Group plans would be left with the less 
healthy, higher-risk, and thus higher-cost enrollees.
    Simply extending partial tax credits to people outside the 
employer-based system while leaving the inequities and inefficiencies 
of the current tax exclusion intact is not likely to contribute to a 
significant reduction in the number of uninsured. Congressional 
proposals use either dollar caps set well below the cost of coverage, 
or cover only a portion of the premium (e.g. 30 percent). They are not 
likely to lower the cost of coverage enough to bring large numbers of 
the uninsured into the individual coverage market.
    Instead of putting more people into the individual market--with all 
of its risk selection and the danger of drawing people out of the 
employer-group market--we should find bolder ways to move people into 
employer group coverage or other comparable large risk pools. In this 
way, costs can be widely shared. To achieve a significant reduction in 
the number of uninsured, we should cap, and eventually eliminate the 
current tax exclusion and use a portion of this money to provide well-
targeted and fully adequate subsidies to people based on financial 
need. Some elements of this idea have been recommended by Eugene 
Steuerle at the Urban Institute and Gordon Mermin at the University of 
Michigan.
    Finally, to substantially reduce the number of uninsured, we may 
have to consider a requirement that employers offer at least an 
insurance vehicle to their workers, and perhaps require some limited 
employer contributions. This could be coupled with requirements that 
individuals obtain coverage (as long as those who cannot afford it are 
assisted). Such requirements, of course, could generate certain adverse 
side effects (e.g. some job loss associated with any requirements on 
employers).
    As health care spending accelerates and the number of uninsured 
continues to rise, we need to debate bold reforms that can 
substantially improve access to affordable health care. The proposals 
reviewed here are relatively low-risk, but the potential gains are also 
small.

    Mr. Bilirakis. Thank you Mr. Meyer.
    Ms. Baumgardner.

               STATEMENT OF CHRISTINE BAUMGARDNER

    Ms. Baumgardner. Thank you, Chairman Bilirakis, ranking 
member Brown, members of the subcommittee. I want to thank you 
for the opportunity to testify today on legislation to improve 
the ability of community health centers to provide our brand of 
high-quality cost-effective care to greater numbers of 
privately insured Americans.
    My name is Chris Baumgardner, and for the last 15 years I 
have been the executive director of Alcona Health Center in 
Lincoln, Michigan. It is located in northeastern Michigan in 
the lower peninsula, a rural area, and our service delivery 
area is roughly the size of the State of Rhode Island. In the 
center of that service area is Alcona county, about 700 square 
miles. And in that county we are the sole provider of health 
care.
    I am also a member of the board of directors of Community 
Choice Michigan, which is a licensed not-for-profit HMO that is 
owned and was developed by 17 federally qualified health 
centers in the State of Michigan.
    Before I begin my testimony, I would like to thank Chairman 
Bilirakis, ranking member Brown, and the other members of the 
subcommittee for their leadership in the efforts to secure 
sufficient funding to help health centers continue their 
mission for the uninsured.
    Believe me when I say that without your leadership, health 
centers would not be able to fulfill our safety net role.
    In addition, I would like to thank Representatives Burr and 
Towns for their upcoming efforts to secure health centers a 
prospective payment system from Medicaid. In Michigan for a 
brief period of time in 1 year, in 1998, community health 
centers actually operated on something very similar to this 
proposed prospective payment system and it was quite effective.
    Again, this kind of a commitment is what we need to keep 
our safety net strong in community health centers.
    But today what I want to do is I want to give you the 
perspective of a health center managed-care plan that has 
already successfully entered the managed-care market and argue 
that the efforts in the creation of community responsive 
managed-care entities will yield real benefits to patients and 
employers.
    We developed Community Choice Michigan because the State 
was rapidly moving to mandated Medicaid managed care. It was 
our best opportunity to use the power of collaboration to 
facilitate information sharing and develop best practices.
    CCM also gives health centers the opportunity to build 
vertical health system relationships and clinical networks to 
support and enhance the centers' positions in their 
communities. It has allowed Medicaid and other patients in 
underserved areas to continue receiving care in health centers. 
And perhaps most importantly, it has allowed Michigan health 
care centers to become successful in the managed-care market, 
thereby ensuring that we will be able to continue our core 
mission, and that is to make health care affordable and 
accessible to everyone, regardless of the ability to pay.
    Efforts to expand private insurance into medically 
underserved areas can build on the expertise of health centers 
in serving underserved communities. Health centers can do this 
by bringing together different providers to form a 
comprehensive coordinated care plan that is uniquely tailored 
to the needs of the community.
    I believe that a plan organized by a health center can 
attract a different kind of customer than would a traditional 
insurance plan. Small employers such as grocers and coffee 
shops, restaurants et cetera in medically underserved areas 
that are looking for a product that is cost efficient and is 
oriented toward primary preventive care.
    As entry points into the health care system for the 
uninsured as well as cost-effective managers of primary care 
services, health centers are the natural access points for a 
different type of coverage. In our efforts to create Community 
Choice Michigan, we encountered financial and bureaucratic 
hurdles that seemed to be overwhelming. In our case, the 
State's financial requirements were exceedingly burdensome, the 
solvency requirements that you have to have cash on hand for 
health centers to meet. And if it had not been for some 
extraordinary action and assistance we would not have been able 
to form CCM.
    This is because by and large health centers do not have 
excess resources to attempt such an endeavor. Resources that 
are earned from the health center are reinvested back into the 
communities they serve either through expanded services or 
expanded delivery sites. Even if we are in the black, we still 
may not have the cash on hand for these efforts.
    Strong financial standards are needed to protect enrollees 
but should take into account the financial realities of 
medically underserved communities.
    The community health organization legislation would have 
been very helpful to the efforts of the health centers to 
create an HMO in Michigan. Had we been able to waive the State 
HMO requirements issue, we would have avoided excessive delays 
in the processing of the license, discrimination against health 
plans, and inappropriate financial requirements.
    Mr. Bilirakis. Please summarize if you would.
    Ms. Baumgardner. I guess what I want to say finally is that 
we feel that this waiver of these requirements is an excellent 
beginning and is an excellent idea. It is not the cure all. We 
do not believe it will solve the problems in delivering health 
care to the uninsured, but it certainly is a start.
    We would hope that we can continue to have support for 
community health centers to help us remedy our problems with 
the Balanced Budget Act Medicaid issues and hopefully get some 
support for additional Federal funds to serve the uninsured. 
Those are topics that I would happily entertain questions on. 
Thank you very much.
    [The prepared statement of Christine Baumgardner follows:]
Prepared Statement of Christine Baumgardner, Executive Director, Alcona 
                             Health Center
    Chairman Bilirakis, Ranking Member Brown, Mr. Dingell, Mr. Stupak, 
Mr. Upton, members of the subcommittee; thank you for the opportunity 
to testify today on legislation to improve the ability of community 
health centers to provide our brand of high quality, cost effective 
care to greater numbers of privately insured Americans.
    My name is Christine Baumgardner and I am the executive director of 
Alcona Health Center in Lincoln, Michigan. I am also a member of the 
Board of Directors of Community Choice Michigan (CCM), a licensed, not-
for-profit health maintenance organization (HMO) owned by 16 Federally-
qualified health centers (FQHCs) across Michigan.
    Before I begin my testimony, I would like to thank Chairman 
Bilirakis, Ranking Member Brown, and the other members of the 
subcommittee for your leadership in efforts to secure sufficient 
funding to help health centers continue their mission to care for the 
uninsured. Without your leadership, health centers would not be able to 
fulfill the vital safety net role that we perform today.
    In the time that I have today, I hope to give you the perspective 
of a health center managed care plan that has already successfully 
entered into the managed care market and is competing for Medicaid 
patients. I would also like to argue that the social benefits of having 
community-responsive managed care entities in place will produce real 
benefits in enhancing the trust of the American people in today's 
health care system.
    The establishment of Community Choice Michigan reflected a 
strategic response by FQHCs in anticipation of the State moving to 
mandated Medicaid managed care. It also reflects the best opportunity 
for FQHCs to control their own destiny in the growing managed care 
market and to use the power of collaboration to facilitate information 
sharing and develop best practices. In addition, CCM gives health 
centers the opportunity to build relationships and clinical networks to 
support and enhance the centers' position in their communities. It has 
allowed Medicaid and other patients in medically underserved areas to 
continue receiving care at health centers. Perhaps most importantly, it 
has allowed health centers to become successful in the managed care 
market, thereby ensuring that health centers will be able to continue 
with their core mission--to make health care affordable and accessible 
to everyone, regardless of the ability to pay.
    As of today, CCM has 56,000 enrolled members and is currently 
serving members in nearly half of Michigan's counties. As of December 
31, 1998, CCM's net worth was $4.5 million and cash and short-term 
investments are $13.9 million.
    It is my hope that my testimony today will give you some insight 
into the unique difficulties that health centers have in creating 
managed care plans and the importance of the Community Health 
Organization provisions that you are discussing.
    Legislation making it easier for community health centers to become 
involved in the managed care market is essential to ensuring that 
health centers survive and thrive in today's health care system.
    Why?
    Today, over 85% of all individuals in the privately insured market 
are in some form of managed care plan. It is unlikely, given efforts to 
control the cost of health care on the part of public and private 
purchasers, that fee-for-service medicine will return.
    Efforts to expand private insurance into medically underserved 
areas in which it has been traditionally difficult to provide both 
coverage and care can build on the expertise of health centers in 
serving underserved communities. Health centers can do this by bringing 
together different providers in a community to form a comprehensive 
coordinated care plan that is uniquely tailored to the needs of the 
community.
    However, health centers' participation in the managed care market 
as owners of managed care plans is qualitatively different than their 
participation as subcontracting providers to a managed care plan. 
Health centers face unique problems as subcontractors. In many cases, 
reimbursement rates under most managed care contracts do not come close 
to covering the cost of providing care to health center managed care 
patients. Underpayments from managed care plans reduce amounts that can 
be spent on the uninsured--threatening their statutory mission to make 
care accessible to everyone, regardless of their ability to pay. When 
health centers decide to establish a community based managed care 
organization, they can adapt the services and rate structure of the 
plan to the unique needs of medically underserved communities.
    In addition, health centers believe that the way to control costs 
in the health care market is to do what we do best--providing 
comprehensive primary and preventive care services. Keeping people 
healthy should be the first goal of the health care system. Health 
centers take that as a core principle of our work.
    I believe a plan organized by a health center can attract a 
different type of customer than would a traditional insurance plan--
individuals and small employers, such as groceries and coffee shops, in 
medically underserved areas that are looking for a product that is 
cost-efficient yet oriented towards preventive care. As entry points 
into the health care system for the uninsured, as well as cost-
effective managers of primary care services, health centers are natural 
access points for a different type of coverage.
    As a member of a managed care plan owned by health centers, I 
believe that community health organizations can become entities that 
meet a special niche in today's health care system. CHOs will ensure 
that coordinated care plans are operated by providers that understand 
the health care needs of their communities. These plans will be 
operated by local community based providers, whose primary mission is 
to meet the health care needs of the communities they serve and tailor 
their products toward the employers of that community.
    CHOs will enhance competition among commercial managed care plans 
for the better. If CHOs are successful, they will provide strong 
competition for commercial plans because they will deliver care that is 
responsive to the needs of their communities. The owners and operators 
of the plans will be people from the communities. Competition will 
drive quality up while driving costs down.
    The Community Health Organization legislation would have been very 
helpful in the efforts of health centers in Michigan to create an HMO. 
Repeatedly, we encountered hurdles that disincentivized us from 
pursuing this course of action. If the CHO provisions had been in place 
and provided the options for waiving State HMO requirements, including 
excessive delays, discrimination against health center plans, or 
inappropriate financial requirements, this would have benefited our 
efforts.
    Before I discuss some of the barriers we overcame, I would like to 
state unequivocally that we believe that there needs to be strong 
financial standards in place to protect member health centers and the 
patients we serve. These protections should ensure that financial 
problems will not disrupt the delivery of health care services. I 
support strong financial standards for these reasons.
    However, I also believe that financial standards that fail to take 
into account the difficulty of setting up plans to care for unique 
health populations in medically underserved communities, and even 
institutional biases against non-insurance based plans, create 
inappropriate barriers for patients to benefit from services that could 
be provided by a health center-operated plan. That is why allowing a 
community-based plan, organized by a health center, to apply for a 
waiver of State licensure requirements is important in giving health 
centers the option to overcome hurdles to entering into the market.
    In our case, the State's financial requirements were exceedingly 
burdensome for health centers to meet, and if it were not some 
extraordinary action and assistance, we never would have been able to 
form CCM. This is because, by and large, health centers do not have 
excess resources to attempt such an endeavor. Resources earned from the 
health center are reinvested back into the communities they serve--by 
maintaining or expanding health care services or service delivery 
sites. If health centers are in the black, they may not have the cash 
on hand to invest in such efforts. Financial standards, while retaining 
the need to protect enrollees, should be developed to take into account 
the financial realities of the medically underserved communities served 
by health centers.
    To meet the State financial standards for managed care plans, the 
health centers involved in CCM had to assemble funds in three ways. 
Each health center contributed $22,000 in non-grant revenues. We 
entered into a complicated loan arrangement with the management 
services organization that provides administrative services for CCM. We 
worked with the State to have supplemental Medicaid payments to the 
health center withheld to help satisfy the solvency requirements.
    Additionally, CCM member centers wanted to ensure that CCM remained 
a not-for-profit entity, despite the fact that its created additional 
hardships because we didn't have financing from other outside sources. 
However, we felt this was a better move for a number of reasons. First, 
as a not-for-profit entity, CCM would enable health centers to continue 
with their mission to care for the uninsured. Second, we were concerned 
that, if we were forced to go to outside investors, health centers 
would not have been able to take full advantage of the financial 
benefits associated with creating the HMO in order to reinvest funds to 
care for the communities. Finally, we also wanted to retain control 
over patients and medical policies that we may have been forced to 
relinquish if outside entities with a financial interest in the 
profitability of the HMO been involved.
    In addition to the financial hurdles, we also confronted 
bureaucratic entanglements that slowed and delayed the process of 
approving our license. At the request of the State, we submitted reams 
of information in our HMO application, only to have those reams 
returned to us because of bureaucratic hassles. Each time this occurs, 
it costs health centers additional, already scarce resources to rework 
and refile the application or the information requested. I do not mean 
to imply that these actions were taken to prevent Michigan health 
centers from obtaining an HMO license, but such things have happened to 
other providers seeking to create HMOs. The ability of health centers 
to waive State requirements and fall under Federal standards because of 
excessive delays in action on a license or discrimination against the 
health center plan would ensure that States respond to a CHO 
application in a fair and timely manner.
    Each of these things created hurdles to the creation of a socially 
responsive, community-based managed care organization. Congress has 
historically supported health centers because they are responsive to 
their communities. The CHO provisions would continue that commitment 
and bring the community-based nature of health center care to the 
managed care world.
    Health centers are well acquainted with issues of the uninsured--
forty percent of health center patients nationwide lack health 
insurance coverage. Most of these people are the working poor who do 
not qualify for Medicaid, but neither they nor their employers lack the 
resources to purchase insurance for themselves and their families. We 
believe that Congress should do everything within its power to expand 
access to health care for all Americans.
    The Community Health Organization provisions should not be viewed 
as a panacea to cure all that ails America=s struggling safety net, but 
as a tool to expand access to care in appropriate circumstances. 
Nationwide, health centers have seen over a million new uninsured 
patients in the last three years. That pressure, combined with the 
pending elimination of the payment system that ensures that Medicaid 
pays health centers what it costs them to provide care to Medicaid 
patients, are two issues that must be addressed. If these pressures 
force health centers to cut services or close their doors, health 
centers will not be able to participate in the formation of community 
health organizations.
    Whatever the approach, however, no effort to expand coverage will 
be successful without the proper health care infrastructure in place to 
serve the newly uninsured. America=s community, migrant, and homeless 
health centers provide the foundation and the framework for any more 
comprehensive efforts to expand health care coverage for the uninsured. 
Therefore, protecting and preserving health centers as essential 
community providers should be the top priority and the first step in 
any effort to expand health care coverage to the tens of millions of 
uninsured Americans today.
Conclusion
    In conclusion, I would ask the members of the Subcommittee to look 
at a holistic approach to dealing with the problems of the uninsured. 
Congress cannot make health insurance more affordable or increase 
coverage without simultaneously ensuring that the safety net providers 
that form the backbone of America=s health care system in medically 
underserved areas remain effective and strong.
    Protecting community health centers and ensuring that health 
centers can maximize their unique role in the health care system, while 
also fostering the historic role of health centers to make health care 
affordable to everyone, should be a top priority of this Congress.
    Thank you for the opportunity to testify. I look forward to 
answering any questions you may have.

    Mr. Bilirakis. Mr. Carlson, you are on, sir.

                STATEMENT OF RICHARD W. CARLSON

    Mr. Carlson. Thank you very much, Mr. Chairman and members 
of the committee. My name is Richard Carlson. I am the 
executive director of the Illinois Comprehensive Health 
Insurance Plan. On behalf of the board of directors of our 
Illinois CHIP program and the more than 7200 Illinois residents 
who are currently participating in this state program, I want 
to thank you for the opportunity to testify before your 
committee.
    My testimony today will focus on how Illinois has used its 
highly successful state risk pool, commonly known as CHIP, to 
comply with the individual requirements of the Health Insurance 
Portability and Accountability Act of 1996, or HIPAA. While 
other states have reported serious disruptions and large 
premium increases resulting from guaranteed issue in their 
individual health insurance markets, Illinois has not 
experienced any such problems.
    CHIP has been designated as Illinois' alternative mechanism 
for implementing these individual portability requirements, and 
thousands of eligible Illinois residents who have exhausted 
their rights to continue prior group coverage and have run out 
of options for securing their own individual policy are now 
obtaining comprehensive medical coverage with CHIP with no 
exclusions for preexisting conditions.
    Deficits for the coverage afforded to these federally 
eligible individuals are covered by a broad-based assessment 
levied against all health insurers and health maintenance 
organizations doing business in Illinois.
    For the first 2 years of this program, assessments for this 
new HIPAA CHIP pool have been $7.5 million and $6.7 million, 
respectively. These assessments have been levied against a 
nearly $10 billion premium base in Illinois that is collected 
by all health insurers and HMOs doing business in Illinois and 
has amounted to less than .08 of 1 percent of total direct 
Illinois premiums.
    As of the end of May of this year, 23 months into this new 
program, we have a total of 2,685 federally eligible 
individuals who have enrolled in one of two alternative health 
benefit plans that are offered by this program. Total 
enrollment for these two plans as of the end of May is 2,099.
    And I think it is important to point out that of the 586 
people who have enrolled in the program and subsequently 
terminated, many of them have written us and advised us that 
they have been able to obtain other coverage in the private 
market, but were very grateful for having the opportunity to 
access CHIP in the interim.
    The use of CHIP to comply with these individual 
requirements of HIPAA has clearly been the right decision for 
Illinois. By using a broad-based assessment, it has been 
possible to spread the cost of insurance for these high-risk 
individuals across the entire health insurance industry in our 
state. As a result, the individual health insurance market in 
Illinois, which is very price sensitive and amounts to 
approximately $800 million in annual premiums, has not been 
forced to fully absorb and subsidize these costs.
    This has allowed the individual health insurance market in 
Illinois to remain stable and not experience the significant 
increases in premiums that have occurred in many of the Federal 
fall-back States that have chosen to implement the guarantee 
issue requirements in HIPAA. With few exceptions the same 
insurers continue to offer individual health insurance policies 
in Illinois without significant increases in premiums which are 
being charged for those policies.
    The broad-based assessment feature of our alternative 
mechanism has resulted in considerable cost sharing and risk 
spread for the new HIPAA CHIP pool without being disruptive to 
Illinois' viable health insurance market. Based on other 
states' experiences, Illinois residents whom this Federal law 
was designed to serve are also being provided coverage at a 
cost that, in all likelihood, is lower than it would be if the 
individual health insurance market had been accessed directly.
    Illinois' original CHIP program is now 10 years old and 
continues to be funded by an annual appropriation which the 
CHIP board receives from the State's general revenue fund each 
year. Since its first policy was issued in 1989, CHIP has 
served more than 17,000 Illinois residents from all 102 
counties who have qualified for this coverage.
    We have paid out $330 million in benefits on behalf of 
these CHIP participants. The average annualized premium paid by 
participants in our program is currently about $3,800. And 
these premiums cover only approximately 45 percent of the total 
cost of CHIP providing coverage to these participants.
    A State health benefits risk pool like CHIP would do 
relatively little to increase access to health insurance for 
the medically uninsurable if premiums for this program were 
priced according to each individual's actual risk, based on his 
or her health status. Premiums in that case would have to be 
approximately twice their current level; and, therefore, the 
premiums have to be subsidized by the state or an industry 
assessment.
    CHIP's story, in conclusion, is one of people and of a 
classic public-private partnership that directly improves the 
lives of the individual itself that it provides coverage for. 
And the impact of this program has gone well beyond those that 
it has directly served.
    Mr. Chairman, I would offer to the committee if you would 
like, for the record, our State has produced an educational 
video about our program and about HIPAA that is mentioned in a 
GAO report that was just released. And I would offer that for 
the record, as well as historical report.
    Mr. Bilirakis. Without objection, that will be offered for 
the record. I am not sure how we handle it from the standpoint 
of publishing it. Thank you very much, Mr. Carlson.
    [The prepared statement of Richard W. Carlson follows:]
Prepared Statement of Richard W. Carlson, Executive Director, Illinois 
                  Comprehensive Health Insurance Plan
    Good Morning, Mr. Chairman, and members of the Committee. My name 
is Richard W. Carlson, and I am the Executive Director of the Illinois 
Comprehensive Health Insurance Plan (CHIP).
    On behalf of the Board of Directors of the Illinois CHIP program, 
which is chaired by the Director of Insurance for the State of 
Illinois, Nat Shapo, and the more than 7,200 Illinois residents who are 
currently participating in this state program, I want to thank you for 
the opportunity to testify today before your Committee.
    Illinois' CHIP program is a state health benefits risk pool which 
has been established and maintained by the State of Illinois since 1989 
to provide health insurance coverage for thousands of eligible Illinois 
residents who can afford, but are unable to purchase, adequate coverage 
in the private market due to the existence or history of a chronic 
illness, disability or other high risk medical condition.
    My testimony today will focus on how Illinois has used its highly 
successful state health benefits risk pool, commonly known as CHIP, to 
comply with the individual requirements of the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA). While other states 
have reported serious disruptions and large premium increases resulting 
from guaranteed issue in their individual health insurance markets, 
Illinois has not experienced any such problems.
    CHIP has been designated as Illinois' alternative mechanism for 
implementing these individual portability requirements in HIPAA. 
Thousands of eligible Illinois residents who have exhausted their right 
to continue prior group coverage and have run out of options for 
securing their own individual policy are now obtaining comprehensive 
medical coverage with CHIP with no exclusions for pre-existing 
conditions.
    Deficits for the coverage afforded to these federally eligible 
individuals are covered by a broad-based assessment levied against all 
health insurers and health maintenance organizations doing business in 
Illinois. For the first two years, fiscal 1998 and 1999, assessments 
for this new HIPAA-CHIP pool have been $7.5 million and $6.7 million 
respectively. These assessments have been levied against the nearly $10 
billion in premiums collected by all health insurers and HMO's in 
Illinois, and have amounted to less than 8/100th of 1% of total direct 
Illinois premiums.
    As of May 28, 1999, or 23 months into this new program, 3,662 
applications had been received for HIPAA-CHIP, and a total of 2,685 
federally eligible individuals had enrolled in one of two alternative 
health benefit plans. Total in force enrollment for these two plans as 
of May 28, 1999, was 2,099. Many of the 586 individuals who have 
enrolled and subsequently terminated have written and advised us that 
they had been able to obtain other coverage in the private market, but 
were very grateful for the opportunity to access CHIP in the interim.
    The use of CHIP to comply with the individual requirements of HIPAA 
clearly has been the right decision for Illinois. By using a broad-
based assessment, it has been possible to spread the cost of insurance 
for these high-risk individuals across the entire health insurance 
industry in our state. As a result, the Illinois individual health 
insurance market, which is very price sensitive and amounts to 
approximately $800 million in annual premiums, has not been forced to 
fully absorb and subsidize these costs.
    This has allowed the individual health insurance market in Illinois 
to remain stable and not experience the significant increases in 
premiums that have occurred in many of the ``federal fall-back'' states 
that chose to implement the guarantee issue requirements in HIPAA. With 
few exceptions, the same insurers continue to offer individual health 
insurance policies in Illinois without significant increases in the 
premiums which are being charged for those policies.
    The broad-based assessment feature of our alternative mechanism has 
resulted in considerable cost sharing and risk spreading for the new 
HIPAA-CHIP pool without being disruptive to Illinois' viable individual 
health insurance market. Based on other states' experiences, Illinois 
residents whom this federal law was designed to serve are also being 
provided coverage at a cost that, in all likelihood, is lower than it 
would be if the individual health insurance market were accessed 
directly.
Building on the Success of Original CHIP Program
    When the Comprehensive Health Insurance Plan (CHIP) Act was 
approved on February 9, 1987, Illinois became the 15th state to 
establish a health insurance plan for those residents whose access to 
medical coverage is denied due to ill health or disability. Illinois 
was also the first state to pledge the use of state revenues to cover 
anticipated deficits between premiums and claims.
    Illinois' original CHIP program is now ten years old and continues 
to be funded in part by an annual appropriation which the CHIP Board 
receives from the State's General Revenue Fund. Since its first 
policies were issued in 1989, CHIP has served more than 17,000 Illinois 
residents from all 102 counties in our state who qualified for this 
coverage. It has paid more than $330 million in benefits on behalf of 
these CHIP participants. At the same time, this state provided health 
care program has remained financially stable and secure while not 
increasing in recent years the amount of the annual appropriation which 
our Governor and General Assembly have so generously approved each 
year.
    The Illinois Comprehensive Health Insurance Plan is one that has 
definitely worked well to serve those who have found it necessary to 
access this program. In fact, it has been recognized as one of the 
premier programs nationwide. In its 1995 monograph, State High Risk 
Pools: The Most Promising Way to Insure the Uninsurable, the Council 
for Affordable Health Insurance (CAHI) provides a case study on the 
Illinois risk pool and identified it as ``one of the more successful 
programs'' among those that are currently operated by 27 states 
throughout the country.
    This monograph noted that state high risk pools (classified as 
state health benefit pools in HIPAA) are mechanisms through which 
people with existing medical conditions can purchase comprehensive 
health insurance at a price that is not commensurate with the 
individuals health status. Premiums are subsidized in this manner for 
such individuals because the price otherwise would be prohibitively 
expensive. In this 1995 monograph, CAHI also suggested that ``state 
risk pools are the most promising mechanism available for ensuring that 
high risk individuals will be able to obtain coverage without 
disrupting the insurance market for the other 99 percent of 
Americans.''
Program Funding
    CHIP is funded partly by premiums paid by participants and, to the 
extent that premiums do not meet anticipated expenses for our original 
CHIP program, by an appropriation from the state's General Revenue 
Fund. A separate industry assessment supports the newer HIPAA-CHIP 
program. The premiums charged by CHIP are currently set at 135% of the 
average rates charged individuals for comparable coverage by five or 
more of the largest insurance companies in the individual health 
insurance market in Illinois.
    The average annualized premium paid by participants in the CHIP 
program is currently about $3,800. These premiums cover approximately 
45% of the total cost for CHIP providing this coverage to all of its 
participants. Premiums for an optional hospital PPO plan, introduced in 
1995, are approximately 20% less than those for the standard indemnity 
plan.
    The CHIP Board of Directors is sensitive to the fact that cost 
continues to be the number one barrier to individuals obtaining health 
insurance today, whether from CHIP or from the private market. A state 
health benefits risk pool like CHIP would do relatively little to 
increase access to health insurance for the medically uninsurable if 
premiums for this program were priced according to each individual's 
actual risk based on his or her health status. Premiums in that case 
would have to be approximately twice their current level. Premiums 
must, therefore, be subsidized by the state or an industry assessment.
    These subsidies allow the cost of insuring the uninsurable in 
Illinois to be spread across a broad segment of our population and it 
helps keep everyone's insurance rates down by pooling the cost of 
treating these high-risk individuals.
    As in previous years, an appropriation from the state's General 
Assembly was once again needed to fund the anticipated deficit for the 
original state-funded pool. This appropriation for CHIP has been able 
to remain relatively level for the past eight years, and is once again 
$17.3 million for Fiscal Year 2000.
CHIP Today
    CHIP's story is one of people and of a classic public/private 
partnership that directly improves the lives of the individuals it 
provides coverage for. The impact of this program has gone well beyond 
those whom it has directly served.
    Total CHIP enrollment today is approximately 7,200.

 The lifetime maximum in benefits for each individual covered 
        by CHIP was increased from $500,000 to $1 million as of July 1, 
        1997.
 Heart disease and cancer remain the two costliest conditions 
        for which CHIP participants receive benefits.
 Forty-five percent of CHIP participants believe that having 
        CHIP improved their employment opportunities.
 CHIP has helped Illinois residents avoid having to access 
        Public Aid's Medical Assistance No Grant Program.
 One-third of CHIP participants believe that having CHIP kept 
        them from filing for bankruptcy.
    The existence of CHIP has given these individuals and their 
families ``freedom from fear'' and allowed them to concentrate on 
fighting their illnesses, rather than having to worry about how they 
are going to pay for their medical care.
    While many, unfortunately, have died after long, painful and 
expensive illnesses, there are also many other inspiring personal 
success stories where CHIP has been able to help provide access to 
lifesaving medical care.
    Its overwhelming success demonstrates that state government can be 
sensitive and responsive to the needs of some of its more vulnerable 
citizens while also controlling costs and restraining the rate of 
growth of a health care program.
Health Insurance Portability and Accountability Act (HIPAA)
    Of major significance for CHIP and its now more than 7,200 
participants was the approval and implementation in 1997 of a major new 
program for CHIP in response to the enactment of new federal 
portability legislation, the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA). Among the many important provisions 
of this major legislation was that it gave the individual states, like 
Illinois, several options for ensuring that ``eligible individuals'' 
have access to individual health insurance coverage on a guaranteed-
issue basis, with no pre-existing condition exclusions.
    After months of study and debate concerning the implications for 
CHIP and its participants, the CHIP Board voted unanimously in 
December, 1996 to recommend to the Governor and General Assembly that 
the existing CHIP program be expanded for this purpose. This 
recommendation was conditioned on the insurance industry agreeing to 
pay a broad-based assessment for funding the anticipated deficits 
resulting from CHIP providing coverage to all of these federally 
eligible individuals.
    A threshold issue concerning the use of CHIP as an acceptable 
``alternative mechanism'' had to do with the fact that if it were not 
used, the cost to insurance consumers in Illinois--and to those whom 
HIPAA would seek to protect--would be higher. Our Department of 
Insurance actuaries believed it was almost certain that guaranteed 
issue of individual policies with no pre-existing condition exclusions 
to all eligible individuals in Illinois would result in a higher cost.
    In the private individual health insurance market, there is no 
mechanism to subsidize increased costs. Therefore, when costs go up, 
all individual policyholders will end up having to pay higher premiums. 
Since these policies are very price sensitive, this in turn will likely 
result in many healthier individuals choosing to drop their insurance. 
This could then very well be the beginning of a ``death spiral'' in 
premium rates for these policies. Only individuals with significant 
medical problems will be willing to pay these ever increasing rates 
which the insurer must charge to cover its increased costs for a 
diminishing group of policyholders.
    In contrast, our CHIP Act places a ceiling on the premium rates 
which persons who are eligible for CHIP are required to pay, and 
provides for subsidization of the resulting deficit from the state's 
General Revenue fund. By using CHIP as an ``alternative mechanism'' to 
offer federally eligible individuals coverage that is guaranteed issue 
with no pre-existing condition exclusions, there is also by statute an 
upper limit on the premium rates which federally eligible individuals 
have to pay, and a means for paying the deficit.
    It should also be noted that CHIP rates are themselves a function 
of the private individual market rates. Therefore, if we did not use 
CHIP as an ``alternative mechanism'' and premium rates for individual 
policyholders in general went up because of the guarantee issue 
requirement, the premium rates for all of our current CHIP participants 
would also automatically increase. As a result, everyone has to pay 
more, there is no means for subsidizing or spreading the risk for 
individuals with significant medical expenses, and the total number of 
uninsured individuals in our state would undoubtedly increase as the 
healthier individuals choose to drop any insurance coverage rather than 
pay the increased premiums.
    Acting on this recommendation, our Governor then submitted a formal 
request to the Secretary of the U.S. Department of Health and Human 
Services in March of 1997 to use CHIP as an alternative mechanism for 
meeting the requirements for access to individual health insurance 
coverage as set forth in Section 111 of HIPAA.
    The Illinois General Assembly also overwhelming approved Senate 
Bill 802 to make the necessary changes in state law to implement the 
federal HIPAA. It also amended the CHIP Act to qualify CHIP as an 
``acceptable alternative mechanism'' for ensuring ``federally eligible 
individuals'' can obtain individual health insurance coverage through 
CHIP with no exclusions for pre-existing conditions. This legislation 
also provided that this new HIPAA-CHIP program was to be funded by an 
assessment of all health insurers, health maintenance organizations and 
voluntary health service plans, and that there be no limitation on 
enrollment or exclusion for pre-existing conditions for these federally 
eligible individuals.
    This legislation was signed by the Governor on June 26, 1997, and 
with the hard work and diligent planning of the existing CHIP Board, 
its staff and Administrator, we then were able to begin enrolling 
federally eligible individuals on July 1, 1997, a full six months 
before the date required by federal law. As of May 28, 1999, 
approximately 2,700 eligible individuals had taken advantage of this 
new program and enrolled in either of the new plans 4 or 5 pursuant to 
a new Section 15 which was added to the CHIP Act by Senate Bill 802.
Using CHIP to Comply with HIPAA was Right Decision for Illinois
    Illinois has received national recognition for its use of CHIP as 
an alternative mechanism for implementing the individual access 
requirements in HIPAA because it has helped maintain and preserve a 
stable individual health insurance market in Illinois. By contrast, in 
a report to Congress on HIPAA in February of last year, the General 
Accounting Office reported that premiums for individual policies had 
increased from 140% to 600% in a number of the ``federal fallback'' 
states that had chosen to implement and enforce the guarantee issue 
requirements in this federal legislation. We are pleased that problems 
of this nature have not been reported in Illinois, and that the use of 
CHIP to meet this new federal mandate has clearly been the right 
decision for Illinois.
    Illinois continues to enjoy a stable individual health insurance 
market because the additional costs of providing this type of 
guaranteed coverage for high-risk individuals is being spread over the 
entire health insurance industry in Illinois with annual premiums of 
almost $10 billion rather than having to be absorbed by the individual 
market with a premium base of approximately $800 million.
    The success of the Illinois HIPAA-CHIP program, which has been able 
to maintain its premiums at 135% of the rate charged by the five or 
more of the largest carriers in Illinois providing similar individual 
coverage, is largely attributable to its ability, by statute, to assess 
a broad base of all health insurance companies and health maintenance 
organizations doing business in Illinois. The direct Illinois premium 
base for this purpose, for both the Fiscal Year 1998 and 1999 
assessments, amounted to nearly $10 billion. This then allowed the 
assessments for each of these two fiscal years of $7.5 million and $6.8 
million, respectively, to be less than 8/100ths of 1% of this large 
premium base.
    As a result, the individual health insurance market in this state, 
which is very price sensitive and amounts to approximately $800 million 
in annual premiums, has not been forced to absorb and fully subsidize 
the costs of these higher cost individuals. This has allowed the 
individual health insurance market in our state to remain stable and 
not experience the significant increases in premiums that the GAO has 
previously reported occurred in several of the ``federal fall-back'' 
states that chose to implement the guarantee issue requirements in 
HIPAA.
    The other important impact that the new HIPAA-CHIP pool has had on 
those enrolled in the traditional CHIP pool concerns the premiums which 
we are required by state law to charge. Since our premiums are a 
function of those charged by the largest insurers in Illinois, our 
participants are also directly benefiting from premiums in the private 
individual market here having remained relatively stable.Summary and 
Close
    Having CHIP to turn to is one of the State of Illinois' real 
success stories that benefits everyone. It helps keep everybody's 
insurance rates down by pooling the cost of treating high risk 
individuals. It's an important stopgap measure for early retirees until 
Medicare becomes available to them, or for those who are between jobs 
or no longer able to work. It allows people to stay self-employed, to 
avoid bankruptcy and to stay off of medical assistance. Without CHIP, 
these devastating medical expenses would be cost-shifted, making both 
medical care and health insurance more expensive for everybody, even 
causing more people to become uninsured as a result of being priced out 
of the market.
    The existence of CHIP has also meant a ``freedom from fear'' for 
many Illinois residents. It has meant that individuals with serious 
medical conditions are able to purchase health insurance and secure 
needed medical treatment without worrying whether or not the bills will 
be paid.
    With the implementation of the new HIPAA-CHIP program, CHIP is now 
more than ever allowing these individuals to lead productive lives 
without the fear that a sudden medical crisis might result in personal 
bankruptcy for them or cause them to end up on Medical Assistance. 
Accessing CHIP coverage allows these individuals to gain and maintain 
employment which they previously might not have been able to because of 
health insurance concerns. There is no doubt that the existence of our 
program has allowed some of the individuals whom we have been able to 
cover to establish their own business or move into a more productive 
type of job for which they have been trained. We also have undoubtedly 
kept many of these people off Medicaid. We have helped to preserve and 
maintain a stable and affordable private individual health insurance 
market in Illinois.
    We look forward to continuing to help meet the health care needs of 
this very special segment of our population. We are delighted and 
honored that the proven track record of this important and successful 
State program has been recognized by our lawmakers at both the state 
and federal level. We very much appreciate our legislator's confidence 
in CHIP by deciding to use our program as an alternative mechanism for 
meeting the individual portability requirements of the federal Health 
Insurance Portability and Accountability Act of 1996.

    Mr. Bilirakis. Mr. Nichols.

                  STATEMENT OF LEN M. NICHOLS

    Mr. Nichols. Thank you, Mr. Chairman. My name is Len 
Nichols. I am a health economist and a principal research 
associate at the Urban Institute. Everything I will say today 
is my opinion alone, which is not necessarily shared by the 
Urban Institute, its trustees, sponsors, or any known person, 
living or dead.
    Much of the research I will describe is coauthored with my 
colleague, Linda Blumberg, who is with us in case I falter 
later in the question period.
    As you have heard today, it is true that health insurance 
market reforms have disappointed some of their advocates. As 
luck would have it, I just completed an extensive review of 
that literature for a conference I attended last week in 
Holland; and I think it is fair to conclude that there has been 
precious little, if any, coverage expansion as a result of 
those reforms.
    Now, this does not mean I would offer that reforms were 
necessarily a failure. They may have increased access for the 
sick while decreasing coverage for the low risk. This is a 
hypothesis and tradeoff that needs careful testing in the 
future. But it is clear that coverage was not expanded, and 
that is what led to the kinds of reforms that we are discussing 
today; and I applaud your committee for taking on this issue in 
such a serious way.
    HealthMarts and association health plans, I think, would 
take a step back from regulation and allow more market freedom 
and market segmentation among risk pools in different ways than 
current market rules allow. And while appealing in some ways, 
these new proposals do raise the recurrent question, and in my 
view the fundamental question of health insurance policy: What 
kind of risk pools do we really want?
    There are two polar answers to this question: Homogeneous 
and purely volunteer versus heterogeneous and partially 
coerced. Homogeneous pools have the virtue of not forcing 
anyone to pay for someone else's expected cost. They serve the 
healthy well with low premiums. But they also leave the 
unhealthy uninsured.
    Heterogeneous pools subsidize access to care for the 
unhealthy, but they discourage care by the healthy who may 
prefer the risk of being uninsured to the burden of that 
implicit tax. Now, all health insurance market reforms 
essentially force more risk pooling than the market would 
achieve on its own. So the hard question before us today is 
would introducing AHPs and HealthMarts into the current mix of 
forced risk pooling lead to increased coverage; and if so, who 
would gain and who would lose the most from such policy change?
    My colleagues and I have built an empirical model to 
address these questions by focusing on the issues faced by 
employers making these choices. Our findings at this point must 
be characterized as preliminary, for they are not yet 
published; but we would be glad to discuss the details of the 
models and the assumptions with your staff, if you would find 
that useful, as we have with other researchers around town.
    The overarching lesson of our simulation results is that 
the composition of the risk pool is much more important than 
the marginal effects of benefit mandates, premium taxes, and 
administrative loads. Premium differences associated with 
different risk pools are much greater than the variance in 
benefit packages in the real world. We find that small firms do 
appear to prefer more risk pooling than insuring alone and 
self-insurance mechanisms would allow. Thus AHPs and 
HealthMarts are attractive because they offer those employers a 
way to achieve an intermediate degree of pooling between none 
and self-insurance and that that is sometimes required by state 
regulations.
    However, there is a cost to this freedom to select into 
AHPs and HealthMarts and that is, as Jack pointed out, the risk 
pool of commercial products and of existing MEWAs could 
deteriorate since AHPs and HealthMarts are likely to be most 
attractive to the lowest-risk groups.
    On net, our model suggests that there is going to be very 
little net overall change in offered rates; and thus we 
tentatively conclude that there will be little effect on net 
coverage. This is because those few who are enticed to offer as 
a result of the new plans are almost exactly offset by those 
who find their premiums go up when their particular risk pool 
deteriorates, both in commercial and in MEWAs.
    We also find that HealthMarts are likely to be less 
attractive to most firms than are AHPs because AHPs have lower 
premiums, they are exempt from premium taxes, they have lower 
solvency requirements, and they also, we think, would have 
lower administrative loads. But the real-world price 
responsiveness which we built into our model led us to believe 
that there is not likely to be a wholesale land rush to AHPs. 
Rather, we think that after 4 years AHPs would cover at most 10 
percent of workers who are currently offered health insurance.
    Furthermore, we predict that those who would choose AHPs 
would come mostly from self-insured arrangements; and most of 
the workers would actually come from medium and large firms, 
those with more than 100 workers, as opposed to the specific 
target group of small employer workers.
    We intend to continue this line of research to test the 
results against alternative assumptions and to adapt this model 
to address the implications of the tax credits that are being 
discussed. We expect to have results on this new model by 
September.
    I would like to devote the last seconds of my oral 
testimony to a comment on high-risk pools because some of the 
empirical work that I have reviewed and some that I have done 
has found a very interesting finding which supports almost 
everything that Mr. Carlson just said and that is that those 
States with high-risk pools without enrollment caps do appear 
to have higher rates of private coverage.
    Now, we don't think the household surveys that we use to do 
these surveys are picking up the 300 people that actually are 
in them. We think that the insurance industry behaves in 
different way when the high-risk valve is there. The high-risk 
valve fundamentally says to the insurers: You don't have to 
worry as much about adverse selection. The truly, truly sick 
are already taken care of. When they are out, we think the 
evidence suggests it is clear they are offering lower premiums 
and therefore the private market works better.
    So a well structured high-risk pool could be a nice 
complement to any other coverage expansion policy. Thank you 
very much.
    [The prepared statement of Len M. Nichols follows:]
Prepared Statement of Len M. Nichols, Principal Research Associate, The 
                            Urban Institute
    As a health economist and as an American citizen I am very pleased 
to be here before you today. My remarks, both written and oral, reflect 
my opinions alone and do not represent those of my employer, the Urban 
Institute, nor of its trustees or sponsors. Most of the papers 
emanating from the research work that is reported upon were co-authored 
with my esteemed colleague, Linda J. Blumberg, who is here today and 
can answer any questions should I falter.
    Four facts have brought us to this policy crossroads: 1) most 
Americans get their health insurance through some employment relation; 
2) most of the uninsured are either workers or dependents of workers; 
3) despite all the policy attention in the last few years, small 
employers are still much less likely than large firms to offer health 
insurance to their workers; and 4) workers in small firms are the most 
likely to be uninsured. These facts suggest that focusing on ways to 
get coverage to workers in small firms is the most important 
incremental reform strategy we could undertake in this country at this 
time. I applaud the committee for recognizing these facts and 
addressing this issue in a thoughtful and serious way.
    At the same time I want to impart just a few words of caution, 
because I've learned the hard way that we all need to maintain modesty 
and think through the complicated interactions among the many parts of 
our health care system before proposing specific policies that will 
most likely help some people but hurt others. Real world health policy 
is almost always about choosing among alternative positions along some 
kind of tradeoff function. ``First Do No Harm,'' was the title of one 
my first published papers on health insurance reform, and I think the 
admonition is a wise one for all policy discussions.
    Most of my research effort is devoted to studying the theory and 
actual consequences of health insurance reform legislation as 
introduced by state, federal, and increasingly, by foreign governments 
around the world. Pursuant to that research interest, with the help of 
my colleagues at Urban and elsewhere, I have built an elaborate model 
that can simulate the choices different kinds employers make about 
offering health insurance to their workers. If our firms decide to 
offer coverage, the model then simulates their preferences among 
possible insurance vehicles, which of course in our country are many: 
commercial insurance, self-insurance, as a participant in a MEWA, or 
perhaps in a new AHP or a Health Mart, where these new options were 
modeled as described in the legislation that was proposed last year in 
the House.
    Our results at this point are best characterized as preliminary, 
but since our ongoing work is so relevant to the topics you are 
discussing today, it seemed useful to share with you our as yet 
unpublished research findings.
    Our simulated employers' choices among their many alternatives 
depend upon the factors we and others believe are most important to 
them in the real world: the relative premiums of the options, which in 
turn depend upon the presence or absence of benefit mandates, premium 
taxes, solvency requirements, different administrative loads, and state 
insurance market regulations.
    All microsimulation models depend upon a long list of technical 
assumptions, which we try very hard to make consistent with what we can 
observe about the real world. These unavoidable assumptions do make all 
our conclusions contingent upon them. Different assumptions would 
produce different results, and Linda and I would be glad to discuss the 
details of our model with you or your staffs at your leisure. Still, 
the overarching lesson that can be distilled from our modeling exercise 
is, I think, quite intuitive: by far the most important element of 
health insurance choices is the risk pool to which groups or 
individuals have access.
    By stressing the importance of the risk pool, I hope to remind you 
all of the principle that all insurance is about pooling risk. Indeed, 
the fundamental health insurance policy debate can be boiled down to a 
question of what kind of risk pools we really want: homogeneous and 
purely voluntary, vs. heterogeneous and partially coerced. Homogeneous 
and voluntary pools have the virtue of forcing no one to pay for 
someone else's expected costs, and they serve the healthy with low 
premiums, but they also often leave the unhealthy uninsured. 
Heterogeneous and community pools have the virtue of subsidizing access 
to care for the unhealthy, but they can discourage coverage of the 
healthy who may prefer the risk of being uninsured to the burden of 
this implicit tax. Policy making is about choosing among these 
desirable yet imperfect alternatives, and wise policy making is about 
trying to balance our competing objectives along the feasible paths 
which good analysts try to describe for you.
    All health insurance market reforms--guaranteed issue, guaranteed 
renewal, portability, limits on pre-existing condition restrictions, 
restrictions on the variance of premiums--all of these reforms force 
more risk pooling than the market alone would achieve. What our 
research shows is that the nature of the resulting risk pools to which 
different firms have access is more important to employer choices about 
health insurance than the presence or absence of benefit mandates, 
premium taxes, and solvency requirements.
    Some firms clearly prefer to go it alone: they have low risk 
workers and dependents and can do quite well through self-insurance, 
especially if they're large enough to enjoy administrative economies of 
scale.
    But most small firms appear to prefer more risk pooling than self-
insurance allows, hence the relative popularity of commercial 
insurance, and the potential popularity of AHPs and Health Marts, if 
carefully structured.
    One reason these options are appealing is because they exempt 
participants from benefit mandates. And while benefit mandates, as the 
research literature suggests, may add little to costs on average, they 
can surely add considerably to the cost of some benefit packages, 
especially those preferred by some small firms. At the same time, more 
mandates make the packages more attractive to workers, and probably 
increase worker take-up, so once again we have a tradeoff.
    Again, our research simulations suggest that by far the most 
important factor determining the attractiveness of various health 
insurance options is the pool with whom the firm's workers will be 
joined for premium rating purposes. AHPs and Health Marts, to the 
extent they are exempted from state premium rating rules, will be more 
attractive to the good risks and less attractive to high risks in 
search of more heterogeneous pools.
    MEWAs are attractive to firms of all sizes in some industries, but 
they are not a very large part of the overall private health insurance 
market today, and our simulations do not suggest that they're likely to 
grow a lot in the future. The interesting policy question is, which 
types of firms would want to join AHPs or Health Marts, and what would 
happen to the commercial, self-insured, and MEWA markets if these 
options came into existence next year?
    Our simulations, based on our detailed assumptions, predict that 
Health Marts are not likely to be very popular, for the simple reason 
that their only real advantage over commercial products is exemption 
from benefit mandates, and that is simply not enough of a price 
advantage on average to entice many firms to choose to purchase health 
insurance through one, at least not when AHPs are also an option.
    AHPs then appear to be the most popular new option that federal 
legislation might create, and our model suggests that they will be more 
popular after 4 years than MEWAs are now. Still, our results suggest 
that AHPs are not likely to capture huge shares of the market, with a 
little more than 6% of all workers. Somewhat surprisingly to us, almost 
4/5 of the workers in our model who work for firms that will choose 
AHPs are currently in large firms (with more than 100 workers) as 
opposed to small firms (with fewer than 100 workers).
    Perhaps even more interestingly, most new AHP enrollment appears to 
come from the currently self-insured, not from the commercial insurance 
market. This finding suggests to us that at least medium sized firms 
also want a bit more pooling than self-insurance affords, but not as 
much as commercial insurance would impose, even without extensive 
regulation.
    This result also implies suggests that much of the opposition to 
AHPs may have been a bit shrill, since the commercial risk pool does 
not appear to be destroyed by this new option. This opposition was 
based on the likelihood that AHPs are most likely to appeal to the 
healthiest risks. AHPs will appeal to good risks since they can 
practice more segmented premium rating practices than the commercial 
insurance industry is expected to, whether that commercial sector is 
regulated or not (we simulated both scenarios).
    This segmentation increases the chances that firms will be pooled 
only with firms with similar cost structures. Thus AHPs represent a 
step toward homogeneous pools from a moderately heterogeneous status 
quo. And as such, they do represent a threat to established 
heterogeneous risk pools. But the real-world-based price responsiveness 
that we built into our model suggests that this threat is not likely to 
be destroy the commercial market, though some firms may stop offering 
as low risk groups leave and commercial premiums rise, as I discuss 
below.
    At the same time, in our simulations, extremely few new firms are 
enticed to offer health insurance which did not offer before the reform 
options were made available. Some firms do drop coverage, and the 
average firm size of those which do offer declines. These findings 
translate into the result that introducing the new options--AHPs and 
Health Marts--may actually reduce overall offer rates on net, though by 
such a small amount--less than 1% of all workers--that it probably 
should be considered as no net effect on employer offerings. Net 
coverage is reduced because the commercial and MEWA pools lose some of 
their best risks to the AHPs, and thus their pools deteriorate. Because 
of this risk pool deterioration, some firms drop coverage rather than 
pay the new higher prices that go with this deteriorating risk pool.
    These firms do not join AHPs, however, because that risk pool is 
too segmented for their taste and risk profiles. Most of the firms that 
drop coverage after AHPs are made available, by the way, were initially 
insured through MEWAs, not through commercial insurance. Our 
preliminary results also suggest that about half of all employment-
based insurance policyholders experience a premium change of more than 
5%, with winners slightly outnumbering losers. So we predict rather a 
lot of premium churning for relatively little coverage impact.
    We intend to continue this line of research, to test the results 
against alternative assumptions, and to refine this model and to adapt 
it to address the implications of switching to an individual tax credit 
system rather than the current exemption for employer contributions to 
employee premiums. We expect to have results to report on this new 
model by September of this year.
High Risk Pools
    I'd like to devote the remainder of my testimony to reporting on 
one empirical result that was found in a couple of different studies, 
including one of my own with other Urban Institute colleagues. The 
studies tested for the effects of a number of state policies, including 
high risk pools, on private insurance coverage. While the results are 
not definitive, they are strongly suggestive that the existence of 
certain kinds of high risk pools leads to more non-group coverage than 
would otherwise be the case.
    Now you all know that most high risk pools are very, very small, 
and I don't think the household surveys that underlie the best 
empirical work in this area are picking up many people who are actually 
enrolled in them. But the results DO suggest that when high risk pools 
provide reasonably comprehensive coverage, are reasonably subsidized, 
and are not limited by enrollment caps, the individual insurance market 
seems to work better. I think this is most likely to be because when 
insurers are confident the truly hard to insure are safely cordoned off 
in reasonable high risk pools, then they are less fearful of adverse 
selection and thus offer lower prices, which in turn entice more, and 
especially more low risk individuals, to purchase non-group health 
insurance. This suggests that adequately funded high risk pools, 
without enrollment caps and with statutory definitions of high risk, 
can be useful components of a coverage-enhancing policy mix. Not to 
mention the fact that they provide immense financial relief to the 
unfortunate families involved, and thus could serve a major equity role 
in our free society.
    It is worthwhile to remember that in the absence of high risk 
pools, these individuals still get care, but it is often uncompensated. 
We all share in that risk, in that we collectively subsidize their 
care, either with tax dollars going directly to the public facilities 
that provide the care, or through implicit surcharges that are added by 
providers to privately financed services and thus to private health 
insurance premiums. An appropriate high risk pool strategy, which 
preserves family dignity and enables needed, comprehensive care to be 
delivered at a time in the patient's illness episode when it is most 
likely to be effective care, can be a much more efficient risk sharing 
mechanism than those ``backdoor'' channels we otherwise use.
    I would now be glad to answer any questions you may have.

    Mr. Bilirakis. Thank you very much, Mr. Nichols.
    Well, if we have gotten anything at all out of this 
hearing, it is that it is a tough question. It is something 
that I think everybody wants to accomplish. It is amazing to me 
that there are two or three members of this subcommittee who 
think you can just wave a magic wand and solve the problem. But 
you experts out there, you and the prior panel, don't see it 
quite that easily done.
    We have heard that some of the solution is expanding 
Medicare down to the age 55. And yet the administration itself 
only forecasts that about 300,000 people would be covered 
there, and in over 10 years CBO says maybe you might reach 
700,000. That is far from a solution.
    We have heard that with HealthMarts, anywhere from 5 to 10 
to 20 percent might be covered. That is pretty good, but it is 
still a fairly low percentage insofar as the overall uninsured 
are concerned.
    Tax credits, we have all heard most people agree that they 
are going to be helpful. We don't know how many that would 
help. It certainly would help with the young lady who was in 
here telling us the sad story of her family. But would that be 
enough? Probably not.
    And so, I think back to a few years ago. It might have been 
before Mr. Brown was here. I think it was certainly before Mr. 
Barrett was here--when we proposed a bipartisan health reform 
plan. It was truly a bipartisan plan where we spent hours and 
hours starting about 4 o'clock in the afternoon to all hours of 
the night, practically every day in the week trying to develop 
a plan, and we came up with some pretty good ideas to expand 
coverage to the uninsured.
    Would that have covered all 43 million? I am not sure, but 
certainly a large portion of them. But politics entered the 
picture, and that unfortunately didn't go anywhere.
    In an ideal world, should everyone in a country such as 
ours have insurance? I would say yes. I don't hesitate to say 
that. But it is not an ideal world. And I guess my biggest 
concern is should everyone in a country such as ours at least 
have adequate access to health care, whether it be covered by 
insurance or not? And I feel very, very strongly, about that. I 
think that should be our immediate goal.
    Some would say if that is your immediate goal, and you feel 
like you have solved that, then you are not going to be 
concerned about the insurance aspect. Well, maybe we should or 
shouldn't be. We can also talk about the role of community 
health centers in expanding access to care.
    But they only go, of course, so far because they don't 
cover specialized care. But they go pretty far in terms of 
basics.
    So I guess I would raise a question, Ms. Baumgardner, I 
suppose all of your patients, clients, whatever the proper term 
would be, are uninsured?
    Ms. Baumgardner. All of ours are?
    Mr. Bilirakis. Are they?
    Ms. Baumgardner. No, sir, not all of ours are uninsured. We 
have a large Medicaid population in our patient base. We also 
have----
    Mr. Bilirakis. Would those Medicaid populations be a part 
of this 43 million, they don't have insurance but they are 
covered?
    Ms. Baumgardner. They are covered by Medicaid and are not 
considered part of the 43 million. We have a lot of people just 
like Mrs. Horsley who, by the way, is getting her primary care 
from a community health center. We have an awful lot of people 
who we call the working-class poor who simply are just working 
as hard as they possibly can for very, very little wages and 
just don't have access to care.
    Mr. Bilirakis. But they are uninsured.
    Ms. Baumgardner. They are uninsured, that is correct, and 
they come to the community health center and they are able to 
get reduced-cost health care. And since we have developed our 
Medicaid HMO, we have developed stronger ties and relationships 
to specialty practices and to hospitals. And we have been able 
to work out a number of arrangements with those larger 
facilities, those more expensive levels of care, where they are 
also offering reduced-rate care for our uninsured patients.
    Mr. Bilirakis. Can you--and I suppose in a way you are 
responding to this--can health centers retain their mission to 
make health care services available to everyone and still 
actively compete in the managed-care market?
    Ms. Baumgardner. I think we are doing it. I think actually 
if you look back at the legislation that enables community 
health centers, what you will see is that we really are 
managed-care organizations. We attack health care issues at the 
front end at the least expensive end where problems can be 
fixed much more easily.
    If you heard what Mrs. Horsley said, they let her husband's 
second bout of cancer go too long which happens frequently with 
uninsured people. They think it is something minor and that it 
is going to go away, and they come in much later and the 
problem is much worse than it would have been had they sought 
care early on.
    But we are successful in our Medicaid HMO. In the State of 
Michigan, we are ranked as one of the top 4 out of the 26 
participating plans in Michigan. So we are able--we understand 
management of health care services and----
    Mr. Bilirakis. Let me ask you just very quickly as I finish 
up, approximately what percentage of the uninsured do you feel 
are covered by rural and community health centers? Rural and 
community health centers?
    Ms. Baumgardner. I believe that the national data is about 
1 out of 10 persons.
    Mr. Bilirakis. Ten percent of the uninsured are covered?
    Ms. Baumgardner. I believe that is correct. Am I accurate, 
friends? Yes, that is about 1 in 10.
    Mr. Bilirakis. And that can be improved?
    Ms. Baumgardner. Oh, yes it can be. Right now we are using 
our Federal grant dollars to cover our uninsured population; 
and to give you some idea of how much money that is, we are a 
$3 million project with four delivery sites and of that we 
receive--of that $3 million budget annually we receive 
$400,000, just a little under $400,000 in Federal funds; and 
that is what we use to help cover our uninsured, and it is not 
entirely adequate, certainly.
    Mr. Bilirakis. Thank you. Mr. Barrett.
    Mr. Barrett. Thank you, Mr. Chairman. When I first got 
involved in this debate as a Member of Congress several years 
ago, the figure that was bandied about at that time was that 
there were 36 million in this country without health insurance. 
And then the next time it came up--the next bill that came up 
the figure was, I think, 39 million. Following that it was 41 
million and now I think the figure we hear is----
    Mr. Bilirakis. Forty-three.
    Mr. Barrett. [continuing] 43 million. So clearly, either 
the figures are incorrect or the approach that we have taken 
thus far has not addressed the problem. And I just want to 
touch on a couple of different little approaches that have been 
used to address it to see where the problem is.
    And we heard testimony earlier today, for example, that the 
big problem is we have got out of these state-imposed mandates 
and because we have all of these mandates, employers will not 
purchase the plans so the states respond and the States pass 
bills that provide for a bare-bones policies.
    Mr. Meyer, I think you have done some work in this area. 
What has been your experience or what have your studies shown 
you in terms of how successful these bare-bones policies have 
been at the state level?
    Mr. Meyer. Bare-bones policies have been very unsuccessful 
for two reasons. First, people have difficulty affording even 
bare-bones policies. Small employers are living on the edge or 
even when the cost comes down they have difficulty affording 
their contribution which might be half or 80 percent. Employees 
have a lot of trouble affording their share. And in the small 
employer market that share might be 50 percent.
    And finally, people like comprehensive health coverage in 
this country. They do not like bare-bones. It is a tough sell. 
And a colleague of mine, Professor Mark Hall at Wake Forest 
University, has done a lot of work on this with my colleague, 
Elliot Wicks. They have been around the country, State after 
State performing interviews, and they have found very low 
numbers of people that have taken these up for those reasons.
    Mr. Barrett. So clearly you don't think making these more 
widespread is going to lower the number of uninsured.
    Mr. Meyer. I think it would lower it a little. I think it 
would take a little bit of water out of this pitcher, and I am 
not against experimentation with some marginal changes in 
mandates or giving something relief to small business. I just 
think it would be a mistake, given the magnitude of the problem 
and the upward march in the numbers that you cited, to think 
that would make a major dent in the problem. It would be a 
small positive contribution.
    And remember, when you don't have the unmandated benefits, 
as unpleasant as mandates are, somebody is not getting 
something that they would otherwise get such as mental health 
coverage, substance abuse coverage, or other services, some of 
which may be viewed on the margin by the society at large, but 
if you are the one that needs them, there would be some give-up 
there.
    Mr. Barrett. Mr. Nichols, you, I think, have done some work 
on HealthMarts and association health plans. Again, these are 
devices that have been introduced to lower the number of 
uninsured. How effective have those been?
    Mr. Nichols. Well, we don't have association health plans 
and HealthMarts as proposed in the legislation. We do have a 
number of examples around the country, some of which you have 
heard of today of different features that are like them; and 
some of them have been very successful.
    What we tried to model in our work was what would happen to 
the small employer market that exists today, the commercial 
sector, the self-insured sector, and the existing MEWAs and how 
attractive would these new vehicles be; and what we found 
fundamentally was that they would offer an appealing product to 
a certain group of small and, surprisingly to us, medium to 
large firms who are looking for a little more pooling than they 
can get alone in the self-insurance market. They don't like it 
going it alone but they don't want as much pooling as some 
State regulations do indeed force today.
    We are Americans. We always go too far one way or the other 
way. We probably went too far in some of the state regulations. 
We could probably scale that back. But I would echo the 
comments of Jack, it doesn't follow that you repeal the entire 
thing and go back. I would point out before we had State 
insurance regulations, we had some uninsured in this country, I 
think the number of 37 million that you were starting with in 
your sojourn there. And the number was rising then at least as 
rapidly as it is rising now without the benefit of health 
insurance regulation.
    So I think it is important to go back to the pitcher. These 
kinds of reforms on the margin are not going to get at the core 
of it. It is going to have effects on the margin. And I would 
certainly submit that we think about health insurance 
regulations as affecting the mix of the pool more than the size 
of the pool. Because it determines who does have access to it 
and who does not.
    Mr. Barrett. I am going to do right down the line quickly, 
but we have seen this increase, 7 to 8 million increase, if I 
can go for another minutes.
    Mr. Coburn [presiding]. Without objection.
    Mr. Barrett. I am going to ask each of you to give me one 
factor or two factors in about 10 seconds as to why we have 
seen this continual increase. Dr. Johnson?
    Mr. Johnson. The dilemma is one of cost, and I think we 
made the wrong diagnosis with respect to cost and why we have 
an increase in cost. I suggested in both my written and oral 
testimony that there is a disconnect between the person 
consuming the services and the price of those services.
    Mr. Barrett. Mr. Arth.
    Mr. Arth. I would agree with cost, and sometimes it is just 
access. The products aren't out there and available.
    Mr. Barrett. Mr. Morehead?
    Mr. Morehead. The main is cost. And people can't afford it. 
A lot of the health care reform has made it easier for people 
to wait and not sign up until they actually needed the 
coverage. The deterrent is cost.
    Mr. Meyer. I would cite two factors. First the erosion of 
employer-based coverage, particularly because people are 
turning down the employer's offer because they can't afford it 
and second, the changing labor force away from the good jobs 
with benefits toward part-time temp and contract work.
    Ms. Baumgardner. I would agree that cost is one of the 
first factors. And the second factor is that the 
infrastructure, the health care infrastructure, the 
accessibility is not there. You can bring a low-cost plan out, 
but if you don't have providers to provide the care, the 
services for where the people are, you are not going to have 
any use of it.
    Mr. Barrett. Mr. Carlson?
    Mr. Carlson. I would echo everyone else that it is cost. 
The No. 1 reason for people being uninsured is--or dropping out 
is that they can't afford the premium. And if you want to talk 
about Mr. Greenwood's law of unintended consequences, some of 
these reforms are well intended and in fact they are directed 
at the population I serve. But one of the side effects of that 
is they raise costs premiums for the other 99 percent of the 
population. The young healthies drop out.
    Mr. Nichols. Cost is No. 1. I think it is driven largely by 
technology, not so much the cost sharing. We get a very good 
health care product. We like it. It is the best health care 
system in the world. That cost is now too expensive for an 
increasing fraction of our population.
    Mr. Barrett. Thank you, Mr. Chairman.
    Mr. Coburn. You are welcome. I will recognize Mr. Burr 
because he has another meeting, for 5 minutes.
    Mr. Burr. Thank you, Mr. Chairman. The answer is you are 
all right. Mr. Nichols, I want to compliment you on your 
presentation. It was one of the best I have ever heard. I 
didn't understand much of it, but it was one of the best I have 
ever heard.
    Mr. Nichols. I appreciate the compliment.
    Mr. Burr. I look forward to reading it so I will understand 
it just a little bit better.
    Dr. Johnson, let me just ask you--and I have I feeling the 
answer is going to be the same--you said that patients have 
become a commodity. Why?
    Mr. Johnson. The colleague of mine from St. Louis who came 
up with that sound bite I think was right on point because 
employers in an effort to get a handle on cost have gone out 
and negotiated the best insurance they could for the amount of 
money they could afford, and the employees don't have a choice; 
and sometimes the employer has shifted from one insurance plan 
to another for 25 cents per member per month in order to save 
the money.
    It comes back again to cost, with wholesale disruption of 
the patient-physician relationships that are intrinsic to that 
kind of shift.
    Mr. Burr. So cost has driven us into a commodity market to 
some degree?
    Mr. Johnson. That is my view, yes.
    Mr. Burr. Cost has increased the number of uninsured, as 
Mr. Barrett asked. Would anybody disagree with Dr. Coburn's 
statement that half of the uninsured today choose to be 
uninsured? Anybody disagree with it.
    Mr. Nichols. I am not sure it is so much a disagreement, 
but I would like to question the interpretation a little bit 
because I would think what you are citing are reports that 
people turn it down when they are offered. We agree with that. 
The question is are they choosing to be uninsured or are they 
choosing to be uninsured at that price. There is a price at 
which they would pay for health insurance. It is lower than 
what they are being offered so we should not infer----
    Mr. Coburn. If the gentleman would yield.
    Mr. Burr. I would be happy to.
    Mr. Coburn. We had a great example here. We have somebody 
who makes $12,000 a year and has Internet access in her home. 
She chooses to have that but not to have health care coverage. 
So the question is what are the priorities and do we not 
essentially move in a direction that says we are going to 
subsidize you to make priorities that are not for your health 
by some of our programs? I will yield back and get my chance to 
go around with you.
    Mr. Burr. I think if we looked at statistics, wouldn't we 
find that the majority of those individuals would be in the 19- 
to 30-year age group? I mean, you can look at it with an age 
group and see a large block that probably are employed but 
uninsured by definition.
    Mr. Carlson. I would like to support what Dr. Nichols has 
talked about--and I don't know what the percentage is that you 
talk about in terms of 50 percent declining--but insurance is a 
transfer of risk and people making judgments about whether the 
premium they pay for it is going to be less than what their 
medical expenses. And there is a lot of people that you are 
talking about, what I call the young healthies, that believe 
that they are just not vulnerable and are not going to have any 
medical expenses, and they believe it is cheaper for them to go 
uninsured than it is to pay the premium.
    Mr. Burr. Until the Harley Davidson hits the tree.
    Mr. Meyer. I would just like to comment that it is not 
anywhere near half the people that turn down an employer's 
offer of insurance. It is about 20 percent. That is much higher 
than it was. The proportion of people that were offered an 
employer plan, according to a study by the Agency for Health 
Care Policy Research, and accepted it fell, from 88 percent 10 
years ago to 80 percent today. So that is disturbing, but that 
still means four out of five that are offered employer plans 
take it.
    Mr. Burr. Would you agree that there are a large number of 
self-employed individuals who choose not to be covered because 
of age? They are employed, they make a good income, they don't 
get picked up in that group you just talked about?
    Mr. Meyer. Yes, I agree with that, but they are a minority 
of uninsured, and the majority of uninsured have incomes under 
200 percent of poverty.
    Mr. Johnson. Those employees who turned down the insurance 
might not do so if there was an expanded array of choices and 
they had a defined contribution from the employer that they 
could use toward the purchase of different models, not the ones 
that we currently think of today.
    Mr. Burr. Thank you, because that is where I was heading. 
And I think I want to go to Mr. Nichols because that was the 
part that I did understand about what you said. Nobody knows 
today how many people get covered when you expand the choices. 
You have some methodologies that you follow, but I think that 
where this committee falls short is if we don't allow the 
creation of as many new choices out there, if we don't explore 
ways that might bring 1 percent here or 3 percent there, it is 
almost customizing a product for a population that has chosen 
either not to be insured or could not afford it.
    Let me ask just the last question of Ms. Baumgardner. What 
is unique about the health centers that enable you to succeed 
in a managed-care market?
    Ms. Baumgardner. Well, sir, as I said, I think, in one of 
the other questions that I had answered, if you look at the 
legislation that enables community health centers, we are 
designed to manage care. Our whole focus is to go in at the 
front end of health care services to deal with prevention and 
education and primary health care services. And what we have 
learned in the last 2 years now that we have been operating in 
Medicaid HMO is that, in fact, we are pretty good at it in the 
State of Michigan.
    We manage our patients' health care problems at the lowest 
possible cost level. We keep them out of emergency rooms. We 
keep them out of the very expensive levels of care, unless it 
is absolutely essential; and as a result, our front-end costs 
may look a little high, or capitations, our prevention services 
are a little high, but relative to the expenses that you run 
into in terms of hospitalizations and other high-cost health 
care issues, we are very good at that. It is our mission, it is 
our specialty, if you will, and that is what we do best.
    Mr. Burr. I thank this panel and thank the Chair for his 
indulgence and I yield back.
    Mr. Coburn. If Dr. Ganske doesn't mind, I think I will 
recognize myself since we are going to be here a little bit.
    Mr. Ganske. Mr. Chairman, you have got the gavel.
    Mr. Coburn. That is right. And I am going to give you 
something to add to yours. Dr. Meyer, you talked about a 
changing workforce, temping, people turning down employer 
policies simply because the cost differential. Doesn't that 
suggest trying something new in the market? From the testimony 
that we have heard and what I have read, is if people are 
making that choice now either because they are not employed or 
they are in a temporary work and wouldn't that suggest that 
something like an IMA or something similar, a new product, let 
the market work and let them try it.
    By the way, nobody says this is going to work. Nobody is 
claiming that it is going to work. They are just claiming let's 
give it a chance to see what the market will do with it.
    Mr. Meyer. Well, I am certainly in favor of market 
innovation. In fact, we study it all the time. But I think 
realistically, you mentioned individual medical accounts, the 
story has been the same. Congress put a cap on them--in this 
experiment a couple of years ago. We are nowhere near the cap.
    Mr. Coburn. Let me interrupt you for a minute. Having tried 
to get the medical savings accounts for every one of my 
employees, what Congress did was a disaster because you cannot 
get through the loops to get one. And so what they did was very 
cleverly make the regulations so difficult that you are just 
very fortunate and lucky if you happen to get one. And I tried. 
And I tried with all three people in the United States that 
offer it. All right?
    So we limited it so that nobody would come in and offer it; 
and so, therefore, nobody is offering it so they don't have a 
variety of a product. So that is not a good excuse. We are not 
giving it a fair trial or an open shot in the market and saying 
let's try medical savings accounts, let's lower the bar, and 
let's let people try it. That doesn't hold water in terms of 
the facts of what is happening out there in the market on 
medical savings accounts.
    Mr. Meyer. I understand that. I think you will find that, 
given that the majority, over 60 percent of the people that are 
uninsured have incomes under 200 percent of poverty, very 
limited means, that unless you really enable them to buy in 
with significant amounts of money on a sliding scale basis that 
you probably won't make a major dent in the problem. It doesn't 
mean that you won't improve the lives of some.
    HealthMarts, individual savings accounts, association plans 
might help some. The only thing I would point out is they might 
help some--and Len mentioned this too--at the expense of 
others. And that is----
    Mr. Coburn. So you would support then a sliding scale 
voucher system for our poorest people?
    Mr. Meyer. Yes, I would.
    Mr. Coburn. So that we can allow them to go purchase 
private health insurance and not mandate that they have to go 
anywhere. They can go anywhere they want.
    Mr. Meyer. One way to do that--and some proposals are on 
the table--would be to have a refundable income tax credit that 
you get money back if you are very low income that would help 
you buy into a health insurance program.
    Mr. Coburn. Kind of like what Congressman Shadegg has 
proposed.
    Mr. Meyer. Yes, like what he was talking about. We might 
find that the proposals under consideration that add $1,000 to 
a family is not enough and maybe you need $2,000, but I think 
he is moving in the right direction. I am all for this 
innovation, but I think it will be difficult to purchase it on 
the margin or on the cheap. I think we will have to put real 
money into it.
    Mr. Coburn. Is there anybody on the panel who disagrees 
that we ought to try every market innovation that we can to see 
if we can use market forces to help allocate the scarce 
resources? Do you disagree with that? Is the demand/supply 
curve so inelastic that we cannot trust market forces to work 
in this area? Does anybody disagree with that?
    Mr. Nichols. I don't disagree, Congressman. I certainly 
think, though, that you want to be careful about the 
innovations that you set out.
    Mr. Coburn. So that you don't harm something that is 
existing.
    Mr. Nichols. Exactly. As you stated about the medical 
savings account example, it did turn out to have features that 
people found unattractive and the fact that only three insurers 
are willing to offer it is the telling one.
    Mr. Coburn. It is not the concept of medical savings 
account that they find unattractive; it is the rules, 
regulations, and bureaucracy that has been applied to it.
    Mr. Nichols. And what I am suggesting is that we think 
carefully about the rules that go into place for the 
association health plans, for the HealthMarts, et cetera. 
Because one of the things I was going to say, when we talked 
about the purchasing cooperatives before, is that I think some 
of the more successful ones in the country today have found it 
useful to have the same rules about guaranteed issue and rules 
about rating restrictions inside the pool as is the case 
outside the pool. You set up different rules in a state, you 
set yourself up for adverse selection. That is what I am 
talking about with being careful.
    Mr. Coburn. I will reserve the balance of my time at this 
time and recognize Congressman Ganske for 5 minutes.
    Mr. Ganske. It is my opinion that association plans raise 
two general categories of problems, and I will seek your 
comments on this. No. 1, if they bring together people who have 
below-average risk and exclude others and are not subject to 
State small-group rating rules, they draw off people from the 
larger insurance pool; and thereby they raise premiums for 
those who remain in the larger pool.
    Would anyone disagree with that? So let it be recorded that 
even this panel agreed with that statement.
    Mr. Coburn. Will the gentleman yield?
    Mr. Ganske. Let me finish.
    Mr. Coburn. All right. Then I will take the time.
    Mr. Ganske. Second point----
    Mr. Carlson. I might just say I don't hold myself out to be 
an expert on the subject, so I will be happy to respond to 
questions about high-risk pools. But I suspect your statement 
is true and then the question, the follow-up needs to be: Is 
that bad?
    Mr. Johnson. I would offer the same disclaimer.
    Mr. Ganske. Second general category of problems. If they 
are not subject to appropriate insurance regulation to prevent 
fraud and to ensure solvency and long-run financial viability--
I think many of you were here when I talked about the 
experience we had in the 1970's, early 1980's that resulted in 
Congress coming back and reestablishing insurance regulation 
because of problems that we had on that. So if they are not 
subject to appropriate insurance regulation to prevent fraud 
and ensure solvency and long-run financial viability, they may 
leave enrollees with unpaid claims and no funds for future 
medical expenses.
    Mr. Carlson. On that point I am with you 100 percent 
because I was assistant commissioner of insurance during that 
period and worked with our Congressman Erlenborn at the time. 
The solvency problems that developed with the MEWAs--the 
problem was that even though you had a lot of very good well-
run MEWAs, the law as it was written allowed for the good 
entrepreneurs but fast-buck artists to come in and skim off--
what they would do is they worried about the fees they were 
getting paid, and a year later the claims started rolling in 
and couldn't get paid and they just walked. And then the 
insurance departments around the country were left to clean up 
the mess.
    And that is the No. 1 underlying--that absolutely supports 
what you are saying. You have to be concerned about that.
    Mr. Ganske. Now, this is not to say, I am not saying that 
all association health plans had that problem. I mean, by all 
reports COSE, for example, is a well-run plan and is doing 
pretty well.
    Mr. Arth. But we do not self-insure.
    Mr. Ganske. I understand. But I want to get to another 
point that has to deal with COSE. Basically, my understanding--
and I don't know exactly if you would characterize COSE as an 
AHP or whether you would characterize it as a health purchases 
coalition or co-op; but it is somewhere in that range.
    But basically health purchases co-ops are collective 
purchasing efforts where the only written criteria for 
eligibility to participate is in some cases being below a 
certain firm size and that people are willing to pay the 
premium. So pretty open enrollment.
    Mr. Arth. And you need to join our association.
    Mr. Ganske. Right. Now, correct me if I am wrong, but when 
that was set up, weren't there concerns that unless you had 
some type of modified community rating that if you were 
required to accept anyone that then the private insurers could 
skim off the healthy and the--healthy and then leave the larger 
insurance pool with a sicker group? Wasn't that a concern?
    Mr. Arth. Yes we have always been concerned about adverse 
selection and being the insurer of last resort, if you will.
    Mr. Ganske. So my concern on this is extending ERISA 
protection, getting those groups out of those State insurance 
pools, not necessarily whether you have pooling like you have 
got with COSE. So I would finish with one question, just 
because you are for association health plans that doesn't 
necessarily mean that you would be--or that some of them have 
worked okay, that doesn't necessarily mean that we would want 
to exempt them from State oversight, would it? Mr. Meyer?
    Mr. Meyer. I agree with you. No I don't think we would. And 
I think you can compare them to the many purchasing co-ops that 
we have around the country such as in California, where the co-
op is required to take all employers that want to join. The 
fundamental feature of concern about the AHPS is that unlike 
the HealthMarts they can pick and choose, meaning employers. 
Framers of these proposals have been careful to build in 
certain protections against fraud and against some of the 
concerns like, for example, the 3-year waiting period, and you 
can't just form an association for health insurance. It must 
have some other purpose.
    So they have put a lot of thought into mitigating those 
problems, but the ingenuity of this industry to cherry-pick and 
find the good risks is very great. And it isn't that you have 
not had well-meaning legislators trying to build in, but once 
you drop that kind of requirement that all comers can 
participate, they are going to find those aerobic instructors.
    Mr. Ganske. Mr. Chairman, I ask unanimous consent for one 
additional moment.
    Mr. Bilirakis. I am going to deny the unanimous consent 
request because I was not yielded time. And if we have time, I 
will be happy to----
    Mr. Ganske. Mr. Chairman, I was kind enough to yield to you 
so you could go first before me.
    Mr. Coburn. That is the prerogative of the Chair. I want to 
make a couple of points. No. 1, the assumption that AHP 
patients are going to take patients from plans, the goal with 
the AHP are to take people that are not insured, not 
necessarily draw--and there is no assumption in anybody's study 
that I know of that all AHP patients are going to come from 
previously insured products.
    So that the assumption of the gentleman's statement is 
erroneous. As a matter of fact, the greatest estimate I have 
seen is maybe 20, 22 percent. So it is not the thing that we 
are going to see.
    The other thing is, Dr. Meyer, can you not write into 
things to offer the protections in the AHPS that are necessary 
out there? Can this legislation that has been proposed not be 
improved to address your concerns?
    Mr. Meyer. Yes, it can, and I think I made it clear that a 
lot of thought has already been put into that. But I still 
think that one feature that I highlighted is a pretty big 
loophole, but I don't mean to say that these problems cannot be 
fixed.
    Mr. Coburn. Mr. Arth, have you really experienced adverse 
selection?
    Mr. Arth. Mr. Chairman, I do get the yes from my sidekicks 
here, but I can't give you examples. I will say with respect to 
the ERISA exemption our position on that is either give it to 
everybody or don't give it to everybody, but let us all compete 
on a level playing field.
    Mr. Coburn. I would agree with that. Dr. Ganske. If the 
panel would not mind staying for a few additional. Dr. Ganske, 
you are recognized.
    Mr. Ganske. Thank you, Mr. Chairman. Dr. Johnson, are you 
testifying in favor of your voluntary purchasing co-ops being 
exempted from State regulation? Is that your position?
    Mr. Johnson. No. And I hasten to emphasize that what I am 
testifying in favor of is the concept of voluntary choice 
cooperatives, the clearinghouse as opposed to the 
micromanagement negotiation function. And I don't think they 
should be exempted from State oversight. As a matter of fact, 
the typical insurance commissioner type of role of the 
determination of the solvency of the plan, the determination of 
the truth in advertising, whether or not the plan is providing 
the benefits that it says it is going to provide are all very 
important functions.
    Also the notion of dealing with adverse selection within 
the plans that elect to participate. And the opportunity of a 
voluntarily choice cooperative is a very significant one.
    I want to comment, Mr. Meyer said that buyers hold sellers 
accountable. He was referring to employers buying the 
insurance. I suggest the same statement could be made with 
respect to individuals buying insurance. And my testimony was 
with respect to having a marketplace for individuals to buy 
insurance to take advantage of pooling risk, but for buyers to 
hold sellers accountable, have the accountability flow to the 
person who is using the plan, i.e., the patient. The way I have 
said it, Dr. Ganske as a physician is put the patient in the 
driver's seat.
    Mr. Ganske. Thank you. I thank you, Mr. Chairman.
    Mr. Coburn. Mr. Barrett.
    Mr. Barrett. Thank you, Mr. Chairman. My last question to 
each of you pertains to what the major factor was and most of 
you said cost. I bring that up because I just want to respond 
to a statement that Mr. Coburn said with respect to the young 
woman who was here this morning.
    I didn't hear her say that she owned a computer and was 
online at home. She may have been in a library. But even if she 
did have it at home, I think it is important to point out--I 
don't know exactly how much it costs, but if America Online is 
$12 a month, if she made that choice rather than going to a 
movie once a month with her husband, I don't know that that 
makes her a bad person.
    Mr. Coburn. Would the gentleman yield? I wasn't criticizing 
the individual. What I was doing was making a point as we all 
have discretion with the money that we have that some 
discretion is used to buy certain things, others have the 
discretion to buy health care.
    Mr. Barrett. I totally agree with that. I am someone when I 
am in the grocery store and I am looking at someone ahead of me 
who has food stamps, I am wondering why they are buying 
Cheerios and I am buying generic cereal.
    But my point is if you have an individual who is looking at 
maybe spending $150 a year on America Online versus $5,000 a 
year on health care, she might feel overwhelmed. And this is 
assuming that she has it at home.
    What we heard from this panel is that cost is a real issue. 
That is the issue. And I just want to make sure that the record 
reflects that.
    The other issue that again I think we have talked a lot 
about today that is important is the whole issue of notion of a 
refundable credit. And, Mr. Meyer, you showed your support for 
it, and I think even on the first panel the Democratic witness 
was not philosophically opposed to them. At what point is it 
going to work?
    In other words, if you have got an individual who makes 
$13,000 a year is it going to have to be $1,000, $2,000, 
$3,000, $9,000? Where do we make sure that the person will buy 
the policy and that it will be a policy that will offer, for 
example, OB/GYN care? Where do you see that?
    Mr. Meyer. I hate to say this, but I think for very low 
income people living below poverty and half of them are 
uninsured, you will have probably to pick up most of that 
$5,000 cost. If their income is $8- or $10- or $12,000, they 
just can't afford it. Their contribution should then rise in 
steps as you get up to the $12,000, $15,000. I don't think 
$1,000 would be nearly enough for a family with $8,000 or 
$10,000 of income. Remember, they may have some child care; and 
they have to pay rent.
    A person like this witness this morning out of that $13,000 
if she has a young child, she is working to make that $13,000, 
she may need some child care that is $5,000 a year if she gets 
bare-bones child care.
    So I think you have to be realistic and pick up most or all 
of the costs for the very poor and then graduate it down. Now 
where would that money come from? We give away--the Federal 
Government excuses $125 billion in taxes. Well, let me amend 
that, the Federal and State together.
    But the Federal Government is the overwhelming majority 
over 110 billion. Because you and I don't have to count as 
income when our employer contributes to our health care. If 
they give us wages, we pay taxes on it; if they give us health 
care, we don't. If a portion of that money, and I mentioned in 
my testimony that the value of that tax subsidy for people over 
$100,000 a year is $2,537, the value of that tax subsidy for 
people under $15,000, target we are talking about is $71 a 
person instead of $2,500. So that is really a big subsidy going 
to upper-middle and upper-class people.
    If we could redirect some of that--it is very difficult to 
do politically--that could pay for the kind of thing I am 
talking about.
    Mr. Barrett. One final question--and I am shifting gears 
here a little bit--the vouchers, if we have a voucher system 
where individuals can choose and leave their group plan--let's 
say I am a young guy who works for an employer. I see everybody 
else who works for this employer has kids, or they are sick, I 
am out of there.
    So then the next person sees well, wait a minute, everybody 
else has that family plan, I am out of here. So all the single 
people leave. And then somebody notices that someone has a 
serious health problem. So the healthy people leave.
    Are we creating a program with such adverse selection that 
employers are going to be left with the people who are 
basically--I don't want to say uninsurable, but the ones that 
make the insurance pool work because of the higher risk?
    Mr. Meyer. That is why I would not limit the subsidy only 
to people that would leave or do not qualify for employer 
coverage. There are a lot of people that have employer coverage 
that need a lot of help with their third or half of the 
premium. So I think you could limit it by making it available 
to people who are financially burdened whether they leave the 
plan or not. But that is a concern.
    Mr. Coburn. I would just make one comment. If you really 
let the market work, you can't make any assumptions that it 
would be $5,000, if you truly had a market force working. We 
don't have health insurance in this country today. We have 
prepaid expense. And we pay 18 percent of that for somebody to 
manage it for us.
    So, you know, it is a farce to say we have health insurance 
in this country. We don't. And it is a cherry pick, and you all 
know it is a cherry pick. And what you are saying is the status 
quo of letting the insurance industry continue to cherry pick 
is better than letting the market allocate the cost to those 
people who are truly going to consume it. You can't have it 
both ways.
    So we need to do something. And we do know that if we allow 
market forces--and I am not married to any one of these plans--
but if we don't reconnect as Dr. Johnson said the patient and 
the provider, you realize how much we are losing because there 
is no accountability felt by the physician back to the patient 
when they spend their money? And how much overutilization that 
creates?
    That doesn't have anything to do with liability scare. That 
has to do with human, natural human tendencies that are not 
checked by an obligation of the doctor-patient relationship 
because the patient isn't paying me anymore.
    And if we don't reconnect that doctor-patient relationship, 
we are never going to do anything here. And we are also going 
to lose the quality of care that our country has been known 
for.
    And so I want to make a couple of statements. We are going 
to leave the record open for questions. I also would like Ms. 
Baumgardner if you would supply the records of your community 
health center for the last year in terms of financial records 
so--you seem to really have demonstrated a lot of efficiency. I 
would like to use that to compare on some of the others if you 
wouldn't mind doing that.
    And the record will remain open until such time, what, 48 
hours, to submit questions if we have no objection.
    Mr. Barrett. No objection.
    Mr. Coburn. I want to thank the panel.
    Mr. Carlson. Mr. Chairman, I might make one follow-up 
comment to Mr. Brown's question because I was going to comment 
for Mr. Ganske. Had Mrs. Horsley lived in Illinois--and I don't 
represent myself as an expert on our public aid system--but my 
best understanding is that we have a program through public aid 
called Medical Assistance No Grant. And I was surprised when 
she said she didn't qualify for medical assistance as an adult. 
If her husband came to our program, we would refer them to our 
department of public aid. They would be subject to a spin-down 
and would probably have to pay about $100 a month. But the rest 
of his medical expenses would get paid through our medical 
assistance program and the no grant means that they are not 
eligible for subsistence, and they are not on welfare. Public 
aid doesn't like me to call it, but we tend to in our office 
refer to it as medical assistance for the middle class.
    And our program is set up so that somebody like her 
husband, who now has a serious medical problem, if their income 
goes up and they transition off, they can come into our program 
and afford the premiums. And it is working very well for us.
    Mr. Coburn. He obviously has a disability now surgically 
secondary, but that is a classic case with HIV patients. They 
become disabled, become full blown AIDS, and they die before 
they can get their disability because they haven't been sick 
long enough.
    Mr. Carlson. That is now changing.
    Mr. Coburn. I know it is, but that is exactly the same kind 
of problem we are talking about.
    Dr. Ganske, did you have a comment?
    Mr. Ganske. Mr. Chairman, I know that Kaiser Family 
Foundation is doing a study right now of people who are 
uninsured and doing focus groups and other things on why they 
are uninsured, both. And maybe the committee can make a request 
for some preliminary data from them on that. It sounds like it 
is kind of interesting material.
    Mr. Coburn. Are there any objections to the request?
    Mr. Barrett. No.
    Mr. Coburn. And we thank you again. The committee is 
adjourned.
    [Whereupon, at 2:40 p.m., the subcommittee was adjourned.]
    [Additional material submitted fore the record follows:]
 Prepared Statement of Marina L. Weiss on Behalf of the March of Dimes 
                        Birth Defects Foundation
    On behalf of the March of Dimes Birth Defects Foundation, I am 
pleased to submit the following statement regarding access to health 
coverage for the uninsured. Expanding health insurance to pregnant 
women, infants and children is one of the highest legislative 
priorities for the March of Dimes this Congress. Foundation volunteers 
and staff are eager to work with Members, Committees and staff to enact 
and implement improvements in Medicaid and the new State Children's 
Health Insurance Program (SCHIP).
    The March of Dimes is a national voluntary health agency founded in 
1938 by President Franklin Delano Roosevelt to address public health 
issues. The Foundation's more than 3 million volunteers and 1,600 staff 
members work with the 92 chapters that are located in every state, the 
District of Columbia and Puerto Rico. A unique partnership of 
scientists, clinicians, parents, business leaders and other volunteers, 
the Foundation works to improve the health of infants and children by 
preventing birth defects and infant mortality. In order to accomplish 
its mission, the March of Dimes funds community services, research, 
education and advocacy.
    Given the Foundation's mission to improve the health of America's 
children, we are especially concerned about the approximately 11 
million children currently without health insurance. Volunteers and 
staff have been deeply involved in efforts to secure health insurance 
for mothers, infants and children, most recently the creation of SCHIP. 
In 1997, the Foundation worked closely with Members of the Commerce and 
Senate Finance Committees as well as the Administration to enact SCHIP. 
We were especially engaged in the policy and legislative deliberations 
relating to infant and maternal care, in particular the provisions 
relating to coverage of preventive services (e.g. immunization, well-
baby and well-child care) and access to specialty services for 
medically compromised children.
    Since the enactment of the federal SCHIP legislation, March of 
Dimes volunteers and staff have worked with health officials and 
legislators in more than 30 states to design and implement individual 
state programs. In December 1997, the Foundation issued a report 
written and produced jointly with the Healthcare Leadership Council 
entitled Insuring America's Children: New Opportunities for States. The 
report is a state by state ``snapshot'' of the insured status of 
children at the time the program was enacted and includes information 
about coverage for mothers and children. The report was written to 
assist state policymakers in designing their SCHIP programs. Today, the 
Foundation is supporting SCHIP outreach in all 50 states and has joined 
with Kmart and other corporate partners to promote the ``Insure Kids 
Now'' campaign and national toll-free hotline.
    The March of Dimes supports many of the steps states are taking to 
implement and expand their programs and we are gratified by many of the 
early successes of SCHIP; but we are also concerned about the lower 
than anticipated enrollment in the start up years of the program. 
Specifically, in our judgment the program could be strengthened by 
adapting the following modifications that are designed to improve 
enrollment and provide better health coverage for infants and children.
1) Increase Outreach Activities
    Experience with the Medicaid program has shown that aggressive 
outreach is critical to ensure that children who are eligible receive 
necessary services. SCHIP outreach may be even more challenging because 
the families of eligible children are typically from families with 
higher-incomes who have little, if any, experience with publicly-funded 
programs. As you may recall, the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996 (P.L. 104-193) authorized $500 
million through fiscal year 2000 to support state Medicaid outreach 
activities. The March of Dimes supports the provision in the 
Administration's FY 2000 budget that would extend the availability of 
these funds and allow states to use the funds for Medicaid and SCHIP 
outreach.
2) Expand SCHIP Coverage to Pregnant Women Over Age 18
    Lack of health insurance IS a significant barrier to prenatal care, 
and women who receive no prenatal care are far more likely to have low 
birth weight babies and babies with other medical complications. While 
most pregnant women have health insurance, gaps in coverage remain. 
According to a recent study commissioned by the March of Dimes, an 
estimated 13.7 percent of women who gave birth in 1997 (465,000 women) 
were uninsured.1
---------------------------------------------------------------------------
    \1\ Thorpe, Kenneth. ``The Distribution of Health Insurance 
coverage Among Pregnant Women 1990-1997,'' March 1999. Paper prepared 
for the March of Dimes.
---------------------------------------------------------------------------
    More aggressive Medicaid outreach coupled with expanded SCHIP 
coverage could improve these figures significantly. In 1997, an 
estimated 77 percent of uninsured pregnant women met Medicaid income 
eligibility requirements but were not enrolled. Moreover, under current 
law, 40,000 uninsured pregnant teens could be covered if states were 
able to take maximum advantage of SCHIP by extending eligibility for 
the program to all income-eligible adolescents. With a change in the 
law to allow women over age 18 to qualify for maternity coverage an 
additional 45,000 uninsured pregnant women could be insured. A recent 
study conducted by Kenneth Thorpe, Ph.D. for the Foundation found that, 
together these simple steps could increase the rate of insured 
pregnancies in the country to approximately 95 percent.2 
Moreover, since women who enroll in SCHIP are likely to also enroll 
their children, opening SCHIP to income eligible pregnant women age 19 
and older could raise the number of children enrolled in the program. 
For these reasons, the March of Dimes strongly supports allowing states 
to enroll all income-eligible pregnant women in SCHIP.
---------------------------------------------------------------------------
    \2\ Thorpe, Kenneth. ``The Distribution of Health Insurance 
coverage Among Pregnant Women 1990-1997,'' March 1999. Paper prepared 
for the March of Dimes.
---------------------------------------------------------------------------
3) Expanding Coverage
    Finally, the March of Dimes has a long history of supporting 
efforts to ensure that all pregnant women and children in the United 
States, including immigrants, have access to medical care. Therefore, 
the Foundation supports the provisions in the Administration's FY 2000 
budget that extend SCHIP and Medicaid coverage to legal immigrants who 
lost coverage with enactment and implementation of the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 
104-193).
    On behalf of the Foundation, thank you for the opportunity to 
submit this statement regarding access to health coverage for the 
uninsured.
                                 ______
                                 
                                            Galen Institute
                                                      June 21, 1999
The Honorable John D. Dingell
U.S. House of Representatives
2328 Rayburn House Office Building
Washington, D.C. 20515
    Dear Congressman Dingell: I appreciated the opportunity to testify 
before last week's hearing of the Health and Environment Subcommittee 
of the Commerce Committee, and appreciated your attending the hearing. 
I would like to take a moment of your time to respond to your comments 
regarding our study, ``Uninsured Rates Rise Dramatically in States with 
Strictest Health Insurance Regulations.''
    The states have been very active in recent years in passing 
legislation designed to improve portability, access, and rating 
practices for the small-employer health insurance market and, to a 
lesser extent, for the individual health insurance market.
    The General Accounting Office has conducted studies to assess the 
impact of these reforms. It identified 45 states that enacted reform 
regulating the small-employer health insurance market and 25 states 
that passed individual market reforms prior to 1995.
    Our study focused on the 16 states that had implemented both small 
employer market reforms between 1990 and 1994 and individual market 
reforms prior to 1995. States implementing small employer market 
reforms between 1990 and 1994 were identified in the U.S. GAO report, 
Health Insurance Regulation; Variation in Recent State Small Employer 
Health Insurance Reforms (GAO/HEHS-95-l61FS, June 12, 1995). States 
implementing individual market reforms prior to 1995 were identified in 
the U.S. GAO report, Private Health Insurance: Millions Relying on 
Individual Market Face Cost and Coverage Trade-Offs (GAO/HEHS-97-8, 
November 25, 1996).
    To be included in our study, a state must have been included in 
both reports and have passed a majority of the reforms studied by the 
GAO. As we point out in our study, the GAO provided considerable detail 
in variations of the reforms, and researchers are invited to analyze 
those differences, as did we.
    To determine the impact on uninsured rates, we analyzed U.S. Bureau 
of the Census Current Population Survey (CPS) survey data from 1989 to 
1996 with a detailed study of a select sample of 16 states. CPS data 
from 1989 to 1996 were used to identify the number and percentage of 
non-elderly individuals with: (1) private insurance coverage, (2) 
employment-based insurance coverage, (3) Medicaid coverage, (4) 
Medicare coverage, and (5) no coverage for each year between 1989 and 
1996.
    A separate study conducted by the Urban Institute attempted to 
quantify the impact of each of the state insurance reforms 
individually. (``Variations in the Uninsured: State and County Level 
Analyses,'' Jill A. Marstellar, et al. Washington, D.C., June, 1998.) 
Although the report indicated that guaranteed issue itself may decrease 
the number of uninsured, it showed that other policies, particularly 
community rating (or premium rate restrictions generally); offset any 
gains from guaranteed issue itself. The Urban Institute study points 
out that most states implement insurance reforms as a ``package'' of 
reform. In fact only five states did not implement premium rate 
restrictions along with the other small employer insurance reforms, and 
all of the states that implemented individual insurance market reforms 
included some form of premium rate restrictions.
    Unfortunately, citizens wishing to purchase health insurance in 
these states do not have the choice of selecting from among the laws 
with which they wish to comply. When someone in one of these states is 
buying an insurance policy, the policy they buy is governed by state 
laws which may include community rating, guaranteed issue and 
renewability, mandates on coverage, pre-existing condition exclusions, 
etc. Therefore, we felt it was quite legitimate to look at the impact 
of the regulations as a package rather than individually.
    As a result of insurance market regulations, affordability and 
access to insurance coverage may improve for some specific populations, 
such as those with special needs or chronic illnesses, based on 
community rating and guaranteed issue. However, such regulation also is 
likely to impose an offsetting increase in cost and decrease in access 
to insurance for other populations, such as young families and the 
healthy. The net effect of such regulatory policies on relative cost 
will depend upon the success with which citizens are able to obtain 
coverage.
    You also questioned whether specific economic conditions in any 
given state, such as loss of a major employer, could influence 
uninsured rates. Certainly, it could. But there is no reason to believe 
that this would have been any more or less likely in our 16 focus 
states than in the other 34 states.
    As our study points out, the 16 states vary substantially in the 
size and urban/rural distribution of their populations, the size of 
their individual insurance markets, and the degree and type of other 
forms of insurance regulation. In general, they are representative of 
the range and variation of circumstances and regulation across all of 
the states. Collectively, these states are very similar to the nation 
on measures of employment, earnings, and health care system 
characteristics. In addition, there were states with high rates and low 
rates of uninsured in our 16-state study.
    I would be more than happy to discuss with you further our research 
and methods and hope to continue to work with you in advancing 
understanding of the reason for the growing number of uninsured and in 
developing effective policy solutions.
            Sincerely,
                                         Grace-Marie Arnett
                                                          President
                                 ______
                                 
The Commonwealth Fund Task Force on the Future of Health Insurance for 
            Working Americans Applauds Subcommittee Hearing
 panel's five-year effort to focus on putting health coverage back on 
national agenda and reducing the number of uninsured americans through 
                    incremental `workable solutions'
    Washington, DC, June 16, 1999--An expert panel created by The 
Commonwealth Fund today strongly supported the House Commerce 
Subcommittee on Health and Environment for holding the latest hearing 
of the 106th Congress on the issue of health coverage for Uninsured 
Americans. In a letter released today, The Commonwealth Fund's Task 
Force on the Future of Health Insurance for Working Americans applauded 
Subcommittee Chair Mike Bilirakis and Ranking Member Sherrod Brown for 
bringing the critical issue of the uninsured to the attention of 
Congress and the American public.
    The Task Force will carry out and fund cutting-edge research on 
solutions to the problem of working Americans who lack health insurance 
coverage, the New York-based foundation recently announced. It will be 
chaired by James J. Mongan, M.D., President of Massachusetts General 
Hospital. The non-partisan expert panel--made up of individuals who are 
nationally recognized for their contributions to business, government, 
public policy, economics and/or medicine--will seek to accomplish the 
following two goals:

1) Put the debate over expanding health insurance coverage back on the 
        national policy agenda, and
2) Make significant progress toward reducing the number of uninsured 
        Americans and improving the quality of health insurance for 
        working families.
    The Task Force will provide constructive analyses on a wide range 
of incremental ``workable solutions'' that have the potential for 
broad-based, bipartisan political support. To address the current 
problems with the job-based health insurance system, the Task Force 
will consider workable solutions including: refundable tax credits or 
other tax subsidies for the purchase of health coverage; expansion to 
working families of subsidized health coverage programs including 
Medicaid and the state Children's Health Insurance Program (CHIP); 
programs to allow the working uninsured to buy-in to existing state and 
federal employee health plans; and creation of a Medicare buy-in for 
older, uninsured workers. The Task Force will also be reviewing, 
performing and commissioning research on a variety of other workable 
solutions.
                                 ______
                                 
                                      The Commonwealth Fund
                                                      June 16, 1999
The Honorable Michael Bilirakis
Chair
Commerce Subcommittee on Health and Environment
U.S. House of Representatives
Washington, DC 20515
The Honorable Sherrod Brown
Ranking Member
Commerce Subcommittee on Health and Environment
U.S. House of Representatives
Washington, DC 20515
    Dear Congressmen: The Commonwealth Fund's Task Force on the Future 
of Health Insurance for Working Americans applauds you and the 
Subcommittee for holding today's hearing on Access to Affordable Health 
Coverage for the Uninsured. It is critical that the issue of health 
insurance for the uninsured is again brought to the attention of 
Congress and the American public. The Task Force looks forward to 
working with you and other members of the subcommittee as this issue 
moves ahead in the coming months and years.
    The Task Force is a new national expert panel created by The 
Commonwealth Fund, a New York-based foundation. The Task Force will 
carry out and fund cutting-edge research on solutions to the problem of 
working Americans who lack health insurance coverage. The 15-member 
panel will be chaired by James J. Mongan, M.D., President of 
Massachusetts General Hospital.
    The non-partisan expert task force--made up of individuals who are 
nationally recognized for their contributions to business, government, 
public policy, economics and/or medicine--will not advocate for 
specific solutions to the growing problem of working Americans who lack 
health care coverage. Instead, the panel will seek to accomplish the 
following two goals:

1) Put the debate over expanding health insurance coverage back on the 
        national policy agenda, and
2) Make significant progress toward reducing the number of uninsured 
        Americans and improving the quality of health insurance for 
        working families.
    The Task Force will provide constructive analyses on a wide range 
of incremental ``workable solutions'' that have the potential for 
broad-based, bipartisan political support. Panel members and staff will 
endeavor to assist public policy makers working on the issue of health 
coverage for working Americans through the dissemination of thoughtful, 
fact-based analysis of policy proposals and costs.
    As you well know, federal legislative proposals to address problems 
with the employer-based health insurance system are needed, in part 
because:

 43.1 million non-elderly Americans lacked health insurance in 
        1997
 4 of 5 uninsured Americans in 1995 came from a family with at 
        least one full time worker
 Working poor adults are twice as likely to be uninsured as are 
        unemployed adults
    To address the current problems with the job-based health insurance 
system, the Task Force will consider workable solutions including: 
refundable tax credits or other tax subsides for the purchase of health 
coverage; expansion to working families of subsidized health coverage 
programs including Medicaid and the state Children's Health Insurance 
Program (CHIP); programs to allow the working uninsured to buy-in to 
existing state and federal employee health plans; and creation of a 
Medicare buy-in for older, insured workers. The Task Force will also be 
reviewing, performing and commissioning research on a variety of other 
workable solutions.
    The Commonwealth Fund is a philanthropic foundation established in 
1918 with the mission of enhancing the common good. The Fund currently 
carries out this charge through its efforts to help Americans live 
healthy and productive lives and to assist specific groups with serious 
and neglected problems. The Fund's four national program areas are 
improving health care services, bettering the health of minority 
Americans, advancing the well-being of elderly people, and developing 
the capacities of children and young people.
    For more information please contact me, or John Budetti from the 
Task Force staff at (301) 913-0500. Or send information to 4800 
Montgomery Lane, Suite 400, Bethesda, MD, 20814.
            Sincerely,
                          Janet Shikles, Executive Director
 Task Force on the Future of Health Insurance for Working Americans

 
  AMERICA'S HEALTH: PROTECTING PATIENTS WITH A STRONG APPEALS PROCESS

                              ----------                              


                        WEDNESDAY, JUNE 23, 1999

                  House of Representatives,
                             Committee on Commerce,
                Subcommittee on Health and the Environment,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2 p.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis, (chairman), presiding.
    Members present: Representatives Bilirakis, Upton, Burr, 
Bilbray, Whitfield, Ganske, Norwood, Coburn, Shadegg, Bryant, 
Brown, Pallone, Stupak, Green, DeGette, Barrett, Capps, Hall, 
Eshoo, and Dingell (ex officio).
    Staff present: Patrick Morrisey, majority counsel; Jason 
Lee, majority counsel; Bridget Taylor, minority professional 
staff member; Amy Droskoski, minority professional staff 
member, and Karen Falk, minority professional staff member.
    Mr. Bilirakis. The hearing will come to order.
    As you can hear from the buzzer, we call them the 
``bells,''--not so fondly sometimes--we have a couple of votes 
on the floor.
    Now I would rather try to go through at least a couple of 
opening statements before we have to break. We are going to ask 
the apologies of the panel while we do that. The Chair will 
recognize himself for an opening statement.
    This is the third in our latest series of hearings focusing 
on the state of America's health care system and proposals for 
reform. Last week this subcommittee focused on the problems of 
the 43 million Americans who lack of any form of health 
insurance. As many of our witnesses testified, patient 
protections mean little to individuals without health coverage.
    Of course, coverage alone does not guarantee access to 
quality health care. About 160 million Americans have some form 
of health insurance, and many of them are enrolled in managed 
care plans. With the growth of managed care in recent years, we 
have all heard from constituents who question whether their 
health plans provide the best possible care or whether they 
focus too much attention on cutting costs.
    Many proposals have been advanced to address these 
concerns. One key element, of course, is the process for 
appeals. Patients who are denied medical services should know 
why the services were denied. They must be able to appeal 
coverage decisions and have their appeals heard in time--again, 
I repeat, in time--to make a difference. The process must be 
fair and independent.
    Today our witnesses will discuss ways to structure an 
appeals process that will ensure patients receive the care they 
were promised in a timely manner. A common theme in their 
testimony is the need for a fair, independent, and strong 
external review as the basis for any patient protection 
legislation. To guarantee patients' access to care when they 
need it, I believe we must focus particularly on the timetable 
for review.
    I remain hopeful that this subcommittee and the full 
Commerce Committee will act on a bipartisan basis to approve 
health reform legislation this year. I am pleased to report 
that, since our hearing last week, when I first announced that 
our committees will be working on a bipartisan basis, the 
committee staff for the majority and the minority have had 
several productive meetings to discuss principles for 
legislation.
    I recognize the challenging task before us. However, if we 
can resolve the difficult issues involved in the appeals 
process--and, I might add parenthetically, put politics aside, 
which we have a tough time doing up here--I believe we can 
address other patient concerns related to the quality of 
managed care in America.
    I would like to thank all of our witnesses for taking the 
time to join us today. I look forward to hearing their 
testimony and learning more about this very critical subject. I 
would yield to the gentleman? All right, the Chair will then 
yield to Mr. Pallone for an opening statement.
    Mr. Pallone. Thank you. I would like to thank the chairman 
for holding this hearing. I do think it is unfortunate that it 
is only a hearing. The individual issues that make up the 
managed care debate have been examined in great detail over the 
last 1\1/2\ years. This subcommittee could be serving the 
American people in a far better fashion by considering 
legislation such as the Patient's Bill of Rights, which is a 
comprehensive approach to managed care reform.
    Mr. Chairman, I am sorry to say that, when it comes to 
managed care reform, in my opinion the Commerce Committee so 
far has been all talk and no action. That is why it was 
necessary for Democrats this morning to begin the discharge 
petition process on the Patient's Bill of Rights, just as we 
did last year to get the Patient's Bill of Rights considered on 
the floor of the House.
    The Republican leadership is using every trick and excuse 
it can to forestall a full, fair, and open debate on the 
Patient's Bill of Rights. Last week's markup in the Education 
and Workforce Committee's Employee-Employer Relations 
Subcommittee, where Democrats were denied the opportunity to 
consider the Patient's Bill of Rights, was an unambiguous 
statement to that effect. Unfortunately, I think today's 
hearing is more of the same.
    Having said that, Mr. Chairman, it is important to note 
that, although it is only hearing today, it is at least on a 
key aspect of the patient protection debate. Along with giving 
the patients the right to sue, the appeals process cuts right 
to the core of the managed care reform debate. Democrats 
believe that in order for an appeals process to be effective, a 
definition of medical necessity based on generally accepted 
principles of professional medical practice must be written 
into law. Writing that definition into law will ensure that 
medical decisions are made by doctors and patients, not by 
insurance company bureaucrats. It is for this reason that the 
Patient's Bill of Rights defines medical necessity as I have 
just described.
    Republicans, on the other hand, have proven themselves to 
be champions of the status quo and defenders of the insurance 
industry. Last year when managed care reform legislation came 
to the House floor, the Republicans approved legislation that 
would have allowed managed care companies to define medical 
necessity. H.R. 4250, the so-called ``Patient Protection Act,'' 
would have limited external appeals to the question of whether 
the plan followed its own definition of medical necessity when 
denying a patient care, as does the sham legislation the GOP 
approved in the Employer/Employee Relations Subcommittee last 
week.
    The appeals process approved by the Republicans--for the 
second time now--would, if implemented, be worse than current 
law. Instead of helping individuals, it would create another 
layer of bureaucracy for patients to contend with when trying 
to force plans to provide the care they are obligated--but do 
not want--to provide.
    Make no mistake about it, any similar proposal that allows 
the managed care industry to police itself will be just as bad. 
It is the industry's very inability to police itself that has 
turned managed care reform into the rallying cry it has become 
today. Codifying the problem into the law, and then claiming to 
have to come up with a solution--as the Republicans are again 
trying to do--is as backward as it gets, in my opinion.
    Throughout the managed care debate, Democrats made it more 
than abundantly clear that we will support a good managed care 
reform bill or no bill whatsoever. If the Republicans are 
interested in working with us to get the bill the American 
people have overwhelmingly shown that they want, they are going 
to have to recognize the solutions that are promoting are not 
solutions at all.
    I am hopeful today's hearing will help our colleagues on 
the other side realize that if they are serious about managed 
care reform, they need not look far in their search for a 
markup vehicle that includes an appeals process that truly 
protects patients. The answer is the Patient's Bill of Rights. 
It is staring them right in the face.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. The Chair will now 
recess for 25 minutes. We have two votes coming up.
    [Brief recess.]
    Mr. Bilirakis. The hearing will come to order. Again, our 
apologies for the break.
    The Chair will yield 5 minutes for an opening statement to 
Dr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman. I hope this hearing 
moves the process along. It seems like we have been working on 
this for along time.
    I have been going to the floor every week to give a 1-hour 
special order. I think this week I will probably talk about 
what happened in the Workforce Committee last week, which was 
pretty much a sham and a fig leaf, in my opinion.
    The problem with fig leaves, Mr. Chairman, is that 
sometimes those fig leaves are poison ivy. It can cause acute 
discomfort. It would be my hope that, as my fellow Republicans 
look at an issue of passing a patient protection legislation, 
rather than just something to give political cover, they will 
remember the debacle of last week on the gun debate.
    Today we are going to be talking primarily about medical 
necessity and about liability. Some time ago, Mr. Chairman, I 
wrote a ``dear colleague'' on medical necessity, and also sent 
around an editorial piece from the Hartford Current by John 
McDonald. I would ask unanimous permission to have them entered 
into the record, and also to pass them to our fellow panel 
members.
    Mr. Bilirakis. Without objection.
    [The information referred to follows:]

                              Congress of the United States
                                           House of Representatives
    Dear Colleague: On May 30, 1996, a small, nervous woman testified 
before the House Commerce Committee. Her testimony was buried in the 
fourth panel at the end of a long day about the abuses of managed 
health care. The reporters were gone, the television cameras had packed 
up, most of the original crowd had dispersed.
    She should have been the first witness that day, not one of the 
last. She told about the ``choices'' that managed care companies and 
self-insured plans are making everyday when they determine ``medical 
necessity.'' Linda Peeno had been a claims reviewer for several HMOs. 
Here's her story:
    ``. . . I wish to begin by making a public confession. In the 
spring of 1987, as a physician, I caused the death of a man.
    ``Although this was known to many people, I have not been taken 
before any court of law or called to account for this in any 
professional or public forum. In fact, just the opposite occurred: I 
was `rewarded' for this. It brought me an improved reputation in my 
job, and contributed to my advancement afterwards. Not only did I 
demonstrate I could do what was expected of me, I exemplified the 
``good'' company doctor: I saved a half million dollars!''
    As she spoke, a hush came over the room. The representatives of the 
trade associations who were still there averted their eyes. The 
audience shifted uncomfortably in their seats, both gripped and alarmed 
by her story. Her voice became husky and I could see tears in her eyes. 
Her anguish over harming patients as a managed care reviewer had caused 
this woman to come forth and bare her soul.
    She continued, ``. . . Since that day I have lived with this act, 
and many others, eating into my heart and soul. For me, a physician is 
a professional charged with the care, or healing, of his or her fellow 
human beings. The primary ethical norm is: do no harm. I did worse: I 
caused death. Instead of using a clumsy, bloody weapon, I used the 
simplest, cleanest of tools--my words. This man died because I denied 
him a necessary operation to save his heart. I felt little pain or 
remorse at the time. The man's faceless distance soothed my conscience. 
Like a skilled soldier, I was trained for this moment. When any moral 
qualms arose, I was to remember: I am not denying care; I am only 
denying payment.''
    By this time, trade association representatives were staring at the 
floor. The Congressmen who had spoken on behalf of the HMO's were 
distinctly uncomfortable, and the staff, several of whom subsequently 
became representatives of HMO trade associations, were thanking God 
that this witness came at the end of the day.
    Dr. Peeno's testimony continued, ``. . . at the time, this helped 
me avoid any sense of responsibility for my decision. Now I am no 
longer willing to accept the escapist reasoning that allowed me to 
rationalize this action. I accept my responsibility now for this man's 
death, as well as for the immeasurable pain and suffering many other 
decisions of mine caused.''
    She then listed the many ways managed health plans deny care to 
patients. But she emphasized one particular issue--the right to decide 
what care is medically necessary. ``There is one last activity that I 
think deserves a special place on this list, and this is what I call 
the smart bomb of cost containment, and that is medical necessities 
denials . . . Even when medical criteria is used, it is rarely 
developed in any kind of standard, traditional, clinical process. It is 
rarely standardized across the field. The criteria is rarely available 
for prior review by the physicians or members of the plan . . .''
    ``We have enough experience from history to demonstrate the 
consequences of secretive, unregulated systems that go awry . . .'' 
After exposing her own transgressions, she closed by urging everyone in 
the room to examine their own conscience. ``. . . One can only wonder: 
how much pain, suffering, and death will we have before we have the 
courage to change our course? Personally, I have decided even one death 
is too much for me.''
    The room was stone-cold quiet. The Chairman mumbled: ``Thank you, 
Doctor.''
    Linda Peeno could have rationalized her decisions as so many do: 
``I was just working within guidelines'' or ``I was just following 
orders'' or ``we have to save resources'' or ``this isn't about 
treatment, it's really just about benefits.'' Dr. Peeno refused to 
continue this denial and will do penance for her sins the rest of her 
life by exposing the dirty little secret of HMO's determining ``medical 
necessity.''
    My friend, if there is only one thing you read before voting on 
patient protection legislation, I beg you to read the following. Before 
voting on any patient protection legislation, please keep in mind the 
fact that no amount of procedural protection or schemes of external 
review can help patients if insurers are legislatively given broad 
powers to determine what standards will be used to make decisions about 
coverage.
    As Dr. Peeno so poignantly observed, insurers now routinely make 
treatment decisions by determining what goods and services they will 
pay for. The difference between clinical decisions about medically 
necessary care and decisions about insurance coverage are especially 
bluffed. Because all but the wealthy rely on insurance, the power of 
insurers to determine coverage gives them the power to dictate 
professional standards of care.
    Make no mistake, along with the question of health plan liability, 
the determination of who should decide when health care is medically 
necessary is the key issue in patient protection legislation.
    Contrary to the claims of HMOs that this is some new concept, for 
over two hundred years most private insurers and third-party payers 
have viewed as medically necessary those products or services provided 
in accordance with the ``prevailing standards of medical practice.'' 
This is the definition used in many managed care reform bills, 
including my own--the Managed Care Reform Act of 1999. The courts have 
been sensitive to the fact that insurers have a conflict of interest 
because they stand to gain financially from denying care and have used 
``clinically derived professional standards of care'' to reverse 
insurers' attempts to deviate from these standards.
    This is why it is so important that managed care reform legislation 
include an independent appeals panel with no financial interest in the 
outcome. A fair review process utilizing clinical standards of care 
guarantees that the decision of the review board is made without regard 
to the financial interests of either the HMO or the doctor. On the 
other hand, if the review board has to use the health plan's definition 
of ``medically necessary,'' there is no such guarantee.
    In response to the growing body of case law and their own need to 
demonstrate profitability to shareholders, insurers are now writing 
contracts that threaten even this minimal level of consumer protection. 
They are writing contracts in which standards of medical necessity are 
not only separated from standards of good practice but are also 
essentially not subject to review. Here is one example, of many, of a 
health plan's definition of ``medically necessary services.''
        ``Medical necessity means the shortest, least expensive, or 
        least intense level of treatment, care or service rendered, or 
        supply provided, as determined by us (the health plan), to the 
        extent required to diagnose or treat an injury or sickness. The 
        service or supply must be consistent with the insured person's 
        medical condition at the time the service is rendered, and is 
        not provided primarily for the convenience of the injured 
        person or doctor.'' (emphasis added)
    Contracts like this demonstrate that some health plans are 
manipulating the definition of medical necessity to deny appropriate 
patient care by arbitrarily linking it to saving money, not the 
patient's medical needs.
    On the surface, some may say, ``So what's wrong with the `least 
expensive treatment'?''
    Here's just one example out of the thousands I could cite: as a 
reconstructive surgeon, I treated children with cleft palates. 
``Clinical standards of care'' would determine that the best treatment 
is surgical correction, but under this HMO's definition, the plan could 
limit coverage to a piece of plastic to fill the hole instead. After 
all, this plastic obturator would be cheaper. However, instead of 
condemning children to a lifetime of using a messy prosthesis, the 
proper treatment--reconstruction using the child's own tissue--would 
give that child the best chance at nominal speech and a normal life.
    Paradoxically, insurers stand to benefit from misguided legislative 
changes that displace case law! Last year, legislation that passed the 
House and the GOP bill in the Senate would have granted insurers the 
explicit power to define medical necessity, without regard to current 
standards of medical practice. This would have been accomplished by 
allowing them to classify as medically unnecessary any procedures not 
specifically found to be ``necessary'' by the insurer's own technical 
review panel. The Senate bill would have even given insurers the power 
to determine what evidence would be relevant in evaluating claims for 
coverage and would have permitted insurers to classify some coverage 
decisions as exempt from administrative review.
    I know that many of our colleagues who supported those bills last 
year had no idea of the implications of the medical necessity 
provisions in them.
    Specifically, insurers now want to move away from clinical 
standards of care applied to particular patients to standards linking 
medical necessity to ``population studies.'' On the surface this may 
seem ``scientific'' and rational. However, as a former medical reviewer 
myself who worked with many insurers large and small, let me explain 
why I think it is critical that we stick with medical necessity as 
defined by clinical standards of care:

 First, sole reliance on broad standards from generalized 
        evidence isn't good medical practice;
 Second, there are practical limits to designing studies that 
        can answer all clinical questions; and
 Third, most studies aren't of sufficient scientific quality to 
        justify overruling clinical judgment. Let me explain these 
        points further (I also recommend the article on these 
        shortcomings by Rosenbaum, et al, in the January 21, 1999 
        edition of the New England Journal of Medicine).
    First, while it may sound counter-intuitive, it isn't good medicine 
to solely use ``outcome-based'' studies of medical necessity, even when 
the science is rigorous. Why? Because the choice of the outcome is 
inherently value-laden. The medical reviewer for the HMO is likely, as 
shown by the above mentioned contract, to consider cost the essential 
value. But what about quality?
    As a surgeon I treated many patients with broken fingers simply by 
reducing the fracture and splinting the part. For most patients this 
would restore adequate function. But for the musician who needs a 
better range of motion, surgery might be necessary. Which outcome 
should be the basis for the decision about insurance coverage: playing 
the piano or routine functioning? My point is this--taking care of 
patients involves much variation.
    Definitions of medical necessity must be flexible enough to take 
into account the needs of each patient. ``One size fits all'' outcomes 
make irrelevant the doctor's knowledge of the individual patient and is 
bad medicine, period.
    Second, there are practical limitations on basing medical necessity 
on ``generalized evidence,'' particularly as applied to HMO's. Much of 
medicine is the result of collective experience, and many basic medical 
treatments haven't been studied rigorously. Furthermore, aside from a 
handful of procedures that are not explicitly covered, most care is not 
specifically defined in health plans because the number of procedures 
and the circumstances of their application are limitless.
    In addition, by their very nature many controlled clinical trials 
study treatments in isolation, whereas physicians need to know the 
benefits of one type of treatment over another. Prospective, randomized 
comparison studies on the other hand are expensive. Given the enormous 
number of procedures and individual circumstances, if coverage is 
limited to only those that have scientifically sound generalized 
outcomes, care could be denied for almost all conditions. Come to think 
of it, maybe that is why HMO's are so keen to get away from prevailing 
standards of care!
    Third, the validity of HMO guidelines and how they are used is open 
to question. Medical directors of HMOs were asked to rank the sources 
of information they use to make medical decisions. Industry guidelines 
generated by the trade associations representing health plans ranked 
ahead of information from national experts, government documents, and 
NIH consensus conferences. The most highly ranked respected source--
medical journals--was used less than 60% of the time!
    Industry guidelines are frequently done by Milliman and Robertson, 
a strategy shop for the HMO industry. This is the same firm that 
championed ``drive through deliveries'' and outpatient mastectomies. 
Many times, these practice guidelines aren't grounded in science but 
are cookbook recipes derived by actuaries to reduce health care costs. 
Here are two examples of the errors of their guidelines:

 A National Cancer Institute Study released in June found that 
        women receiving outpatient mastectomies face ``significantly 
        higher'' risks of being re-hospitalized and have a higher risk 
        of surgery-related complications like infections and embolisms.
 A 1997 study published in the Journal of the American Medical 
        Association showed that babies discharged within a day of birth 
        faced increased risk of developing jaundice, dehydration, and 
        dangerous infections.
    Objectivity of medical decision making requires that the results of 
studies be open to peer review. Yet much of the decision-making by 
HMO's is based on unpublished, ``proprietary,'' and unexamined methods 
and data. Such secret and potentially biased guidelines simply can't be 
called scientific.
    This is not to say that outcomes-based studies don't make up a part 
of how clinical standards of care are determined. They do. But we are 
all familiar with the ephemeral nature of new ``scientific'' studies 
such as those on the supposed dangers of alar!
    Clinical standards of care do take into account valid and 
replicable studies in the peer-reviewed literature, as well as the 
results of professional consensus conferences, practice guidelines 
based on government funded studies, and guidelines prepared by insurers 
that have been determined to be free of any conflict of interest. But 
most importantly, they also include the patient's individual health and 
medical information and the clinical judgment of the treating 
physician.
    Congress should pass legislation defining this standard of medical 
necessity because: 1) ERISA shields plans from the consequences of most 
decisions about medical necessity, 2) under ERISA, patients generally 
can only recover the value of benefits denied, and 3) even this limited 
remedy is being eroded by insurance contracts that give insurers the 
authority to make decisions about medical necessity based on 
questionable evidence. And to ensure these protections, Congress must 
provide patients with a speedy, external review of all coverage 
decisions, not merely those that insurers decide are subject to review.
    It is time for Congress to defuse the ``smart bomb'' of HMO's.
            Sincerely,
                                                Greg Ganske
                                                 Member of Congress
                                 ______
                                 

            [Saturday, March 27, 1999--THE HARTFORD COURANT]

                A Common-Sense Compromise on Health Care
                           By John MacDonald
    U.S. Rep. Greg Ganske is a common-sense lawmaker who believes 
patients should have more rights in dealing with their health plans. He 
has credibility because he is a doctor who has seen the runaround 
patients sometimes experience when they need care. And he's an Iowa 
Republican, not someone likely to throw in with Congress' liberal left 
wing.
    For all those reasons, Ganske deserves to be heard when he says he 
has found a way to give patients more rights without exposing health 
plans to a flood of lawsuits that would drive up costs.
    Ganske's proposal is included in a patients' bill of rights he has 
introduced in the House. Like several other bills awaiting action on 
Capitol Hill, Ganske's legislation would set up a review panel outside 
each health plan where patients could appeal if they were denied care. 
Patients could also take their appeals to court if they did not agree 
with the review panel.
    But Ganske added a key provision designed to appeal to those 
concerned about an explosion of lawsuits. If a health plan followed the 
review panel's recommendation, it would be immune from punitive damage 
awards in disputes over a denial of care. The health plan also could 
appeal to the review panel if it thought a doctor was insisting on an 
untested or exotic treatment. Again, health plans that followed the 
review panel's decision would be shielded from punitive damage awards.
    This seems like a reasonable compromise. Patients would have the 
protection of an independent third party review and would maintain 
their right to go to court if that became necessary. Health plans that 
followed well-established standards of care--and they all insist they 
do--would be protected from cases such as the one that recently 
resulted in a $120.5 million verdict against an Aetna plan in 
California. Ganske, incidentally, calls that award ``outrageous.''
    What is also outrageous is the reaction of the Health Benefits 
Coalition, a group of business organizations and health insurers that 
is lobbying against patients' rights in Congress. No sooner had Ganske 
put out his thoughtful proposal than the coalition issued a press 
release with the headline: Ganske Managed Care Reform Act--A Kennedy-
Dingell Clone?
    The headline referred to Sen. Edward M. Kennedy, D-Mass., and Rep. 
John D. Dingell, D-Mich., authors of a much tougher patients' rights 
proposal that contains no punitive damage protection for health plans.
    The press release said: ``Ganske describes his new bill as an 
affordable, common sense approach to health care. In fact, it is 
neither. It increases health care costs at a time when families and 
businesses are facing the biggest hike in health care costs in seven 
years.''
    There is no support in the press release for the claim of higher 
costs. What's more, the charge is undercut by a press release from the 
Business Roundtable, a key coalition member, that reveals that the 
Congressional Budget office has not estimated the cost of Ganske's 
proposal. The budget office is the independent reviewer in disputes 
over the impact of legislative proposals.
    So what's going on? Take a look at the coalition's record. Earlier 
this year, it said it was disappointed when Rep. Michael Bilirakis, R-
Fla., introduced a modest patients' rights proposal. It said Sen. John 
H. Chafee, R-R.I., and several co-sponsors had introduced a ``far 
left'' proposal that contained many extreme measures. John Chafee, 
leftist? And, of course, it thinks the Kennedy-Dingell bill would be 
the end of health care as we know it.
    The coalition is right to be concerned about costs. But the 
persistent No-No-No chorus coming from the group indicates it wants to 
pretend there is no problem when doctor-legislators and others know 
better.
    This week, Ganske received an endorsement for his bill from the 
88,000-member American Academy of Family Physicians. ``These are the 
doctors who have the most contact with managed care,'' Ganske said. 
``They know intimately what needs to be done and what should not be 
done in legislation.''
    Coalition members ought to take a second look. Ganske's proposal 
may be the best deal they see in a long time.

    Mr. Ganske. Thank you, Mr. Chairman. I remember, very well, 
a prior hearing that we had, Mr. Chairman. We had testimony 
from a claims reviewer named Linda Pino. I think it would be 
very informative for the people in the audience and for the 
members of this committee to go back over her testimonies. So 
let me quote from her story.
    She said, ``I wish to begin by making a public confession. 
In the spring of 1987, I caused the death of a man. Although 
this was known to many people, I have not been taken to any 
court of law or called to account for this in any professional 
or public forum. In fact, just the opposite occurred. I was 
rewarded for this. It brought me an improved reputation in my 
job, and it contributed to my advancement afterwards. Not only 
did I demonstrate I could do what was expected of me, I 
exemplified the good company doctor. I saved a half million 
dollars.''
    She continued, ``Since that day I have lived with this act, 
and many others, eating into my heart and soul. For me a 
physician is a professional charged with the care or healing of 
his or her fellow human beings. The primary ethical norm is `do 
no harm.' I did worse. I caused death. Instead of using a 
clumsy, bloody weapon, I used the simplest, cleanest of tools: 
my words. This man died because I denied him a necessary 
operation to save his heart. I felt little pain or remorse at 
the time. The man's faceless distance soothed my conscience. 
Like a skilled soldier, I was trained for this moment. When any 
qualms arise, I was to remember I am not denying care; I am 
only denying payment.''
    She continued, ``At the time that helped me avoid any sense 
of responsibility for my decision. Now I am no longer willing 
to accept the escapist reasoning that allowed me to rationalize 
that action. I accept my responsibility now for that man's 
death, as well as the immeasurable pain and suffering many 
other decisions of mine caused.''
    She then listed the many ways that managed care plans 
denied care to patients. She emphasized one particular issue: 
the right to decide what care is medically necessary.
    She continued, ``There is one last activity that I think 
deserves a special place on this list. This is what I call the 
`smart balm of cost containment.' That is medical necessities 
denials. Even when medical criteria is used, it is rarely 
developed in any kind of standard, traditional clinical 
process. It is rarely standardized across the field. The 
criteria is rarely available for prior review by physicians or 
members of the plan. We have enough experience from history to 
demonstrate the consequence of secretive, unregulated systems 
that go awry.''
    Mr. Chairman, after exposing her own transgressions, she 
closed by urging everyone in the room to examine their own 
conscience.
    She went on, ``One may only wonder how much pain, 
suffering, and death will we have before we have the courage to 
change our course. Personally, I have decided even one death is 
too much for me.''
    Mr. Bilirakis. The gentleman's time has expired. I do 
remember that.
    Mr. Ganske. Mr. Chairman, it was very powerful testimony.
    Mr. Bilirakis. Very powerful.
    Mr. Ganske. We ought to remember that. Thank you.
    Mr. Bilirakis. Ms. Capps, I believe, was here prior to our 
break? You are recognized.
    Ms. Capps. Thank you, Mr. Chairman. I want to commend you, 
Mr. Bilirakis, for holding a hearing on this most important 
topic: protecting patients with a strong appeals process. I 
want to add to that strong equaling, as you have mentioned 
yourself, a timely and also external process.
    It is a privilege to follow our colleagues, Dr. Ganske, and 
his poignant opening statements. We all know as our country's 
health care system has changed from fee-for-service to managed 
care, many patients have been denied health coverage for 
medical treatments that are truly necessary.
    As the bottom line has become the major focus for many of 
these companies, the quality of care for millions of patients 
across the country has suffered. As a nurse, I can remember 
many times where very sick patients, that I knew personally and 
worked with, were denied coverage for conditions that clearly 
should have been covered.
    I am thinking right now of a young couple giving birth to 
twins. They had another toddler at home. One of the twins had 
multiple congenital difficulties requiring round-the-clock, 
skilled nursing care--that being denied by the managed care 
company. In the time that they were able to finally 
successfully appeal, so much damage was done this young child. 
When I see them now, they are a really strong example to me. 
They have persevered. They are a very strong example in my mind 
of the need for timely external reviews.
    In these sad cases, lives literally hang in the balance. A 
strong appeals process acts as a check on health plans' 
authority to control the treatments that are provided to 
patients. An appropriate appeals entity must be independent to 
ensure credibility. The appeals must be handled by individuals 
who have appropriate professional medical expertise related to 
the specific cases and appeals. It also must be handled, as I 
said, in a timely manner.
    Patients need a well-designed external appeals process. 
Without one, there is a grave danger that health care will 
wither. Patients will simply not receive the care they need 
when they need it. This is very costly to families, and also, I 
believe, to our society.
    As we grapple with the appeals issue today, Mr. Chairman, I 
think it will become clear that we need to mark up managed care 
reform legislation in this committee, and do it now. Only 
through bills like the Patient's Bill of Rights or the Norwood-
Coburn bill can we begin to effectively navigate the problems 
of an effective appeal process. I have said this before. By 
delaying action managed care reform, I believe we are losing 
our opportunity to make quality health care a reality for 
millions of people every day.
    I urge the majority to bring managed care reform 
legislation before the committee for markup immediately. The 
American people should not have to wait any longer.
    Thank you. I yield back my time.
    Mr. Bilirakis. I thank the gentlelady. Mr. Whitfield, for 
an opening statement.
    Mr. Whitfield. Mr. Chairman, the hearing today is going to 
focus on the key issue for patient protection. One thing is 
certain: Every member of this committee wants to provide better 
patient protections. Many of us realize, also, that HMO's are a 
valuable component of our health care system. The way that we 
can improve that system is working jointly together, moving 
forward to make sure that the changes we make improve the 
system, rather than create additional regulatory burdens.
    I, for one, become quite concerned when we talk about 
amending ERISA. The last thing we want to do is make it more 
difficult to provide health care to employees. I think we need 
a patient protection bill. But I also believe that today our 
health system is in chaos. HCFA is totally micro-managing the 
health care in our country today.
    I, for one, am glad that this committee and the Congress 
have moved slowly on this issue. The last thing that we need is 
reacting in an emotional way, without any regard to what the 
final consequences of our legislation will be. I think we have 
a duty and responsibility to be very careful about what we do, 
and to recognize the impact that it will have down the road on 
health care.
    We have a distinguished panel of witnesses today who will 
provide valuable information. I look forward to their 
testimony.
    I yield back the balance of my time.
    Mr. Bilirakis. I thank the gentleman. Mr. Dingell, for an 
opening statement.
    Mr. Dingell. Mr. Chairman, I wish consent to insert my 
entire statement into the record.
    Mr. Bilirakis. Without objection. The opening statement of 
all members of the subcommittee have been made a part of the 
record.
    Mr. Dingell. Mr. Chairman, I would like to just summarize 
briefly and observe that today we start on something of great 
importance that is a cornerstone for patient protection: the 
Patient's Bill of Rights. It is important we recognize two 
things are absolutely essential to this. One is an internal and 
external appeals process which works to ensure there is a 
mechanism to protect the rights of the patient. Second of all, 
a real definition and requirement for the doctor to be able to 
address the question on the basis of medical necessity.
    Now having said that, I am delighted to see us holding this 
hearing. I would observe that it comes to me as--what I hope 
is--a good sign that something will be moving on this important 
matter, which has unfortunately languished overlong.
    I would like to welcome Dr. Conway from the Henry Ford 
Health System, a great institution; and a great lady, Connie 
Barron, who has earned my respect by the very capable way that 
she processes her business and that of the Nation. I welcome 
you both. I welcome the other panelists, also. Thank you for 
being here.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Today the Health and Environment Subcommittee will discuss the 
cornerstone of any patient protection legislation, the external appeals 
process. I would like to thank Chairman Bliley and Subcommittee 
Chairman Bilirakis for holding a hearing on a topic that is so 
fundamental to managed care reform.
    A timely, independent, and enforceable internal and external 
appeals process would help to restore faith in the health care system 
on behalf of all parties. People would know that if their doctors' 
treatment recommendations were denied, they would be entitled to an 
impartial opinion from medical experts. A fair external appeals process 
would reinforce the behavior of health plans that made good medical 
decisions rather than insurance decisions. Most importantly, an 
external appeals process would help patients get the health care they 
need, when they need it.
    As part of this debate we must discuss medical necessity, the key 
component of any appeals process. If this process is to settle disputes 
between a health plan and your doctor on what treatment you get, then 
we want the decision to be based on the doctor's best medical judgment, 
not the health plan's. We do not want these independent experts to be 
bound by the way the plan defines ``medical necessity,'' which in some 
cases is whatever the plan says it is. A review conducted in this 
narrow bureaucratic fashion would be a sham.
    These reviewers should determine if the treatment is appropriate 
based on the ``professional standard of care'' at the time and taking 
into consideration the individual circumstances of the patient. The 
professional standard is not a static concept, but instead is a way of 
assessing a provider's conduct toward individual patients in light of 
the current state of knowledge of medical care within the profession. 
We don't want anyone to get ``cookbook'' medicine, particularly if the 
cookbook is written by bureaucrats.
    An external appeals process that fails to meet this standard will 
not do the job. A weak or biased system would actually make life worse 
for patients by creating another layer between a plan's internal review 
process and a patient's last resort, the legal system.
    Finally, a strong external appeals process is no good without 
enforcement. A good external appeals process should help to reduce the 
number of court cases by ensuring that more patients receive the care 
they need, but it can do nothing to help patients for whom further 
treatment would be futile. For those patients who have died or have 
been permanently harmed, we must see that health plans, just like any 
other organization, are held accountable for their actions.
    Chairman Bliley and Subcommittee Chairman Bilirakis, thank you 
again for holding this hearing. I hope that this Committee will soon 
mark up managed care reform legislation that includes a strong external 
appeals process, as well as other protections patients want and 
deserve.

    Mr. Bilirakis. I thank the gentleman. Mr. Bryant, for an 
opening statement.
    Mr. Bryant. Thank you, Mr. Chairman, for holding this 
hearing today on grievance and appeals processes of managed 
care health plans. I look forward to exploring this issue, 
particularly to the benefits of a strong, binding, independent 
external review process. This concept is a good one because it 
would give patients the comfort of knowing an independent panel 
of physicians will be reviewing determinations made by their 
health plan, should they choose to appeal a decision.
    An independent external review would provide a mechanism by 
which patients can get the care they need, which is what the 
patients want when they are sick. When you get sick, you want 
the best and most appropriate care--no more, no less. You want 
it with the least amount of hassle. I look forward to learning 
more about this review as we hear from the two panels before us 
today.
    I do believe, however, that Congress should proceed 
carefully. There are three components of health care that must 
be taken into account when we consider legislative action: 
access, affordability, and quality. These three components are 
undeniably linked. Congress cannot simply focus on one of these 
components without assessing the harm it might do one of the 
other components. We must be very careful to abide by the same 
creed doctors do when they take the Hippocratic Oath that we 
must first do no harm. Today as we are examining external 
review and other aspects of the grievance and appeals processes 
of managed care, I say the issue goes to the quality of these 
health care plans.
    I want to commend the chairman for holding a hearing last 
week on America's No. 1 health care problem: the 43 million 
people without health insurance. Last week's hearing explored 
ways to expand access and affordability of health care for 
these Americans. In that hearing, we looked at proposals to 
provide tax credits to individuals for health insurance; to 
provide greater opportunities for small businesses to purchase 
insurance for their employees, and to provide other innovative 
ways for people to get coverage.
    As we in Congress tackle these very complex issues, we must 
perform a delicate balancing act, balancing the interest of 
each of these factors: access, affordability, and quality. I 
know I speak for all members here when I say that we all want 
to do what is right. We want to get it right the first time. We 
don't want to have to deal with it later down the road with 
unintended consequences of legislation passed this year.
    I might also say--as I read some of the statements of the 
panel, and heard some of the comments that have already been 
advanced today--on the issue of liability, we don't want to 
litigate our way to better health, if we can avoid it. There is 
a better way here. I believe it is this external review 
process. We all know that you cannot sue your way to better 
health. If we can resolve patient disputes by creating a 
strong, independent, timely, and binding external appeals 
process, we avoid an awful lot of trouble. I think the 
consumers aren't looking to resolve their medical problems in 
court. I think they want to receive the care they deserve 
through an independent appeals process. If we do this external 
appeals process the right way, we ought to be able to get 
around this discussion of liability. What we are doing is 
proposing to have independent physicians look at this medical 
coverage decision denied by the plans, and do it in a timely, 
expeditious, and fair fashion.
    Coming from the legal community and being a lawyer who was 
involved in malpractice lawsuits, I can tell you that expanded 
liability means more courts, more costs, higher premiums, and 
more Americans added to the rolls of the uninsured. I might 
say, also, that participants can already sue for their benefits 
in the Federal courts, and can sue negligent providers for 
malpractice in their State courts.
    With that said, I hope that we can move on to the issue of 
the day, which is the external review process--not liability. I 
thank the chairman and yield back my time.
    Mr. Bilirakis. I thank the gentlemen. Mr. Barrett, for an 
opening statement.
    Mr. Barrett. Thank you, Mr. Chairman. This certainly is an 
issue that deserves our immediate attention. I just want to 
relay to the committee two incidents that were brought to my 
attention by constituents that deal with this issue.
    The first one deals directly to the issue of external 
review, to make sure as we talk about this issue we remain 
mindful of the nuances. The constituent was denied care, and 
asked for a review of the decision. He was sent before a panel. 
He was a layman, and was sitting there in a room with five or 
six individuals who were the review panel. It was quite 
intimidating. As he looked up, he saw there was a 
representative on that review commission that was labeled the 
``consumer representative.'' He felt confident that she would 
be the person that would be on his side, or sympathetic to his 
case.
    As the appeal occurred, he realize the person who was 
labeled the consumer representative was by far the most 
aggressive person on the panel against him. She was asking the 
most difficult questions. When they were done, he was 
perplexed. He went up and said, ``Well, I understand that you 
are the consumer representative. How did you get that 
position?'' She said, ``Oh, I work for the company.'' He said, 
``But I thought you were the consumer representative.'' She 
said, ``I am. I am a consumer of the product. I also work for 
the HMO. So I got to be on this panel.''
    I tell this story because I think as we craft legislation 
here, we have to be very careful. If we are going to have an 
external review, it has to truly be an objective review.
    The second thing, and this follows up on Mr. Bryant's 
comments, I think, about trying to avoid confrontational 
decisionmaking. There was another constituent who had been told 
that he had a condition. Cancer was not ruled out. Although the 
doctor didn't think it was cancer, there was a 10 percent 
chance that it was. He should come back in 3 months. Needless 
to say, if you think that you have a 10 percent chance that you 
have cancer, you are not all that comfortable sitting around 
for 3 months to see whether or not you do.
    So he said, ``Well, I would like to see another physician 
to do this.'' The physician said, ``No, we are not going to do 
that.'' He simply said, ``That is fine. Would you put that 
decision in writing, please?'' The physician became very 
defensive and said, ``There is no way that I am going to put 
that refusal in writing.'' The constituent said, ``Well, that 
is fine. I will just write you a letter saying that I have 
asked you to refer me to another physician, and you have 
refused to do so.'' He got the permission at that point, 
obviously, to see the other physician.
    I bring that to the committee's attention because I think 
we have to be mindful that we don't create an even more 
confrontational system here. It is important as we try to craft 
solutions to remember that the physician is there to help the 
patient. I am confident that if we can move this legislation 
and the legislation that is on the floor right now, we can 
address a lot of these concerns.
    I remain optimistic. I have publicly said that this is the 
piece of legislation that can break the logjam that has 
occurred in this Congress. I think we can move this legislation 
forward. I am pleased that Mr. Pallone and others have worked 
so aggressively to get the issue to the floor. It is my hope 
that we can really pass a true Patient's Bill of Rights bill.
    I would yield back the balance of my time.
    Mr. Bilirakis. I thank the gentleman. Mr. Burr, for an 
opening statement.
    Mr. Burr. Thank you, Mr. Chairman. I would like to thank 
our panelists today for their willingness to come in and share 
their knowledge and talents. Hopefully, they will move us to 
the next step.
    I think that good policy is a process of patience. It is a 
process of learning. It is a process of talking to experts, of 
which we have some on our committee.
    There is one that I know to be sure: Health care is not 
perfect today. Health care will not be perfect when we write 
legislation. I think we can all agree to that. Can it be better 
than it is today? That is certainly the objective of this 
subcommittee. I will continue, despite those who would like to 
move faster than other members can possibly move in good 
conscience, to stay engaged in the process.
    I remember when I started FDA reform 2\1/2\ years ago. 
There were some that wanted to do it the day before we 
introduced it. There were some that didn't want to ever do it 
at all. The fact was, as we went through the process, as more 
people understood the problems, the challenges on both sides of 
every issue, we were able to craft legislation that addressed 
the needs of that human face that sat out there waiting for the 
drugs. At the same time, we created the incentive for a 
tremendous investment by the industry that was so much affected 
by that legislation. By the way, even by FDA standards, we did 
protect the safety and efficacy process--that gold standard we 
hold so high at the Food and Drug Administration.
    Personally, Mr. Chairman, I make a commitment today to you 
and all of my colleagues to continue to stay engaged, and 
continue to work and strive for legislation that meets the 
right policy.
    I do have to say that I resent Dr. Ganske's broad-brush 
remarks about Republicans. I am included in that. As a member 
that has been very diligent about my willingness to spend time 
in hearings--whether it is one or whether it is ten--to sit and 
listen to him to determine what part of his great education I 
don't understand, or have not had an opportunity for it to be 
shared with me, but it upsets me greatly when any individual 
can suggest that to perfect policy on my part is to neglect the 
quality of care for patients. It is absurd. I cannot speak for 
the other 434 Members of the Congress, but I think it is time 
for all Members--Republican and Republican, Republican and 
Democrat, Democrat and Democrat--to start talking about the 
right policy, and stop talking about the petty issues: Who does 
what when; who is right; who is wrong; who is an expert; who is 
not?
    Mr. Chairman, I look forward to the process as we head 
forward. I diligently commit to work with you and all the 
members to see that this is a successful end where the patients 
win. I yield back.
    Mr. Bilirakis. Thank you so much for that opening 
statement, Richard. Mr. Brown, for an opening statement.
    Mr. Brown. Thank you, Mr. Chairman. One of the ironies of 
the managed care reform debate is the consensus around external 
appeals. Everyone, even the insurance industry, agrees that an 
external appeals process makes sense.
    The irony is that if you believe enrollees need and deserve 
not just internal, but an external appeals mechanism, you must 
believe that patients have rights, and that from time to time 
health plans violate these rights. Working backward from the 
need for external appeals, the logic behind enacting the 
package of reforms in the Patient's Bill of Rights is simply 
difficult to refute.
    How do health plans let down their enrollees? By collecting 
premiums for coverage that shrinks in proportion to the amount 
that is needed. Health plans let down their enrollees by 
withholding coverage for specialists, for out-of-network 
emergency visits, for clinical trials, for services, that by 
any other standard other than the one the health plan itself 
uses, would be considered medically necessary. In short, they 
withhold payment for the kind of care that makes coverage, 
coverage.
    Enrollees who are assured upfront of a fair medical 
necessity standard protection in the case of emergencies, and 
access to the right provider, would be less dependent on 
external at the back end. If health plans know they are truly 
accountable in State and Federal court for arbitrary and 
bottom-line-oriented decisions that harm a patient, I think 
they will think twice before shortchanging their enrollees.
    External review is, in fact, a piece of the puzzle. 
Comprehensive reform, including external review, is the 
solution. This hearing is about external review. There are some 
fundamentals that distinguish a true external review mechanism 
from a false one. Obviously, the external review panel must be 
impartial, must have relevant expertise, and must look at the 
evidence fresh, without the fingerprints of the health plan on 
it. It is equally obvious that the health plan should not be 
the one to determine what is, in fact, appealable. The process 
should be available to any enrollee whose health is in 
jeopardy.
    Finally, we must dispense with any manipulation of the 
term, ``medical necessity.'' An external review panel must have 
the authority to override a health plan's medical necessity 
determination regardless of what is alluded to in the 
enrollee's benefit booklet or plan contract. The fact that 
medical necessity determinations are vulnerable to gaming is 
the crux of the problem. When you think about it, giving the 
enrollee the protection of a second opinion on questionable 
medical necessity decisions is really the whole point.
    I look forward to hearing from our witnesses, Mr. Chairman. 
I hope after today's hearing, we will waste no time in marking 
up and discharging a comprehensive managed care reform bill. 
Thank you.
    Mr. Bilirakis. I thank the gentleman. Mr. Shadegg, for an 
opening statement.
    Mr. Shadegg. Thank you, Mr. Chairman. I would like to begin 
by complimenting you for scheduling this extremely important 
hearing. There is no doubt that the issue of external appeals 
is critical as a key to important debate.
    I think that it is very important that we begin with an 
understanding of where this problem came from. The overall 
topic of HMO reform is one that has been discussed here at 
great length. I want to make it clear at the outset that I am 
one of those who believe that HMO's have performed a valuable 
service in holding down costs, but holding down costs at what 
price? I think, quite frankly, we have reached a point where 
HMO's have achieved some level of cost savings, but they are 
now beginning to achieve any further cost savings by denying 
care.
    Why is that occurring, and what is the cause of it? My 
colleague referred to the fact that under ERISA, which has been 
discussed and the topic of damages, patients can currently sue 
to recover the actual costs of any care that they should have 
received. With all due respect, I would to disagree with that. 
ERISA has changed the law in this area. I think it is important 
to note--and I am very pleased the committee memo points out--
that until 1974, when this Congress passed ERISA, States had a 
traditional role of regulating insurance companies. They 
regulated both quality and cost issues. They looked even at the 
financial underpinnings of insurance companies which provide 
health care coverage.
    In 1974 when Congress passed ERISA, it blocked that 
traditional role that States provide in giving patients 
protection. It specifically precluded State regulatory laws 
from governing ERISA plans. As a result of that, today in 
America 48 million Americans--as the committee memo points 
out--are covered by ERISA-governed plans. Those ERISA-governed 
plans are exempt from State protection laws, and immune from 
any meaningful damages. Yes, the law says you can recover the 
actual cost of any care that wasn't provided. The reality is, 
if you can't recover a dime more than that, you can't afford to 
bring suit. So the reality is that, as a result of this 
Congress changing the law in ERISA, patients now lack vital 
protections which they need.
    I don't suggest that we go back to a tort-law-driven 
system, or that we open the door to unlimited lawsuits. I do 
believe that we can improve, as my colleague pointed out, on 
the current system. We can do better than the current system. 
We do not have to have incentives which encourage HMO's to deny 
care, which is what we have with the current system.
    My colleagues, Mr. Coburn and Mr. Norwood, and I have 
worked for the last several months on this issue. We have 
drafted legislation which contains both a carefully thought out 
internal and external appeals process. The external process in 
that legislation, I suggest, is more carefully thought out than 
anything that has yet been presented to Congress. It does not 
open the doors to unlimited litigation. It does, however, 
provide meaningful review by an external panel which will look 
carefully at what coverage should have been, or should not have 
been, provided. But, most importantly, it goes beyond that and 
says that, if the HMO refuses to comply with that, there is 
liability beyond that point.
    I suggest that is a careful balance. In the absence of any 
ultimate penalty as we have put in the legislation we have 
crafted; that is, in the absence of any extension of liability 
where an HMO does not comply with the external review 
procedure, then you have no meaningful legislation at all.
    I want to add that I began this Congress not favoring HMO 
legislation at all. I am not fond of the idea of extending the 
regulatory arm of the Federal Government. I think, however, 
that we need this legislation now. Having looked at this 
legislation, we need to go beyond that and look at the cause of 
the problem. There is a cause behind all of this. That cause is 
that, as a result of the tax code, we have divorced the person 
consuming health care in America--the individual employee--from 
the entity paying for health care in America--the employer. As 
a result of that change in the tax code, the vast majority of 
Americans get their health care through their employer, but 
they have no ability to pick the plan they want. They have no 
ability to fight when they don't get the coverage they want.
    I think that is a serious flaw in the current system. The 
legislation which I have crafted, and which Mr. Coburn and Mr. 
Norwood have joined me on, is legislation that would say we 
need to change that. I urge this committee to move the 
legislation as quickly as possible.
    We need to empower individuals to select the health care 
that meets their needs. We need to empower them to be able to 
shop with their feet. We need to let a market work in this 
place. I believe we can allow a market to work in the health 
care arena with those kinds of changes.
    We have to do a temporary fix with regard to HMO reform. I 
believe we can. The legislation which is before this committee 
is thoughtful, I think. It moves in that direction. We then 
have to look at the long-term cause. I suggest that the 
solution to the long-term cause is to empower individuals to 
shop with their feet, to give them the right of choice, and 
increase the access they have to plans that suit their needs.
    With that, I yield back the balance of my time.
    Mr. Bilirakis. Thank you, sir. Ms. DeGette.
    Ms. DeGette. Mr. Chairman, Ms. Eshoo had to leave. I would 
ask unanimous consent to insert her statement for the record.
    Mr. Bilirakis. Without objection.
    [The prepared statement of Hon. Anna G. Eshoo follows:]
Prepared Statement of Hon. Anna G. Eshoo, a Representative in Congress 
                      from the State of California
    Thank you, Mr. Chairman, for holding this hearing--the second this 
Congress on managed care reform.
    I'm pleased that the Subcommittee is tackling the issues 
surrounding managed care reform. Last year, I lived and breathed this 
issue as co-chair of the Health Care Task Force.
    We worked daily writing the Democratic Patients Bill of Rights 
because we knew that the American people want and need consumer health 
protections.

 Over half of the 143 million Americans enrolled in managed 
        care plans say they are worried that if they become ill their 
        health plan would be more interested in saving money than in 
        providing the best medical treatment,
 Nearly 40% of physicians in HMOs report decreased ability to 
        make the best medical decisions for their patients.
    There are several guarantees Americans need to ensure that they're 
getting quality, reliable health care. We addressed a few of them in 
our last hearing on managed care reform.

 Access to specialists.
 Emergency care when and where it is needed.
 Health plan information that is available and easily 
        understood.
 An ombudsman to help navigate the system.
    While critically important, none of these rights will guarantee any 
real health protection's without the ability to hold health plans 
accountable for their medical decisions.
    One of the critical ways we can hold health plans accountable is 
through a meaningful external appeals process.
    If appropriately designed, this process would allow a patient to 
appeal disputes over medical care to an independent entity with 
appropriate expertise to hear cases.
    As we all know too well, the devil is always the details. It is not 
enough to simply require health plans to institute an external appeals 
process. We must ensure that the process is meaningful.

 It must be independent and timely.
 It must allow appeal of a broad range of medical decisions.
 It must be based on a medical necessity standard that 
        incorporates generally accepted principles of medical practice.
    As the health care system has changed from fee for service to 
managed care, the incentives to provide care have also changed. A 
meaningful external appeals process will help to shift the balance back 
in favor of quality health care.
    Mr. Chairman, I'm grateful we're moving toward by holding hearings 
on needed protections. I'm hopeful that we also will have an 
opportunity to consider legislative proposals, like the Patients Bill 
of Rights, that provide these protections.
    I look forward to the day we send a meaningful patient protection 
bill to the House Floor that includes guarantees like independent 
review of medical decisions that have real affects on people's health.
    Thank you, Mr. Chairman. I look forward to hearing from the 
witnesses.

    Mr. Bilirakis. Please extend my apologies to her. If we had 
known that she had to leave, I am sure Mr. Brown would have 
been happy to yield his time to her.
    Ms. DeGette. I didn't realize it until she was just getting 
up.
    Mr. Chairman, I am very pleased that we are having this 
hearing, and all of these hearings. I think that many of us 
feel that a strong appeals process must be a part of 
comprehensive reform. That is why many of us have today signed 
a discharge petition on the Patient's Bill of Rights.
    We have all heard horror stories of patients denied 
critical health care services by a health plan, only then to 
find that they have no recourse to appeal the decision. If 
properly designed, effective external appeals process can 
provide the necessary checks on health plans' authority to 
control the treatments that are provided to patients. Without 
those external appeals processes, any managed care reforms that 
we enact will fail to protect patients. It is that simple.
    I hope that today's hearing will shed some light on some of 
the critical issues surrounding development of an effective 
external appeals process. How do we assure independence? What 
is a reasonable timeframe for appeals? Who are the reviewers? 
How do they comply with the verdict? I am especially interested 
in how we do an adequate and timely external appeals process in 
emergency care situations, for example. I think that we have to 
address these issues on medical necessity and how it is 
defined. Without a clear definition, it is hard to determine 
when a case should be reviewed. It is hard to ensure that plans 
will provide medically appropriate care.
    With that, Mr. Chairman, I think Mr. Ganske was saying some 
very important things when his time ran out. So if he has any 
more to say, I am happy to yield him the rest of the time I 
have remaining.
    Mr. Ganske. If the gentlelady would yield?
    Ms. DeGette. I would be happy to.
    Mr. Ganske. I did want to commend my colleague from Arizona 
for his comments on liability.
    Not too long ago I had a conversation with the CEO of my 
own Iowa Blue Cross-Blue Shield Welmark Organization. He said, 
``You know, Greg, we are in the process of implementing your 
Patient's Bill of Rights Managed Care Reform Act of 1999. It is 
costing our plant almost nothing. We expect to see no premium 
increases from that. It is a matter of tightening up our own 
protocols.''
    Part of that may be the fact that Blue Cross plans 
frequently sell to the individual market as well. They are 
under State regulation for those policies. But he said, ``You 
know, on the liability issue, I could see where after an 
internal review, if there is still a dispute on a denial of 
care, we could go to a independent peer panel. I would agree 
with that panel determining medical necessity as long as they 
can't overrule specific exclusions of coverage.'' He said, ``I 
could agree with that being binding on my plan. But if it is 
binding on my plan, and we have to follow this other group's 
recommendation, then we should be free of punitive damages 
liability. We didn't make the decision. We just have to follow 
it. Punitive is for punishing malicious behavior.'' I said, 
``That sounds very reasonable, John. I will put that into my 
bill, The Managed Care Reform Act of 1999.''
    I am happy that I have been able to work with Congressmen 
Coburn and Norwood. That is, essentially, the provision in the 
consensus draft that was given to the chairman of this 
committee and to the chairman of the full committee. I think 
that is a reasonable compromise.
    What it accomplishes is this: It does reestablish 
responsibility back where it should be for a medical decision, 
but it creates an incentive to avoid the lawsuit. For the 
patient, you have an opportunity to get an independent second 
opinion.
    Let's say a patient wants Laetrile from Mexico. They know 
they have an unhappy customer. The plan under this bill could 
take it to an independent panel for a confirmatory decision. In 
so getting a confirmatory decision, it would be shielding 
itself from any punitive damages.
    I think it is a very reasonable compromise. I would 
encourage my colleague from North Carolina to keep an open mind 
on that type of compromise. I would point out to my colleagues 
that it is already June 23. It is not earlier in the year. We 
were burning the midnight oil. This issue has been before 
Congress for several years. It is has been before this 
committee for a long time. I think it is time to move to a full 
markup. It is time to get it to the floor, and do it in a fair 
and reasonable way with an open rule, something where we don't 
end up with a sham process.
    Mr. Bilirakis. The gentlelady's time has expired. Dr. 
Coburn.
    Mr. Coburn. Thank you, Mr. Chairman. You know, I really 
don't care who gets credit for getting patients better care. 
But you can tell from both sides of the panel that there are a 
lot of people interested in reforming managed care. It is going 
to happen.
    The things that are going to slow it down are turf battles 
for credit and politics. The politics of it stink. The politics 
on the Democrat side stink, and the politics on the Republican 
side stink. If we really want to do something, we will put 
external review that has teeth in it that allows people to get 
the care that was bought and paid for.
    We are going to do that. No matter which committee it comes 
through, right is going to win on this process in this 
Congress. It is going to cross party lines. It is going to 
cross political lines. It is going to cross thought lines. 
Patients are going to be the winners.
    My colleague from Arizona makes great points. I, too, have 
supported a lot of what managed care has done. They have made 
better doctors out of a lot of doctors. They have kept us from 
wasting a lot of money that we should not waste.
    There are two points that we need to realize. No. 1 is that 
when ERISA was put in it was for those self-funded plans. It 
was not for independent HMO's out marketing. That is No. 1. It 
has been expanded to include that.
    No. 2 is that we now have a profit center in between the 
patient and the purchaser of their health care. That can't be a 
good thing for patient care. Regardless of its motivation of 
saving money, the real motivation is to make money. That is at 
the risk of patients not getting the care that was bought and 
paid for.
    I will challenge anybody. In the last 4 weeks I have run 
into five episodes of denial of care from managed care 
companies in my own practice on either a Friday or a Monday. It 
is out there. The way that the money is being made is care not 
being delivered to the patients for whom it was bought and paid 
for by their employers.
    We can deny that. We can say that it doesn't happen, but it 
does. We are going to change it. The best way for us to change 
it is to not make it a political issue, to not try to gain 
political points, to not spar between ourselves, but to get 
together and do it. If we will do that, we will fix health care 
in terms of this aspect for the American public. If we make it 
political, then we may get a poor result. It will be the 
Members' of Congress fault, not any of the patients, and not 
any of the managed care companies. It will be our fault.
    Mr. Chairman, I thank you for having the hearing. I also 
would say that I would exert any pressure I could on you to 
reclaim the authority of this committee over health care in 
this Congress. We do have authority over that. We should 
reclaim that. We should get into the fight with the 
parliamentarian on whether or not we do have that. I would tell 
you that the Subcommittee on Health of the Committee on 
Commerce--no committee has more jurisdiction over the health in 
the country than this committee. We ought to exert that right.
    With that, I yield back.
    Mr. Bilirakis. Mr. Hall, for an opening statement.
    Mr. Hall. Mr. Chairman, thank you. I am, of course, pleased 
to be here today. In a way, I am pleased to be here, and in a 
way, I am very saddened to be here. I had hoped that the 
entities that were involved would get together and work this 
out. I had, I guess, every insurance company, hospital 
administrator, and many of the physicians that are in my area 
in my office in Rockwall, Texas earlier in the session. I 
suggested to them that they get together and work it out, and 
give us a business decision, rather than getting a 
congressional decision. No one is going to like the 
congressional decision. You could have brought us something. I 
think you should have. I think you let a lot of people down 
when you didn't do that.
    Actually, the blue dogs, a group of conservative Democrats, 
got together and asked trial lawyers, insurance companies, 
hospital administrators, physicians, and others interested, 
like the NFIB and chambers of commerce, to sit in and try--one 
last time--to get together and work this out. Come bring us a 
decision that you all can work out yourselves. I don't think 
there is anyone on this committee, or in this Congress, who 
wouldn't like that.
    We had the same problems when we wrote the Clean Air Act, 
earlier in the 1980's. As a result, we still have some 
requirements for technology to clean the way that Congress 
wanted to clean the air that is not even in existence. I think 
you are not going to like it. If you don't get together and 
bring us something, I am going to be very disappointed.
    I think, certainly, that I don't take a back seat to anyone 
for voting for all of the entities that I have enumerated here. 
I am a lawyer who voted to cap damages. I have put my amendment 
on everything that has been through here to punish the lawyer 
and the client if they file a frivolous lawsuit. I think that 
solved much of the problem that we are facing today.
    So I just don't understand why the entities can't get 
together and see that this is really ridiculous to say that 
this is going to spawn lawsuits if we erase ERISA. Mr. 
Chairman, I think numerous hearings by this committee that we 
have held over the past few years have shown, indeed, that a 
lot of patients have been denied care by their health insurer, 
without the rights of due process guaranteed by our 
Constitution, and denied by the sleight-of-hand use of ERISA. 
It was never meant to be used as a shield, but it is being used 
as a shield.
    I believe our witnesses today are going to bring us some 
very valuable insight into various appeal processes available 
today, and make suggestions and recommendations that we can use 
in crafting a strong internal and external appeals process that 
would be guaranteed to every employee, whether they are in 
managed care plans, or fee-for-service, or other health 
insurance plans, regardless of the employer's participating or 
not in ERISA.
    I would be remiss if I did not, again, tip my hat to our 
in-house medical experts, Dr. Ganske, Dr. Norwood, Dr. Coburn, 
who give us advice and don't charge us for it. Their common-
sense approach to this is something that has been really very 
thrilling to me. I would remiss if I didn't suggest to Dr. 
Ganske that his opening statement ought to go to every Member 
of Congress, and every Member of the House and Senate.
    Mr. Chairman, I also note your wisdom in having two Texans 
on the panel today. Mr. Dingell has already tipped his hat to 
Ms. Barron, who is Associate Director of Legislative Affairs at 
the Texas Medical Association. She has been very helpful to our 
office. I didn't know if Connie was on the first or second 
panel. I see her at the table. I assure you that they are well 
qualified to speak on our topic today. They have given Texas 
and the Texas legislature their good advice. We have good, 
strong patient protection laws in place down there that are 
working.
    So I, once again, urge all the entities to get together and 
work out a bill that you can live with that is fair and can be 
passed by this committee. We still have time. This year is not 
over.
    I yield back my time.
    Mr. Bilirakis. I thank the gentleman. I trust the gentleman 
knows that the staffs have been working very diligently--the 
majority and the minority--towards that end.
    I would now recognize Dr. Norwood, for an opening 
statement.
    Mr. Norwood. Thank you very much, Mr. Chairman, for holding 
this hearing. Thank you for holding all the many hearings you 
have held on this subject over the last 4 years. I thank you in 
advance to not hold any more.
    I want to thank you for a markup that, surely, the health 
care committee of Congress should have, and have soon--
certainly in July. It is something that we have talked out. I 
am almost out of something to say. I have said it so many 
different times, so many different ways: We need to do battle. 
We need to have a markup, so both sides of the aisle can have 
their points made.
    This will never work if it is not bipartisan. It is not 
about Democrats. It is not about Republicans. It is about 
patients. I promise you that the Democrats have patients in 
their constituents just like we have patients in our districts 
in our constituents. For us to win, for America to win--for the 
patients of this country to win--we need and can have an 
absolutely bipartisan bill.
    Today we are focused specifically, I think, on one of the 
most important aspects of any type of managed care reform that 
we do. At the end of the day, I cannot think of anything in the 
entire bill that is going be more important than internal and 
external review, and how that structure works. It is delicate. 
It is complicated. Dr. Coburn and Dr. Shadegg have it, in my 
opinion, just exactly right in the consensus bill. It will 
work. It will ensure that patients really do get the care that 
they paid for when they need it.
    Former Congresses are responsible, in my opinion, for the 
problems that we are dealing with today in health care. Mr. 
Shadegg alluded to this. Congress created the laws that are 
forcing the conflicts that we are here trying to solve. They 
created them in 1973 and 1974. My good friend from North 
Carolina, Mr. Burr, knows that I don't have any patience. I 
have been waiting 25 years. I think that is fairly patient.
    We have been working on this problem since 1995. This is 
about, as he said, us passing legislation that really affects 
an industry. That is exactly what Congress did in 1973, when it 
used the taxpayers' dollars to subsidize a new form of medical 
delivery, then called ``managed care.'' That is exactly what 
Congress did in 1974, when it preempted State laws and then 
wrapped their arms with a shield of immunity around those that 
would be involved in it. They passed legislation that affected 
an industry. That industry was sick patients and people willing 
to treat those sick patients. So I think patience has been 
exhibited greatly, after 25 years. We are now trying to 
straighten out the problems that we have watched occur over the 
last 25 years in this Congress. It is high time that we did 
that.
    Once upon a time, there really was a market in health care. 
There really was. It was a market between a sick patient and a 
willing doctor. The market is very much skewed today. It 
doesn't work that way. Today, we have willing doctors that are 
very able and competent to try to provide the appropriate care. 
We have patients who want all the possible care they can get, 
since oftentimes someone else is paying for it. We have 
insurers who simply want to keep the costs down. This is just 
another profit center.
    You know, when these forces come into conflict--which they 
do every day--we have the problems that we are all trying 
desperately to deal with. In these bills, whether it be John 
Dingell's bill, or whether it be Greg Ganske's bill, or whether 
it be Drs. Coburn and Shadegg's bill does not have anything to 
do with it. We are all trying to face the problems.
    Under current law, the insurer is always right. No matter 
what happens, they win. You have nowhere to go. You have nobody 
to turn to. The treating physician has no one to go to. The 
patient has no one to go to. Unlike in the early 1970's, when 
it actually helped to be able to occasionally call the 
insurance commissioner, at least you got somebody to listen. 
You didn't always win. But the frustrations are today that some 
clerk says, ``no,'' and you are out of business.
    Mr. Chairman, I see the light. I will just ask your 
permission to put the rest of my statement in the record. 
Again, I thank you. I know you have been through a lot, 
personally, with this. I appreciate all the hearings you have 
held for us, and all the times you have really done everything 
you could with these conflicting forces, which are on both 
sides of you. It is just as bad over here as it is on the other 
side. I know you have been beat up. I thank you, sir, for what 
you have tried to do for the patients in your district.
    Mr. Bilirakis. Thank you, so much, Dr. Norwood. Mr. Green, 
do you have an opening statement?
    Mr. Green. Thank you, Mr. Chairman. I would like unanimous 
consent to place my opening statement in the record.
    Mr. Bilirakis. Without objection.
    Mr. Green. I would like to just briefly say that like my 
colleague, Ralph Hall, I want to welcome Ms. Barron. I 
appreciate the friendship over the years with the Medical 
Association.
    What I have is an ad that has been running in publications 
up here that says, ``The Kennedy-Dingell bill will change 
health care. It will make it more expensive.'' I would hope 
each of you would address it, particularly Ms. Barron, because 
of her Texas experience. It said we are talking about an 
outside appeals process. I know the numbers that I remember 
seeing were that actually half of the appeals were found in 
favor of the patient. If you could talk about the cost of that 
appeals process in Texas, and maybe some of the other things. I 
don't know if anybody on the panel represents the health 
benefits coalition. But with all the money they are spending on 
ads, at least in DC, it might would be better if they would pay 
for better insurance for their businesses. If you could address 
some of the cost in not only the appeals process, but other 
cost items.
    I am glad to follow my colleague from Georgia, Mr. Norwood. 
We do have both Democrat and Republican patients. I know the 
patience on your side is wearing thin, just like the patience 
on our side. Hopefully, we will be able to move a comprehensive 
bill. Thank you, Mr. Chairman.
    [The prepared statement of Hon. Gene Green follows:]
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas
    Thank you Mr. Chairman for scheduling this important hearing. The 
issue of external appeals is so complex, it is critical that we 
consider every issue to insure that the provision is crafted to 
adequately protect patients.
    External appeals is yet another issue that, on the surface, is very 
easy to agree on. Every comprehensive managed care reform bill that has 
been introduced over the past year has included an external appeals 
provision.
    However, how these appeal processes work varies widely from bill to 
bill. In some cases, the framework falls well short of what is required 
to protect patients.
    The key elements that an external appeals process must include are:

 It must be binding--There has to be an adequate accountability 
        provision to punish plans who delay or deny care even after an 
        appeals process has ruled in favor of the patient, especially 
        on the issue of medical necessity. If the treating physician 
        AND the physicians on the external review board agree that a 
        particular treatment is medically necessary, than the plan 
        should have to pay for that treatment.
 It must be timely--Patients with life threatening conditions 
        must have access to a timely appeals process. There is no time 
        more stressful for a family than when a loved one is sick. It 
        is hard enough dealing with the anxiety and uncertainty of the 
        illness without having to negotiate the bureaucracy of a drawn 
        out appeals process. Moreover, many diseases like cancer, 
        progress so quickly that by the time the patient wins their 
        appeal, it is already too late for the treatment they were 
        appealing.
 It must be independent--Any external appeals board must be 
        fully and completely independent of the health plan. Under some 
        proposals, the plan would be allowed to set up the external 
        appeal board, but under this scenario, there would be a direct 
        conflict of interest between meeting the needs of the patient 
        and serving the best financial interest of their employer.
 There have to be specialists involved--The bottom line is I 
        don't want a heart surgeon making the medical decision about a 
        child's cancer treatment. There are medical specialties for a 
        reason and decisions effecting each disease or part of the body 
        needs to be made by people who are trained to do so. If a 
        doctor wouldn't treat a particular disease in their office, 
        they shouldn't make decisions about them in an appeals process.
    As always, Mr. Chairman, the devil is in the details. I look 
forward to working with you and other Members of the subcommittee to 
ensure that patients are protected, and a strong external appeals 
process is one of the key elements to achieving this goal.

    Mr. Bilirakis. Thank you.
    I know we are all very anxious to hear from the panelists. 
They have been very patient listening to us. They are really 
here for us to listen to them.
    However, Mr. Upton has come into the hearing. Do you have 
an opening statement, Fred?
    Mr. Upton. I will make it as part of the record.
    Mr. Bilirakis. We do appreciate that, without objection.
    [Additional statements submitted for the record follow:]
  Prepared Statement of Hon. Fred Upton, a Representative in Congress 
                       from the State of Michigan
    Mr. Chairman, thank you for convening today's hearing on protecting 
patients with a strong appeals process. I am convinced that ensuring 
patients have access to strong, independent external appeals process 
conducted by medical experts is the single most effective step we can 
take to ensure they will receive medically necessary, appropriate, 
high-quality and timely care.
    That such an appeals process, not lawsuits, is the best way to 
ensure access to high quality, timely care was brought home to me in an 
unfortunately tragic way by the recent death of my school roommate and 
long-time friend and groomsman at my wedding. When he became quite ill, 
he did not receive the specialized care he needed, and his condition 
went undiagnosed until it was too late. His colon burst, and he died. 
His wife is suing their health plan, but I know that she would much 
rather have her husband and father to her three children.
    Independent, external appeals systems put questions regarding 
medical necessity and appropriateness in the hands of qualified 
physicians and other health professionals, rather than in the hands of 
judges and juries with no medical training. While lawsuits can drag on 
for years, internal and external appeals systems would provide very 
timely decisions. And while there may be some modest additional costs 
to plans and employers associated with the internal and external appeal 
provisions of this legislation, exposing insurers and employers to 
open-ended liability would be far more costly. I am convinced that 
exposing employers who self-insure and may be legally construed as a 
result to be involved in benefit decisions to open-ended liability 
could well translate into a significant increase in the number of 
uninsured in this nation.
    In order to be effective in ensuring access to medically necessary 
and appropriate care, the decisions of the independent, external 
appeals bodies must be binding. There must be severe penalties for 
plans that fail to provide care that an independent, external, expert 
review process has found to be appropriate. There should also be severe 
penalties for patterns or practices of repeated refusal to authorize 
coverage for services that external appeals panels have found to be 
appropriate.
    I am looking forward to hearing today's witnesses describe their 
experience with external review systems and their recommendations to 
use as we prepare to craft legislation that will ensure all patients 
that their insurance will be there when they most need it.
                                 ______
                                 
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida
    Mr. Chairman. I want to thank you for holding this important 
hearing today.
    Last year in the Rules Committee I offered an amendment to H.R. 
4250, the Patient Protection Act. While I recognize that that bill did 
provide for an external review process, I thought its review process 
could have been stronger.
    The purpose of the amendment I offered was to provide for patients 
and their physicians an independent remedy for denial of medical care, 
treatment or services by managed care health providers. The amendment 
also sought to provide an independent third party physician review 
process by a panel of physicians (not fewer than three) not associated 
with the provider and appointed by the State or local Medical Society 
board for this purpose. The panel would have the authority to order the 
plan to provide the care, treatment, or services denied and assess 
penalties where appropriate, such order shall be enforceable by federal 
courts. In circumstances where the panel determines that the denial of 
health services was a dilatory tactic employed by the plan or caused 
harm to the patient in disregard for the patient's welfare or where the 
panel deems appropriate, the panel has the authority to award monetary 
penalties on a daily basis until the services are performed and/or 
three times the value of the services denied to the patient. Such 
potential penalties are to provide an incentive to insure that health 
care contracted for under the plan is actually obtained by the patient 
and to keep down the costs of the managed care plan in delivering 
services.
    I am pleased that we are having this hearing today because this is 
an extremely important issue that must be resolved as we work toward 
improving managed care plans' accountability to patients.
    I look forward to hear from our expert panel of witnesses.
                                 ______
                                 
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    Thank you, Mr. Chairman for holding this important hearing on 
improving patient protections. I want to especially commend the 
Gentleman for focusing our attention on how we can construct a strong, 
binding and independent external appeals process.
    In the ongoing conversations that this Subcommittee is having on 
America's health, there are fewer issues more important than increasing 
accountability to patients and ensuring that Americans receive the 
medical coverage they are entitled to under their health policies. 
Development of a strong appeals process will accomplish both of these 
goals.
    Everyone here in this room knows that a contract is only as good as 
your ability to enforce it. Today, I'm pleased to report that our 
Committee is working in a bipartisan manner to craft an external 
appeals process that is fair to patients. This process will provide 
plans with strong incentives to adhere to an external reviewer's 
decision.
    I hope that this hearing moves us away from destructive rhetoric. 
Instead, we should roll up our sleeves and address the real problems in 
managed care.
    Let me be clear. While I am committed to enacting a strong external 
appeals process, I am no less committed to opposing any initiative that 
significantly drives up the costs of health care premiums and adds to 
the rolls of the uninsured.
    I firmly believe that if we set up the right type of external 
appeals process, decisions affecting Americans' medical care can be 
decided by physicians and not courts. A strong, external appeals 
process is far better, and far less costly, to consumers than a system 
that encourages litigation and creates a new treasure trove for trial 
lawyers. Patients need care, not courts, and we intend to provide them 
better access to care.
    I believe our first principle in considering legislation is: do no 
harm. I've said it before, and I'll say it again. We simply cannot pass 
legislation that increases the numbers of the uninsured.
    I would like to thank all of the witnesses for coming today and 
discussing this important topic. With that, I thank the Chair and yield 
back the balance of my time.

    Mr. Upton. A late one.
    Mr. Bilirakis. But a good one, I am sure.
    Mr. Upton. Very good.
    Mr. Bilirakis. All right. That being the case, we will go 
right into the panelists now. Dr. William A. Conway is the Vice 
Chair of the Henry Ford Health System. He is speaking here 
today on behalf of the American Medical Group Association. Ms. 
Connie Barron is Associate Director of Legislative Affairs for 
the Texas Medical Association. Dr. Bruce A. Weiss is the Group 
Vice President of Medical Operations for AvMed, out of 
Gainesville, Florida--Go Gators. Dr. Stanley E. Grogg is 
Associate Professor of Pediatrics at Oklahoma State University 
College of Osteopathic Medicine.
    Doctors, and Ms. Barron, thank you so very much, again, for 
your patience and for being here. I know that we can learn an 
awful lot from you. Your written statements are part of the 
record. I hope that you could complement those if you would. I 
will turn the 5-minute light on. If you could stay as close to 
that as you possibly can, I would appreciate it.
    We will kick it off with Dr. Conway. Please proceed, sir.

STATEMENTS OF WILLIAM A. CONWAY, VICE CHAIR, HENRY FORD HEALTH 
 SYSTEM, ON BEHALF OF THE AMERICAN MEDICAL GROUP ASSOCIATION; 
 CONNIE BARRON, ASSOCIATE DIRECTOR, LEGISLATIVE AFFAIRS, TEXAS 
  MEDICAL ASSOCIATION; BRUCE A. WEISS, GROUP VICE PRESIDENT, 
  MEDICAL OPERATIONS, AVMED; AND STANLEY E. GROGG, ASSOCIATE 
 PROFESSOR OF PEDIATRICS, OKLAHOMA STATE UNIVERSITY COLLEGE OF 
  OSTEOPATHIC MEDICINE, ON BEHALF OF THE AMERICAN OSTEOPATHIC 
                          ASSOCIATION

    Mr. Conway. Chairman Bilirakis, Congressman Brown, and 
members of the subcommittee, it is obvious from your opening 
statements that you have some pretty significant issues to 
resolve. I just want to thank you for the opportunity to talk 
to you today about our views regarding the appeals process and 
liability of health plans.
    I am a physician and the Vice Chair of the Henry Ford 
Medical Group in Detroit. Our group is 800 salaried, multi-
specialty physicians in southeastern Michigan. We provide care 
for half of the managed care patients enrolled with the Henry 
Ford Health Alliance Plan, Michigan's largest HMO. We also 
provide care under various types of contracted arrangements 
with many other managed care plans in southeastern Michigan.
    I am here today on behalf of the American Medical Group 
Association. This association represents 50,000 physicians 
practicing in our Nation's largest multi-specialty group 
practices. Our members include the Mayo Clinic, Cleveland 
Clinic, Palo Alto Clinic, and the Permanente Federation--to 
name just a few.
    We would like to make some comments on liability. From a 
consumer perspective, the intent of extending liability to 
health plans may appear beneficial. I don't think that anybody 
would argue with the right of injured patients to seek redress. 
We believe there are several problems with extending liability 
to health plans.
    The first is the current medical liability system does not 
work well. It is broken. There are three well-respected studies 
looking at this. Injured patients aren't the ones that really 
receive benefit from that system. We think it is unlikely that 
using the liability system to resolve differences with health 
plans is going to do any better than that.
    Second, making litigation a major concern of health plans 
as well as patients we are taking care of, instead of improving 
the patient/physician relationship, is actually going to add 
another barrier to that.
    Third is the troubling consequence of extending liability 
to health plans. It reinforces the faulty notion that HMO's are 
legitimately engaged in the practice of medicine. Some plans 
think they are in the practice of medicine. Only physicians are 
trained and licensed to render clinical decisions. We don't 
want insurance companies and plans making clinical decisions. 
We have worked very hard over the years to make sure that the 
roles of clinicians and health plans are clearly delineated. 
The role of the health plan is to simply organize care, and 
interpret benefits and coverage. Clinical decisions should be 
left to physicians.
    Fourth, we believe this would add costs involved in this 
new area of litigation, and wick even more funds away from 
patient care dollars. This is going to become yet another 
administrative cost that the dollars in the health care system 
are going to have to go to cover. It will take those away from 
bedside care.
    I would like to turn to the positive and talk about 
grievance procedures and things that can work to resolve the 
issues before us. These are processes designed to assure that 
the right care is received at the right time that is most 
beneficial to our patients. Timely medicine is a powerful tool 
to improve care and prevent bad outcomes that result in 
litigation. A number of you have commented on the importance of 
timeliness. Appropriate and fairly structured grievance 
procedures will provide special value in assuring timely care, 
particularly in managed care environments. These are effective 
ways to settle disputes. They can do so expeditiously. They can 
do so at a time when the patient truly needs that decision made 
and help facilitate our medical care of the patients.
    I would like to share with you an example of our experience 
on how an effective internal and external grievance procedure 
can work to the patient's benefit. We have had a structured 
process at our Health Alliance Plan for a number of years. Our 
members may seek resolution to situations when they are 
dissatisfied or feel aggrieved over the services, the benefits, 
or any of the policies or procedures of the plan, its 
hospitals, or its medical staff.
    This policy is published. It is distributed annually to 
each member. The process has three levels of decisionmaking. 
The final internal level involves the board of the Health 
Alliance Plan, its member services committee. The board of the 
Health Alliance Plan is composed largely of independent 
individuals. Half of them are elected by the membership. No 
committee member is an employee of the organization.
    This process is used by about 1 percent of patients a 
year--590 appeals. Sixty percent of the time the patient's 
request is supported. In the State of Michigan there is an 
external review process that is required by Michigan law that 
is available. Out of these 590 cases, in the past year only 
three patients went on to access the external review process, 
because the internal procedures, we believe, were so effective. 
In all three cases, the State process upheld the plan's 
decision. We believe you can have effective appeals processes.
    In summary, we think the debate on health plan liability 
has actually been a blessing. It has helped crystallize the 
need to structure and protect the rights of patients under 
managed care plans. It has forced us all to focus on ways to 
prevent litigation through grievance and appeals processes that 
result in what we all want: better care and better clinical 
decisions for patients, when it matters and at the time care is 
needed.
    We commend the committee, and our especially our 
Congressman from Michigan, John Dingell, for leadership in this 
debate. We would urge you to go forward to establish a 
grievance and appeal process for health plans. We thank you for 
the opportunity to come before you today. We will be happy to 
work with you on this issue going forward. I am available to 
answer questions.
    [The prepared statement of William A. Conway follows:]
 Prepared Statement of William Conway, Vice-Chairman of the Henry Ford 
   Medical Group on Behalf of The American Medical Group Association
    Chairman Bilirakis, Congressman Brown, and members of the 
subcommittee, thank you for this opportunity to speak before you today 
on our views on the internal and external appeals process and expanding 
liability to health plans. My name is William Conway and I am the Vice-
Chairman of the Henry Ford Medical Group in Detroit, Michigan. I have 
spent 31 years in medicine, including 26 years with Henry Ford 
Hospital.
    The Henry Ford Medical Group (HFMG) consists of more than 800 
multi-specialty salaried physicians in Southeast Michigan. HFMG has 
provided medical care to patients of the Henry Ford Health System 
(HFHS) since 1915. Our physicians provide care to approximately one-
half of all managed care patients enrolled with the Henry Ford Health 
Alliance Plan (HAP), Michigan's largest HMO. We work in collaboration 
with another 1,200 private practice doctors who make up the HAP 
network. We also provide care under various types of contracted 
arrangements with many of the other managed care plans in Southeast 
Michigan.
    I am here today on behalf of the American Medical Group 
Association. AMGA is the leading advocacy group on behalf of the 
nation's larger multi-specialty group practices. It represents over 250 
medical groups across 40 states, representing over 45,000 physicians. 
Other members include the Mayo Foundation, the Cleveland Clinic, the 
Palo Alto Clinic, and the Permanente Federation, Inc. AMGA's mission is 
to shape the health care environment by advancing high quality, cost-
effective, patient-centered, and physician-directed health care.
Liability
    From a consumer perspective, the intent of extending liability may 
appear beneficial. No one would argue with the right of injured 
patients to seek redress: but there are two main problems with 
extending liability to health plans. First, the current medical 
liability system is broken. It makes no sense to expand liability under 
the current unreformed system. Secondly, making litigation the first 
concern of health plans and the first concern of a patient upon 
entering a doctor's office erodes year's of trust and works against 
successful health outcomes for the patient.
    Cost increase is one of the most troubling consequences of 
extending liability to health plans in our current environment. 
Removing the ERISA barrier would result in revenue being shifted away 
from patient care into the legal arena. This comes at the worst time. 
Costs for administrative and regulatory burdens are exploding and 
directly competing with patient care in most group coverage (including 
Medicare and Medicaid), taking anywhere from 10% to 25% of group 
insurance payments. At the same time, purchasers have held the line 
against increased premiums overall. This means that any action that 
increases litigation costs for health plans will have to come at the 
expense of patient care.
    Another consequence of extending liability to health plans is that 
it reinforces the faulty notion that HMOs are legitimately engaged in 
the ``practice of medicine.'' Only physicians are trained and licensed 
to render clinical decisions. If liability were extended to health 
plans, we worry that health plans would feel compelled to practice 
``defensive medicine'' and tell physicians what type of tests, 
procedures, and treatments to use to reduce the plan's exposure to 
liability. We do not want insurance companies and health plans making 
clinical decisions. We have worked very hard over the years to make 
sure that the roles of clinicians and health plans are clearly 
delineated. The role of the health plans is to organize and interpret 
benefits and coverage--but actual clinical decisions must be left to 
physicians.
    It is important to note that under the current tort system lawsuits 
have little to no beneficial effect on quality. In addition, it has 
been shown that lawsuits do not help injured patients who need and 
deserve the most assistance.
    According to a 1991 Harvard study, most victims of malpractice 
never collect a dime. The research indicates that patients who sue are 
rarely the actual victims of malpractice, and jury awards are erratic 
and capricious. The Harvard study found that only 1 in 8 victims of 
actual malpractice ever sue. Only six out of every 100 patients who 
experience adverse outcomes as a result of negligent care receive 
compensation. Most of those never collect anything by way of 
compensation. Among similarly injured patients, 25 percent were awarded 
10 times more than others. Two-thirds of the people who sued had 
meritless claims. Patients who were awarded compensation received only 
43 cents of every dollar. The rest was spent on attorneys' fees, 
litigation expenses and insurance administration costs. Finally, on 
average, it takes more than two years from the date of filing a claim 
for the injured patient to resolve a medical liability case.
    We believe the current system does not work for patients. 
Consequently, we believe that the first order of business for Congress 
is to adopt tort reform. Medical liability reform is an indispensable 
part of improving overall health care delivery. Reform will increase 
access to care, save vital health dollars, and make the civil justice 
system more equitable for patients and physicians. We believe it is 
self-defeating to shift the emphasis in matters of dispute to an 
unpredictable and unscientific final authority.
Grievance procedures
    Turning to what does work, processes designed to assure that the 
right care is received at the right time are most beneficial for 
patients. Timely medicine is a powerful tool to improve care and 
prevent the bad outcomes that result in litigation. Appropriately and 
fairly structured grievance procedures have special value in assuring 
timely medicine, particularly in managed care environments. Not only 
are they an effective way to settle disputes, but they do it 
expeditiously and at a time when a patient truly needs the care--which 
is what patients and physicians want in the first place. Laws that make 
litigation the first thing a patient thinks of upon entering a doctor's 
office erode trust and work against successful health outcomes for the 
patients. Litigation signals failure and doesn't address the problems, 
whereas a grievance process can identify and resolve the problems 
quickly.
Henry Ford's Health Alliance Plan Grievance Policy
    The Henry Ford internal grievance policy is structured so that any 
Health Alliance Plan (HAP) member may seek resolution to situations 
where the member is dissatisfied or feels aggrieved by the services, 
benefits, and/or policies and procedures of the plan or its hospitals 
and doctors. This policy is published and distributed annually to each 
member. The grievance process is a three level decision-making process. 
A final determination is rendered within ninety days following the 
initial patient request or within a 72 hour expedited review process 
for urgent issues. The third level of review and decision-making 
consists of the Member Services Committee of the HAP Board of 
Directors. This board is composed of independent individuals half of 
whom are subscriber-elected. No board member is an employee or member 
of the plan. If the patient is not happy with the decision, there is a 
strong external review process outlined in Michigan law.
    In 1998, the HAP grievance rate per 1000 members was less than one 
percent. 527 members initiated a first level grievance. Of those, 51% 
of the first level grievances found in favor of the patient. 56 
patients pursued the second level grievance process. Of those, 46% of 
the grievances found in favor of the patient. 11 members pursued the 
third level grievance. Of those 11, 35% of the grievances found in 
favor of the patient. In 1997, only three individuals further pursued 
his/her grievance to the independent Michigan State Task Force 
authorized to resolve disputes with HMOs under Michigan law. Of these 
three grievances, the Task Force upheld the decision that had been 
reached through the internal grievance process. According to a 1996 
patient satisfaction survey, 60 percent of patients were either very 
satisfied or satisfied with the grievance process. Since then, we have 
implemented a number of the members' recommendations to improve the 
process and make it more customer-friendly.
    This process works. We believe it reduces the number of issues that 
result in litigation. As physicians, we were initially skeptical about 
this grievance requirement because it seemed to mean that someone would 
be second-guessing our clinical decisions as doctors. Today, we would 
not give it up for anything. We value it highly as part of how we 
practice medicine.
Strong Appeals Process
    The AMGA favors a strong appeals process. Standards that force 
quicker review of medical decisions benefit both the patient and the 
health plan. The AMGA believes that strong external and internal 
appeals processes also strengthen the physician-patient relationship.
    A strong appeals process should allow reviewers to consider all 
relevant medical evidence. It should take into consideration all 
appropriate and available information, including any evidence-based 
decision-making or clinical practice guidelines used by the group or 
HMO. In addition, it should include timely evidence or information 
submitted by the plan, issuer, patient, or patient's physician; the 
patient's medical record; expert consensus; and all available medical 
literature. The Agency for Health Care Policy and Research has served 
as the lightning rod to promote the creation and better use of such 
scientific-based information for medical decision-making. AMGA believes 
that Congress should increase funding to AHCPR to promote more rapid 
development of evidence-based medical processes.
    Expedited review of medical decisions is the responsible approach 
to ensuring that patients receive the care they need, while holding the 
health plan and physician accountable for ensuring that the proper 
level of high quality care is administered. Our experience demonstrates 
that a strong appeals process will improve patient satisfaction with 
managed care and alleviate patient's need to resort to litigation.
Alternative Dispute Resolution
    We also believe there is a role for the appropriate use of 
alternative dispute resolution (ADR) in the private health plan and 
managed care environment. We recognize that there will always be 
situations where an injured patient needs access to the legal system. 
Hospitals, doctors and health plans make mistakes. There will be 
situations where things just go wrong. Some 123 million American's 
receive health insurance through their employer. Consequently, the use 
of ADR as a middle step prior to litigation has real value for managed 
care. When parties have legitimate issues in dispute, ADR can create a 
level-playing field without resorting to litigation.
The Importance of Quality and Accountability
    Litigation is a flawed tool for improving the quality of patient 
care. It comes too late in the clinical decision-making process to help 
the patient much, and enforcement is sporadic. True quality health care 
systems address three components: appropriateness of care, technical 
quality, and outcomes measurement with research, or what is more 
commonly known as ``evidence-based medicine.''
    As group practice physicians, we are committed to working 
collectively to avoid preventable errors. This means actively 
identifying and openly acknowledging mistakes when they do occur, with 
commensurate reparations to injured parties, identifying root cause of 
problems and taking whatever steps necessary to see that similar errors 
are avoided in the future.
    In its recent annual report to Congress, MedPAC made several 
recommendations solely aimed at decreasing preventable errors. One such 
recommendation is that Medicare should establish patient safety as a 
quality improvement priority and take steps to reduce errors in 
beneficiaries' care. Second, the Department of Health and Human 
Services (HHS) should consider opportunities for minimizing preventable 
errors through coverage and payment policies, quality measurement 
initiatives, and quality improvement programs. Third, HHS should 
support and use ongoing public and private error-reduction initiatives, 
such as the National Patient Safety Foundation, which is an independent 
not-for-profit organization founded by the American Medical 
Association. Fourth, Congress should enact legislation to protect the 
confidentiality of individually identifiable information relating to 
errors in health care delivery to address providers' fears that 
information reported for quality improvement purposes may not be used 
against them. AMGA agrees with MedPAC's recommendations, and we 
continue to work toward reaching these goals.
Conclusion
    The debate on health plan liability is a blessing in disguise. It 
has helped crystallize the need to structure and protect the rights of 
patients under managed care plans and has forced us to focus on ways to 
prevent litigation through grievance and appeals processes that result 
in what we all want--better care and better clinical decisions for 
patients when it matters--at the time care is needed. We commend the 
committee and especially our Congressman John Dingell for leadership in 
this debate. We urge you to go forward to establish a grievance and 
appeals process in health plans.
    Thank you for the opportunity to come before you today. We look 
forward to working with you on this important issue. I'll be happy to 
answer any questions you might have.

    Mr. Bilirakis. Thank you very much, Doctor.
    If you could summarize, please--I would hope that with all 
of the questioning you can get all of your points across. By 
all means, if there is something really significant that you 
want to tell us, feel free to do so. Ms. Barron, you are on.

                   STATEMENT OF CONNIE BARRON

    Ms. Barron. Mr. Chairman, Mr. Brown and members----
    Mr. Bilirakis. Why don't you pull that closer, please, so 
that we can hear.
    Ms. Barron. That better?
    Mr. Bilirakis. Much better.
    Ms. Barron. Mr. Chairman, Mr. Brown, and members, thank you 
for your attention to a very important issue: who decides what 
is medically necessary, and what happens were there is a 
dispute?
    I am the Associate Director for Legislative Affairs of the 
Texas Medical Association, where I represent 35,000 physicians 
in issues pertaining to managed care.
    Mr. Bilirakis. If you will just hold on a minute, I want to 
make sure we have order.
    [Mr. Bilirakis uses gavel.]
    Mr. Bilirakis. Thank you, please proceed.
    Ms. Barron. Thank you. I appreciate having a chance to be 
here. Knowing that people from Texas are prone to 
understatement and humility, it will probably surprise when I 
say that we are proud to have been at the forefront for a 
number of years in patient protection legislation in the State 
of Texas.
    We started it early in 1991, when we had a law passed that 
dealt with how utilization review entities make their 
decisions. That established the criteria that said that medical 
necessity had to be clinically sound, scientifically based, 
consistent with generally accepted principles of good medical 
practice, fully disclosed, and there had to be a mechanism for 
appeal. We have strengthened those requirements in every 
session since that time. We went so far in the last legislative 
session in 1997, when we dealt with more patient protections, 
to tighten those appeals processes, and added an external 
review procedure that is binding. We also said that if a 
managed care plan in the course of doing its business 
negligently makes a medical treatment decision that is the 
proximate cause of injury to the patient, they should be held 
accountable in the State courts. That was our statement.
    The law was challenged. I know that surprises you, but it 
was. At this point, it is in appeal in the fifth circuit. Much 
to our disappointment, what we found was that in the Federal 
district court the judge overruled our external review, saying 
that the State could not have an external review because ERISA 
preempted it.
    So I am here today to say, first of all, please make sure 
that we get a good, strong, binding external review. I would 
say that at every step of the way, the members of the Texas 
Legislature were warned that this would raise premiums. Costs 
would skyrocket. Plans would leave Texas. There would be an end 
to managed care in Texas. I have to tell you none of those 
things have happened.
    Our premiums now, with the strongest patient protections in 
place for a number of years, even with the liability provision 
in place, are not higher than any other section of the United 
States. They are consistent with increases we would expect to 
see any place else. We have gone from having about 30 HMO's to 
having in excess of 50 HMO's. I would even say that the CEO of 
Aetna, if not the largest--pretty doggone close to the 
largest--managed care company in the country, recently referred 
to Texas as the ``filet mignon of marketplaces for managed 
care.''
    I think that what we have been able to do is to say we can 
put responsible patient protections in place, including binding 
external reviews that base scientific information. We take 
medical decisionmaking out of the black box. We make sure 
everyone understands what criteria are being used. Physicians 
with appropriate expertise are involved in an appeals process. 
We have gone so far as to say that, if that external review is 
not followed, if the information isn't turned over in a timely 
manner, if the plan doesn't participate in an external review, 
if they don't do what the law says--I will tell you that we 
have only had one lawsuit filed to date. This was a case where 
the health plan did not obey the law. They did not provide an 
expedited external review. They sent someone home from the 
hospital that was suicidal. Had that person received the 
expedited review, very likely that patient would be alive 
today. This case is moving through the process. We will see 
what the jury says. This is exactly what the idea of liability 
was designed for. If somebody doesn't abide by a strong 
external review, what is the price that they pay?
    Again, we did not set in place a malpractice standard. We 
are not holding health plans accountable at the same level a 
physician would be held accountable. We are holding managed 
care plans accountable for what a prudent and reasonable 
managed care entity would do. Did you provide all of the 
appropriate information? Did you base decisions upon sound 
clinical evidence? Did you use appropriately trained 
specialists to review that case? Did you do everything that a 
reasonable health plan should do? If you did, you shouldn't 
have to worry under our law. If you didn't, you should be 
accountable like any other entity out there conducting a for-
profit business that provides the services in a negligent 
manner you are being compensated for.
    We believe that the accountability for the quality of 
health care provided to consumers rests with the State. That 
was the premise of the Texas legislature. We are here again to 
ask your support on making sure that we get to keep our strong 
external appeals process, and that other States that are doing 
their will also. We have not had blood in the streets, women 
and children cast out, loss of health care, loss of coverage, 
or skyrocketing costs. We think responsible public policy can 
coexist with a thriving market. That is what we look forward to 
having be available for citizens of other States as well.
    [The prepared statement of Connie Barron follows:]
Prepared Statement of Connie Barron, Associate Director of Legislative 
                   Affairs, Texas Medical Association
    Chairman Bilirakis and members, my name is Connie Barron. For the 
last five and a half years I have been the Associate Director of 
Legislative Affairs for the Texas Medical Association. In that capacity 
I represent approximately 35,000 physicians, residents and medical 
students. My primary focus is in areas of public policy affecting the 
quality and access to care for patients in managed care systems. On 
behalf of these Texas physicians and their patients, I want to thank 
you for holding these hearings to explore the important issues of 
access to a timely and fair appeal when a patient is denied care deemed 
necessary and appropriate by a treating physician. Texas has had the 
honor of being at the forefront of patient protection legislation, and 
I appreciate the chance to share our experiences with you.
                 ``medically necessary''--who decides?
    The first attempt to deal with the issue of medical necessity arose 
in Texas in 1991. At that time, a utilization review law was passed 
that established standards by which utilization review agents conduct 
business in Texas. Physicians believed then as they do now that 
decisions regarding ``medical necessity'' should be based upon criteria 
that are scientifically and clinically sound and flexible enough to 
meet the individually unique circumstances of a particular patient. 
These criteria should be fully disclosed and available for discussion. 
In other words, everyone--physicians, patients, health plan 
representatives--should know and understand how these decisions are 
made. We chose not to define ``medical necessity,'' but rather to set 
out standards such as those referenced above. In 1995 regulations 
regarding these reviews were strengthened to include disclosure of the 
criteria to the treating physicians and the patient. In addition, any 
decision to deny care must be appealable to a physician of the same or 
similar specialty who is most likely to provide the kind of care being 
requested, and any special circumstances of the patient must be taken 
into consideration. In 1997, an independent review provision was added. 
If the treating physician disagrees with the plan's specialist or the 
criteria used, an independent third party may be requested to review 
the case. Additionally, Texas chose to clarify that if a managed care 
plan makes a negligent decision to withhold payment for care in spite 
of the recommendations of the treating physician, the managed care plan 
can be held legally accountable in Texas courts.
       industry claims regarding medical necessity determinations
    You will hear claims that without full authority to define medical 
necessity, managed care plans would be unable to set quality standards 
for their participating physicians. Managed care plans would be unable 
to educate physicians regarding appropriate care and physicians would 
have free reign to order anything they want simply by claiming that it 
is medically necessary. Costs would skyrocket and the number of 
uninsured would increase. Members, none of these things have happened 
in Texas.
    Prior to enacting our appeals provisions, physicians frequently 
were sent letters stating simply, ``. . . the care you have requested 
does not meet our standards of medical necessity . . .'' and is 
therefore denied. No explanation was given. When the plan was called, a 
clerk would tell the doctor that the criteria were confidential and the 
patient could write and ask the plan to reconsider its decision. All 
appeals were internal and final. This kind of process is not 
educational for physicians. It certainly does not set standards for 
quality, and clearly, it does nothing to improve patient care.
    You will frequently hear managed care plans refer to ``evidence 
based medicine.'' Nothing in the Texas standards for medical necessity 
decision-making conflicts with this concept. Based on their code of 
medical ethics and their training as scientists, physicians are morally 
and intellectually bound to ground recommendations for their patients' 
treatment in the best available science. Because double-blind, 
controlled studies are not available for all treatment regimens, 
physicians tend to use the following algorithm for making these 
decisions:

1)Decision rests upon valid and reliable evidence, when it exists, 
        (evidence-based medicine) that is appropriate given the 
        patient's individual circumstances.
2) Peer reviewed evidence--meets professionally recognized standards of 
        validity and replicability
3) Generally accepted standards of medical practice (these criteria are 
        being used in courts today for many cases in which no clinical 
        evidence exists)
Physicians welcome updated scientific information. They are accustomed 
to discussing cases with colleagues in an attempt to achieve the best 
outcome for their patients. These guidelines should be at the heart of 
any standards established for medical necessity decision making.
    It is imperative that there be an independent review entity that 
will evaluate all available information, consider the individual 
circumstances of the patient, and render an expert, unbiased decision 
regarding any dispute over the medical necessity or appropriateness of 
care.
    Finally, we believe there must be legal accountability when managed 
care plans make medical decisions that harm patients. Without this 
``hammer'' there is no true mechanism for enforcement. The Texas law 
protects good managed care plans by requiring an external review prior 
to litigation, except in such cases where harm has already occurred. 
Other states may choose to provide other enforcement mechanisms such as 
administrative or licensure models. Regardless of their approach, the 
states have long had the duty to ensure quality medical care is 
provided to their citizens. Decisions about a specific treatment for a 
specific patient is in our judgement, the practice of medicine and 
belongs under the purview of the states.
    the texas experience--appeals, independent review and liability
    There have been many warnings about the negative impact that 
managed care reforms will have on access to health insurance coverage. 
When the Texas Legislature strengthened the appeals process of managed 
care plans and added an independent review and liability provision to 
the law, health plans predicted dire consequences. They said litigation 
would run rampant, costs would skyrocket and the managed care market 
would shrink. None of these predictions have come true.
    Two years after the passage of our managed care liability act, to 
my knowledge, only one lawsuit has been filed. Plocica v. NYLCare is a 
case in which the managed care plan did not obey the law and a man 
died. This case exemplifies the need for accountability at the end of 
the review process. Mr. Plocica was discharged from the hospital 
suffering from severe clinical depression. His treating psychiatrist 
informed the plan that he was suicidal and required continued 
hospitalization until he could be stabilized. Texas law required an 
expedited review by an independent review organization prior to 
discharge. Such a review was not offered to the patient's family. Mr. 
Plocica wife took him home. During the night he went into his garage, 
drank antifreeze, and subsequently died. Without the threat of legal 
accountability, these kinds of abuses will go unchecked.
    External reviews continue to demonstrate their value by overturning 
plan denials approximately 50 percent of the time. Having this 
independent entity available has improved communications between 
physicians and plans. These improved communications ensure that the 
best care is available for the patient most of the time. When there is 
a dispute over appropriate care, patients have the benefit of an 
unbiased expert's review of the case. The independent review process 
has promoted confidence in the managed care systems operating in Texas. 
The independent review program has been a success for patients and 
managed care plans alike; however, it was recently ruled to be pre-
empted by ERISA. A federal district judge concluded that such a review 
involved the determination of employee plan benefits and could not be 
imposed by the state. Unless Congress acts to establish an independent 
review process, the excellent program in Texas (as well as the 
independent review process in 25 other states) is in jeopardy.
    Just as there has not been a vast increase in litigation, neither 
has there been skyrocketing insurance premiums. The national average 
for overall health care costs increased by 3.7 percent in 1998 while 
Dallas and Houston markets were well below average at 2.8 percent and 
2.4 percent respectively. Other national surveys show Texas premium 
increases to be consistent with those of other states that do not have 
the extensive patient protections passed by the Texas legislature.
    Nor has the managed care market in Texas withered. In 1994, the 
year prior to the first set of managed care reforms, there were 30 
licensed HMOs in Texas. Today, there are 51. In a recent newspaper 
article, Aetna CEO, Richard L. Huber, referred to Texas as the ``. . . 
filet mignon'' when asked about Aetna's plans to acquire Prudential. 
This does not support the accusations that Texas laws would have a 
negative impact on the ability and the desire of managed care plans to 
do business in our state.
                                summary
    Texas has passed one of the most comprehensive packages of managed 
care reforms in the country. At every step members of the Legislature 
were told of the terrible consequences of requiring managed care plans 
to abide by certain standards in determining medical necessity, provide 
a fair and timely appeals process, require an independent review of 
medical care denials and more. When the Legislature spoke on the issue 
of managed care liability by holding managed care plans legally 
accountable if their negligent decisions cause harm to enrollees, 
managed care plans said it would be the end of managed care in Texas.
    Most of the managed care reforms have been in place for more than 
four years. The external review and liability provisions have been law 
for almost two years. We have yet to see the threatened consequences 
materialize. On the contrary, the managed care market in Texas is 
thriving. Physicians report that it is now easier to have meaningful 
discussions with managed care plans regarding patient care. Access to 
an independent external review organization ensures that care is 
provided when it is medically appropriate based upon scientific 
information. There has not been a plethora of litigation, but one 
enrollee will have appropriate redress for the negligence of a managed 
care plan that resulted in the death of her husband. Hopefully this 
will send a message to other managed care plans that they, too, are 
accountable for their actions, and will prevent any more such 
tragedies.
    With no unexpected increases in premiums and a growth of managed 
care plans entering the market, Texas has proven that responsible 
public policy protecting patients from irresponsible managed care plans 
is possible.

    Mr. Bilirakis. Perfect.
    Dr. Weiss.

                   STATEMENT OF BRUCE A. WEISS

    Mr. Weiss. Good afternoon. Mr. Chairman and members of the 
subcommittee, I am Dr. Bruce Weiss. I am Group Vice President, 
Medical Operations, for AvMed Health Plan, Florida's oldest and 
largest not-for-profit health maintenance organization. It 
serves 400,000 members, including nearly 80,000 Medicare 
members throughout the State. AvMed is federally qualified and 
is accredited by the National Committee for Quality Assurance, 
as well as the Joint Commission on Accreditation of Health Care 
Organizations.
    Health plans provide a vehicle for systematic quality 
improvement that is not available under the old fee-for-service 
health care systems. Health plans combine a number of 
interrelated features that foster a comprehensive approach to 
quality, including a section of defined, fully credentialed 
network of providers who can work together on care and quality 
issues; provision of comprehensive services across the spectrum 
of inpatient and outpatient settings, allowing a full range of 
quality improvement interventions; clinical and fiscal 
accountability for health care of a defined population, 
allowing population-based data collection, analysis, 
intervention and monitoring, and ensuring accountability for 
performance.
    These unique characteristics enable network-based plans to 
deliver quality care and to be accountable for the care 
provided. The organizations and individuals who purchase health 
care, including consumers, employers, and the Federal and State 
governments, now demand this accountability.
    I appreciate the opportunity to testify today about the 
important role of appeals, grievances, and remedies, and 
ensuring the consumers' needs and concerns are addressed in a 
timely fashion by health plans. All health care delivery 
systems offered to all subscribers, including provider-
sponsored networks, should be required to meet comparable 
standards governing quality of care, access, grievance 
procedures, and solvency. Subscribers should have confidence 
that all options meet standards of accountability that ensure 
they will have access to all benefits and rights, regardless of 
choice of plan they select. My comments today will focus on the 
State grievance procedures.
    I would like to first address the internal grievance 
procedures which our plan has, like most plans. In addition, 
the State of Florida does require all health plans to have 
internal grievance procedures. They also have a requirement to 
have an expedited process.
    What I would like to highlight this afternoon, in trying to 
hold the testimony, is the external review, which we found to 
be fairly effective. The key things to look at in Florida law 
is that they do require grievance procedures by all plans. They 
do discriminate between complaints and grievance. I have 
outlined the definitions by the Florida statutes between 
complaints and grievances. Basically, the main part is, when 
the member has exhausted the right to internal process, be it 
the expedited or the standard review, they always have the 
right to then appeal to an external body which basically has 
been established by Florida law.
    The members can appeal to the statewide subscriber and 
provider assistance panel after they have exhausted the 
internal grievance procedures. In addition, health plans must 
report annually to the Agency for Health Care Administration 
all grievances and their final dispositions. Plans must respond 
to an initial complaint within a reasonable amount of time. The 
organization must also inform the member that they can submit a 
written grievance at any time.
    The grievance procedures in the State of Florida have 
minimal standards. It must explain how to pursue the redress of 
the grievance. It names the appropriate employees of the 
department that are responsible. It lists an address and the 
toll-free number of the grievance department in the Agency for 
Health Care Administration, as well as the statewide provider 
and assistance panel. Every physician who is doing managed care 
in the State of Florida posts this toll-free number. There must 
be an expedited review, and a notice when the determination is 
final that the member can contact the statewide subscriber 
provider assistance panel.
    I would like to address the external process in Florida. 
Some States have legislated processes for external independent 
review of adverse decisions made by plans. There are three 
States--Arizona, Connecticut, and Texas--as Connie has 
mentioned, that have enacted laws with external provisions. Two 
States, New Jersey and New Mexico, have issued regulations with 
such provisions. These States join California, Florida, and 
Rhode Island, all of which have had some type of independent 
review since 1997.
    In addition to the statewide provider and subscriber 
assistance panel, which the Agency for Health Care 
Administration and the Department of Insurance in Florida have, 
there are other external reviews that health plans in Florida 
and throughout the country have to deal with. As you are aware, 
HCFA has an external review policy for all Medicare members. 
The Office of Personnel Management also has a similar external 
review clause for all members who are under Federal employee 
health benefits.
    In summary, in my view, any consideration of an external 
review process should be guided by several principles. 
Foremost, an external review should not be initiated unless and 
until an enrollee has exhausted the internal appeals process, 
including the internal expedited review process, if applicable. 
Additionally, the scope of the review for an external review 
process should be limited and clearly defined. More generally, 
an external review process should be fair to all parties, 
administratively simple, non-adversarial, objective, credible, 
accessible, cost efficient, time limited, and subject to 
quality standards.
    Grievances and appeals processes are in a state of 
evolution with changes being initiated by health plans, the 
States and HCFA. The common purpose is adequate protection for 
consumers while contributing to quality. Subscriber grievance 
and appeal processes are evolving as health plans, consumer 
groups, and regulators seek to find a suitable balance between 
consumer protection and high-quality, cost-efficient care.
    AvMed and other AAHP health plans have demonstrated they 
are listening and responding to consumer needs. We are 
committed to upholding high standards of patient care. AvMed is 
prepared to be held accountable for our actions, and we believe 
that all health care organizations and providers should 
likewise be held accountable. I will be happy to answer any 
questions.
    [The prepared statement of Bruce A. Weiss follows:]
  Prepared Statement of Bruce A. Weiss, Group Vice President, Medical 
                     Operations, AvMed Health Plan
    Mr. Chairman and members of the Subcommittee, I am Bruce A. Weiss, 
M.D., M.P.H., Group Vice President, Medical Operations of AvMed Health 
Plan which is Florida's oldest and largest not-for-profit health 
maintenance organization, serving some 400,000 members, including 
nearly 80,000 Medicare members, throughout the state. AvMed is 
Federally qualified and is accredited by the National Committee for 
Quality Assurance and the Joint Commission on Accreditation of 
Healthcare Organizations. Health plans provide a vehicle for systematic 
quality improvement that is not available under the old-style fee-for-
service health care system. Health plans combine a number of 
interrelated features that foster a comprehensive approach to quality, 
including:

 selection of a defined, fully-credentialed network of 
        providers who can work together on care and quality issues;
 provision of comprehensive services across the spectrum of 
        inpatient and outpatient settings, allowing a full range of 
        quality improvement interventions; and
 clinical and fiscal accountability for the health care of a 
        defined population--allowing population-based data collection, 
        analysis, intervention, and monitoring--and ensuring 
        accountability for performance.
    These unique characteristics enable network-based plans to deliver 
quality care, and to be accountable for the care provided. The 
organizations and individuals who purchase health care, including 
consumers, employers, and the federal and state governments, demand 
this accountability. It is the accountability that provides the 
mechanism for marketplace competition based on quality.
    I appreciate the opportunity to testify today about the important 
role appeals, grievances and remedies play today in ensuring that 
consumers' needs and concerns are addressed in a timely fashion by 
health plans. All health care delivery systems, including provider-
sponsored networks, offered to all subscribers should be required to 
meet comparable standards governing quality of care, access, grievance 
procedures and solvency. Subscribers should have confidence that all 
options meet standards of accountability that ensure that they will 
have access to all benefits and rights regardless of the choice of plan 
they select. My comments today will focus on state grievance procedure 
requirements.
                 state grievance procedure requirements
Internal Grievance Procedures
    Grievance and appeals procedures are required of health plans by 
the states, and by the federal government for federally qualified HMOs 
and other health plans contracting with Medicare as well as contractors 
for federal employees' health benefits. Using my state as an example, 
Florida requires that each health plan have a written grievance 
procedure available to its subscribers for the purpose of addressing 
complaints and grievances, an expedited grievance procedure, and 
external review by the state through the Statewide Subscriber and 
Provider Assistance Panel which will be described more fully below.
    Definitions--Florida law distinguishes between a ``complaint'' 
which is ``any expression of dissatisfaction by a subscriber, including 
dissatisfaction with the adminis-tration, claims practices, or 
provision of services, which relates to the quality of care provided by 
a provider pursuant to the organization's contract and which is 
submitted to the organization or to a state agency'', and a 
``grievance''. A complaint is part of the informal steps of a grievance 
procedure and is not part of the formal steps of a grievance procedure 
unless it is a ``grievance''. A ``grievance'' ``means a written 
complaint submitted by or on behalf of a subscriber to an organization 
or a state agency regarding the:
          (a) Availability, coverage for the delivery, or quality of 
        health care services, including a complaint regarding an 
        adverse determination made pursuant to utilization review;
          (b) Claims payment, handling, or reimbursement for health 
        care services; or
          (c) Matters pertaining to the contractual relationship 
        submitted by or on behalf of a subscriber eligible for a 
        grievance and appeals procedure provided by an organization 
        pursuant to contract with the Federal Government under Title 
        XVIII of the Social Security Act.
    An ``adverse determination'' means a coverage determination by a 
plan that an admission, availability of care, continued stay, or other 
health care service has been reviewed and, based upon the information 
provided, does not meet the plan's requirements for medical necessity, 
appropriateness, health care setting, level of care or effectiveness, 
and coverage for the requested service is therefore denied, reduced, or 
terminated. An ``urgent grievance'' means an adverse determination when 
the standard time frame of the grievance procedure would seriously 
jeopardize the life or health of a subscriber or would jeopardize the 
subscriber's ability to regain maximum function.
    Every health plan is required by Florida law to have a grievance 
procedure. Plans, as part of their procedure, must inform subscribers 
that they have one year from the date of the occurrence to initiate the 
grievance and that the member can appeal to the Statewide Subscriber 
and Provider Assistance Panel after the final disposition of the 
grievance through the plan's grievance process. Health plans must 
report annually to the Agency for Health Care Administration all 
grievances and their final dispositions. Plans must respond to an 
initial complaint within a reasonable time. The organization must also 
inform the member that the member can submit a written grievance at any 
time. The plan in addition must inform the member that the plan will 
assist the member in preparing the written grievance.
    The grievance procedure must at a minimum contain the following:

1. An explanation of how to pursue redress of a grievance.
2. The names of appropriate employees or departments that are 
        responsible for implementing the grievance procedure.
3. A list of the addresses and toll free numbers of the grievance 
        department, the Agency for Health Care Administration and the 
        Statewide Subscriber and Provider Assistance Panel.
4. The description of the process through which a subscriber may 
        contact the toll free hot line of the Agency for Health Care 
        Administration.
5. An expedited review process. Notice that the member can use binding 
        arbitration, if provided in the contract, instead of the 
        Statewide Subscriber and Provider Assistance Panel.
7. A procedure giving access to the grievance procedure to members who 
        cannot submit a written grievance.
    With respect to a grievance regarding an adverse determination, a 
plan must make available to the subscriber a review of the grievance by 
an internal review panel; such review must be requested with 30 days 
after the plan's transmittal of the final determination notice of the 
adverse determination. A majority of the panel must be persons who 
previously were not involved in the initial adverse determination. A 
plan must establish written procedures for a review of an adverse 
determination and the procedures must be available to the subscriber. 
In any case when the review process does not resolve a difference of 
opinion between the organization and the subscriber, the subscriber may 
submit a written grievance to the Statewide Provider and Subscriber 
Assistance Panel.
    Expedited Internal Grievance Procedure--A health plan in Florida 
must have a written procedure for an expedited appeal of an urgent 
grievance. In an expedited review, all necessary information, including 
the plan's decision must be transmitted between the plan and the 
subscriber by telephone, facsimile, or the most expeditious method 
available. In an expedited review, an organization shall make a 
decision and notify the subscriber as expeditiously as the subscriber's 
medical condition requires, but in no event more than 72 hours after 
receipt of the request for review. In any case when the expedited 
review process does not resolve a difference of opinion between the 
organization and the subscriber, the subscriber may submit a written 
grievance to the Statewide Provider and Subscriber Assistance program.
External Grievance Procedures
    Statewide Provider and Subscriber Assistance Program (SPSAP)--Some 
states have legislated processes for external or independent review of 
adverse decisions made by health plans. For example, three states 
(Arizona, Connecticut, and Texas) have enacted laws with external 
review provisions, and two states (New Jersey and New Mexico) have 
issued regulations with such provisions. These states join California, 
Florida and Rhode Island, all of which had some form of independent 
review of disputes prior to 1997.
    In Florida, the external review is accomplished by the Statewide 
Provider and Subscriber Assistance panel. This six-member panel was 
established by the Florida Legislature to provide assistance to 
subscribers by hearing the grievances they have against health 
maintenance organizations which have not been resolved to the 
subscriber's satisfaction. The panel recommends to the Agency for 
Health Care Administration any actions the Agency or the Department of 
Insurance should take concerning both individual cases as well as the 
types of grievances. This program has three components: 1) 
responsibility to provide assistance with unresolved grievances to both 
subscribers and providers of HMOs; 2) review of quarterly unresolved 
grievance reports submitted by HMOs; and 3) the imposition of fines, 
after investigation, for failure to comply with quality of care 
standards.
How It Works
 HMOs and the agency notify subscribers of their right to 
        appeal to panel at completion of plans' internal grievance 
        processesSubscriber voluntarily completes and returns SPSAP 
        form and medical release to the Agency for Health Care 
        Administration
 Agency notifies HMO of subscriber's appeal and requests 
        dataCase review initiated by Agency staff and case is discussed 
        with panel members to determine if case meets criteria for 
        hearing
 Hearings are generally open to the public but may be closed in 
        whole or in part upon request of a party for confidentiality of 
        medical record or other legitimate privacy purpose
 Case heard ( not subject to the Administrative Procedures 
        Act); panel prepares recommendations to Agency or Department of 
        Insurance
 Agency or Department issues final determination based on panel 
        recommendations.
    The Statewide Subscriber and Provider Assistance Panel is chaired 
by the Florida Consumer Advocate and is composed of employees of the 
Florida Agency for Health Care Administration and the Florida 
Department of Insurance. The panel also contracts with a medical 
director of a health maintenance organization and a primary care 
physician. The panel reviews cases submitted to it by members who are 
not satisfied with the results of their HMO's grievance procedure. The 
panel then makes recommendations to the agency and the department on 
actions that the agency or department should take in a particular case.
    External review is also utilized by HCFA and the Office of 
Personnel Management (OPM). HCFA requires HMOs to submit adverse or 
unresolved grievances to independent reviewers such as the Center for 
Health Dispute Resolution that are contracted with HCFA. The contracted 
reviewer makes the final decision in those grievances.
    Similarly, OPM utilizes external review in its administration of 
the Federal Employee Health Benefit Plan (FEHBP). OPM contracts with 
HMOs to provide federal employees health coverage. As part of the 
contract, HMOs must have a grievance procedure. Federal employees who 
have a complaint about an HMO must use the HMO's full grievance 
procedure. However, if the federal employee is dissatisfied with the 
HMO's determination, the employee can appeal the HMO's decision to OPM.
    In my view, any consideration of an external review process should 
be guided by several principles. Foremost, an external review process 
should not be initiated unless, and until, an enrollee has exhausted 
the internal appeals process, including the internal expedited review 
process, if applicable, established by the health plan. Additionally, 
the scope of review for an external review process should be limited 
and clearly defined. More generally, an external review process should 
be fair to all parties, administratively simple, non-adversarial, 
objective and credible, accessible, cost efficient, time limited, and 
subject to quality standards. Grievance and appeals processes are in a 
state of evolution with changes being initiated by health plans, the 
states and, as more fully appears below, the Health Care Financing 
Administration. The common purpose is to adequately protect the 
consumer while contributing to a quality health care delivery system.
    Subscriber grievance and appeals processes are evolving as health 
plans, consumer groups and regulators seek to find a suitable balance 
between consumer protection and a high quality, cost efficient health 
care delivery system. AvMed and the other AAHP member plans have 
demonstrated that they are listening and responding to consumers' 
needs. We are committed to upholding high standards of patient care. 
AvMed is prepared to be held accountable for our actions, and we 
believe that all health care organizations and providers should 
likewise be held accountable.
    AvMed Health Plan welcomes the Committee's interest in these 
issues, and I thank you for the opportunity to testify today.

    Mr. Bilirakis. Thank you.
    Dr. Grogg.
    Mr. Coburn. I would beg the Chair's indulgence. I actually 
failed to recognize a colleague from Oklahoma who is a member 
of the panel.
    Mr. Bilirakis. I beg your pardon, by all means.
    Mr. Coburn. I just wanted to welcome you here. I would note 
for the people in the audience and our members that Dr. Grogg 
has had greater than 20 years' practice in the real world. He 
has just moved into academic medicine, which makes him 
extremely qualified to give us his testimony. Welcome, Dr. 
Grogg.

                 STATEMENT OF STANLEY E. GROGG

    Mr. Grogg. Dr. Coburn, you are very elite in your 
presentation in what I would recommend, too. I commend you.
    Mr. Chairman and members of the committee, I have been in 
practice, as Dr. Coburn has said, for greater than 20 years in 
osteopathic pediatric medicine. I am presently a faculty member 
at the Oklahoma State College of Osteopathic Medicine.
    It gives me great pleasure to be present today. On behalf 
of the 43,000 osteopathic physicians in the United States, and 
as president-elect of the American College of Osteopathic 
Pediatricians, I appreciate the opportunity to testify on the 
issue of protecting patient's rights. That is what it is all 
about.
    Osteopathic medicine is one of two distinct branches of 
medical practice in the United States. We have the allopathic 
group, which are the M.D.'s, and we have the osteopathic group, 
which are the D.O.'s. The osteopathic physician's past history 
is in primary care and in serving the rural population. The AOA 
has submitted their position on managed care. I would like to 
highlight some of these recommendations.
    Medical decisions should be made by physicians, and must be 
reviewed by physicians of the license and specialty. The 
results of the reviews must be communicated to the patient as 
soon as possible, in a timely manner. An independent and fair 
standard for medical necessity, based on the best science and 
the best clinical practice should be used for reviews. Review 
decisions must be binding on the plan. The plan must be held 
accountable for the decisions that are made.
    Review timeliness should be dependent upon the seriousness 
of the illness. If a child is in congestive heart failure, the 
review should be immediate, and not wait for the prolonged 
review process. This is where independent review would be 
great.
    No longer is an individual physician spoken of as ``my 
physician.'' The new buzzwords include the ``primary care 
physician,'' or the ``PCP.'' The PCP is the bottom rung of the 
health care ladder for a patient's health care needs in the 
eyes of insurance companies or the HMO's. Managed care 
organizations contract with chosen groups of physicians, or 
individual physicians, thereby making up a panel from which a 
patient must choose their PCP. The process of credentialing the 
PCP with an insurance company is a ``take-it-or-leave-it'' type 
of contract. The contract dictates the specialty physicians to 
which a PCP can refer a child, which laboratory and x-ray 
facilities must be used, and which hospitals must be used as 
the child is approved for the hospital care.
    How can executives of an insurance company determine the 
most efficacious plan for a child? How can an insurance company 
possibly understand the dynamics of the individual child's 
family or medical needs? We are of the opinion that it cannot. 
The panels of physicians, laboratories, x-ray facilities, and 
hospitals are all chosen by their insurance company based on 
their lowest cost--economics, again. These decisions are made 
regardless of the needs of the child, and of the particular 
medical problem in question. In addition, the managed care 
company monitors the physicians to make certain they follow the 
rules of economics of care. If the rules are broken or bent, 
the offending physician's contract may not be renewed.
    I recently had an infant referred to me by a family 
practice physician for respiratory problems. I am credentialed 
by some managed care companies as a PCP and as a specialist in 
other insurance companies. In this particular instance, 
however, the insuring managed care company would not allow me 
to see the patient as a specialist. I have approximately 100 
referring family physicians and physicians' assistants and 
nurse practitioners from rural Oklahoma.
    The parents' options were to accept a referral to an adult 
pulmonologist or go to an emergency room where they would be 
seen by an emergency room physician without the knowledge of 
some pediatric medicine. This child's primary care physician 
elected to send the infant to me and personally issued a blank 
check to the family to give to me for my services. What a 
travesty that is. Of course, I did not cash the check.
    In another instance I cared for newborn quadruplets in a 
local hospital. Because the family lives in a rural community 
outside a metropolitan area, they were assigned several weeks 
after birth to a non-pediatric PCP and physician's assistant. 
Not only were the rural providers uncomfortable caring for 
these high-risk infants, but the quads were assigned to two 
different health care providers in separate locations, in two 
separate rural cities. The parents had to take two kids to one 
PCP, and the others to a physician's assistant.
    This is managed care. This type of situation does not seem 
to be easily remedied by insurance companies. It is not 
uncommon to take 1 to 2 months to receive changes in the 
physician or PCP for their parents. This is a very long time in 
the medical care of a high-risk infant.
    Many chronically ill children requiring multi-specialty 
care, such as cerebral palsy, have a difficult time trying to 
coordinate their needed specialty care. In one such instance, a 
child with a syndrome consisting of severe developmental 
delays, but who was able to socially interact with his parents, 
was devastated by the managed care company's decision. The 
medical director of the managed care company contacted me in 
order that I could describe the syndrome to him. This medical 
director was an adult internal medicine specialist. After 
discussions with me, he notified the family by letter--not in 
person--that because of the child's poor prognosis--the child 
would not be able to care for himself later in life--multi-
specialty care would not be provided by the company. Only after 
2 years of appeals were we able to remedy the situation. In the 
meantime, the child suffered the consequences of severe loss of 
muscle tone.
    An extreme example of abuses of managed care is an 8-month-
old under my service. Because of the change of insurance by the 
parents, he was not able to get the corrective heart surgery. 
He died. If an appeals panel was present for this particular 
patient, the patient may be still alive today.
    These cases are just the tip of the iceberg of problems in 
which I have personally been involved. Because of these 
frustrations and gross misuse of available medical care by 
managed care companies for financial gain, I have, after 25 
years as a solo pediatrician, elected to move into academic 
medicines. I have joined the ranks of medical professors in the 
hope of providing graduating physicians with more knowledge 
about caring for the pediatric patient.
    However, I would encourage each of you to carefully 
consider these issues. We in American have the potential for 
the best care, the best facilities, and the most dedicated 
physicians in the world. Yet, we are being shackled by managed 
care companies to benefit the bottom line, not our children's 
medical needs.
    Again, thank you for the opportunity to allow me to share 
my experiences with you today. The AOA and the ACOP is ready to 
participate in a bipartisan effort to develop strong 
protectional legislation for all Americans. I am happy to 
answer questions. Thank you.
    [The prepared statement of Stanley E. Grogg follows:]
   Prepared Statement of Stanley E. Grogg, on Behalf of the American 
                        Osteopathic Association
Introduction
    Mr. Chairman and Members of the Committee, my name is Stanley E. 
Grogg, D.O. I am an Associate Professor of Pediatrics at the Oklahoma 
State University College of Osteopathic Medicine, and have practiced 
pediatric osteopathic medicine in America's heartland for more than 25 
years. On behalf of the 43,000 osteopathic physicians represented by 
the American Osteopathic Association (AOA), and as President-Elect of 
the American College of Osteopathic Pediatricians, I appreciate the 
opportunity to testify on the issue of ``Protecting Patients' Rights.''
    The AOA is the national professional organization for osteopathic 
physicians. In addition, the AOA is the recognized accrediting 
authority for colleges of osteopathic medicine, osteopathic 
postdoctoral training programs and osteopathic continuing medical 
education.
    Osteopathic medicine is one of two distinct branches of medical 
practice in the United States. While allopathic physicians (M.D.s) 
comprise the majority of the nation's physician workforce, osteopathic 
physicians (D.O.s) comprise more than five percent of the physicians 
practicing in the United States. Significantly, D.O.s represent more 
than 15 percent of the physicians practicing in communities of less 
than 10,000 and 18 percent of physicians serving communities of 2,500 
or less.
Patients' Access to Specialty Care
    I would like to take this opportunity to address the difficult 
problems of access to appropriate treatments and facilities for 
children's medical needs. Instances of horrendous breaches of pediatric 
medical care are escalating as more and more managed care medical 
programs are utilized. It is all too evident that the driving force 
behind medical decision-making activities of many managed care 
organizations is not the well-being of the pediatric patient, but 
rather, economic outcomes which are favorable to the insurance company.
    No longer are individual physicians in the medical community spoken 
of as ``my physician.'' New buzzwords minimize us to the acronym of 
PCP--Primary Care Physician. A PCP is the bottom rung of the healthcare 
ladder for a patient's healthcare needs in the eyes of the insurance 
company/HMO. Managed care organizations contract with chosen groups of 
physicians or individual physicians thereby making up a ``panel'' from 
which a parent must choose their child's PCP. The process of 
credentialing a PCP with an insurance company is a ``take-it-or-leave-
it'' contract with the PCP. The contract dictates which specialty 
physicians to whom the PCP can refer a child for individual needs, 
which laboratory must be used, which x-ray facility must be used, and 
which hospital must be used if and when a child is approved for 
hospital care.
    How can executives of an insurance company determine the most 
efficacious plan of care for a child? How can an insurance company 
possibly understand the dynamics of the individual child's family and 
medical needs? The answer is: IT CAN NOT. The decisions, panels of 
physicians, laboratories, x-ray facilities, and hospitals are all 
chosen by the insurance company based on the lowest cost. These 
decisions are made regardless of the needs of the child, and of the 
particular medical problem in question. In addition, the managed care 
company monitors the physicians to make certain they follow the rules 
of economy of care. If the rules are broken or bent, the ``offending'' 
physician's contract may not be renewed.
    When a parent's employer chooses an insurance program for the 
company, the employee is forced to study the panel and select a PCP 
from that panel. It matters not that a child has multiple or chronic 
problems that have been treated by the same physician for a number of 
years. The child will have to change primary care physicians if his or 
her physician is not on the new panel. Continuity of care is a concept 
of the past when managed care ``comes to town.'' If a parent changes 
jobs, or the employer changes insurance offerings, the innocent child 
is the one who suffers. As a result, the child may not receive 
continuity of care during the formative years.
    I recently had an infant referred by a family physician for 
respiratory problems. I am credentialed by some managed care companies 
as a PCP, as well as a pediatric specialist for referrals from primary 
care physicians and nurse practitioners. In this particular instance, 
however, the insuring managed care company would not allow me to see 
the patient as a specialist. The parent's options were to accept a 
referral to an adult pulmonologist with no pediatric training or to go 
to an emergency department for care from a non-pediatric specific 
physician. This child's primary care physician elected to send the 
infant to me and personally issued a blank check to cover the charges 
incurred. What a travesty!
    In another instance, a child with a bone fracture was unable to be 
evaluated in the urban area of Tulsa because of the lack of specialty 
coverage on the insurance panel. Instead, the child had to be 
transported 35 miles to a ``bedroom'' rural community hospital for 
treatment by an adult orthopedist who was on the panel. My office spent 
three continuous hours on the telephone with the insurance company as 
well as the Oklahoma HealthCare Authority to try to resolve this 
situation, but to no avail.
    Due to difficult, confusing, and sometimes absent language of 
insurance contracts, as well as outdated provider booklets, some 
longstanding physician-child relationships can be strained or even 
broken when a parent arrives at the physician's office with a sick 
child only to find (after much time consuming research on the part of 
the office staff) that the child has been assigned by the insurance 
company to a different PCP.
    It is not unusual for a child with a serious illness that requires 
diagnostic laboratory and radiological evaluations, to be forced to 
travel to various parts of the city for needed laboratory tests, back 
across town for x-rays, then back to my office for an evaluation and 
consultation regarding the findings. This is all being done with a sick 
child in tow even though there is a laboratory and x-ray facility 
within our building.
    I recently cared for newborn quadruplets in a local hospital. 
Because the family lives in a suburban community, they were assigned, 
several weeks after birth, to a non-pediatric PCP and to a physician's 
assistant. Not only were the rural providers uncomfortable caring for 
these high-risk infants, but the quads were assigned to two different 
healthcare providers in separate locations in separate rural cities. 
This is managed care. This type of situation does not seem to be easily 
remedied by insurance companies. It is not uncommon to take one to two 
months to receive changes in PCPs. That is a very long time in the 
medical care of a high-risk infant.
    Hospitalization of sick children is often difficult. Not all 
hospitals are staffed and equipped to care for infants and children in 
an emergent situation. Some managed care companies have contracted with 
hospitals with no Pediatric Intensive Care Units (PICU). I have had 
several patients who have required cardio-pulmonary resuscitation while 
hospitalized and, thereafter, required emergent transport to a non-
participating facility that had a pediatric intensivist and PICU. If 
these children had been admitted to the facility of choice with a PICU, 
a more optimal situation would have been possible.
    In yet another case, a pediatric patient was referred to me by a 
rural physician for evaluation of meningitis and was hospitalized in my 
``participating'' hospital. After 24 hours of observation and testing, 
the managed care company mandated that the patient be discharged back 
to the rural community late one weekend evening to be followed by a 
non-pediatric home health care nursing service. The laboratory tests 
were still pending and the child continued to have an elevated 
temperature. This recommendation was given by a utilization assurance 
nurse (an employee of the managed care company) who was unfamiliar with 
pediatric patients. Fortunately the child survived, but this was an 
egregious decision by the managed care plan based on financial 
considerations, with no thought to the well-being of a seriously ill 
child.
    Many chronically ill children requiring multi-specialty care have a 
difficult time trying to coordinate needed specialty care. In one such 
instance, a child with a syndrome consisting of severe developmental 
delays, but who was able to interact with his parents, was devastated 
by the managed care company's decision. The medical director of the 
managed care company contacted me to describe the syndrome to him. This 
medical director, an adult internal medicine specialist, notified the 
family by letter that because of the child's poor prognosis, multi-
specialty care would not be provided by the company. Only after 2 years 
of appeals were we able to remedy this situation. In the meantime, the 
child suffered the consequences of severe loss of muscle tone.
    Each managed care company has a formulary which is a specific set 
of medications listed as ``approved''. These available medications are 
chosen by a managed care company committee and arranged based on 
efficacy, costs, and safety profiles. If a physician issues a non-
formulary prescription, the patient must bear the cost. One of my 
recent patients required a specific antibiotic for her illness. After 
waiting two hours in the evening at a pharmacy with an ill, fussy 
child, the mother found that the managed care company would not pay for 
this needed medication. The sick child was taken home with no 
medication because of the inability to pay. The following morning, due 
to the progression of the illness, I had to admit the child to the 
hospital and give IV antibiotics to arrest the disease. Situations such 
as this are quite common. Pharmacists frequently will contact the 
physician's office to request a substitute drug which may not have 
equivalent efficacy for the treatment of a particular child's illness. 
In the meantime, the parent is left waiting with the ill child at the 
pharmacy window.
    PCPs are being mandated by managed care companies to care for 
infants and children with special needs. I was recently asked to 
provide all services for an AIDS child. I did not feel qualified to 
manage this child's multiple medications and treatment protocols that 
are very multifaceted and constantly changing with new research being 
published. In Tulsa, there is a pediatric infectious disease specialist 
who was most assuredly qualified to be the caregiver for this child. 
However, he is not available for this special child's needs because he 
was not on her panel.
    Another example is the care of an insulin-dependent diabetic child. 
For years I have used local pediatric endocrinologists for the 
management of these children. Now, however, I am asked by the managed 
care companies to assume all treatment. This puts the physician and 
patient at a higher risk for unnecessary complications, but the 
pediatric endocrinologist is not on the panel.
    One nationwide managed care company is notorious for ``downcoding'' 
patient visits. This is a practice in which the insurance company 
computer has been programmed to ``kick out'' a level of care coding 
that requires a more intense level of services rendered by a physician. 
When this visit is ``kicked out'' of the system, it is then reimbursed 
at a lower level irregardless of the time and involvement of the care 
rendered. If a physician appeals this computer generated downcoded 
reimbursement, his or her contract with the managed care company is in 
jeopardy. My contract was not renewed with one company because I have 
always been, and will remain, a child advocate. I believe in the 
evaluation of the whole child, not just the acute illness.
    Another issue of concern is the referral of children to local 
health departments for immunizations. Some insurance companies do not 
reimburse the physician even for the actual cost of the immunization 
medication, which in turn has forced many physicians to discontinue 
giving immunizations and, instead, refer children to the local health 
department. This ultimately results in decreased immunization 
compliance because of the increased difficulty in conveniently 
immunizing children.
Appeals for Denials of Claims
    The appeal process for managed care is often tedious and cumbersome 
both for the patient and the PCP. Recently, a 7 year-old child broke 
her elbow and was left with significant restriction of the use of her 
arm. Her general orthopedist recommended that she be evaluated by a 
pediatric bone specialist due to the severity of the fracture and other 
complications. The local pediatric orthopedist recommended further 
evaluation by a pediatric elbow specialist in Little Rock, Arkansas or 
San Antonio, Texas. It has now been six months without a resolution of 
the request for further evaluation, and treatment has not been 
authorized by her managed care company despite numerous appeals.
    Another patient developed a swelling of her face and neck. When her 
breathing became labored she went to the emergency department of a 
nearby hospital fearing that she was having an allergic reaction and 
would soon be unable to breathe. In fact, she was having an allergic 
reaction and was placed in the 24-hour observation unit of the 
hospital. She gave her insurance information to the hospital, but 
received a bill from the hospital about a month later. Her insurance 
plan had denied the emergency room visit because she did not go to the 
``network'' hospital. As a layperson she felt she needed to seek 
immediate treatment, irregardless of the ``network'' hospital on her 
plan. The appeals process is still ongoing, a torturous four months 
later. Her account has since been flagged for collection proceedings by 
the hospital.
    A relatively new medication is now available as a medicine to be 
administered to high-risk newborns to help prevent serious respiratory 
illness from the RSV virus. Guidelines for administration have been 
approved by the American Academy of Pediatrics. Because of the cost of 
the medication, many managed care companies have not approved 
reimbursements for the administration of the medication. This lack of 
approval for treatment, in spite of the managed care company being 
provided with medical facts and appeals, has resulted in at least one 
unnecessarily prolonged hospitalization of a child in my practice this 
past winter.
    An 8 month-old male presented with a heart anomaly that could have 
been surgically corrected after stabilizing the child. The family was 
on managed care plan #1 during the first phase of stabilizing the child 
for surgery. This plan would not allow the number of skilled nursing 
hours the pediatrician felt was necessary for the care of the baby. At 
that same time, the father's employer changed insurance companies to 
managed care plan #2. Plan #2 also refused to authorize the skilled 
nursing care the pediatrician desired. The baby's condition became 
worse. He was taken to the emergency department and admitted to the 
hospital. The pediatrician involved was reluctant to appeal the 
decision because of financial repercussions his network group would 
incur. However, the pediatric home healthcare company involved chose to 
be the patient advocate and appealed the decision of the managed care 
company. The home healthcare agency was reprimanded. The child died of 
congestive heart failure within days and without the benefit of the 
corrective heart surgery. Subsequently, the contract between the 
managed care company and the pediatric home healthcare agency was 
terminated involuntarily by the managed care company.
AOA Positions
    The AOA believes legislation which allows patients access to 
specialty care and institutes a fair process for appeals of treatment 
denials is necessary to ensure the best quality care for our patients. 
The AOA further believes:

 Medical decisions made by physicians must be reviewed by 
        physicians of the same license and specialty. Cases involving 
        the review of an osteopathic physician must be reviewed by 
        other osteopathic physicians.
 The results of reviews must be communicated to the patient as 
        soon as possible and plans should not be allowed to miss the 
        deadlines for review without penalty.
 An independent and fair standard for ``medical necessity,'' 
        based on the best science and best clinical practice, should be 
        used for reviews.
 Plans should not be given the right to charge patients for 
        independent review.
 Patients should not be forced to waive all future legal rights 
        to gain access to Alternative Dispute Resolution (A.D.R.).
 Reviews should be independent and de novo. The ``rebuttable 
        presumption'' that the health plan was correct should not be 
        used as the basis for review.
 Review decisions must be binding on the plan and plans must be 
        held accountable for decisions which harm patients.
 There should be one ``prudent layperson emergency'' standard 
        for both screening and treatment (not be a ``prudent emergency 
        professional'' standard for treatment) which allows patients to 
        go to the nearest emergency room without fear of extra charges.
 Any federal patient protection bill must allow state patient 
        protection laws to remain in force.
 Patients should have access to specific information about 
        their medical care including what doctors are in the plan, what 
        drugs are in the formulary, and what procedures are excluded by 
        contract, before enrolling.
 Plans should be required to offer a ``Point of Service'' 
        option for employees in HMOs (paid for entirely by the 
        employee) to allow patients to see the doctor of their choice.
 Any commission created to report to Congress on ``the 
        appropriateness and availability of particular medical 
        treatments'' should not have the authority to regulate the 
        practice of medicine. The commission members must be allopathic 
        and osteopathic physicians.
 Any prohibition against ``Gag Practices'' should also include 
        due process for providers and a prohibition against financial 
        incentives to deny care.
 Timelines for internal and external reviews should be 
        shortened and should start when the review is requested, not 
        following the filing completion date.
Conclusion
    These cases are just the tip of the iceberg of problems in which I 
have personally been involved. Because of these frustrations and the 
gross misuse of available medical care by managed care companies for 
financial gain, I have, after 25 years as a solo pediatrician, elected 
to move into academic medicine. I join the ranks of medical professors 
in the hope of providing graduating physicians with more knowledge 
about caring for the pediatric patient.
    I would encourage each of you to consider carefully these issues. 
We, in America, have the potential for the best care, the best 
facilities, and the most dedicated physicians in the world--yet we are 
being shackled by managed care companies to benefit the bottom line, 
not our children's medical care.
    Thank you for the opportunity to share my experiences as a 
physician with you today. The AOA stands ready to participate in the 
bipartisan effort to develop strong patient protection legislation for 
all Americans.

    Mr. Bilirakis. Thank you, Doctor.
    All right, I will start the questioning.
    I think that all of us in this room, participants, people 
out in the audience, and of course, you panelists--more so than 
the rest of us, I guess--understand your frustrations with many 
managed care plans' practices.
    Sometimes it is tough because of politics, partisanship, 
demagoguery, and things of that nature. We are trying to work 
in a bipartisan manner to develop legislation that addresses 
many of these frustrations, but at the same time does not add 
to the rolls of the uninsured. I would like to think you all 
want us to always keep that in mind in everything that we do.
    Dr. Grogg, you stated that medical decisions, panels of 
physicians, laboratories, x-rays facilities, and hospitals, and 
other providers are all chosen by the insurance company based 
on the lowest cost, in your testimony. You also went on further 
to add that the decisions, quite often, are made regardless of 
the needs--I am quoting you now--``regardless of the needs of 
the child, and of the particular medical problem in question.'' 
Of course, I think that, again, goes to the word 
``frustration,'' and what we are all here about.
    Now, I think also along with these frustrations most of us 
in this room--all of us in this room--support very strong, very 
independent, very qualified appeal panelists who are of the 
same persuasion of the medical problem in the external appeals 
process.
    Ms. Barron, you told us that in all of this time there has 
only been one case brought to court?
    Ms. Barron. To my knowledge.
    Mr. Bilirakis. To your knowledge.
    Ms. Barron. I understand there may be a second.
    Mr. Bilirakis. All right. That is why, because you have, in 
fact, put into place a good, strong, independent, binding 
external appeals process, right?
    Ms. Barron. Yes, sir. I believe that is right.
    Mr. Bilirakis. Going back to Dr. Grogg, and the problems 
you have mentioned, if there is a strong, binding, independent 
external review process where independent clinical peers are 
reviewing the medical decisions of a plan, doesn't that address 
most of your concerns? Isn't that, for the most part I suppose, 
a large part of the reason why there haven't been any cases 
going to court which would render the liability portion of all 
of this--I am not going to say moot--but certainly not as 
significant as some would think it to be?
    Ms. Barron. Mr. Chairman, we believe in Texas that those 
two issues, the review and the accountability, are linked 
together. They were passed at the same time. In fact, in our 
law, they were linked. Our law required an external review 
prior to an individual being able to bring an action.
    I don't remember--I apologize--which one of the members 
said that we don't believe individuals want to sue their way to 
better health. They don't. They want to get they care they 
believe they paid for. They want to feel they had it fair.
    Mr. Bilirakis. What was the history before the legislature 
passed the liability portion? In other words, you indicated you 
had the external review process in place before that was done.
    Ms. Barron. No, sir. We did not have external review prior 
to the liability.
    Mr. Bilirakis. You did not.
    Ms. Barron. We passed external review at the same time that 
we passed accountability. We linked them together in the single 
bill. We crafted the bill in a way to avoid frivolous 
litigation, but to have it out there, really, as an enforcement 
tool to be able to say, ``If you comply with external review 
and you do everything it is intended, you shouldn't have to 
worry about a lawsuit. But just in case you decide you don't 
want to, or you slow walk, or you lose the paperwork, or you 
consistently miss timelines, then you should know that if this 
is going on, you may well be held legally accountable for any 
harm that occurs to someone because you didn't comply.''
    When the law was challenged, the judge upheld to some 
extent the liability portion and threw out the external review. 
The health plans had been voluntarily complying with the 
external review, because they do like it. Now, if the liability 
had been thrown out, would they have wanted to continue with 
the external review? We don't know, because we linked them 
together as a single package.
    Mr. Bilirakis. Dr. Grogg.
    Mr. Grogg. Yes, Mr. Chairman and the committee, the biggest 
problem in the pediatric care is not getting to a pediatrician. 
There is an adequate number of pediatricians. It is getting the 
child with special needs to a sub-specialists, or a specialty 
in a particular area. For instance, if a child has a seizure 
and there is not a pediatric neurologist on the physician 
panel, oftentimes they are seen by an adult neurologist.
    Mr. Bilirakis. Why don't you back up now? The child has a 
seizure. Take us through that, if you will, very quickly, the 
process of how the internal review process would be held, then 
the external, and what-not.
    My time really is already up. But I think it is important 
that we get an idea of how this works. Dr. Weiss and Dr. 
Conway, maybe, can get involved very briefly if you disagree in 
the scenario that Dr. Grogg is summarizing.
    Mr. Grogg. If a 2-year-old has a seizure, and I as a 
pediatrician don't quite understand why this child has had the 
seizure, we would do specific tests, such as EEG's, which is 
checking the electrical activity of the brain, and MRI's to 
check the anatomy and make sure everything is intact in the 
child. This may take 2 to 3 days. If it is on Friday evening, 
it will not be until Monday or Tuesday before we can get 
permission to run these other tests.
    On the other hand, if there is not a pediatric neurologist 
in the panel, which is frequently the case, they have adult 
neurologists instead of a pediatric neurologist. They may not 
understand why a child may have a seizure. We then have to wait 
2 weeks--even 2 months--in order to get a neurological 
referral.
    Mr. Bilirakis. Any comment to that, Dr. Conway? Dr. Weiss? 
I am sorry to interrupt you.
    Mr. Weiss. Well, under the standard procedure, the patient 
really does need to see a neurologist. A pediatric neurologist 
or a neurologist who is familiar with children is what they 
need to see. That shouldn't be an issue. I think in most plans 
in most areas that may not be. As you get into areas where 
there is a limited number of pediatric neurologists, that may 
be an issue. I don't know if with the Henry Ford Center that is 
as much of a problem, either.
    Mr. Conway. The example given is one of just having a 
referral authorized. It sounds like a pretty slow process. That 
isn't even an issue that has been denied that a patient would 
want to appeal. But in an appeals process, there should be a 
strong, as we stated, external review available with a couple 
of levels internal to the health plan for the patient to appeal 
to.
    Mr. Bilirakis. Well, in the case that Dr. Grogg mentions to 
us, could an adequate, strong, external and internal review 
process be established that would still be helpful to that 
patient? We talk about liability. By the time you get into 
court--in the meantime, the patient doesn't get proper care. 
That is the question. That ought to be my last question because 
I have to go on to the others.
    Mr. Conway. I would also say that it would need to be 
prompt. If an important health care need is taking 2 weeks to 
get settled by the health plan, I think we ought to be looking 
at that.
    Mr. Bilirakis. That is not very prompt, is it?
    Mr. Conway. Prompt is 2 hours.
    Mr. Bilirakis. Yes.
    Mr. Weiss. I think from the side of an appeals process, the 
only thing for an internal or external review would be whether 
or not a non-par pediatric neurologist was going to get paid. 
That is where its place would be. The child needs to be seen. 
If there is going to be a debate over reimbursement after the 
physician has seen him, and the plan denies payment because it 
is non-par physician, I think there is a place, then, for an 
internal or an external review. They would say that a par 
provider was not available, and it is reasonable that you pay 
for a non-par provider. That is where the safeguards would be 
available through internal or external review.
    Mr. Bilirakis. Well, I am concerned about timeliness. We 
are concerned about patients here. We are not concerned about 
patients after they have passed away or gotten to the point 
where they can't be cured. We are concerned about patients 
getting the proper care in a timely fashion. Quite frankly, I 
don't think we are as concerned about liability, although I 
realize the clout that it can possibly have.
    Okay, I am going to yield to Mr. Brown because my time has 
expired. Thank you so much.
    Mr. Brown. Thank you, Mr. Chairman.
    Ms. Barron, thank you for joining us, and all four of you. 
You explained well, I thought, what happened in Texas after 
your mid-1990's legislation. Opponents said that medical 
necessity would sort of end the world as we know it. People 
would get out of managed care into more expensive fee-for-
service. That clearly didn't happen.
    You said the number of plans went up. Costs would go 
through the roof. You showed that premiums are consistent with 
other states. There would be an increase in fraud and abuse. 
That did not happen.
    Let us talk for a moment about the Texas situation prior to 
the passage of that legislation. You represent, I understand, 
about 35,000 physicians, right? Tell us, how were health plans 
making decisions about medical care? Were they basing their 
decisions on good medical practice prior to your new law?
    Ms. Barron. Prior to passing our law, we weren't sure how 
health plans were making their decisions. What would happen 
very often for physicians is that when a request was made to 
have a particular treatment provided, a response would come 
back saying that treatment is not consistent with our criteria 
for medical necessity. There was no disclosure of what those 
criteria are. The appeals process was very cumbersome. If there 
was one, it required that everything be done in writing. There 
were no specific timelines. There was a guarantee that a 
physician with the same or similar specialty would be in 
position to discuss the case with the treating physician. The 
third thing that did not exist until 1995 was clarification 
that there had to be flexibility to take into consideration 
unique circumstances of an individual patient.
    It is fine to have general screening criteria and general 
guidelines. We support that. There is nothing better than 
evidence-based medicine when you have it. The problem is that 
is embryonic right now. There are very few treatments out there 
that have the level of what would be termed ``evidenced-
based.''
    Then you move to peer review. That is great. If you don't 
have either of those, you are looking at generally accepted 
standards. In the light of all of those things, you have to 
look at the individual situation of the patient and ask, ``Does 
it make sense to apply these things to this patient? Are we 
looking are multiple conditions? Is the patient able to get to 
the care?''
    The conversation has to take place. What we are finding now 
is that is what is happening. Physicians are being able to get 
the criteria that are being used to make those decisions. They 
are able to have those discussions with their colleagues and 
peers. Patients are getting better care as a result of this.
    Mr. Brown. If I understand this, prior to the law, patients 
and doctors were not often notified of the reasons for the 
denial of that particular treatment.
    Ms. Barron. That is correct.
    Mr. Brown. And you mentioned evidence-based medicine. If a 
health plan refused to share information with physicians, with 
evidence-based medicine, how is a physician better able to 
continue the treatment for the next time?
    Ms. Barron. I think that is one of the big problems. There 
is no educational process involved. If the idea is that health 
plans believe they have access to information right now that is 
the best, and they can help make that available to their 
physicians, that is often true. It is a good thing. If you 
don't tell the doctors what the state-of-the-art is in treating 
something, then you can't educate them. You can't expect them 
to improve the quality of care they provide to their patients.
    I know I look very young. You probably won't believe this, 
but I have one of those T-shirts that says, ``Because I am the 
mom.'' The process used to be, ``Because we are the health 
plan.'' That doesn't really help educate the physicians. We say 
``no'' because we can.
    The full disclosure, the scientific evidence, the ability 
to discuss specific patient conditions with another physician 
that has clinical expertise and understands the conditions 
being discussed are all components in our law that we believe 
are imperative in moving ahead to improve the quality of care 
provided, and make it available in timely fashion.
    Mr. Brown. So my understanding of the advantage of managed 
care over the years--to contain costs and to wring waste out of 
the system--the real positive aspects of managed care require 
educational processes back and forth between the plan, the 
patient and the physician, so that physicians in the future 
will know better how to treat--not just in the least expensive 
way, but most efficiently and effectively. That was missing 
prior to your law in Texas, because there was not the 
communication between doctor and health plan, correct?
    Ms. Barron. That is correct.
    Mr. Brown. So you would say that, prior to your 
legislation, that it was more of managing costs than managing 
care?
    Ms. Barron. I think that could be a very appropriate 
statement, yes, sir.
    Mr. Brown. Okay. Thank you.
    Mr. Bilirakis. Dr. Ganske.
    Mr. Ganske. Thanks, Mr. Chairman.
    There is a Federal court case called Jones v. Kodak. In 
relationship to ERISA, it basically says that a health plan 
under ERISA can define medical necessity in any way that it 
wants to.
    So what some health plans have done is that they put into 
their contractual language this definition of medical 
necessity. Medical necessity means, ``the shortest, least 
expensive, and least intense level of treatment, care, or 
service rendered, or supply provided as determined by us.'' 
Isn't that amazing?
    I would like every member of this panel to describe whether 
they think that is an adequate definition of medical necessity.
    Mr. Grogg. Dr. Ganske, I understand that situation and do 
not think that is appropriate. Medical necessity should be 
defined by physicians and based upon scientific knowledge, in 
particular for the disease process that is going on, and a 
particular patient. If a patient needed tubes in his ear for 
otitis media, it is more appropriate to get that patient in 
immediately if they have a cleft palate in addition to the 
problems that they have with the ear.
    So you need to look at the specific patient, with peer 
review understanding the necessity and the types of challenges 
associated with medical necessity.
    Mr. Ganske. Dr. Weiss?
    Mr. Weiss. I don't agree with the statement that it is 
defined by us. Sharing Connie Barron's view and TMA, it is that 
it should be supported by evidence-based data. The converse is, 
I think, that with that definition there needs to be some 
evidence suggesting the therapy that is being requested is 
going to be of benefit to the patient.
    Mr. Ganske. Ms. Barron?
    Ms. Barron. I would say that, clearly, we would not agree 
with that definition of medical necessity. Again, we look for 
evidence-based whenever it is there, and peer review standards. 
Sometimes there are treatments that are new. There are 
situations and conditions that what you have to go on is what 
is the generally accepted standards for caring for this patient 
in this situation. That is not unusual. But that definition is 
the most commonly offered definition in State laws today. It is 
understandable.
    It is sort of like the old adage of pornography: I can't 
define it, but I know it if I see it. I think, as a physician, 
you know when you are talking with a colleague if you are 
understanding what is going on with that patient you will know 
what is medically appropriate for them in the absence of 
scientifically based, clinically proven evidence.
    Mr. Ganske. Dr. Conway?
    Mr. Conway. I wouldn't accept that definition. I wouldn't 
sign that contract. That gets us into a subject area outside of 
the purview of what you are interested in today. One way to 
manage that is anti-trust relief for physicians so they can 
collectively bargain and tell an insurance plan that is 
unacceptable.
    Mr. Ganske. Let me, just for my own practice, expand on why 
I think we then need to change ERISA if it allows, in fact, 
that type of definition of medical necessity. As a 
reconstructive surgeon taking care of a lot of kids with cleft 
palates, yes, it would be possible to treat a child with a 
cleft palate with a plastic obturator. Would their speech be as 
good? No. If they lost their obturator, would they have food 
coming out of their nose? Yes. Would it be the cheapest 
treatment? Yes, it sure would. Under Federal law, ERISA, if 
unamended or changed, any health plan can do that.
    Now let me get to something else. I want to make a 
statement. It may seem counter-intuitive, but I would like your 
comments on this. I would say that while it may sound counter-
intuitive, it is not good medicine to solely use outcome-based 
studies of medical necessity, even if the science is rigorous. 
I think, Ms. Barron, you have made that point. You have added 
some qualifications.
    Let me explain why I think that is the case. You will 
frequently hear the health plan say, ``Well, just use outcome-
based, or experience-based studies.'' That is that the choice 
of the outcome is inherently value laden.
    Mr. Chairman, if I could have 1 minute to follow up?
    Mr. Bilirakis. I don't want to make a habit of that now 
because we have another panel to go. It is a quarter to 5 
already. If there is no objection, I do have concerns, Greg, 
that we are setting a precedent here.
    Mr. Coburn. Unanimous consent that the gentleman be given 1 
additional minute.
    Mr. Bilirakis. Without objection.
    Mr. Ganske. Thank you.
    Let us say that I, as a hand surgeon, am taking care of a 
patient with a broken finger. Now the majority of those 
patients with broken fingers you can treat with splinting. I 
may be treating somebody who plays the piano or plays the 
guitar. They need to get motion back soon. They need to get 100 
percent. The better treatment would be an open fixation, 
internal reduction.
    Now which is the value that you use? Do you use the 
cheapest? Do you use the best result? That is why I think we 
need to be very careful in having a series of things that we 
use for the medical necessity. Certainly, a plan's guidelines 
can be part of that as long it is peer reviewed. I think it 
should be the medical literature. It should be NIH consensus 
statements. It should also be looking at the individual 
circumstances of that patient. Is he a construction worker or 
does he depend on playing the piano for his living? Would 
anyone disagree with that?
    Mr. Grogg. No I wouldn't.
    Mr. Ganske. Let the record show that nobody disagrees with 
that. Thank you, Mr. Chairman.
    Mr. Grogg. Mr. Chairman, if I may add to that conversation? 
You heard the statement that, if you see that in your contract, 
don't sign it. It would be good if we had the collective 
bargaining physician as physicians, but we do not.
    Mr. Bilirakis. That is happening, though.
    Mr. Grogg. I encourage that. It is a take-it-or-leave-it 
type of contract. If you don't want to sign a contract, then 
you are frequently without a large panel of patients.
    Mr. Bilirakis. Yes, I have heard those stories.
    Let us see, Mr. Pallone.
    Mr. Pallone. Thank you, Mr. Chairman. I was struck during 
the panel's testimony about the contrast, really, between what 
Ms. Barron said and what Dr. Conway said. It seemed like they 
were totally contradictory.
    Just two examples: Dr. Conway, you talked about your fear 
of litigation; how litigation was so terrible. Yet she talked 
about how there had only been one suit filed since the Texas 
law came into place. You talked about how somehow HMO's are not 
engaged, or don't make decisions about the practice of 
medicine. She talked about how the Texas law had to be changed, 
or clarified, to say that if managed care plans make negligent 
decisions to withhold payment for care in spite of the 
recommendations of the treating physician, the managed care 
plan can be legally accountable in Texas courts. That was only 
done, theoretically, because in fact managed care plans were 
overruling decisions and effectively making decisions about 
treatment.
    My first question is, Dr. Conway, I assume you would have 
opposed the Texas law? You still oppose the Texas law, or you 
just disagree with the facts? What is you comment about Ms. 
Barron's testimony?
    Mr. Conway. I think Connie and I would agree. Ninety 
percent of what we covered is in agreement, especially on 
appeals processes and how important and effective external 
appeals opportunities are for members. I can't disagree with 
her factual statement of Texas experience over the past year. 
This bill has not been around for very long. I don't think we 
can assume that we are not going to see a lot of lawsuits out 
of that bill. What is it, 18 months old?
    Mr. Pallone. Did you oppose the Texas bill? Do you still 
think it should not have been passed? Would you favor it being 
repealed?
    Mr. Conway. Our position is we can get just as much by 
requiring aggressive external appeals processes being available 
to all members.
    Mr. Norwood. Will the gentleman yield?
    Mr. Pallone. No. I would like to--I just want to ask a few 
questions. Please forgive me for not yielding.
    You say that the HMO's are not legitimately engaged in the 
practice of medicine. In fact, if they overrule recommendations 
that physicians make with respect to specific treatment, why 
aren't they effectively in the practice of medicine? Why aren't 
they effectively practicing medicine by overruling what the 
physicians say should be done?
    Mr. Conway. I think they are making payment decisions.
    Mr. Pallone. Why is that any different if the effect is 
that they overrule a physician and the patient can't get the 
treatment that their physician recommends?
    Mr. Conway. This is the way we would want to see the kind 
of appeals processes that we make available to our plan 
patients required of everybody in the industry.
    Mr. Pallone. She said in her testimony that one of the 
problems with the independent review program in Texas is that 
it was recently ruled to be preempted by ERISA. A Federal 
district judge concluded that the review involved determination 
employee plan benefits that could not be imposed by the State. 
She says that Congress has to act to establish an independent 
review process; otherwise, the Texas program is in jeopardy. 
Would you be in favor of Congress enacting that?
    Mr. Conway. I think our testimony asked you to take action 
on requiring external review of health plans. We would support 
that.
    Mr. Pallone. The type of independent review process that 
was overruled by the courts? You would be in favor of us 
implementing that on a Federal level?
    Mr. Conway. Yes.
    Mr. Pallone. Okay. Let me just ask one more thing here. One 
of the things that I really don't understand is in many ways 
you suggest that you are so afraid of this litigation. I guess 
your answer is that Texas law hasn't been around long enough. 
You think there is going to be a lot more litigation. Then you 
talk about medical malpractice reform being the first order of 
business.
    But to be honest with you, Dr. Conway, most of the 
physicians I talk to consider HMO reform the first order of 
business. They don't really have a problem with HMO's being 
sued. As much as they might have problems with the medical 
malpractice system the way it is. I have heard their complaints 
about it. They don't have a problem with the fact that HMO's 
could be sued and come under the same system.
    I guess I am just a little confused about why you are so 
concerned about the litigation aspect. I think you have 
answered it. If you want to go on a little more--it seems to me 
there isn't really a problem. Really, what it is is 
preventative. She has basically shown that what we do is create 
a preventative-type situation. People aren't suing. It is a 
means of prevention.
    Mr. Conway. Beyond costs. I was pointing out very good 
studies at Harvard University, and confirmed in two additional 
studies, that the medical liability system doesn't really 
benefit the people who are injured. There isn't any reason to 
think that allowing health plans to be sued is really going to 
help the people that have a coverage need to be settled. An 
aggressive external review process will settle that promptly. 
We can impose short time limits, like 72 hours on that, and get 
this resolved and not have to rely on courts.
    Mr. Pallone. I know my time has expired. I just think: 
Think about the preventative aspect. I think that is the key. 
It means, ultimately, people are responsible. They get into 
prevention.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. The gentleman's time has expired. Mr. 
Whitfield.
    Mr. Whitfield. Thank you, Mr. Chairman.
    It is my understanding that Michigan, Texas and Florida--
all three States--have a State law relating to external appeals 
process. Are there any caps on punitive damages or anything 
else in the three States?
    Mr. Weiss. First off, Florida has mandated external review, 
but has not put in the liability. As far as the liability, 
basically, the reason why the health plans are doing the 
external reviews and why it is successful, Florida has taken 
half of the pie that Texas has done. I think it has had good 
results. I think it sort of goes to the point that the external 
review may be the solution. There may not be the need for 
additional liability. But liability without the external review 
probably would not yield the results that the committee would 
be looking for.
    Mr. Conway. Michigan doesn't have a liability option like 
Texas. Texas is the only State, I think, that allows for suing 
health plans.
    Ms. Barron. Congressman, I will say I am not a lawyer. I 
will say that we have significant tort reform on the books in 
Texas. I think we do have caps on our punitive. I think we have 
formulas for non-economic damage recoveries. We have joint and 
several. We have many, many tort reforms.
    It was interesting that the State senate sponsor of the 
managed care accountability act was the same sponsor of all of 
the tort reform packages that were passed this previous 
session. He felt this act was very consistent with tort reform. 
It was designed in a way to avoid frivolous litigation. We 
believe it has been demonstrated by having that external 
review, but was also consistent with principles of joint and 
several of having the responsible party at the table.
    If I could just comment from Mr. Pallone's question, I 
think that Dr. Conway is in a situation that is probably ideal 
in many ways for lots of physicians. He is in a group practice, 
a large group practice, where I suspect that many of his 
contracts are on a capitated basis. He is able to make, among 
those physicians in the group practice, all the decisions about 
what is appropriate for those patients. It is up to him to keep 
those costs in a budget.
    In Texas, we have very few group practices. Because of the 
individual physicians, what we were finding very often was the 
health plan overruling the decision of the treating physician.
    Mr. Whitfield. In Florida, you said your HMO provides 
coverage for 400,000 patients.
    Mr. Weiss. Yes.
    Mr. Whitfield. How many of those are under self-insured 
plans or subject to ERISA preemption?
    Mr. Weiss. Of the members that we have, we don't administer 
plans. This is all fully insured versus being a third-party 
administrator and administering the self-funded. So all of our 
members are fully insured.
    Mr. Whitfield. Okay, all of yours are fully insured. Does 
that mean self-insured?
    Mr. Weiss. No. They are fully insured by the health plan. 
They are not self-funded plans where they would have the ERISA 
exemption.
    Mr. Whitfield. So none of yours are under ERISA, then?
    Mr. Weiss. Right. None of our plans. The closest to ERISA 
exemption would be the municipalities--governmental entities.
    Ms. Barron. If I could comment? This is something that is 
so confusing, but so important to understand. I think Dr. 
Coburn mentioned this earlier. Just because a plan is fully 
insured and licensed by the State does not mean that ERISA does 
not impact it.
    In other words, I take an insurance product that is 
licensed by the State and I put it upon the shelf for somebody 
to purchase. If an individual walks in the door and buys that 
plan, or if a public sector employer walks in and buys that 
plan, they are fully covered by all State laws and ERISA has no 
jurisdiction over that plan.
    If, however, I am a private sector employer, I walk into 
that store, reach up on that shelf, and I take that very same 
plan off the shelf, because I am a private sector employer, 
that plan is arguably subject to certain requirements of ERISA. 
Those are all of the cases that are constantly being disputed 
in the courts about whether the facts in a particular situation 
fall under the authority of the State, or under the authority 
of ERISA. It is very confusing. That is why crafting any 
legislation is important.
    Mr. Coburn. Would the gentleman yield?
    Mr. Whitfield. Yes.
    Mr. Coburn. What actually happens is that, as soon as they 
get a lawsuit, they start running toward ERISA and changing the 
documentation--which we have proof of in several instances--so 
they can claim ERISA exemption.
    I thank the gentleman.
    Mr. Whitfield. I spent a number of years with CSX 
Corporation, which is in Jacksonville, Florida. Of course, they 
were self-insured and protected by ERISA. They had four or five 
plans available for their employees. They had a tremendous 
interest in making sure that the insurance carrier was not 
denying health care for these employees. So I know that there 
are exceptions to that rule. I know there are some problems out 
there.
    My time has expired.
    Mr. Bilirakis. Mr. Barrett.
    Mr. Barrett. Thank you, Mr. Chairman. I am hoping that by 
the end of this hearing I will have a better understanding of 
how these grievance procedures work so that as we move forward 
on legislation we can make sure that they are responsive.
    Dr. Conway, maybe I will start with you and the Henry Ford 
grievance policy, if I can. Reading from your prepared 
testimony, ``The grievance process is a three-level 
decisionmaking process. A final determination is rendered 
within 90 days following the initial patient request, or within 
a 72-hour expedited review process for urgent issues.''
    My first question for you is, who decides which process 
kicks in, whether it is the 72-hour expedited review or the 90 
days?
    Mr. Conway. The patient can ask for an expedited review.
    Mr. Barrett. If the patient asks for an expedited review, 
will the patient automatically receive that or not?
    Mr. Conway. Sure.
    Mr. Barrett. Is that your understanding, Dr. Weiss?
    Mr. Weiss. That is correct. If they request an expedited 
review, we will review it within 72 hours.
    Mr. Barrett. From a practical standpoint, how often does 
the person not ask for one? I would think that, as a layperson 
you would say, ``I would like to have a quick decision.''
    Mr. Weiss. Well, if the patient is in the middle of care. 
If you are asking for coverage and are not in the middle of 
treatment, then the non-expedited review would be appropriate. 
If they ask for an expedited review, we can look at that. It 
requires getting information more quickly. Sometimes it is not 
as comprehensive to rush something along. We may need to 
contact several doctors and get the information.
    Mr. Barrett. So would each of you support in our 
legislation a provision that said that, if the patient asked 
for expedited review within 72 hours, the patient would be 
entitled to that? Dr. Conway?
    Mr. Conway. Sure.
    Mr. Barrett. Ms. Barron?
    Ms. Barron. Yes.
    Mr. Weiss. I think one of the problems with that is, as you 
said, if you are told that everything can be expedited, 
everybody wants an answer now. As you try to accumulate the 
information and get the answer, it sometimes makes it far more 
difficult, both for the plan, but also for the physicians we 
need to contact and ask them to provide documentation as to why 
a member may need that.
    I think, in our plan, non-expedited reviews are completed 
within 28 days. Some are completed in just a few days, once we 
can get the information. Making everything expedited is 
probably going to back up the true expedited, and may interfere 
in actually trying to review cases for the patients who really 
need it reviewed today.
    Mr. Barrett. Now when you say for your plan that it will be 
completed within 28 days, is that the first level? How many 
levels are you speaking of there?
    Mr. Weiss. That would be the third level. When someone asks 
for a review, it will be reviewed immediately. There may be a 
conversation with the physician who is requesting the services 
to try to get a clarification of the information. Based on 
that, the decision can be changed. If at that point there is no 
change--this is now the first level of reconsideration--then 
there would be the formal one. If a patient is in the hospital 
at that time, that would be appropriate for an expedited 
review. Or if there is a serious service that needs to be done 
where timing is of an issue, then it can be done as an 
expedited review. If it is for coverage of a service that is 
not time-related, then it wouldn't be an expedited review.
    Mr. Barrett. In my opening statement I made reference to a 
constituent who asked for additional treatment. When he was 
told he couldn't receive it, he asked the physician to put that 
in writing. The physician, obviously, was not happy with that 
and declined to do so. The constituent then pressed on and 
said, ``Well, then, I will write to you and recount this 
conversation.'' At that point, things changed dramatically.
    Do you support a requirement where, in the real world, 
there is any type of written documentation? Many times you are 
talking about a person who is not sophisticated, who just has 
this gut feeling there is something wrong.
    Mr. Weiss. In that situation, the member would have been 
able to call the plan and be able to basically complain, or 
file a grievance saying they wanted that. It would be reviewed 
at that time. The other option, also in Florida, is there is 
the 800 number for the Agency for Health Care Administration. 
They can call that number and register a complaint, which would 
then be immediately forwarded to the plan.
    Whether the physician wants to participate or not, the 
member should have--and in Florida does have--a vehicle to be 
able to register a concern that will be looked into by the 
health plan and/or the State.
    Mr. Barrett. Well, my question is, if I am on the phone and 
I am calling the physician and saying there is something wrong 
here, will I receive something in writing that will tell me why 
I am denied coverage?
    Mr. Weiss. You would only receive something in writing from 
the health plan if something was denied. If the physician never 
requests it, we would not send out a denial letter. If a 
request is put in to the health plan, and it is denied, you 
would receive a letter explaining why it was denied.
    Mr. Barrett. But isn't there a financial incentive for the 
physician not to ask for it in the first place?
    Mr. Weiss. With our contracts and our physicians, there is 
not. In some, there may be.
    Mr. Barrett. So what should we be doing to make sure, then, 
that there is at least some indication? In the real world, if 
the physician is never asking for it, then there is no 
documentation. So Joe Blow, who has been denied treatment, 
never existed in terms of bring the issue to the forefront.
    Mr. Bilirakis. Brief answer, please.
    Mr. Weiss. At that point, there should be a vehicle for the 
member to be able to register their complaint or concern. 
Telephonically would be the easiest for them, or being able to 
send a letter in registering their concern. Once the health 
plan is made aware of it, they need to address it in the formal 
process.
    Mr. Bilirakis. The gentleman's time has expired. Mr. Burr.
    Mr. Burr. Thank you, Mr. Chairman.
    Ms. Barron, let me ask you one question. You said in the 
close of your statement, underlined, ``With no unexpected 
increases in premiums and a growth of managed care plans.''
    Let me just ask you about the portion ``unexpected increase 
in premiums.'' How much have premiums gone up, on average? I am 
not talking about specifically that you targeted for this 
legislation. But in the 18-month period, do you think this has 
been long enough that you would have experienced an increase?
    Ms. Barron. I would say that we should have seen any 
anticipated increase at this point, because the health plans 
told us early on that they were going to begin accruing and 
charging as if what they expected to happen was going to 
happen.
    Mr. Burr. They expected how much, and you have seen how 
much?
    Ms. Barron. They said this would be a billion-dollar health 
care tax; premiums would soar 35 percent. We have seen a 3 
percent increase in the Houston marketplace, about 6 percent 
increase in the Dallas marketplace; what you would see 
consistent around the country with HMO's having sustained long 
losses, and now having to recoup those losses. Nothing 
inconsistent with what we see in increases in any other State.
    Mr. Burr. Let me ask all of you--Dr. Conway, do you agree 
that the external review is an important component of what we 
look at?
    Mr. Conway. Absolutely.
    Mr. Burr. Ms. Barron?
    Ms. Barron. Yes, absolutely.
    Mr. Burr. Dr. Weiss?
    Mr. Weiss. Yes, I do.
    Mr. Burr. Dr. Grogg?
    Mr. Grogg. Yes.
    Mr. Burr. Great. We have agreement on a very important 
component, which is external review.
    Now I will ask you to focus on three words as we talk. My 
question to you is: Where do we go from here? What is the next 
step that we need to accomplish the right balance? The three 
words are quality of care, access, and affordability, because 
that is what this committee should be challenged with. I am not 
sure every member is focused on those three things.
    But with an agreement that there are 43 million uninsured 
in the country, Dr. Grogg, would you agree with me that a child 
that is covered under an insurance policy is more likely to get 
care than one that is uninsured today?
    Mr. Grogg. Yes.
    Mr. Burr. We agree that insurance is an important component 
to the availability of health care?
    Mr. Grogg. Yes.
    Mr. Burr. Access. Let me ask you to dwell on these three 
things: access, affordability, and quality. Tell me, if you 
could design a change to protect patients, to assure access, 
and to assure affordability as best you can, what would you do? 
I will just start with Dr. Conway.
    Mr. Conway. I would put into the patient protection 
legislation the requirement for an external review, related to 
the subject. That should cost little. Even the Texas experience 
would suggest that.
    Mr. Burr. You laugh. I didn't tell you this would be easy.
    Ms. Barron. Well, that is right. How many years do I have 
to think about this? I would say that I do think that one of 
the most important things is that we look at what is driving 
the cost of health care. We should not move forward in looking 
at public policy solutions that aren't addressing the real 
problems.
    If you look at what we are seeing, we are seeing 
consistently all of the articles that I read from the think-
tank folks and the policy experts, and even employers, when 
surveyed will put the two three cost drivers as being rapid 
developments in technology, advancement with new 
pharmaceuticals coming out, especially in terms of genetic 
research and an aging population. They don't list government 
regulation. They don't list liability. They don't list mandated 
benefits as being the true cost drivers.
    It is important to look to see if those assumptions are 
right. Is everybody looking at the right things? If so, do we 
have a reasonable way to address that affordability? How do we 
do that?
    Mr. Burr. I wonder if we would get the same three at the 
top of the list if we asked physicians? It might be an 
interesting thing for us to do sometime.
    Dr. Weiss?
    Mr. Weiss. I think that if we are looking at trying to 
address all those issues, managed care offers the opportunity.
    Mr. Burr. Let me stop you. It is not a question of if we 
tried. That is the challenge we are given right now.
    Mr. Weiss. I understand. Managed care offers the 
opportunity versus unmanaged care. Now how can we make sure 
that managed care is done well so that we are being accountable 
for the costs, and--most importantly--the quality? I think an 
external review panel, which could be mandated to include 
review by similar-specialty physicians, offers the opportunity 
to make sure that we are able to control the cost, make health 
insurance affordable, and also, to make sure the quality is not 
negatively impacted.
    Mr. Burr. Mr. Chairman, can I get the last panelist?
    Mr. Bilirakis. By all means, go ahead.
    Mr. Burr. Dr. Grogg?
    Mr. Grogg. Both the American College of Osteopathic 
Pediatricians and the American Academy of Pediatrics would like 
to see universal health care for all children. If this were in 
place, external review as we have discussed today would 
certainly benefit, I think, to make it accountable. But we 
would like to see that all children have access to specialty 
care, and have insurance available to them.
    Mr. Burr. I thank our panelists. Certainly this committee 
tried, with the expansion of the CHIPS program, to help here.
    Mr. Bilirakis. Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. Let me follow up real 
quick on the increased costs as the result of the Texas HMO 
reform.
    Ms. Barron, I understood that the 3 percent in Houston and 
6 percent in Dallas, and the increase statewide was similar to 
what other States were experiencing. It had both urban and 
rural markets, for example, California, or some other place. So 
the last 18 months you could see no appreciable increase in 
premiums based on the reforms that were passed in 1997?
    Ms. Barron. That is correct. I think it is very important 
to know that, when our reforms went into place, the majority of 
the reforms went into place in 1995. The issue dealing with 
medical necessity criteria, and disclosure of those criteria 
started as early as 1991. They were strengthened in 1995. They 
allowed for flexibility to address the individual needs. Then 
we added the external review in 1997, along with the health 
plan accountability. So we have had some significant patient 
protections on the books for a lot of years.
    Mr. Green. Let me go to the issue today. There is a linkage 
between all the issues on managed care reforms that were passed 
in 1997 in Texas and is being considered and passed by other 
States.
    On the one concerning liability and the outside appeals 
process--correct me if I am wrong--in Texas, we had the outside 
appeals process. The success rate for patients is about 50 
percent. In the patients that are being appealed, 50 percent 
are found to the HMO and 50 percent to the patient. If the 
patient is denied, the patient was wrong. The patient now does 
not have the right, under Texas law, to do to the courthouse. 
Is that correct?
    Ms. Barron. I am sorry?
    Mr. Green. If those 50 percent of the patients that appeal 
and are denied whatever services, do they have the right, under 
the accountability provision, to go to the courthouse?
    Ms. Barron. They could if they chose to do that. But all of 
the information is discoverable, if you will. In other words, 
if you were going to file a lawsuit against a health plan, you 
would know that the health plan did everything right. Their 
decision was agreed to and supported by an independent external 
review entity. The chances of that case moving ahead are pretty 
slim. We have not seen that happen.
    Mr. Green. So the accountability section, then, is linked 
to the success of the appeals process--a swift, outside appeals 
process.
    Ms. Barron. We believe that, based on our experience.
    Mr. Green. Do you think, after watching the Texas 
experience, that is probably why we have only had one or two 
lawsuits filed?
    Ms. Barron. I do.
    Mr. Green. One of the things that I talked about this 
morning, when we were lining up, was the 50 percent on the 
outside appeals. If I were a Houston Astro, for example, and 
batted 300, I would be a 30 percent success rate. I would make 
$8 million a year.
    A health care provider, though, who is only 50 percent 
right worries me. I would like to have better than the chance 
of a flip of the coin when my physician calls for a certain 
treatment. So I think that 50 percent has made both HMO 
providers and physicians more comfortable with it. There is a 
linkage between the accountability you have to have and the 
appeals process. Do you feel like that is so?
    Ms. Barron. We do. We believe they work well together.
    Mr. Green. Of the 50 percent who were provided, is that 
binding on the provider?
    Ms. Barron. It was originally binding in the law until the 
court ruled that we couldn't make it binding. So we had to go 
back this session and say, ``We can't make it binding. We can't 
make you do it. It is voluntary. But if you opt as a health 
plan to participate in our external review process, you agree 
that you will be bound by the decision.'' But the health plans 
now must voluntarily participate because of the ruling. It is 
still being appealed.
    I will say that Phil Dunne is here from the Texas Medical 
Foundation, our external review entity. He has the majority of 
the experience and can certainly more knowledgeably address the 
issues about how that has worked and the number of cases.
    Mr. Green. Do you know of any of the appeals process that 
were successful, where the plan decided not to provide the 
service?
    Ms. Barron. Not to my knowledge.
    Mr. Green. So there would be no appeal from the patient's 
standpoint. Let us say we are going to get the service. Again, 
that is linkage that we have to have: the appeals process with 
the accountability. If we are afraid of increasing the court 
system's lawsuits, it seems like the appeal process is not 
dissimilar to what talked about when I was in the legislature: 
going to mediation before you filed a lawsuit. In that way it 
saves the cost of the lawsuit. You don't have to have an 
attorney in the appeals process in Texas?
    Ms. Barron. You do not have to have an attorney. I would 
say that one of the things we did do that we believe is very 
important is we gave the physician standing. I am sorry to hear 
about the kind of situation that Congressman Barrett 
referenced.
    What we found more frequently was the situation where the 
physician wanted to advocate for the patient, but was told, 
``Doctor, you are not the one that has the contract with us. 
You go have the patient call us. The patient must write us. The 
patient must provide all this information.'' This was 
ludicrous. It took the doctor out of the loop in terms of being 
the direct advocate to be able to provide the clinical 
information directly to the health plan to help expedite the 
review. It is important that the physician can be the advocate 
for the patient and can conduct that appeals process.
    Mr. Green. Thank you. Mr. Chairman. I know I am out of 
time. Let me just give a quick example of an experience I had.
    Mr. Bilirakis. Very quick.
    Mr. Green. Last year I spoke to the Harris County Medical 
Society. I was surprised, being a Democrat, being asked to 
speak to the Harris County Medical Society. I talked about my 
daughter had only been in medical school 2 weeks, so she is not 
ready to do brain surgery. After my speech one of the 
physicians said, ``Your daughter, after 2 weeks in medical 
school, has more knowledge than the people I call to treat my 
patients.'' I think that is what the frustration is about: the 
need for this legislation for more than just an appeals 
process.
    Thank you, Mr. Chairman.
    Mr. Bilirakis. Thank you. Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. Let me begin by just 
walking through some points that I think we have some agreement 
on.
    First of all, it is my understanding that every single one 
of you believes--I think I might even be accurate in saying 
believes strongly--that there should be an internal appeals 
procedure, followed by an external appeals procedure. The 
external appeals procedure needs to be independent. It is a 
critical part of the process in determining what care should or 
should not be delivered. Is that correct, Dr. Conway?
    Mr. Conway. Yes.
    Mr. Shadegg. You agree with that. Ms. Barron, you would 
agree with that?
    Ms. Barron. I would agree.
    Mr. Shadegg. Dr. Weiss, you would agree?
    Mr. Weiss. I would agree with that.
    Mr. Shadegg. Okay, and Dr. Grogg?
    Mr. Grogg. I would agree with that, with the addition of in 
a timely manner.
    Mr. Shadegg. Okay, I fully agree with that. Now, I want to 
go over a second point on which think there is some confusion.
    Several of you have talked about the various appeals 
procedures--external and internal--existing in various State 
laws. Some discussion has been of my home State, Arizona. I 
want to make it very clear. Ms. Barron, the definitive law in 
this area is coming out of the State of Texas at this moment, 
is it not?
    Ms. Barron. It appears that, yes, it will come out of the 
fifth circuit.
    Mr. Shadegg. And as we sit here today, the law is that the 
State of Texas cannot legally enact a law compelling HMO's or 
other providers to agree to an internal and external appeal 
procedure and have that be binding upon those HMO's as a matter 
of law, correct?
    Ms. Barron. That is correct.
    Mr. Shadegg. So Arizona can act. Texas can act. Florida can 
act. Every State can act, but it is meaningless, at least as to 
the ERISA population. Is that right?
    Ms. Barron. That is my understanding.
    Mr. Shadegg. It is my understanding that roughly 70 percent 
of all Americans who are covered by plans are covered under an 
ERISA plan. Is that right?
    Ms. Barron. Yes.
    Mr. Shadegg. So 70 percent of all Americans--you all 
agree--should have access to a binding external appeal 
procedure, but as a result of ERISA today, they do not legally 
have that. Is that not correct?
    Ms. Barron. That is right.
    Mr. Shadegg. Does anybody disagree with that?
    Mr. Conway. They don't have that in Texas.
    Mr. Shadegg. Pardon me?
    Mr. Conway. We do have that in Michigan.
    Mr. Shadegg. No, you do not. It is fascinating to hear that 
even some people on this panel don't understand. As a matter of 
law, you can pass a State statute in Michigan which gives to 
people not governed by ERISA a binding appeals procedure. That 
will be binding as a matter of law in Michigan on everyone who 
is not covered under an ERISA plan. Your HMO may choose 
voluntarily to extend that binding appeals procedure to ERISA-
governed patients. You may choose to do that. But if you choose 
not to do that, then those 70 percent--roughly--of people in 
Michigan who are governed by ERISA have no access to a binding 
appeals procedure. But you think they should, correct?
    Mr. Conway. They should. I am sure you know more about the 
law than I do. But in practical day-to-day activity, our 
members who are under ERISA plans can appeal. Now we may have 
voluntarily decided.
    Mr. Shadegg. You may have voluntarily decided. Not all 
HMO's have done so, which is why we are here. I think it is 
very important to understand that every single one of you 
agrees that this Congress should act to deal with the right of 
ERISA-governed patients to a binding internal and external 
appeal procedure, correct?
    [All witnesses nod their heads indicating, ``yes.'']
    Mr. Shadegg. Everybody would agree with that.
    Now, let me go to the next step. Is there anyone here who 
believes that, since there should be a binding external appeal 
procedure, that after that appeal procedure the HMO should be 
able to thumb its nose at the decision and say, ``We had an 
external appeal procedure, but we just don't like. We are not 
going to follow it.''? Does anybody think that should be the 
rule?
    [All witnesses shake their heads indicating, ``no.'']
    Mr. Shadegg. Dr. Conway, you don't believe that?
    Mr. Conway. The external appeal should be binding.
    Mr. Shadegg. It should be binding. Now, you testified at 
length about your concerns about liability. You would agree 
that tort liability, some kind of legal liability, must extend 
following the binding external appeal to force an HMO to abide 
by that appeal if it doesn't choose to do so. You would agree 
with that?
    Mr. Conway. I think we would prefer putting into a 
regulation that the external----
    Mr. Shadegg. But what happens if they don't abide by the 
regulations?
    Mr. Conway. If we regulate the fact that the external 
decision is binding, how can you violate a Federal law?
    Mr. Shadegg. Well, I guess there is really two ways. You 
have civil liability or you have criminal liability. Are you 
proposing that, instead of a civil liability for an HMO that 
ignores the decision of a binding external appeal, we should 
have a criminal penalty? I would suggest that is not a very 
good remedy.
    It seems to me that what you are saying, Dr. Conway, is you 
don't want to have the legal system to go around the binding 
internal/external appeal. Your comments about not favoring 
liability would be limited to circumstances before somebody 
went through internal and external appeal. If they go through 
internal and external appeal, and they get a decision, they 
ought to be bound and they ought to be liable for not complying 
with the decision of the external appeal panel. Would you agree 
with that?
    Mr. Conway. Yes.
    Mr. Shadegg. You would agree with that.
    Mr. Weiss. That would be, I believe, different than saying 
they are responsible for malpractice in that they are 
responsible for liability for not following.
    Mr. Shadegg. I believe Ms. Barron testified eloquently to 
the fact that the Texas law, which does what I just tried to 
describe--but regrettably, has been held to violate ERISA--does 
precisely that. It does not hold plans to a malpractice 
standard. It, rather, holds them liable under the Texas appeals 
procedure. Is that correct, Ms. Barron?
    Ms. Barron. That is correct. What it says is that as long 
as you did not act negligently--that would mean that you abided 
by the appeals process, met the time lines, disclosed all of 
the information--you did everything that a reasonable managed 
care organization would do in attempting to make sure that the 
right decision was made for that patient; that is the standard.
    Mr. Shadegg. With the Chair's indulgence, I would like to 
ask one last question on a different topic. Several of you 
expressed concern about the doctor/patient relationship. I am 
deeply concerned about the doctor/patient relationship. I would 
like to know the answer to two questions from each of you. Do 
you believe the doctor/patient relationship has been enhanced 
by the growth of employer-based health insurance, as opposed to 
individually purchased health insurance? Do you believe that 
the doctor/patient relationship has been enhanced, or damaged, 
by the prevalence of HMO's?
    Mr. Coburn [presiding]. If we could have ``yes-or-no'' 
answers. The gentleman's time has expired.
    Ms. Barron. I would say as far as the enhancement of 
managed care, it has damaged the doctor/patient relationship. 
As far as the basis of the funding for the care, I would say 
that there has been some effect from that as well.
    Mr. Shadegg. Thank you. Anyone?
    Mr. Weiss. I think from the employer-based it may have been 
there is more availability for health care through employer-
based. I think that enhances the doctor/patient relationship. 
Without coverage, there is a stress in that relationship.
    Mr. Grogg. I would suggest that the doctor/patient 
relationship has lost considerable--I think it has damaged the 
situation.
    Mr. Conway. I think our first preference would be for 
individual health insurance decisions that would strengthen the 
relationship between a patient and a physician, provided in 
that arrangement that we can ensure people in this country are 
insured. The first preference is for universal coverage for the 
population.
    Mr. Coburn. The gentleman's time is up.
    Mr. Shadegg. I appreciate the indulgence of the Chair.
    Mr. Coburn. The gentleman from Texas, my friend, Mr. Hall.
    Mr. Hall. Thank you, Mr. Chairman. I want to start out by 
apologizing to Connie. When I looked down as I was going to 
allude to you a while ago, I saw Connie Dunne. I wondered if 
anything had happened since you last visit up here. I know I 
have transferred Phil Dunne's name to the end of your name.
    That brings me to Phil Dunne, Mr. Chairman. I want to thank 
him. He is going to be on the next panel. He is a Texas Medical 
Foundation, CEO. He is very knowledgeable. He has served a lot 
of good purposes in our State.
    Connie, you have, too. You have helped us. You have helped 
the blue dogs as they set out their legislative plans. I thank 
you for that.
    You mentioned in your testimony that Texas' external 
appeals system was recently ruled to be preempted by ERISA. Go 
back to basics. Could you elaborate on this a little bit? What 
does that exactly mean--for the record?
    Ms. Barron. What Judge Gilmore ruled was that a State could 
not require a health plan to have an external review that was 
binding on them. That was the administration of the plan. It 
was a coverage decision; therefore, it was preempted by ERISA. 
What that would mean is that our external review process in 
Texas, and possibly, depending on how the law progresses, every 
external review process everywhere that a State would impose, 
would apply only to individual coverages and coverages of 
public sector, government employees. It would not apply to 
private sector employer-offered programs, be they self-funded 
or fully insured. Health plans would have to volunteer to 
participate in the external review. The State could not make 
them do it.
    Mr. Hall. This opinion just seems to establish that ERISA 
plans don't have to participate in the State-run external 
review programs. Are ERISA plans required to participate in any 
external review at all?
    Ms. Barron. They are not, to my knowledge.
    Mr. Hall. None at all?
    Ms. Barron. No. Not now.
    Mr. Hall. Let us talk about how beneficial this shield is 
for insurance companies, and the effect of it. Do you have an 
opinion whether or not removing ERISA as shield for insurers, 
or the employee, agent, or servant of an insurance company who 
says a doctor says they have to be iced--the insurance company 
agent says it isn't covered. The doctor even puts it in writing 
that this could be life-threatening. They don't do it. Death 
ensues. Litigation is going to take place, is it? But who is 
the one person that will not be in the courtroom?
    Ms. Barron. Currently, the managed care plan would be, or 
the insurer would be the empty chair, if you will, in the 
courthouse.
    Mr. Hall. I am a lawyer. I have two sons that are lawyers. 
I have represented insurance companies, and sued almost all of 
them at one time or another. Lawyers are going to sue somebody, 
aren't they, if you have a death like that?
    Ms. Barron. That is my understanding.
    Mr. Hall. Who is standing there for them to sue? The 
doctor. The hospital administrator. The anesthesiologist. The 
circling nurse. On down the line. With a death or serious 
injury, they are going to recover from someone, aren't they?
    Ms. Barron. Yes, sir.
    Mr. Hall. But the person that spawned this, that catapulted 
them into that courtroom, is not there. Do you see any 
unfairness in that?
    Ms. Barron. I would, if I could, say that there was one 
case in Texas some time back, Hand v. Tavera. It was a 
situation where a decision was made. Mr. Hand had a stroke and 
came to the emergency room. The treating physician in the 
emergency room said that he should be admitted because his 
blood pressure couldn't be controlled. The representative of 
the health plan said ``Don't think so. We aren't denying 
treatment. We are only denying payment. We aren't going to pay 
for it, Mr. Hand.'' Mr. Hand said, ``How much is it going to 
cost.'' The doctor said, ``I don't know, maybe a few thousand 
dollars.'' Mr. Hand said, ``I can't afford that, so I better go 
on home.''
    Even though the doctor told him to worry about payment 
later, Mr. Hand said, ``No, I am responsible. I am a 
responsible individual. I don't think that I can pay for that. 
I will go home and hope that the health plan representative was 
right.'' He went into the parking lot. He had a massive stroke. 
He has been disabled since.
    On the one hand, if a health plan makes a negligent 
decision that is irresponsible and financially motivated, they 
have no liability, in essence. They aren't held accountable for 
their decisions. If an individual makes maybe what isn't the 
best decision for--what I would consider the right reason--
responsibility, but it is financially motivated as well, he can 
pay for it with his life. It seems that is an imbalance.
    Mr. Hall. I have just one final question. We are discussing 
here as if this situation came up with every patient/physician 
relationship. Of course, it does not. I doesn't come up in 100 
percent of the situations. I doesn't come up in 90 percent, 80 
percent, 70, 60, 50, 40, 30, 20, 10, 5 even, does it?
    Ms. Barron. No, sir.
    Mr. Hall. So really what we are talking about is just a few 
cases a year, or a small percent of the cases. Why wouldn't 
whoever is advising the insurance companies advise them, for PR 
purposes, it would be better for them to step up and not hide 
behind ERISA just because they can? I don't believe all of them 
are doing it. I don't believe that everybody that runs an 
insurance company is thinking that way.
    Ms. Barron. We think there is some very good managed care 
plans in the market. We believe that our laws in Texas 
exemplify the best practices of good managed care plans. That 
is why they have been successful.
    Mr. Hall. I am still hoping that there be something worked 
out on this. I am still hoping that the companies who continue 
to pursue using ERISA as a shield will not do so, but will see 
the sensibility in coming together and giving us bill that they 
can live. I don't know if that is going to happen. I hope it 
will. There is still plenty of time. I would hope that the 
insurance companies don't lead the other entities like the 
chamber of commerce, NFIB, and others down this road, because 
it is not a good road.
    Mr. Coburn. The gentleman is still my friend, but his time 
has expired.
    Mr. Hall. The chairman is still a great man, even though he 
has cut me short. I yield back my time.
    Mr. Coburn. Thank you for those comments. I recognize 
myself for 5 minutes.
    Dr. Conway, I have some real problems with some of the 
things that you said. I think we need to distinguish. The two 
gentlemen here are from non-profit HMO's. Is that correct?
    Mr. Conway. That is correct.
    Mr. Weiss. That is correct.
    Mr. Coburn. There is a big difference between not-for-
profit HMO's and for-profit HMO's. That has not been put into 
the record.
    I want to tell you, where I practice medicine, health care 
plans do make medical decisions. They may say they are not, but 
they do it every day. I just wonder if you and Dr. Weiss have 
read the bill proposed by Dr. Norwood, Mr. Shadegg, and myself 
on our external appeals procedure, the timeliness of it, and 
also the very high hurdle that there is not a lawsuit unless 
somebody can show an injury. Are you familiar with what we have 
proposed?
    Mr. Conway. Yes.
    Mr. Coburn. And what do you think of that?
    Mr. Conway. I think we support it.
    Mr. Coburn. So you support what we have proposed in terms 
of a limited liability as a way to hold plans accountable for 
external appeals process on a timely basis?
    Mr. Conway. I think that is it.
    Mr. Coburn. Dr. Weiss?
    Mr. Weiss. I haven't seen the bill. As long as the internal 
process is done first, and then the external process is used in 
holding the plans liable for the determination of the external 
process.
    Mr. Coburn. Let me ask this question as well: Dr. Conway, 
your plan is run by physicians. Is that correct?
    Mr. Conway. That is correct.
    Mr. Coburn. Do you find that different?
    Mr. Conway. Let me just reinforce what I said earlier. If 
we restructured the way doctors could relate to health plans in 
this country, you would not have to pass all this legislation. 
You could allow them and the community to get together a 
negotiate with the health plan and say what is unacceptable 
medical practice.
    Mr. Coburn. Or we could have them all do what you have 
done, and form their own HMO's with no change in the law.
    Mr. Conway. Right.
    Mr. Coburn. So there is an option for physicians to do that 
if they so desire. The other thing is that you can be tough and 
say you are not going to sign it. That is what we have done in 
a lot of the areas where I practice. We have had minimal 
penetration into HMO's. We haven't colluded at all. We are 
saying our patients are more important than the profits with 
the HMO's.
    Dr. Weiss, is your HMO run by physicians?
    Mr. Weiss. No, it is not. It is a not-for-profit health 
plan that is run by a community board.
    Mr. Coburn. Okay. I am going to put this into the record. I 
would like your response. I will send you, through the 
committee, if I can have unanimous consent, the proposed 
consensus managed care bill, and have you comment back in 
writing on our external and internal appeals process, which--I 
also might add--has inpatient-stay expedited appeal, so that 
somebody doesn't go home from the hospital when they should not 
be going home.
    I also would like to read for you a very short--just what 
medical necessity we put in this bill. I want to see if you all 
have any problems with it.
    We set the bill up as the insurance or HMO has to say up 
front what they cover. Then the standard we use as admissible 
evidence is the following: ``Additional personal health and 
medical information supplied with respect to an individual 
whose claims for benefits had been appealed. An opinion of the 
individual's treating physician, or health care professional. 
An external appeals entity may take into consideration, but not 
be limited to the following evidence: the result of studies 
that meet professionally recognized standards of validity; the 
results of professional consensus conferences; practice and 
treatment guidelines prepared or financed in whole or by the 
part by a government agency; government-issued coverage and 
treatment priorities and polices; community standard of care to 
the extent that the entity determines it to be free of any 
conflict of interest, the opinions of the individuals who are 
qualified as experts in one or more fields, or the results of 
peer reviews conducted by the plan or issuer involved.''
    We also say that there has to be practicing physicians that 
are in that peer review panel. Would any of you disagree with 
what I just read as far as the determination of what should or 
should not be in the make up of how we make a decision on 
medical necessity and the panel?
    Mr. Weiss. I would have no problem with what you have read, 
with the exception of where you bring up the community 
standard. The question there is: What is the community 
standard? Is it different than all of the studies that you have 
presented? Does that mean that since the community standard 
doesn't follow what the scientific information or evidence 
studies show, you can do it because we just do it this way?
    I would hate to see a community standard that would be 
poor. If the community standard doesn't follow that----
    Mr. Coburn. We would be happy to drop that. The community 
standard, most often, is following behind the lead of the 
centers like Henry Ford Hospital and some of these others where 
we are seeing more advanced techniques. So the question is it 
still should be considered, because it is considered in all the 
liability cases.
    Just to extend the opportunity to answer the question, Dr. 
Conway? Ms. Barron?
    Mr. Conway. I would tend to agree with Bruce. What you ran 
through--studies, guidelines, professional consensus groups, 
suggestions released from the government--are all objective 
things that you can get your hand around. What the community 
standard is is pretty tough to incorporate into decisionmaking 
around medical necessity.
    Mr. Ganske. Would the gentleman yield?
    Mr. Coburn. Let me get the answers finished here, first.
    Ms. Barron. I would say that I would agree--with two 
caveats. One is to add that it is flexible enough to take into 
account any specific or individual needs. I don't see a problem 
with the community standard being part of it for two reasons. 
One, it is already, as you mentioned, something that is 
considered in medical malpractice cases everywhere. If I had 
all the resources available to me, then it would make sense.
    For example, if normally you would get an MRI before doing 
a particular surgery and you have an MRI machine available, 
then you get one. If you are in Bodinky, Texas, and the closest 
MRI machine is 400 miles away, all the clinical symptoms say 
surgery is warranted, the patient's condition is such, then I 
may go ahead and do that surgery and not ship him off 400 miles 
to get the MRI. So it is the resources available to you that 
sets the community standard.
    Mr. Coburn. Dr. Grogg?
    Mr. Grogg. I agree with the statement. I like it.
    Mr. Coburn. Dr. Ganske, I would like to let Dr. Norwood go. 
Then if we have a moment, let you follow up with a question.
    Mr. Ganske. I was not going to ask questions, just make a 
simple comment. It is that the operative words in that 
definition are ``shall take into consider, but not be bound 
by.'' It doesn't give any preferential thing. Does that make 
you feel more comfortable with those?
    Mr. Weiss. I just didn't want that statement to exempt 
everything else.
    Mr. Coburn. Thank you very much. Dr. Norwood.
    Mr. Norwood. I would like to ask the panel a question. I 
would like for you to listen to this first statement.
    ``No one would argue with the right of injured patients to 
seek redress.'' Would any of you argue with that?
    Ms. Barron. I would not.
    Mr. Conway. No.
    Mr. Weiss. No.
    [Dr. Grogg is out of the room.]
    Mr. Norwood. Everybody tends to agree?
    Ms. Barron, probably the wild, wild west in Texas was at 
its height some 100 years ago. We solved a lot of problems out 
there with six-guns. We have sort of gotten away with that.
    Now if you feel your child has been injured, we tend the 
best thing to do is not go get your six-gun, but perhaps use 
the judicial system. Does everybody still think that is an okay 
way to go in 1999?
    Let me ask you a question about liability. Let us assume 
that when we pass this bill, Dr. Conway--and we are going to--
we pass all of it but the liability part. Do you think the 
subject is over, then? Does that mean those of you who are 
against us having any redress in court if a patient has been 
harmed, if we don't get it in this bill, the subject is done?
    Mr. Conway. I don't know what the subject----
    Mr. Norwood. I am sorry. I must have not said it well. Do 
you believe that when we get through passing this bill, the 
liability part of the bill--not external review--the ability to 
go to court is over in this country?
    Mr. Conway. Yes. I think we would get the same result they 
were talking about in Texas. I think the effective piece in 
what is going on in Texas was the requirement for mandated 
external review.
    Mr. Norwood. So this will all go away if we pass all of 
this except the liability? We will not hear about that again?
    Mr. Conway. I would predict that is probably true.
    Mr. Norwood. Well, I would predict to you that it may be in 
Congress. Then you are going to get some liability that you are 
going to love. The circuit courts are going to give it to you. 
We are going to let the lawyers hand it to you. I have a 
hunch--it is only a hunch; I can't prove it--that they are 
going to give it to you in ways you really will not like. 
Perhaps we ought to consider dealing with people who do love 
you. I think for you to keep this out of our legislation and 
everything is lovely and wonderful--it will not be for long. It 
will be a lot worse than any of you ever dreamed.
    Those of you that looked at Dr. Coburn's consensus bill, 
which has external review language that is outstanding, do any 
of you believe that it will be anything but very, very 
difficult to be negligent if you use that program?
    Mr. Weiss. I think that may, in fact, assist the plans in 
that if you go through that process, and in the external review 
by experts they agree with the health plan that something is 
not covered; that provides relief to the plans. They have gone 
outside it. Their denial of the services or the requested care 
has been upheld by outside people saying that is a reason.
    Mr. Norwood. Yes. You can blame it on somebody else. I 
understand.
    Mr. Weiss. Well, if someone else has said they agree with 
the plan, that is correct. If they came back and said they 
disagree, then, obviously, the plans need----
    Mr. Norwood. Therefore, if and when we end up with this 
very narrow liability, we can't be talking about many people.
    Dr. Grogg, did you carry malpractice insurance?
    Mr. Grogg. I am sorry?
    Mr. Norwood. Did you carry malpractice insurance?
    Mr. Grogg. Yes.
    Mr. Norwood. Did it cost you a lot of money?
    Mr. Grogg. Yes.
    Mr. Norwood. Why didn't you quit practicing medicine?
    Mr. Grogg. I love to care for patients.
    Mr. Norwood. I am sorry?
    Mr. Grogg. I love to care for patients. As a pediatrician, 
I don't have to go to work. I just go play.
    Mr. Norwood. I appreciate that. Still, it cost you a lot of 
money. You loved your patients so much that you were willing to 
pay out this goodles of money.
    I will not get into all this, because I think a lot of 
studies you can make them be anything you want to make. But I 
find it pretty interesting that Milliman and Robinson, along 
with four other studies, is predicting that we may be actually 
talking about 34 cents per month per patient in order to allow 
those very narrow, few patients who really have been wronged to 
be able to use our justice system. I will make this available 
to you if you want. I think that is not unreasonable. I don't 
believe so at all.
    Mr. Chairman, I just want to quickly finish up. Let me just 
mention about this Harvard study that was in 1991. Dr. Conway, 
please make available to us exactly what that Harvard study is, 
so that we can look. I have a pretty good idea that you are 
just finding there that, at the end of the day, the lawyers get 
the money, not the patients. I think that is probably what the 
Harvard study is.
    I just want to say to you that you are right in some of 
things you say. Only physicians are trained and licensed to 
render clinical decisions, which would make me believe that you 
think the definition of ``medical necessity'' should stop with 
primary health care doctor. If they are the only ones who can 
do it, why don't they get simply the decision of what medical 
treatment is needed?
    Mr. Conway. The primary care physician?
    Mr. Norwood. Yes. We don't need all these reviews. Leave it 
up to the doctors. You said in your statement: Only physicians 
are trained and licensed to render clinical decisions. Fine. 
Let us simply say that they primary health care physician will 
do just that.
    Mr. Conway. That is how we think it should be. Plans have 
to decide what is a covered benefit in some of the things that 
plans do.
    Mr. Norwood. Yes, they do have to decide what is a covered 
benefit. But a lot of times you decide what is a covered 
benefit that is a covered benefit, and medically you say it is 
not needed. So that means the physician is not making the 
statement; a great accountant is. That is not the way to do 
it--according to you. Only physicians are trained and licensed.
    Mr. Coburn. Would the gentleman like to make unanimous 
request to leave the record open to ask for further question in 
written form to our panel?
    Mr. Norwood. I would indeed, Mr. Chairman. I know you are 
coming with that hammer.
    Mr. Coburn. Without objection. I thank the gentleman. I 
thank the panel.
    One other thing needs to be put into the record that has 
not with this one. I apologize for taking 30 seconds to say 
this. Binding external review lowers costs, increases quality, 
and makes physicians better. It does not raise costs. It will 
lower costs. If you think about a physician who is going to 
appeal and doesn't have his act together, he is only going to 
appeal once. They are not going to go up there and look foolish 
again.
    Second point is, if a doctor appeals, or fails to appeal on 
something he should, he is liable. So we increase 
accountability on the physicians. We decrease costs. We improve 
quality care, both for the managed care company and for the 
physicians that are doing it.
    I thank the panel. We will seat immediately the second 
panel. Thank you.
    On behalf of the chairman, again, let me apologize for the 
lengthy course we took with the first panel. Welcome to our 
three panelists. Mr. Larry Atkins, President of Health Policy 
Analysts; Mr. Philip Dunne, with the Texas Medical Foundation, 
and Ms. Sara Rosenbaum, Director of the Center of Health 
Services Research and Policy. Welcome.
    Mr. Atkins, you are recognized for 5 minutes.

  STATEMENTS OF G. LAWRENCE ATKINS, PRESIDENT, HEALTH POLICY 
 ANALYSTS, INC., ON BEHALF OF CORPORATE HEALTH CARE COALITION; 
 SARA ROSENBAUM, DIRECTOR, CENTER FOR HEALTH SERVICES RESEARCH 
AND POLICY; AND PHILIP K. DUNNE, CHIEF EXECUTIVE OFFICER, TEXAS 
                       MEDICAL FOUNDATION

    Mr. Atkins. Thank you, Mr. Chairman. Mr. Chairman and 
members of the committee, my name is Larry Atkins. I am 
President of Health Policy Analysts, Incorporated, a 
Washington-based consulting firm. I am testifying today in my 
capacity as coordinator of the Corporate Health Care Coalition.
    The Coalition is an alliance of 25 companies, formed in 
1993 to reflect the views of large, multi-state, self-insured 
companies on national health care policy. Coalition members 
cover over 6 million lives, and provide over $12 billion in 
benefits annually. They have been in the forefront of health 
plan quality initiatives.
    I appreciate having the opportunity today to appear and 
address the question of accountability for health care 
decisions, and the benefit of an external medical review 
process. Accountability at all levels of the health care system 
is what employer initiatives in quality measurement and 
purchasing are all about today.
    Employers moved to managed care to increase the 
accountability of physicians and hospitals. They rely on the 
health plans to identify the best providers and practices, and 
wean the system of out-dated, unnecessary and inappropriate 
medical care. Employers use purchasing standards, comparative 
measures of performance, plan accreditation, and a variety of 
other methods to hold health plans accountable for performance 
and patient outcomes.
    ERISA, the Federal law much maligned in the last few 
minutes, governs our plans. It is an important part of the 
accountability picture. ERISA requirements for information 
disclosure, fiduciary duties, liability, claims procedures, and 
judicial remedies are substantial tools for participants to use 
in obtaining the benefits their employer plans provide.
    With that in mind, ERISA's claims review requirements have 
not kept pace with the changes in claims determinations brought 
on by the growth of managed care. Coverage decisions are now 
often made before treatment is rendered. With comprehensive 
benefits, more decisions are made on the basis of medical 
necessity, than on the basis of overt plan coverage 
limitations. In response, employer plans and their claims 
administrations today process claims more rapidly than ERISA 
requires, and often provide independent external medical review 
of significant contested medical necessity denials.
    Employers have found that independent medical review is an 
effective way to resolve significant coverage issues involving 
medical treatment questions. It can instill confidence in plan 
enrollees that the plan will cover the most effective 
treatment. It ensures that medical necessity decisions remain 
medical, using expert medical judgment and medical evidence. It 
is independent of the plan and its financial incentives. It 
renders the decision promptly, when the participant can still 
benefit from treatment.
    An external review process and Federal law would provide 
universal procedures for resolving difference in medical 
opinion on medical necessity. Any Federal requirement for ERISA 
or other plans should provide a uniform Federal process that is 
consistent from State to State, and preempts State processes. 
It should be the last word on treatment. If the medical 
judgment is sound, there should be no value in second-guessing 
it in the courts before juries.
    Some patient's rights bills include a statutory definition 
of medical necessity to serve as a touchstone for external 
review. A statutory standard for medical necessity is dangerous 
idea. The standard these bills would use--generally accepted 
medical practice--is borrowed from medical malpractice defense, 
as you have heard from the previous panel. It is the lowest 
common denominator of medical practice. You can't fault a 
physician who is only doing what everyone else does. External 
review decisions should rely on the best medical knowledge--the 
kind of review standard you have in your bill, Mr. Chairman.
    A statutory standard is useless in external review anyway. 
The reviewer would still have to decide what generally accepted 
medical practice was. External review itself provides the 
objective standard for medical necessity. It is the process by 
which an expert with knowledge of the state of medical practice 
and knowledge selects the most appropriate treatment by 
referencing the best medical evidence.
    State tort liability for coverage decisions is another very 
dangerous idea. Sending a patient into litigation for 3 years 
does little to get him the treatment he needs now. The only 
point of punitive damages is to create a hammer to scare plans. 
Recent punitive damage awards involving State employee plans--
for example, the settlement recently against Aetna in 
California of $116 million--make it clear that liability for 
coverage decisions sends all the wrong signals to health plans. 
In these cases, juries disregarded external reviews, consensus 
guidelines, and clear medical evidence in punishing plans for 
denying what actually had been shown through external review to 
be ineffective and inappropriate treatment. The message 
liability is sending to the plans is to approve everything 
because only blanket approval can protect the plan from the 
wrath of a jury.
    Some of the patient's rights bill try to exempt employers 
from liability. I just want to make the point quickly that we 
don't believe that is possible. I can explain in answers to 
questions.
    I want to close by making a simple comment about the issue 
of cost of liability in Texas. I think there has been some 
misunderstanding about that. First of all, the Texas liability 
law, because of the way the district court interpreted it, did 
not actually change the way the Federal courts have been 
reviewing these cases anyway. So the case that came forward, 
which was a Medicare case, after the Texas liability law was 
passed was treated the same way as cases that came before the 
liability law was passed. So the fact is, there is no costs to 
the Texas liability law, because it didn't really change the 
situation. In fact, that Medicare case was decided on the basis 
of four previous Medicare cases, not on the basis of the Texas 
law, itself.
    Ironically, health plan liability will lead to a reduction 
in the accountability of health plans to employers, because the 
employers will reduce their selection and plan comparison 
efforts because of the danger that they would be considered to 
be exercising discretion.
    Mr. Chairman, that is all I really have to say. I 
appreciate the opportunity to testify. Thank you.
    [The prepared statement of G. Lawrence Atkins follows:]
  Prepared Statement of G. Lawrence Atkins, President, Health Policy 
    Analysts, Inc. on Behalf of the Corporate Health Care Coalition
    Mr. Chairman and Members of the Committee: My name is Larry Atkins. 
I am President of Health Policy Analysts, Inc., a Washington-based 
consulting firm. I also serve as the Coordinator of the Corporate 
Health Care Coalition (CHCC).
    The Coalition is an alliance of 25 companies formed in 1993 to 
reflect the views of large, multi-state, self-insured companies on 
national health care policy. Coalition members operate health benefit 
plans for employees and their families as well as retirees, covering 
over 6 million lives and providing over $12 billion in benefits 
annually. They have been in the forefront of efforts to provide high 
quality and cost-effective benefits for employees. Coalition members 
have extensive experience in designing, administering and delivering 
employee health benefits, and are a major force today in ongoing 
efforts to improve the health care system.
    I am here today to address the question of health plan and provider 
accountability and the role of external, independent medical review in 
improving accountability.
                i. accountability of plans and providers
    From an employer perspective, health plan accountability is created 
through the purchasing and oversight activities of employers. Employers 
have expended considerable effort to increase accountability for the 
quality of medical decisions and patient outcomes at all levels of the 
health care system: health care professionals, health facilities, and 
health plans. CHCC companies have sought provider accountability 
through the managed care activities of health plans, and have sought 
plan accountability through the development of quality measures and the 
application of quality indicators as a factor in selecting health plans 
for employees.
    The employer view of accountability is proactive. Quality needs to 
be built into health care from the front end: through clinical research 
to develop medical evidence on effective treatments, through 
development of guidelines and protocols, through selection and training 
of practitioners, through financial incentives that encourage quality, 
through monitoring and feedback on patient outcomes, through better 
comparative information for participants. Quality and accountability 
can not be built from the back end--through the threat of litigation 
and punitive damages for lapses in quality. We believe in incentives to 
discover what works and to apply the right treatment in the first 
place, rather than disincentives based on searching for the mistakes 
and seeking retribution for them after the fact.
A. Accountability through Managed Care
    Organized health care delivery systems and managed care developed 
originally as part of an effort to bring accountability to medical 
practice. In fee-for-service medicine, solo practitioners were on their 
own to keep up with innovation and were specifically accountable to no 
one for the quality of their work. Managed care was intended to develop 
a system that routinely applied new knowledge to medical practice 
through the development of guidelines and protocols based on medical 
evidence in an effort to improve the quality of medical decisionmaking. 
The move toward ``evidence-based medicine'' has been the effort to 
subject medical treatment decisions to the test of what has been shown 
to work best.
    Employers moved decisively to managed care plans in the mid 1980s 
to find efficiencies in health care that could lower costs and improve 
quality. The shift was a response to double digit medical inflation 
driven in part by excess capacity and increasing utilization; financial 
incentives in fee-for-service medicine that encouraged over-
utilization; and research by the RAND Corporation showing that one-
third of the health care in the U.S. was unnecessary and inappropriate. 
Employers believed that better patient outcomes and more cost-effective 
care would result from a change in the financial incentives to 
encourage management of care delivery.
    The basic ideas behind the move to managed care are consistent with 
consumer protection initiatives at the state and federal level today. 
They include:

* Creating a single point of accountability--In an indemnity world, 
        patients coordinate their own care, moving from provider to 
        provider. In a managed care environment, a health plan can be 
        accountable for the procedures and outcomes for its enrolled 
        population. Purchasers can set targets for the health plan and 
        expect the organization to manage its members to meet those 
        targets. Patients can have a single primary physician 
        coordinating their care. This single point of accountability 
        has created a more intense focus on health care quality than 
        existed in a purely indemnity/fee-for-service environment.
* Shifting the focus from input to outcome--Services in an indemnity 
        system were evaluated on the basis of the input--the volume and 
        type of service provided--without being able to know the 
        ultimate impact on the patient's health. The service 
        integration and improved patient record keeping of managed care 
        makes it possible to manage and evaluate patient care on the 
        basis of whether the patient's condition improves.
* Shifting from static quality to dynamic quality--Quality in an 
        indemnity system was a state of practice that remained 
        unchanged once attained--it was a function of the physician's 
        training or the character of the health care facilities. The 
        shift to organized service delivery with performance and 
        outcome measures, has made quality a constantly evolving goal. 
        Providers are encouraged to share information, learn from their 
        collective experience, rethink their practices, and respond to 
        new guidelines and protocols.
* Reliance on ``benchmarking'' and ``best practices''--In the 
        competitive world of managed care, no organization can assume 
        that they are doing the best possible job. Plans can be 
        compared to one another, and plans that have done the best job 
        of treating a particular illness or attaining a particular 
        health status for their population can be held out to others as 
        an example. Purchasers can require visible progress on specific 
        health problems as a condition for being awarded a contract. 
        The whole concept of quality-based competition requires an 
        organized system that can pursue strategies to achieve 
        specified results.
    Purchasers have seen in managed care the opportunity to improve the 
value they receive for their health care dollars. With a single point 
of accountability, employers and employees can compare the performance 
of plans, select plans that show evidence of meeting certain 
performance targets, choose the more effective plans and providers, and 
encourage ongoing improvements in quality and efficiency.
B. CHCC Companies Pursue Health Plan Accountability
    CHCC member companies are in the forefront of efforts to purchase 
health benefits on the basis of quality. Given the diversity of 
industries and types of workers in CHCC companies, a ``one-size-fits-
all'', ``cookie-cutter'' approach does not work. Member companies 
approach quality purchasing in a variety of ways that give testimony to 
the innovation that has developed among private purchasers. The 
following provides only a sample of the quality-based purchasing 
activities of CHCC member companies.
    1. Plan Accreditation--Many companies require health plans to have 
National Committee for Quality Assurance (NCQA) accreditation or be in 
the process of pursuing accreditation as a condition for purchasing. 
Employers have worked closely with NCQA in developing accreditation 
standards for health plans. A number of companies also require or 
review Utilization Review Accreditation Commission (URAC) and the Joint 
Commission on Accreditation of Healthcare Organizations (JACHO) 
accreditation.
    2. Purchasing Standards--Some companies set performance standards 
for health plans they offer. These standards may be extensive--covering 
such things as standard benefits, governance, financial solvency and 
fiscal operations, access, credentialing, network requirements, data 
monitoring and evaluation, UR and claims processing, grievance and 
appeals processes, quality assurance processes, and a number of other 
factors. Some companies require health plans to operate a program of 
continuing quality improvement or continuing targets for quality.
    3. Employee education--plan comparisons--Employers in the CHCC 
offer choices to their employees and provide their employees 
substantial comparative information to select plans. Some companies 
provide a benchmarking process in which they compare each plan's 
results to results for a designated ``preferred plan'' on a number of 
dimensions, including: employee satisfaction, provider access, network 
coverage, and HEDIS (Health Plan Employer Data and Information Set) 
measures. Other companies provide an HMO fact sheet or simplified 
report card, with exceptional plans identified.
    4. On-Going Quality Improvement Activities--Some companies work 
closely with their plans on efforts to identify best practices and 
modify plan practices to meet agreed upon performance targets. Others 
help their plans develop an action plan for correcting problems 
identified in employee satisfaction surveys. One company provides 
incentives for health plans that meet their targets, works on 
improvement plans with the health plans that are mediocre, and 
eliminates poor plans from their group of suppliers.
    5. Prevention and Disease Management Programs--Some companies 
require that plans adopt specific preventive services and disease 
management programs. Others develop preventive and disease management 
programs in conjunction with their plans. Disease management programs 
have been effective in dramatically improving health outcomes and 
reducing medical costs for chronically ill patients with specific 
medical problems.
    6. External Review--Most companies provide for external review by 
qualified outside medical groups in cases where an employee contests a 
coverage decision with regard to significant medical treatment issues. 
The external review addresses medical treatment issues raised by the 
case and is advisory to the plan in making a final coverage decision.
    7. Centers of Excellence and Specialized Providers--Most employers 
have contracts with treatment centers that have specialized in specific 
procedures and have a high volume of cases, evidence of high quality, 
and a willingness to contract for comprehensive treatment of particular 
illnesses. These centers can improve patient outcomes and manage 
overall costs of expensive medical care.
                   ii. claims and appeals procedures
    The Employee Retirement Income Security Act of 1974 (ERISA) 
provides a structure of responsibilities, rights and remedies for the 
employer's sponsorship of employee benefits. The purpose of ERISA is to 
protect benefits that are promised by employers to participants. In the 
enactment of ERISA, Congress acknowledged that the employer's 
sponsorship of health benefits was voluntary and a matter between the 
employer and employee. The role of federal law was not to specify what 
was in that agreement--but to ensure that if there was an agreement, it 
had to be understandable to the parties and enforceable.
    Employers, as voluntary sponsors of health plans, and their 
benefits administrators have the responsibility for designing the 
health plan, determining the benefits that will be provided under the 
plan, and determining that a claim is made for an item or service that 
is covered under the plan. ERISA was intended to provide a ``toolkit'' 
to employees to help them obtain their benefits: information and 
disclosure, fiduciary obligations of the sponsor, rights to benefits, 
and remedies for participants.
A. ERISA Requirements for Claims Processing and Appeals
    ERISA imposes a number of the information and procedural 
requirements on plan sponsors to protect participants. CHCC member 
companies operate their claims processing and appeals procedures to 
meet the needs of their employees for prompt and fair decisions. Their 
procedures easily meet ERISA requirements. Several of the information 
and procedural requirements sought in the Patients' Rights legislation 
are further enhancements of requirements already imposed by ERISA. 
ERISA's statutory and regulatory requirements include:

 Information to participants on their rights and the appeals 
    process--the ERISA statute requires that plan sponsors provide each 
    participant with a summary plan description (SPD). The SPD must be 
    ``written in a manner calculated to be understood by the average 
    plan participant, and shall be sufficiently accurate and 
    comprehensive to reasonably apprise such participants of their 
    rights and obligations under the plan.'' [ERISA Sec. 102(a)(1)]. 
    The plan description and SPD must include ``. . . the procedures to 
    be followed in presenting claims for benefits under the plan and 
    the remedies available under the plan for the redress of claims 
    that are denied in whole or in part.'' [ERISA Sec. 102(b)].
 Fiduciary Duties and Liability--the ERISA statute requires 
    that a plan fiduciary: ``. . . discharge his duties with respect to 
    a plan solely in the interest of plan participants and 
    beneficiaries and--for the exclusive purpose of. . . providing 
    benefits to participants and their beneficiaries.'' [ERISA 
    Sec. 404(a)(1)]. A fiduciary is personally liable for any breach of 
    any duties imposed by ERISA. These duties include fair and 
    consistent administration of the claims and appeals procedures 
    required under ERISA. Courts can override decisions of a plan 
    fiduciary or remove a fiduciary who fails to perform these duties.
 Claims Procedures--the ERISA statute requires that a plan:
  ``(1) provide adequate notice in writing to any participant or 
        beneficiary whose claim for benefits under the plan has been 
        denied, setting forth the specific reasons for such denial, 
        written in a manner calculated to be understood by the 
        participant, and
   ``(2) afford a reasonable opportunity to any participant whose claim 
        for benefits has been denied for a full and fair review by the 
        appropriate named fiduciary of the decision denying the 
        claim.'' [ERISA Sec. 503].
  Department of Labor (DoL) Regulations [29 CFR Sec. 2560.503-1] 
    provide a specific set of requirements for claims determinations 
    and review procedures. The regulations require:

   A plan must have a reasonable claim filing procedure
   If a claim is wholly or partially denied, a notice must be 
        furnished to the claimant with a reasonable period of time, but 
        not more than 90 days after receipt of the claim (unless 
        special circumstances warrant an extension of time for 
        processing the claim).
   The written notice furnished to the claimant must include, 
        in a manner calculated to be understood by the claimant:

     the specific reason for the denial, a reference to 
            pertinent plan provisions,
     a description of additional material needed to perfect the 
            claim, and
     information on the steps to be taken if the participant 
            wishes to submit the claim for review.
   A plan must establish and maintain a procedure by which a 
        claimant or authorized representative has a reasonable 
        opportunity to appeal a denied claim.
   The review procedure must include provisions allowing a 
        claimant to:

     Request a review in writing;
     Review pertinent documents
     Submit issues and comments in writing.
   The period within which the plan can require the participant 
        to file the request cannot be shorter than 60 days after 
        receipt of written notice of the denial.
   A named fiduciary must render a decision promptly, and in no 
        case may respond later than 60 days, unless special 
        circumstance require an extension of the review time).
   Notification of the decision on the review must be in 
        writing and must include the specific reasons for the decision 
        written in a manner to be understood by the average plan 
        participant and include specific references to pertinent plan 
        provisions.
 Judicial Remedies--Once the participant or beneficiary has 
    exhausted the internal appeal process, ERISA statute [Sec. 502] 
    enables the individual to bring a civil action in federal court 
    against the health plan to:

   Recover benefits due under the terms of the plan;
   Enforce rights under the terms of the plan; or
   Clarify rights to future benefits under the terms of the 
        plan.
    The time limits required by DoL for processing claims and appeals 
are outside time limits. With improved information systems and changes 
in claims processing techniques, health plans today typically process 
claims more rapidly than required by the Department. CHCC member 
companies typically require claims processing contractors to meet 
specific timeframes in processing claims and deciding appeals that are 
significantly faster than those specified in the regulations.
B. The Impact of Managed Care on Coverage Decisions
    The emergence of managed care has brought significant changes in 
the nature of claims review and coverage decisionmaking. ERISA was 
enacted when indemnity plans were dominant, and patients typically 
submitted claims to the plan after receiving medical care and paying 
the physician and hospital themselves. Managed care has moved toward 
comprehensive benefits covering medical treatment for the whole 
patient, and has sought to improve care by eliminating inappropriate or 
ineffective treatment that was common in a fee-for-service environment. 
As a result, managed care has placed a greater reliance on determining 
the appropriateness or medical necessity of treatment at the point of 
care. The effort to remove inappropriate and unnecessary care has led 
to an increased the reliance on scientific evidence of effectiveness as 
a factor in coverage determinations.
    By integrating the insurance and service delivery functions, 
managed care moved toward prospective decisionmaking on coverage and 
treatment and away from the retrospective claims adjustment that was 
characteristic of indemnity coverage. The shift to prospective review 
has necessitated a faster decision on coverage issues where treatment 
is urgently needed and prior approval is required for coverage.
    The changes brought by the growth of managed care have raised a 
number of issues with current federal law requirements for claims 
review and appeals. One set of issues relate to the adequacy of current 
regulatory timeframes for review, given the shift to prior approval. 
The second set of issues relates to the need to ensure that medical 
necessity and appropriateness decisions are evidence-based.
    Employers have invested in the effort to improve the accountability 
of providers and plans for the quality of medical care and ensure that 
decision making is based on the best medical evidence available. 
Changes in the process for resolving coverage questions should ensure 
that we continue to move in both coverage and treatment decisions 
toward a reliance on ``evidence-based medicine.''
                  iii. medical necessity determination
    All health plans provide access within limits to medical care. 
Plans have specific exclusions from coverage (e.g. cosmetic surgery) or 
coverage limitations for some services (e.g. one influenza vaccine 
annually for adults over age 65; up to twenty outpatient mental health 
visits per year). Plans will additionally exclude any covered item or 
service that is not medically necessary or appropriate. With the move 
to comprehensive benefits, there is increasing emphasis in coverage 
determinations on the decision about what is medically necessary and 
appropriate care.
    All plans--including Medicare and Medicaid--rely on judgments about 
medically necessary and appropriate care to avoid paying for outdated 
procedures or for untested medical technologies while, at the same 
time, readily incorporating major innovations in health care treatment 
that are shown to work. Decisions on medical necessity are the means by 
which plans eliminate inefficiencies, lower costs, and improve quality 
of care.
    Quality is a central focus of medical necessity decisionmaking. The 
Institute of Medicine National Roundtable on Health Care Quality 
1 recently identified several areas of major quality 
problems in medical treatment in the U.S. where guidelines based on 
medical evidence and applied through medical necessity determinations 
could improve the quality of medical care. Medical necessity 
determinations are also important in the effort to correct some of the 
geographic variation in medical treatment. Medicare relies heavily on 
medical necessity determinations to reduce overutilization, unnecessary 
care, and fraud.
---------------------------------------------------------------------------
    \1\  MR Chassin, RW Galvin, and the National Roundtable on Health 
Care Quality. The Urgent Need to Improve Health Care Quality. Journal 
of the American Medical Association. 280:1000-1005; September 16, 1998.
---------------------------------------------------------------------------
    A number of the Patient Bill of Rights bills include a provision 
that would establish a statutory definition of ``medically necessity or 
appropriateness.'' Generally this provision has two parts: 1) it states 
that a plan: ``may not arbitrarily interfere with or alter the decision 
of the treating physician. . . if the services are medically necessary 
or appropriate for treatment or diagnosis . . .''; and 2) it defines 
define medical necessity or appropriateness as: ``a service or benefit 
which is consistent with generally accepted principles of professional 
medical practice.''
    The intent of this provision is to ensure that: ``. . . an insurer 
[can] set aside the recommendations of a treating physician only in 
restricted circumstances.2'' Advocates of a medical 
necessity standard contend that the standard would: prevent plans from 
denying benefits based on ``arbitrary'' plan guidelines; provide a 
standard for external review decisions; and shift the burden of proof 
in external review or judicial action to the plan.
---------------------------------------------------------------------------
    \2\  S. Rosenbaum, D. Frankford, B. Moore, P. Borzi. ``Who Should 
Determine When Health Care is Medically Necessary,'' New England 
Journal of Medicine. 340:229-232. January 21, 1999.
---------------------------------------------------------------------------
    The statutory definitions of medical necessity offered in these 
bills would seriously jeopardize the efforts of employers and health 
plans to improve health care quality. Health plans would be limited in 
their ability to deny coverage for the recommendation of a treating 
physician as long as that recommendation was consistent with 
``generally accepted principles of professional medical practice,'' 
regardless of guidelines or protocols to the contrary.
    With no arbiter of ``generally accepted principles'', any practice 
a treating physician contended was ``generally accepted'' would be 
medically necessary unless the plan could prove it was not. Where there 
were genuine differences of opinion among specialists about treatment 
(where each alternative could be considered ``generally accepted'') the 
choice of the treating physician would prevail, regardless of the 
medical evidence. The consequences for health care quality could be 
significant:
    A statutory definition of medical necessity would have no real 
value in establishing a standard for external medical review. Any 
external review procedure enacted by Congress would create its own 
standard of review for the independent medical reviewers. By basing the 
decision of the independent reviewer on an assessment of plan 
guidelines, treating physician recommendations, external guidelines and 
protocols, and medical evidence, the conclusion of the medical reviewer 
would become the definition of medically necessary care.
    Even with a statutory definition, the concept of ``generally-
accepted medical practice'' would have to be defined in external review 
by the reviewer. The level of care suggested to the reviewer by a 
standard of general practice would be less advanced than the level of 
care identified through a review of the current medical literature and 
the consensus opinions of leading experts.
    Concerns about who makes medical necessity decisions and about the 
basis for those decisions can be more effectively addressed through an 
independent, external, evidence-based review of the medical decision 
than through a rigid, statutory definition of medical necessity.
                    iv. independent, external review
    Many health plans today will conduct an independent, external 
review of significant medical necessity, appropriateness, or 
experimental treatment decisions. External review, properly designed, 
is a more appropriate way to ensure timely accountability of health 
plans for coverage and medical necessity decisions than state tort 
liability and punitive damages. External review ensures that medical 
necessity decisions will be evaluated by medical experts on the basis 
of the best medical evidence. It is consistent with the employers' 
interest in paying for what works and not paying for what doesn't work 
in that it confirms plan decisions upheld by medical evidence and 
overturns those that are not.
    External review, however, should be limited to medical treatment 
issues. It should not become a means to rewrite or expand a health 
plan's terms and conditions of coverage or bypass its provider 
networks. Plan administrators under ERISA are charged with the 
responsibility for consistent interpretation and application of the 
plan document. External interpretation of the terms of the plan could 
relieve the fiduciary of this obligation, and expose participants to 
wide variation in the application of plan benefits. Questions of 
eligibility for benefits, limitations on benefits, exclusions of 
specific items or services from coverage, in- or out-of-network use of 
providers, and other issues that do not involve medical judgement 
should not be subject to external review.

--External review should be a medical, evidence-based review that 
        resolves tough medical necessity questions. It should not be 
        used as a way to challenge a plan's explicit limitation in 
        coverage or exclusion of a treatment.
--External review should be limited to treatment issues where there is 
        substantial cost for the treatment or substantial risk to the 
        participant's health. It should not be available to review 
        denials of payment for small amounts where the cost of 
        reviewing the denial exceeds the amount in dispute. Without a 
        limitation to significant issues, external review merely 
        becomes a weapon to force plans to pay for small claims for 
        inappropriate treatment. If external review becomes impractical 
        or expensive, it will force plans to explicitly limit coverage 
        to avoid these issues.
--External review should uphold the plan's decision on medical 
        necessity unless the reviewer determines on the basis of the 
        medical evidence that the denied item or service would be of 
        substantially greater benefit to the patient. In arriving at 
        this judgment, the reviewer should take into account the full 
        array of scientific evidence and practice experience that can 
        be instructive.
--External review should be a uniform process available on a consistent 
        basis nationwide. Any federal rules should clearly preempt 
        state procedures to avoid confusion by participants, 
        duplication of procedures, or conflict of jurisdictions.
--An independent, external review that is evidence-based should fully 
        resolve the coverage and treatment questions. Access to 
        judicial review (other than through existing ERISA remedies) 
        would throw these evidence-based judgments before untrained 
        parties in an adversarial environment and undercut the 
        objectivity achieved through the external review process. If 
        the best-informed judgment available is to be made by a 
        qualified external panel, there should be no value in second-
        guessing this medical judgment in state courts before juries.
    Employers have had a largely positive experience with voluntary 
external review to date. The responsibility for sending a case to 
review usually rests with the contracting health plan or insurer, 
although employers may request reviews of decisions made by a plan or 
insurer. Cases requiring external review are often sent to academic 
medical institutions or Centers of Excellence that specialize in 
treating the patients' condition. The cases frequently involve choices 
among alternative treatments where practice standards or best practices 
are not clear and where an opportunity for independent medical review 
by a well-qualified medical expert can be of value to health plans and 
enrollees alike. Medical reviews focus on the questions of efficacy and 
cost-effectiveness of the treatment, general acceptance of the 
treatment in the medical community, and suitability of the particular 
patient for the treatment. The results of reviews tend to be fairly 
even handed, overturning plan decisions about as frequently as they 
uphold them.
    State external review programs that apply to state regulated plans 
have begun to emerge in the last few years. Until recently, only 
Michigan and Florida had established external review programs. At the 
beginning of this year, however, 17 states had external review 
requirements on the books, with many of them just beginning to 
implement the first reviews. The results of state external reviews 
appear to mirror the employers' anecdotal experience--depending on the 
state, between 40 and 60 percent of reviews are decided in favor of the 
consumer.
    While external review programs vary substantially from state to 
state, the general experience of the states suggests that external 
review is a quick and fair way to resolve significant medical treatment 
questions in involved in plan coverage decisions. These reviews work 
because, in most cases--including Medicare and private group plans--the 
decisions of the reviewers cannot be challenged in state court and 
undercut by a jury.
            v. health plan liability for coverage decisions
    Currently under ERISA, participant suits on benefit issues are 
tried in federal court and damages are not available. Similarly, 
Medicare and Medicaid beneficiaries, federal employees, and military 
personnel have remedies available under federal law, with access in 
certain circumstances to federal courts once internal appeals are 
exhausted. Participants cannot bring an action for benefits in state 
courts under state tort laws for denial of plan benefits.
    Several Patient's Rights bills would waive ERISA preemption of 
state causes of action to permit participants in employer-provided 
health plans to sue the plan in state court for harm allegedly caused 
by an adverse benefit denial. The effect of these provisions would be 
to permit lawsuits for coverage decisions to go forward in state court, 
with access to jury trials and punitive damages. Some of these bills 
would also attempt to protect the plan sponsor (the employer) from 
liability for decisions made by the health plan.
    The coverage decisions at issue are the most difficult decisions to 
make in health care. They relate to treatments that may have a very 
small chance of success for a critically ill patient with little hope 
of survival, at a very substantial cost to the plan. They relate to 
treatments where experts disagree and there is no consensus on a 
widely-accepted standard of care. They relate to emerging untested 
treatments where there is no evidence of success and questionable value 
for a patient.
    Adding substantially to the liability for claims decisions and 
enabling patients to bring these questions before juries with large 
punitive damage awards is the wrong way to resolve these difficult 
questions. It is often after-the-fact--of little value to the patient. 
It is punishing the plan for what medical science cannot do.
    Tort liability for health plan coverage decisions would enable 
physicians who resist plan guidelines and accountability to encourage 
retaliatory lawsuits for adverse coverage decisions. It would encourage 
physicians with a financial stake in untested new treatments to 
encourage suits to discourage plan denials of coverage. Indeed, any 
effort of a health plan to bring a more systematic and disciplined 
approach to medical decision making could conceivably be challenged.

* Patients could sue a health plan if they believe that a better 
        outcome would have resulted from a different treatment, 
        regardless of whether the treatment they received was the most 
        effective known therapy for their condition.
* Patients could sue over the use of protocols or guidelines, no matter 
        how well designed they were, if treating physicians could be 
        found to disagree with them.
* Patients could sue to punish plans that followed the right process in 
        making medically-based decisions, if the provider or patient 
        disagree with the decision.
    Creating new avenues for litigation would not begin to solve the 
immediate problem for the patient--the need to get the best treatment 
when it can still do some good. Litigation would only offer the patient 
or their survivors hope after-the-fact.
    Creating health plan liability for coverage decisions in state 
court will set changes in motion that will have the reverse effect of 
what the advocates of liability seek:

--It will reduce health plan accountability by reducing or eliminating 
        the quality assurance and plan selection activities of 
        employers;
--It will encourage plans to approve all treatments, and create a 
        disincentive for quality improvement and evidence-based 
        decision making by health plans.
--It would discourage plan sponsorship by employers and lead to a 
        reduction in the availability and quality of health benefits to 
        employees.
    Before the Congress sets forces in motion that will erode health 
care coverage further, we urge you to carefully weigh the consequences 
of creating liability for benefit decisions.
    1. Employers who sponsor health plans cannot be protected from 
health plan liability if ERISA preemption is waived--Many of the bills 
pending in Congress and the Texas and Georgia laws include language 
intended to protect the employer from liability. In some cases this is 
intended to be a blanket protection, in others it would be limited to 
employers who exercise no discretion regarding plan benefits. I believe 
no effort to protect plan sponsors from liability would work. Employers 
could protect themselves from liability in only one of two ways:

--Terminate the health plan and no longer sponsor a plan; or
--Amend the plan to cover only specifically stated items and services, 
        so that failure to provide a service that was not explicitly 
        covered would not be actionable in the courts.
    There are several reasons why plan sponsors cannot be protected 
from health plan liability 3:
---------------------------------------------------------------------------
    \3\  Memorandum on ``employer's exposure to lawsuits for negligent 
claims reviews,'' prepared by Rosina Barker, Esq., Ivins, Phillips and 
Barker, February 26, 1999.

--These bills would waive ERISA and federal common law that have 
        defined the duties of employers and plan administrators, 
        leaving it to the States to define these duties. State laws 
        would create a liability for the employers' failure to exercise 
        the duties they define. Employers would be protected only for 
        those activities the bill explicitly prohibits States from 
        including as a duty.
--These bills would specifically permit States to create liability for 
        employers who ``exercised discretion.'' Many employers review 
        the decisions of their third party administrators, and would be 
        liable for this reason alone. Indeed, under federal law, any 
        involvement of an employer's in-house benefits personnel in the 
        actions of a third party administrator--even unauthorized--
        would subject the employer to liability for the acts of its 
        employee. [Cf. Crocco v. Xerox Corp., 956 F.Supp. 129 (D. Conn. 
        1997)].
--Even employers who do not exercise discretion are today sued (under 
        ERISA) for actions of health plans or third-party 
        administrators on the basis that they ``negligently selected'' 
        or ``negligently retained'' plan administrators.
    2. Health plan liability will lead to a reduction in the 
accountability of health plans to employers. Ironically, the logical 
response of employers who continue to sponsor plans will be to put the 
managed care organizations at greater arms length and reduce their own 
potential liability by:

--Ceasing activities to monitor or overturn the benefit denials of the 
        health plans;
--Reducing their quality oversight and selection activities--providing 
        a wider array of health plans for employees, with less effort 
        to evaluate plans or guide employee selection toward higher 
        quality plans;
--Reducing the comparative plan information they provide to employees 
        that might be interpreted as guiding or influencing employee 
        choice.
    3. Health plan liability will significantly raise health plan costs 
for employers. The increase in costs will come in two ways:

--Large punitive damage awards--recent judgments against state employee 
        plans have revealed a potential for substantial punitive damage 
        awards in benefit denial cases: including a recent California 
        court judgment of $116 million in an Aetna case involving a 
        bone marrow transplant 4; a $13 million Kentucky 
        court award in a Humana case involving a hysterectomy 
        5.
---------------------------------------------------------------------------
    \4\  Goodrich v. Aetna/USHEalthcare--January 20, 1999.
    \5\  Johnson v. Humana Health Plans, Ky. Cir. Ct., No. 96-CI-00462, 
10/20/98.
---------------------------------------------------------------------------
--Defensive utilization review--an increase in the approval of 
        unnecessary, inappropriate and expensive procedures to avoid 
        liability.
    Advocates of liability have championed the 1997 Texas liability law 
as an example of how liability can be passed with little effect on 
costs. Quite the opposite is true. Cases only now begun to appear in 
Texas, having waited until last October for a district court to uphold 
the law. Since then, two cases have cleared the federal appeals court 
and have been remanded to state courts for trial.
    Even without litigation, the law has had an effect on plan behavior 
and premiums. A physician group health plan in Texas that announced a 
15 percent premium increase for employers in 1999 determined that half 
of the increase was attributable to a rise in the utilization of 
services driven by the new liability law 6. The plan found 
that their Medical Directors were unwilling to review or deny a request 
for benefits for fear of delaying the process or triggering a lawsuit. 
The plan also eliminated requirements for prior approval and provided 
automatic coverage for some costly diagnostic procedures to avoid 
delay--a factor in the Texas law that creates considerable risk of 
liability for the plans. The plan considered that the cost of defending 
itself--even against unfounded cases--would average $100,000 a case 
7.
---------------------------------------------------------------------------
    \6\  Internal memorandum, Scott & White Health Plan, Temple Texas, 
December 23, 1998.
    \7\  Letter from Jim Rohack, MD, Scott & White Health Plan to the 
Honorable Dale VanVyven, Chair, Ohio House Health, Retirement & Aging 
Committee. March 3, 1999.
---------------------------------------------------------------------------
    4. Health plan liability will send the wrong signals to health 
plans: State juries have already shown their tendency to override plan 
decisions on medical necessity that are consistent with consensus 
guidelines or have been upheld in external review. Often the only 
questions jury considers are whether the plan denied the benefit and 
whether the denial could have caused harm. Evidence that the denial was 
consistent with best medical practice is often not considered.

--In the Humana case, a patient with pre-cancerous cells on her cervix 
        was approved for conization and denied a hysterectomy by 
        Humana. The patient had the hysterectomy anyway and sued 
        Humana. Even though tissue samples introduced in court clearly 
        indicated the hysterectomy was inappropriate, the court awarded 
        $13 million in punitive damages, not on the basis of this case, 
        but to represent all hysterectomies denied by Humana in 
        Kentucky over 3 years.
--In the Aetna case, the patient was denied an autologous bone marrow 
        transplant for a rare stomach cancer by Aetna. Aetna had 
        referred the patient to an out-of-network cancer expert who 
        determined the cancer had spread too much. Aetna had this 
        decision reviewed by two outside experts who concurred. The 
        patient, who had the procedure performed under his wife's 
        health plan, died despite the treatment. The jury addressed 
        only the question of whether the plan denied the treatment and 
        whether the denial could have caused harm. Without reviewing 
        the findings of the outside experts or addressing the question 
        of the medical appropriateness of the plan decision, the jury 
        awarded $116 million in punitive damages.
    If the response we want from plans is to improve the quality of 
their coverage decisionmaking, how do plans get that message from these 
jury awards? In both cases, the message to the plan was ``cover 
everything, and deny nothing.'' Indeed, these juries made it clear to 
plans that coverage decisions supported by sound medical judgment 
backed by medical evidence and the consensus of external reviewers can 
not protect the plan from liability.
    If the Congress truly wants plans to make coverage decisions that 
are right for the patient, it should enact an effective external review 
requirement. It should only provide health plan liability for these 
decisions, if it intends to discourage plans from relying on consensus 
panel recommendations, national guidelines, and medical evidence in 
making coverage decisions.
    As the 1st Circuit Court stated in its decision in the case of 
Turner v. Fallon:
        ``. . . the real problem confronting the Turners was not one of 
        judicial remedies but a larger and more intractable one. It is 
        a society-wide problem of when and how to provide last-chance 
        health care for a courageous patient faced with a mortal 
        disease who may have a small chance at survival if provided an 
        expensive cutting edge treatment that she cannot afford out of 
        her own resources. This is not the kind of problem to which the 
        courts can supply the solution. 8''
---------------------------------------------------------------------------
    \8\  Turner v. Fallon Community Health Plan (127 F.3d 196 (1st cir. 
1997).

    Mr. Coburn. Again, thank you for sticking with us.
    Ms. Rosenbaum.

                   STATEMENT OF SARA ROSENBAUM

    Ms. Rosenbaum. Thank you very much. I am going to be very 
brief, since you have heard a great deal this afternoon, and 
this is such a knowledgeable panel that you hardly need a lot 
more testimony.
    I would like to spend my time on what I consider to be the 
key elements of the external appeals process. There are a lot 
of elements that are fundamentally important in your external 
appeals process. The first one is that it should follow the 
most rapid possible internal process. You shouldn't spend a lot 
of time on the issue on the conduct of the internal process 
itself, other than to make sure that the timelines are proper 
to the needs; that someone who did not have an interest in the 
case does the internal review; that there is a written 
decision, and the individual has notice of further appeals 
rights.
    Second is the external process should follow an internal 
process unless the internal process fails to follow the rules. 
In which case, you should be able to jump over the internal 
process. Third, the external reviewer has to be somebody with 
absolutely no ties to the insurer or the health plan, who is 
selected through either an independent selection process, or 
through a State insurance department, depending on how you 
structure your law. Fourth, the external reviewer should 
possess relevant expertise in the field.
    Fifth--and this is where I think the recommendation begins 
to substantially depart from the bills that I have seen to 
date--the external reviewer should have the power to review any 
decision that involves medical judgment. The process should not 
be limited to medical necessity decisions, or experimental 
decisions. In fact, it should involve a review of any decision 
involving medical judgment.
    For example, if a decision is made to deny coverage, to 
exclude treatment because it is cosmetic, that is a medical 
judgment. It is a medical call as to whether the surgery that 
is needed is cosmetic or medical in nature. So the scope of the 
review should be any decision involving medical judgment. Only 
the external review should decide if that threshold scope was 
met. This should not be a decision by the plan. This should not 
be a decision by anybody retained by the plan.
    Sixth, the external review process, obviously, should be 
calibrated to meet the exigencies of the cases. The job of the 
external reviewer to decide de novo whether in light of 
relevant and reliable evidence--those are two different issues: 
relevance and reliability--the insurer's decision was medically 
reasonable. If you put that in a statute and then list the 
evidence that is both relevant and reliable, you have the kind 
of procedure that essentially is what this whole legislative 
enterprises all about, because what it assures is that the 
external reviewer will be looking at the reasonableness of 
medical treatment judgments.
    I do absolutely agree that what is going on here is medical 
treatment decisionmaking. That reviewer will do so in an 
impartial fashion, using relevant and reliable evidence. By 
``relevant and reliable,'' what I mean is evidence that has 
something to do with the case. If the issue on appeal is heart 
surgery, studies of heart surgery are not relevant to a case if 
the individual who needs the surgery also has diabetes. That is 
a co-morbidity. Any evidence that looks only at the issue of 
heart surgery is simply not relevant to the case.
    Reliable evidence is evidence that is valid and scientific. 
It can be peer reviews. It can be impartial treatment 
guidelines. It can even be the opinion of the treating 
clinician, as a piece of evidence that comes in. It can be the 
plan's own guidelines to the extent that the guidelines were 
developed in a peer-controlled fashion.
    The reviewer should be able to inspect any and all 
evidence; should have the full medical record before him or 
her, not only those pieces selected by the plan. The reviewer's 
decision should be based on the evidence. It should be in 
writing. It should be binding on the plan. Thank you, very 
much.
    [The prepared statement of Sara Rosenbaum follows:]
 Prepared Statement of Sara Rosenbaum, Harold and Jane Hirsh Professor 
  of Health Law and Policy, The George Washington University Medical 
          Center, School of Public Health and Health Services
    Mr. Chairman and Members of the Sub-Committee: Thank you for 
inviting me to appear before this Sub-Committee today.
    In my capacity as a professor of health law at the George 
Washington University, as well as in my earlier life as an attorney 
representing individuals who were adversely affected by insurers' 
treatment decisions, I have spent a good deal of time thinking about 
the minimum elements of a fair process of review for persons who are 
faced with an adverse treatment and coverage decision. I am the co-
author of a health law textbook that extensively addresses this 
matter.1 Understanding the importance of the debate now 
taking place in Congress, in January, 1999, I also published an article 
on the topic of medical necessity and review of insurer coverage and 
treatment decisions in the New England Journal of Medicine.2 
I am grateful for this opportunity to testify before your Sub-Committee 
on this matter.
---------------------------------------------------------------------------
    \1\ Rand Rosenblatt, Sylvia Law and Sara Rosenbaum, Law and the 
American Health Care System (Foundation Press, Old Westbury NY, 1997; 
1999-2000 supplement).
    \2\ Sara Rosenbaum, David Frankford, Brad Moore and Phyllis Borzi, 
``Who Should Determine When Health Care is Medically Necessary?'' 340 
New England Journal of Medicine 3 (January 21, 1999) pp. 229-233.
---------------------------------------------------------------------------
    Before reaching the central question for this hearing, I believe 
that it would be useful to provide you with a bit of background on two 
matters: the respective state and federal roles in the design of the 
external review system for insurer coverage and treatment decisions in 
both employer and non-employer settings; and the issue of medical 
necessity.
    Review of insurer coverage and treatment decisions: historic state 
powers and the impact of ERISA: As part of their power under the 
McCarren Ferguson Act to regulate the business of insurance, states 
have the power to establish external review mechanisms to ensure 
impartial examination of the correctness of an insurer's coverage and 
treatment decisions. In a pre-managed care era, coverage and treatment 
were not one and the same. People tended to get health care first and 
then fight with their insurers over payment after the fact. No one 
really perceived the need for a rapid, concurrent review process for 
insurer denials, since the care had been furnished, and the fight over 
payment, while terribly important, was not a life or death matter. It 
also should be pointed out that until relatively recently--within the 
last 25 years or so--insurers did not seriously challenge physicians' 
health care decisions. This lack of insurer challenges to physicians' 
medical judgements also dimmed any interest in an external review 
process.
    Two events then occurred simultaneously: a more active involvement 
by insurers in coverage decisions through the development of 
prospective review mechanisms; and the enactment of ERISA, which 
preempted state laws related to employee benefit plans other than laws 
that regulate insurance. The ERISA preemption clause rendered 
inapplicable to self-insured employer plans the body of state insurance 
law.3 Moreover, many of the most important state laws that 
address insurer practices in fact are not ``laws that regulate 
insurance.'' They may be laws of general applicability that are not 
confined to the insurance industry and that do not involve either the 
spreading of risk or the relationship between the insurer and the 
insured. Instead, they are consumer protection laws, administrative 
procedure laws, contract laws, and tort laws. Thus, despite some recent 
signs of judicial willingness to rethink ERISA preemption, the doctrine 
still has a powerful impact on the ability of states to reach the 
conduct of health plans offered by employers covered under ERISA (i.e., 
most of the American work force).
---------------------------------------------------------------------------
    \3\ Metropolitan Life v Massachusetts, 421 U.S. 724 (1985).
---------------------------------------------------------------------------
    With respect to those insurance products that are governed by state 
law, most states today do not offer their citizens a rapid external 
review system for treatment denials like the one available to Medicare 
beneficiaries. About a dozen states have put external review systems 
into place (Texas' system was held to be inapplicable to ERISA plans in 
1998).4 Furthermore, state laws are uneven in their scope 
and impact. In some cases, the decisions of external reviewers are 
binding on insurers; in others they are not. The systems vary 
significantly in their structure and operations. The Texas decision is 
of course a clear signal that these systems, even where effective and 
binding, may be struck down if challenged by an ERISA plan. Thus, the 
question of fair process rests with Congress.
---------------------------------------------------------------------------
    \4\ Corporate Health Insurance Inc. v Texas Department of Insurance 
12 F. Supp. 2d. 597 (S.D. Tx., 1998).
---------------------------------------------------------------------------
    ERISA today provides no rapid, prospective external review process 
for plan beneficiaries adversely affected by insurer treatment 
decisions. ERISA plans must provide an internal review, but under 
existing Department of Labor rules, these internal reviews are lengthy 
processes; more importantly, perhaps, in their very definition and 
nature, a review conducted by an employer plan of its own treatment 
decisions (or the decisions of its agents) cannot a disinterested and 
objective one, even when well done. ERISA permits claimants to pursue 
any claim for benefits in court, usually following exhaustion of their 
internal review rights. Except in the rare instance when a court steps 
in and grants injunctive relief, the judicial review process can take a 
very long time. Moreover, because of the limits on recovery that apply 
to ERISA claims, it may be very difficult for families--particularly 
those with modest means--to secure legal representation, a ``must'' 
when pursuing a claim against an employer in federal court.
    Because the advent of managed care with its prospective treatment 
decision-making element has effectively blurred the line between 
coverage and care, access to a rapid and impartial review process has 
become a matter of extraordinary importance for American families. No 
issue is more central to the federal managed care quality debate than 
rapid access to a fair, objective and external review system that can 
measure the quality of health plans' treatment decisions in an unbiased 
manner. Because of ERISA preemption, this is an area in which states 
cannot act and Congress must.
    Medical necessity: In many instances, an external reviewer 
(typically a court) is called upon to decide whether an insurer (or 
other entity acting on the insurer's behalf, such as an individual 
physician or a medical group) was correct in its decision regarding the 
medical necessity of care. However, the external review process plays a 
pivotal role in any situation in which the reasonableness of a medical 
judgement is the issue to be decided. ERISA court decisions reach all 
cases of medical judgement, not only those classified by insurers as 
medical necessity cases. A medical necessity decision is in essence a 
decision regarding whether a particular covered service is necessary in 
an individual's case. In fact, medical judgement is also at play in 
many decisions that involve questions of whether a particular benefit 
or procedure is covered at all. A good example of this is 
reconstructive surgery following a mastectomy. Until Congress acted to 
correct the widespread practice of treatment denials in these cases, 
requests for this procedure were routinely denied, not because they 
were not medically necessary, but because in insurers' view, the 
benefit was cosmetic and therefore excluded altogether from the 
coverage as an excluded benefit. In fact, in both reconstructive breast 
surgery following mastectomy, as well as other situations (e.g., dental 
surgery for a child with a cleft palate or other type of congenital 
anomaly) treatment may or may not be covered at all depending on how 
they its is viewed medically.
    The concept of medical necessity is protean. As our vision of 
medicine changes, so does the body of medical evidence regarding what 
is necessary and what is not. Two hundred years ago, bleeding was 
considered medically necessary. Today, mercifully, it is not. As a 
result, impartial external reviewers--typically courts--devised a 
framework for making decisions regarding what was medically appropriate 
care. In the old days, this issue would arise typically in the context 
of a tort case involving a claim of negligence. Today it can arise in 
both a tort case and a benefit review case, where the issue is the 
same, but the remedy (i.e., the care itself rather than damages for 
negligent care) is the issue that is presented.
    The judicial concept of medical necessity thus is a framework 
concept rather than a substantive definition. By framework concept, I 
mean a way of thinking about and framing the facts of a particular 
case, rather than a substantive rule of thumb for second guessing the 
content of medical care.
    Beginning in the 18th century courts, in approaching medical 
quality cases, devised a theory known as the ``professional standard of 
care.'' Under this theory, a court would examine the facts and 
circumstances in a particular case in order to determine whether the 
physician's actions were reasonable in light of relevant and reliable 
evidence. Because medical decisions were made by professionals, courts 
concluded that they could not be compared to those of the ``reasonable 
man,'' the standard frame of reference in a tort case. Instead, courts 
compared the physician's judgement to the standard followed by other 
physicians in the ``community'' in which the physician practice. In the 
beginning, the concept of ``community'' was the locale in which the 
conduct occurred. As medical care advanced, the ``community'' against 
which the physician's conduct was compared ceased to be the physicians 
in the practitioner's locality and became the national community of 
similarly situated physicians.
    Thus, the ``professional standard'' is a legal concept that has its 
roots in the English common law.5 The professional standard 
is not a static concept, but instead is a way of thinking about 
providers' conduct toward individual patients in light of the current 
state of knowledge of medical care within the profession. Indeed, the 
``professional standard'' is embodied in many insurance contracts 
today, as reflected in Lee v Blue Cross/Blue Shield of Alabama; 
6 in Lee, the insurance contract defined medically necessary 
care as treatment and services that ``are appropriate and necessary for 
treatment of the insured's condition . . . in accordance with standards 
of good medical practice.'' For these reasons, incorporating the 
professional standard into an external review process would consistent 
with existing practice within much of the industry today.
---------------------------------------------------------------------------
    \5\ Slater v Baker and Stapleton 95 Eng. Rep. 860 (King's Bench, 
1767).
    \6\ 10 F. 3rd 547 (11th Cir., 1994).
---------------------------------------------------------------------------
    As I have noted, in its earliest form, the professional standard 
considered the quality of a physician's care in the context of the 
locality in which he practiced.7 As medical care advanced, 
however, the so-called locality rule has for the most part disappeared. 
Today, while access to resources remains a consideration for courts in 
determining a health provider's liability in a health care quality 
case,8 the professional standard turns on evidence of the 
best practice within the profession as a whole nationally.9
---------------------------------------------------------------------------
    \7\ Small v Howard 128 Mass. 131 (1880).
    \8\ Shilkret v Annapolis Emergency Hospital, 349 A. 2d 245 (Md., 
1975).
    \9\ 
---------------------------------------------------------------------------
    As knowledge of quality grows, so do our expectations of hospitals, 
physicians and managed care organizations. An objective professional 
standard thus remains the proper means of measuring quality at the 
point at which an internal or external examination of a particular 
patient's case is at issue. In these situations, the issue under 
consideration is not whether the practice is good quality as a general 
matter (which is the task of internal quality reviewers), but whether 
the care that has been prescribed or allowed is appropriate for an 
individual patient. This focus certainly does not mean that all 
individuals get what they want, or even what they get what their 
personal physicians recommend for them.
    There are actually very few reported decisions that involve 
challenges to medical decisions made by insurers and health plans in a 
non-tort context. This is because for most Americans, the standard 
clinical response followed by insurers and their medical decision-
makers is the right response; otherwise medicine would be nearly 
impossible to practice. But the purpose of an insurance coverage 
review--and the reason probably why there are so few of them--is to 
consider the needs of those patients whose conditions may not fit 
neatly into a particular approach used by the insurer in certain types 
of cases. An external review process that relies on the professional 
standard for its decision framework is the means for preventing the 
problem of one-size-fits-all treatment decisions that can flow from the 
increased use of practice guidelines and that work most, but not all of 
the time.
    An external review guided by the professional standard considers 
not only what the health care industry says is good overall technical 
clinical practice, but also whether, in the context of a patient's 
case, the practice is appropriate. This objective focus on individual 
patients rather than general norms is what distinguishes coverage 
decision-making from general quality improvement activities and it is 
this focus on the individual that is a key element of the professional 
standard.
    A question that has been asked regarding the use of the 
professional standard is whether the standard holds back quality rather 
than advance it. I find this question quite puzzling, since the 
evidence of the past two centuries points to the opposite result. Had 
the professional standard had a retardant rather than advancing effect 
on health care quality, the extraordinary advances in medicine that 
have taken place over the past two centuries might never have occurred.
    Indeed, from being static, the professional standard is dynamic: as 
knowledge and practice evolve, so does the concept of what is 
professionally acceptable. Rather than holding back progress, the 
professional standard is in fact one of the tools that has moved it 
forward. The professional standard is exactly the opposite of a rubber 
stamp for industry preferences. In fact, courts have found health care 
providers liable for poor quality care, even when they adhere to the 
standards of their own professional industry.10 In doing so, 
courts have applied a fundamental common law principle that the 
standard of care should be governed by the best evidence of 
professional practice, not by an industry's self-serving practices at 
any particular moment in time.11
---------------------------------------------------------------------------
    \10\ Washington v Washington Hospital Medical Center 579 A. 2d 177 
(D.C. App., 1990), Helling v Carey 519 P. 2d 981 (Washington, 1974)
    \11\ The T.J. Hooper, 60 F. 2d 737 (2d Cir., 1932).
---------------------------------------------------------------------------
    Even today, the use of the professional standard is common 
throughout the managed care industry in its own insurance contracts. 
Most health plan contracts in use today specify that, in determining 
whether care that is enumerated in a plan will be furnished in a 
specific case, the insurer will rely on ``accepted standards of 
professional medical practice.'' We know this, because in cases 
challenging the denial of care by insurers, courts begin their review 
by setting out the terms of the contract. The exact words used to 
describe the professional standard may vary, but the concept remains 
the same.
    The issue of medical necessity and coverage decision-making is 
shrouded in secrecy and typically comes to light only when a court 
publishes a decision that quotes from a contract and lays out evidence. 
For example, in Bedrick v Traveler's Insurance Company,12 
the company had grafted a whole new meaning of medical necessity that 
was not part of its original agreement onto its contract, and also 
lacked virtually any evidence on which to base its treatment denial. 
This fact was not known until a family with a very disabled baby 
appealed the company's decision to stop all therapy on the unwritten 
ground that where no recovery was possible, a child such as Ethan 
Bedrick, who had cerebral palsy and therefore could not recover from 
his condition, did not need treatment.
---------------------------------------------------------------------------
    \12\ Bedrick v Traveler's Insurance Co. 93 F. 3d 149 (4th Cir., 
1996).
---------------------------------------------------------------------------
    In considering whether a health care provider's treatment decisions 
are consistent with the professional standard, courts consider an array 
of evidence: the patient's medical record; evidence pertaining to the 
particular individual that is presented by the treating clinician; the 
results of rigorous and impartial peer review procedures; and findings 
from valid and reliable studies and reports relating to the treatment 
at issue. Practice guidelines, if grounded in scientific, valid 
evidence and developed by experts in the field, would be relevant to 
any consideration of what constitutes the professional standard. On the 
other hand, self--serving company ``practice guidelines'' that are 
developed without expertise and that are not calibrated to account for 
the variable situations that distinguish one medical case from another, 
would not be considered valid and reliable evidence of the professional 
standard.
    There are some who say that an objective professional standard has 
no place in the legal framework that governs contractual employee 
health benefits, because in a market-driven health system, the parties 
must be free to agree to care of any standard. This of course assumes 
that a party to the contract--in this case the purchaser of the plan--
would ever be in a position to understand that it is agreeing to 
substandard care. Yet many of the most basic concepts health coverage 
are obscure, and the convoluted language of insurance contracts 
generally is known only to highly skilled insurance lawyers. Moreover, 
even if purchasers' knowledge were to increase, many buyers, 
particularly small businesses, lack the market clout that would be 
needed to force insurers to alter their definitions or even disclose 
material facts relating to their standards during contract 
negotiations.
               key elements of an external review process
    In fashioning an external review system that is objective and fair, 
Congress needs to address a range of matters.
1. What is appealable
    Just as the courts are open to all ERISA plan and insurer claims 
involving benefits, the external review process should be available in 
the case of any treatment and coverage decision in which medical 
judgement was involved in reaching the decision. This certainly 
includes medical necessity cases. It also extends the process to any 
coverage decision in which the reviewer needed to use medical judgement 
in evaluating the claim. A claim for 20 mental health visits where only 
10 are covered does not involve medical judgement. The service clearly 
is excluded, and any person can make this decision. But where, for 
example, the decision is to deny coverage on cosmetic grounds, someone 
with medical expertise must compare the individual facts to the 
standard of care in order to decide that the care sought is indeed 
cosmetic and not covered medical care.
2. Whose decision is appealable
    We think of appealable decisions as decisions made by the medical 
director of an insurance company or a health plan. But increasingly, 
health plans and insurers delegate decisions involving coverage and 
care to the medical groups with whom they subcontract. Thus, any 
decision made by an individual working on behalf of the insurer or the 
plan or an agent or contractor to the plan should be appealable.
3. Application to various forms of coverage
    As I noted, in some states there are external appeals rights. In 
most, however, there are not. It would indeed be ironic if employees 
covered by self-insured plans had appeals rights that were not extended 
to persons employed by a firm that purchased insurance or individuals 
who buy insurance products individually.
4. The external review process
    The external review process should consist of the following 
elements:

 It should follow a rapid internal review process that is 
        calibrated to meet the exigencies of the case, that results in 
        a written decision, and that is carried out by an individual 
        other than the person who made the initial decision.
 It should be available to persons who have exhausted their 
        internal appeals procedures or in cases in which the insurer 
        has failed to act in a timely fashion.
 It should be conducted by an external reviewer who has no ties 
        to the insurer or health plan and who is either selected by a 
        state insurance department or in accordance with a federal 
        process that ensures non-biased assignment of cases.
 An external reviewer should possess expertise in the relevant 
        field covering the matter on appeal (i.e., a reviewer with 
        expertise in mental health in a mental health case).
 The external reviewer should be the entity that decides 
        whether the claim is one that involves medical judgement and 
        thus is reviewable. This decision, which is akin to a 
        jurisdictional decision by a court, should be the initial step 
        in any external appeal and should not be decided by the insurer 
        or the plan.
 The external review process should be calibrated timewise to 
        the matter before the reviewer, so that a rapid time frame 
        (e.g., 72 hours) is used for matters in which the medical 
        record and claim indicate a need for an expedited review. This 
        decision should be made by the external reviewer and should be 
        based on the patient's record and the care that is sought.
 The reviewer's job should be to determine on a de novo basis 
        whether, in light of relevant and reliable evidence, the 
        insurer's decision (or that of the insurer's sub-contractor or 
        agent) was medically reasonable. This is the essence of the 
        framework that is embodied in the professional standard 
        concept. By relevant and reliable evidence, I mean the 
        patient's medical record, the opinion of the treating 
        clinician, the results of peer reviews, the results of valid 
        and scientific studies that have been published in the medical 
        literature, and practice guidelines developed by impartial 
        bodies.
 The reviewer should be able to inspect any and all relevant 
        evidence, and the plan and the plan's agents and subcontractors 
        should be obligated to provide the reviewer with any evidence 
        deemed necessary.
 The reviewer's decision should be based on the evidence, 
        should be in writing, and should be binding on the plan and 
        insurer.

    Mr. Coburn. Thank you.
    Dr. Dunne.

                  STATEMENT OF PHILIP K. DUNNE

    Mr. Dunne. Thank you, Mr. Chairman, for the opportunity to 
share a few ideas with you and your colleagues on the subject 
of external review.
    I am Phil Dunne, CEO of the Texas Medical Foundation, and 
Vice President of the National Quality Health Council. The 
Texas Medical Foundation is the organization in Texas that, for 
the first 14 months, was the sole external review certified 
entity. For the last 4 months we have shared that 
responsibility with another organization. So we are the group 
that Ms. Barron was referring to that has been doing the work 
in Texas.
    I know our time is brief. I submitted my full statement for 
the record and the committee's review. Let me highlight a few 
thoughts that I hope will be of value, and perhaps stimulate a 
constructive dialog on the practical elements of truly 
independent external review. There is a difference between 
independent and external.
    No. 1, external review works. It works if it is truly 
independent, and conducted by properly matched, licensed, 
practicing physicians or allied health professionals. It works 
when you have ready access to all the relevant data in a timely 
manner. It works when it is binding on plans and conducted in a 
medical, fact-based manner.
    In Texas we have reviewed nearly 450 cases. The split of 
upholding the plan's and payor's decisions versus reversing 
their adverse determination is approximately 50-50. In many of 
the cases which we reversed, we have learned from plan 
reviewers they would have concurred with our findings had they 
had complete data in a timely way. A more thorough review of 
these results is in my complete statement.
    No. 2, when properly conducted, binding, unbiased, medical, 
fact-based external review findings can reduce, if not 
virtually eliminate, the need for liability suits against 
payors. In Texas in the 18 months since the Texas IRO statute 
has been in operation, with 477 referrals of requests for 
external review, only one lawsuit is identified as having been 
filed even though the Texas statute permits such suits.
    Mr. Chairman, I am convinced that one of the reasons we 
have not had an explosion of lawsuits is that we have a 
mechanism in Texas which affords the enrollees and 
beneficiaries to address legitimate concerns about payor's 
practices which is demonstrated by our reviews.
    Last, I note in my written statement we report our findings 
and decisions to the Texas Department of Insurance, or ``TDI.'' 
When the TDI determines that the rate of reversal for any given 
plan or payor is at significant variation with the average, or 
if they find a particularly disturbing situation, they may 
order a standard examination of the plan's procedures and 
practices. The findings of this examination can be incorporated 
into a corrective action plan, which the plan or payor can 
implement to improve performance and avoid further regulatory 
intervention.
    Mr. Chairman, I recognize that the authorities at the State 
level in Texas are for State-licensed plans. I further 
recognize that you and your colleagues are grappling with ways 
to enact appropriate measures for self-insured plans, or other 
ERISA-protected payors without further damaging ERISA 
protections. Let me only say that when the external review 
process is fair, independent and recognized to bias-free, it is 
not threatening to these payors. Most ERISA-protected plans in 
Texas have agreed to voluntarily participate in the Texas IRO 
process, and agree to be bound by their decisions.
    Finally, I recognize that certain jurisdictional 
complexities complicate your task. I believe that these can be 
resolved with a constructive dialog with all parties. I pledge 
our cooperation and that of our colleagues to assist you in 
crafting an acceptable measure containing the elements I have 
described. The American people deserve nothing less. Thank you.
    [The prepared statement of Phillip K. Dunne follows:]
Prepared Statement of Phillip K. Dunne, Chief Executive Officer, Texas 
 Medical Foundation and Vice President, National Quality Health Council
    Mr. Chairman, thank you for the opportunity to provide testimony to 
the Health and Environment Subcommittee of the United States House 
Committee on Commerce regarding Independent External Reviews of Health 
Plan decisions and the impact of these on the quality of health care. I 
am Phil Dunne, Chief Executive Officer of the Texas Medical Foundation 
(TMF). My testimony is respectfully submitted as the views of both the 
National Quality Health Council (NQHC) and those of the TMF.
    As the Vice President of the Board of Trustees of the NQHC, an 
affiliation of forward-looking health care quality improvement 
organizations, I would like to first commend the Subcommittee, and you 
Mr. Chairman, on your efforts in looking at independent external review 
as a mechanism to help ensure that American health care consumers have 
access to the highest quality health care to which they are entitled. 
We look forward to working with you, and the other members of this 
committee as you hopefully develop a legislative proposal that will 
assist health insurance plans, employers, physicians and patient 
consumers in reinstating confidence that our health care system has the 
necessary mechanisms in place to continue to provide the highest 
quality health care available anywhere in the world.
    Mr. Chairman, the NQHC, with members in Ohio, Texas and 
Massachusetts has extensive experience in a number of states dealing 
with Medicare quality review, Medicaid quality review and private plan 
and ERISA quality review. Last year our organization provided technical 
assistance on this subject to a number of Members of Congress, 
including the so-called Hastert Task Force, whose preliminary external 
review provision was included in legislation later adopted by the 
House. Let me say that we share the Subcommittee's interest in 
continuing to work on developing a sound proposal, and are pleased to 
provide our views regarding our experience in assuring and improving 
health care quality for all Americans.
    Specifically, NQHC notes the utmost importance of providing all 
recipients of health care with an external review process which is 
``independent'' of all biases, including those of payor, plan, health 
care provider, or patient. We strongly urge that the Congress and this 
Subcommittee consider a legislative policy solution which will assure 
that both independence and clinical expertise exist in an external 
review process.
     As the NQHC member from Texas, we have had extensive independent 
review experience under the state of Texas' relatively new ``IRO'' 
statute. In 1997, the 75th Texas legislature passed legislation which 
established an independent review organization (IRO) activity in Texas. 
The Texas Department of Insurance (TDI) was assigned the responsibility 
for implementing the legislation, developing regulatory requirements, 
and performing administrative program coordination activities. The 75th 
Texas legislature adjourned in late May 1997, proposed regulations for 
IRO were promulgated in September 1997, and the program activities 
became operational in November 1997 with certification of the first 
IRO. The Texas Medical Foundation (TMF) was the first organization to 
be certified by TDI as an IRO and maintained the designation as the 
only IRO in Texas from November 1997 until January 1999. A second 
organization is now certified by TDI as an IRO for Texas.
    Operationally, the IRO process is initiated when a patient or a 
patient's representative submits a request for independent review to 
the payor organization (or a utilization review agent working under 
contract for the payor) following the issuance of a notice of adverse 
determination. There is not any charge to the patient or patient's 
representative for requesting the IRO review. Upon receipt of a request 
for IRO review, the payor organization, or its utilization review 
contractor, must forward the request for IRO review in a timely manner 
along with supporting documentation and medical records to TDI. TDI 
then screens the IRO request to ensure the issue is appropriate for IRO 
review and that the adverse determination is based on medical 
necessity, not benefit structure. Then, on a rotational basis, TDI 
forwards the IRO request to one of the certified organizations to 
perform the requested review.
    The Texas IRO program utilizes single matched peer review rather 
than a panel approach. The single matched peer review individual must 
be in active practice and perform the type of service upon which IRO 
review is requested. The IRO selects an appropriately qualified 
physician/allied health professional to review the IRO request and may, 
as appropriate, request additional materials to reach a complete and 
comprehensive review decision. Following completion of the review, the 
IRO informs the patient/patient representative, provider of care, payor 
or payor's utilization review agent, and TDI of the review decision and 
includes the reviewer's rationale for either approving or disapproving 
the requested health care service.
    The IRO submits an invoice directly to the payor or payor's 
utilization review agent as outlined in TDI regulations. The IRO review 
process is divided into two tiers of activity. Tier One relates to 
traditional medical/surgical review matters, and Tier Two pertains to 
allied health review, including podiatry, optometry, physical/
occupational/speech therapy, etc. Current TDI regulations outline that 
Tier One reviews are to be invoiced at $650 per case and Tier Two cases 
are to be invoiced at $460.
    Over the past eighteen months, the actual caseload is revealing. 
The Texas IRO process has identified that the most common health care 
service on which IRO review is requested pertains to psychiatric or 
mental health services. Adult, adolescent, and child psychiatry 
constitute the major reason for IRO review requests. This is followed 
by health services related to obstetrics and gynecology, oncology, pain 
management, plastic surgery, orthopaedic procedures, etc. As a 
certified IRO, TMF has received 477 cases for review. In the early days 
of the program, more cases were returned to TDI as inappropriate for 
IRO activity. Approximately 455 IRO reviews have been completed with 13 
cases pending at this time.
    IRO review requests are divided into three categories: 
preauthorization with life threatening potential; preauthorization not 
life threatening; and retrospective. Preauthorization with life 
threatening potential have constituted 12% of cases received. 
Preauthorization not life threatening have constituted 36%, and 
retrospective review requests have constituted 52%. Of the 455 cases 
upon which IRO review has been completed, 221, or 49% of the decisions 
by the payor or payor's utilization review agent have been upheld by 
TMF and in the remaining 234, or 51%, TMF has disagreed with the 
original decision of the payor or payor's utilization review agent. Of 
the overturned decisions, reviews pertaining to psychiatry (including 
adult, adolescent, and child) along with obstetrics and gynecology have 
the higher percentage of reversal.
    Through its review of the 455 IRO cases, TMF has recognized that 
approximately one-half of the plan determinations are overturned and 
approximately one-half are upheld. Additionally, TMF has recognized a 
wide variance among the payor organizations or the payor's utilization 
review agents as to upholding and/or reversing decisions. Documentation 
made available to TMF as a certified IRO has identified that in some 
cases it appears that the payor or the payor's utilization review agent 
did not have access to or consider all available relevant information 
in prior decisions. Also, it has been identified that the payor or the 
payor's utilization review agent did not use a matched peer reviewer in 
previous decisions.
    In summary, the Texas IRO program utilizes a certified IRO agent 
approach, includes administrative and operational oversight and 
screening by the Texas Department of Insurance, a single matched peer 
reviewer approach, and provides for expedited IRO review when the 
potential for life threatening situations exists. The patient is not 
assessed any fee for requesting the IRO review.
    Mr. Chairman, these experiences lead me to conclude that there are 
a few very important principles that should guide you and your 
colleagues as you grapple with crafting an effective and fair national 
independent external appeals process.
    Chief among these principles is true ``independence,'' in both 
function and appearance. Certifiable independence coupled with clinical 
expertise will produce sensible, understandable outcomes that plans and 
patients will accept and that the public and political leaders can 
trust.
    In Texas this independence is achieved by requiring the Texas 
Department of Insurance to certify as to an IRO's competence and also 
by having the appeal request pass through TDI which then assigns it to 
the IRO after assuring that it is a medical review rather than a 
benefit structure issue.
    We would urge that the committee consider utilizing an appropriate 
authority or authorities, to certify the competence of external review 
entities, and to assign the certified IRO entity to referred cases as a 
means of eliminating any presumption of bias, conflict of interest or 
close relationship with any payor.
    Secondly, and as important, is to require a suitable level of 
clinical experience and expertise. Only licensed, practicing physicians 
should be used to conduct external reviews. As ``matched peers'', they 
should be assigned to the case under review by virtue of their 
expertise in the subject or specialty area to be reviewed. Further, we 
believe single matched peers are an effective means of controlling 
costs
    Third, the results of the review must be binding on the plans, thus 
providing an evidence-based record for use by any appropriate 
controlling authority.
    Fourth, there should be no threshold or financial barrier to a 
patient requesting the external review. As I mentioned earlier, the 
flood of appeals anticipated in Texas did not materialize. Our costs 
for Tier I and Tier II reviews have remained reasonable and are not a 
burden on the payor or the system.
    Finally Mr. Chairman, in addition to providing for a workable and 
strong independent external process, we would commend to the 
Subcommittee an additional concept embodied in the Texas Statute. Under 
the Texas law, Mr. Chairman, the Texas Department of Insurance may 
order a ``standard examination'' of a health plan that has experienced 
exceedingly high reversal rates or an egregious health care quality 
failure. This allows an examination of such ``outlier'' plan's internal 
review and clinical decision making processes and the development of 
recommendations for improvement. We would propose that the Subcommittee 
likewise consider an appropriate means of dealing with plans with high 
reversal rates or with an egregious failure. This would provide 
authority to order an independent quality improvement organization to 
examine these plans' utilization management and review policies and to 
structure a corrective action plan which, when implemented, can reduce 
or avoid further sanctions and can assure a more effective consistent 
quality of care to patients.
    In the Texas' experience, a small number of plans constitute a high 
percentage of repeat review requests and of reversals by the IRO. It is 
common knowledge that high profile adverse determinations by payors 
fuel the anecdotal stories cited by interest groups to press for 
legislative remedies. By taking the independent review concept and 
methodology to another level, with a similar approach, the Committee 
could both reduce the need for individual patient review, and provide a 
preventative and corrective mechanism for dealing with plans that are 
experiencing quality difficulties.
    Mr. Chairman, through our combined 75+ years of experience in this 
quality review and improvement field, we at the Texas Medical 
Foundation and the NQHC, have learned that external independent review 
can make a significant difference to both individual patients and the 
health care bottom line for which consumers and taxpayers ultimately 
foot the bill. We urge the Subcommittee to approve an individual 
patient independent external review process that is evidentiary-based, 
and a mechanism for insuring the improvement of health care practices 
by plans which are repeatedly reversed by an independent reviewer. As 
always, Mr. Chairman, we stand ready to provide technical and other 
assistance to the Subcommittee through our resources which include 
epidemiologists and biostatisticians and other specialized physicians 
and nurses and allied professionals.
    Once again, Mr. Chairman, on behalf of NQHC, let me thank you for 
the opportunity to provide this testimony. We look forward to working 
with you and the other Members of this Committee as legislation on this 
subject is developed and to answering any questions you may have.

    Mr. Coburn. Thank you.
    The Chair recognizes himself, first, for 5 minutes. Then we 
will go down.
    Mr. Atkins, you represent this Corporate Health Care 
Coalition, some of the best companies we have. My experience 
with those companies in caring for some of their employees is 
you aren't the problem. Unfortunately, you are covered by a law 
that has allowed people who are the problem to hide behind the 
law.
    I want to make sure I understood what you said. You are 
familiar with the consensus health care bill that Congressmen 
Shadegg, Norwood and I have put out?
    Mr. Atkins. Yes.
    Mr. Coburn. Do you have objections to what we have in there 
in terms of internal review, external review, expedited 
internal and external review, and the liability portions of 
that bill?
    Mr. Atkins. Yes, I have a very substantial problem with the 
liability portion of the bill. I recognize that you don't 
create an opportunity in the bill for punitive damages, or at 
least you attempt to close it off.
    But the biggest problem with the way the liability 
provision works is that under ERISA you have a set of 
relationships now under Federal law. You have a fiduciary 
obligation. You have a history, and you have 25 years of 
Federal case law, that defines those relationships and the 
liability--and there is liability--that relates to the 
performance of fiduciary duties. What your bill does as a first 
step is to waive all of that Federal law.
    Mr. Coburn. I would take exception to that. Let me just say 
so the record shows, what we say is that nobody gets to court 
unless they have injury. That is the first thing. That is 
determined by an independent panel. Unless you can show injury 
by an independent set of physicians who say there is an injury 
associated with the absence of this care that was denied, you 
can't ever get there.
    First of all, we are talking about a minimal of a minimal 
of a minimal of 1 percent. In terms of that, you have something 
that you have to jump across that is higher than any standard 
that we have ever had in this country in terms of liability.
    The second thing that you said is that people do have 
action. They only have action if they have a whole lot of 
money. I would remind you of Corcoran v. United Healthcare, and 
several other cases where the judges have written specifically 
that Congress never intended for this to happen when they wrote 
this law.
    Corcoran v. United Healthcare is a case in which care was 
denied that caused the death of an infant. The company said, 
``We are not doing what our external reviewer has said we 
should do.'' The couple had no recourse--none. The Federal 
judge in commenting on that said that this could not have been 
what Congress meant. So we are here to address that. It is not 
to go after a company, like the companies you represent, who 
have demonstrated goodwill in terms of trying to provide a 
service for their employees. Bear in mind, not everybody is as 
you are.
    Mr. Atkins. Mr. Chairman, can I respond to that?
    Mr. Coburn. Sure.
    Mr. Atkins. The real impact on our companies is not that 
anybody necessarily will be suing either us directly, or even 
the health plans, but the whole ability to go to court, and 
raise issues of treatment in court. You say only 1 percent will 
be able to go forward----
    Mr. Coburn. No, I said it doesn't ever approach a millionth 
of 1 percent.
    Mr. Atkins. Right. But you are saying that they have to 
have exhausted the external review process before they can go 
to court.
    Mr. Coburn. No, they have to have shown injury from the 
lack of treatment. That is a totally different thing than an 
exhausted remedy. If there is no injury, there is no lawsuit.
    Mr. Atkins. Right. But all of these cases that have gone 
forward, all of the ones that are now going forward against 
State plans, under State law, first established there was harm 
caused, and relate that harm proximately back to the plan's 
actions.
    Mr. Coburn. I would disagree with you. There is no State in 
the United States today that has a bar that says you have to 
pass a mustard test of injury by independent panel determining 
injury before you can ever get in. It doesn't exist. If it 
does, please correct me. My staff says that doesn't exist 
anywhere in the United States. Do you know of a State that it 
does?
    Mr. Atkins. Where you can go to court?
    Mr. Coburn. No, no. What I specifically said----
    Mr. Atkins. Alleged harm?
    Mr. Coburn. No. Where there has to be a predetermined fact 
finding of harm proximately related to the lack of care not 
given. So that doesn't exist.
    Mr. Atkins. You say you are requiring that in your bill?
    Mr. Coburn. That is in the bill. That is what I am saying.
    Mr. Atkins. The fact-finding is done by the external review 
panel?
    Mr. Coburn. No, it is done by a totally separate panel who 
could not be connected to the external, so we don't have any 
bias from external appeal panels to the panel that is 
determining the injury. You can't cover what might have been a 
mistake in external appeals to prevent a lawsuit--or to 
encourage one.
    Mr. Atkins. Let me just say that, as far as the Coalition 
is concerned, we have no problem with saying that we want a 
strong external review process that is enforceable.
    Mr. Coburn. Could I ask you what that means? 
``Enforceable,'' does that mean absolutely binding?
    Mr. Atkins. It means binding.
    Mr. Coburn. Does it mean up to the cost of what the 
treatment was? If something is going to cost $3 million for 
somebody to have treatment----
    Mr. Atkins. If the external review panel comes back says 
that treatment should have been approved, then that is a 
binding decision. That is under Federal law a binding decision, 
in which case a participant can go to court and get injunctive 
relief and get that decision enforced.
    Mr. Coburn. You would support a bill that would say that, 
if the external appeals panel says that we should do this, then 
we are bound to do it. The minimum fine, before you ever get to 
court, is the cost of the coverage. You would agree to that?
    Mr. Atkins. I am not talking about the minimum fine. I am 
talking about the benefit as paid.
    Mr. Coburn. Okay, the benefit as paid. What happens if you 
decide not to do that?
    Mr. Atkins. Then you have injunctive relief. The court can 
order the benefit to be paid. The Department of Labor can 
remove the fiduciary. There are a lot of penalties now under 
law that are available if you have Federal law that says it is 
binding.
    Mr. Coburn. And if that happened after the patient died?
    Mr. Atkins. That can happen in minutes.
    Mr. Coburn. No, no. I am just saying that, if that happens 
after the fact, if an independent insurer provider decides not 
to following binding--it is okay to have binding, as long as we 
have a method to make binding binds.
    Mr. Shadegg. Will the gentleman yield?
    Mr. Coburn. I will be happy to yield.
    Mr. Shadegg. I just want to make a point that what you have 
just said is circular. What you said is, if we had injunctive 
relief following the binding appeal that Dr. Coburn is talking 
about, and the company refused to do it, the problem would be 
taken care of because the patient who needed the care could go 
to court and get an injunction. That is exactly a parallel to 
what ERISA does right now. ERISA says you can get consequential 
damages; you can't get a dime more.
    In Corcoran v. United Healthcare, they said, ``Well, we are 
terribly sorry Mr. and Mrs. Corcoran. Your baby is dead. Your 
baby is dead as a result of the negligence of United 
Healthcare. So if you had gone ahead and gone to the hospital 
and your baby hadn't died, we would have given you the cost of 
the health care bill. But you couldn't afford to do that. You 
can't afford to hire a lawyer now to do any more about this.''
    Under what you have just proposed, you give injunctive 
relief. The rich--the very, very wealthy--who went through and 
got a binding decision could go to court. The insurance company 
could sit there and thumb their nose, and say, ``Well, yes, you 
have a binding decision. You can go get injunctive relief, but 
that is all you can get. You can't get attorneys' fees. You 
can't get any recovery on top of that.''
    Mr. Atkins. You can get attorneys' fees now, Congressman, 
under ERISA.
    Mr. Shadegg. Only for the cost of the denied care. What 
good did that do Mr. and Mrs. Corcoran? In this case you would 
go to get injunctive relief if you had the money to front the 
cost of a lawyer. You could only get the cost of that lawyer, 
plus attorneys' fees at a rate set by the court.
    Mr. Atkins. If I could----
    Mr. Shadegg. You are providing no disincentive.
    Mr. Atkins. Can I respond to that?
    Mr. Coburn. Give the gentleman an opportunity to answer.
    Mr. Atkins. I thought we were talking about a process in 
which there was an expeditious external review. That did not 
exist with Corcoran. If there had been an opportunity for that 
to be reviewed quickly, then it is possible that the baby would 
not have died. You are also talking about a real world 
situation where some of these medical conditions move along 
very quickly.
    Mr. Shadegg. So you agree that Corcoran v. United 
Healthcare ought to be reversed?
    Mr. Atkins. I didn't say reversed. If you have external 
review----
    Mr. Shadegg. We don't have it now.
    Mr. Atkins. What?
    Mr. Shadegg. We don't have it now.
    Mr. Atkins. We are advocating for that, okay?
    Mr. Shadegg. So you are advocating external review----
    Mr. Atkins. Yes.
    Mr. Shadegg. [continuing] to reverse Corcoran v. United 
Healthcare?
    Mr. Atkins. I am saying external review. That case, had it 
gone to external review, would have been reversed. There would 
not have been a need for damages. If a plan follows the law 
expeditiously, and moves the claims through the process to 
eternal review, the external review decision comes down and is 
binding. The plan follows along in compliance with that and 
executes that promptly. There should be no damages or 
penalties. Because then what you are saying to people is, 
``Don't ever deny a case. Don't ever take the chance that you 
don't give the patient or the treating physician exactly what 
they want, because you will then create huge amounts of 
liability.''
    I think if you look at the Medicare Program, which is a 
parallel to what our program looks like, you will have huge 
cost problems for the Federal Government, if you create that 
set of incentives in the law.
    Mr. Shadegg. Just one quick comment: I believe you have 
just endorsed what is in our legislation. What you are saying 
is that, once an external plan has made its decision, if it 
loses and is told to do what the external panel says it should 
do, it will do that. If that happens, then there is no 
liability under our bill.
    Mr. Atkins. That is right. If it doesn't happen, there 
should be a penalty available. There should be a route for the 
participant to get the benefit paid. There should be penalties 
available which are available now under Federal law. It would 
be contempt of court if you went to get an injunction. There 
would be penalties available.
    I do not advocate economic or other damages if you have 
complied with the process. I don't see any reason to award 
damages.
    Mr. Coburn. Thank you. The gentleman from Ohio.
    Mr. Brown. Ms. Rosenbaum, comment on that exchange between 
Mr. Atkins and Mr. Shadegg.
    Ms. Rosenbaum. I think, actually, there are two different 
issues on the table. They got a little crossed. What I 
understand Mr. Atkins to be talking about is the process for 
enforcing the results of an external review.
    I go. I need a benefit. I go through an external review. I 
win at the external review level. Then I need to have--and I 
think Mr. Atkins is absolutely right--a rapid system for 
getting an enforcement of the order. What is at stake in a 
prospective internal review is still my treatment. I still have 
a chance to get the treatment.
    What I understand the consensus document to have in it is, 
in addition to prospective relief, to avoid exactly the tragedy 
of Corcoran, a provision to allow for some recovery for injury 
in those cases where you couldn't get the prospective relief. 
What I understand Mr. Atkins to be saying is that he doesn't 
object to judicial intervention to enforce a prospective 
judgment, but he does object to the ability, or adding a right 
to Federal law to allow me to recover damages for injuries that 
I sustained.
    It is really two different places that a court can 
intervene: prospectively and after the fact. I think you, very 
appropriately, in your bill deal with the two types of legal 
intervention: prospective and after the fact.
    Mr. Brown. Ms. Rosenbaum--shifting gears--tell us why 
reviewing a case de novo is so important?
    Ms. Rosenbaum. Reviewing a case de novo is important 
because right now in ERISA all that happens when a case reaches 
a court in a medical coverage decision of the kind that we are 
talking about here is that the court is limited to what is 
known as an arbitrary and capricious standard. It can only look 
to see whether the plan acted arbitrarily and capriciously, 
which is a very difficult standard to overcome for a claimant.
    Often what happens is if a plan--and there have actually 
been cases--either deliberately, or through its own negligence, 
did such a poor job developing the medical record in the case 
that we have had decision where the court says, ``Had evidence 
X, Y, or Z been in the record, we would have found for the 
claimant. But because we are limited to an arbitrary and 
capricious standard, we cannot find for the claimant. We are 
bound by the record that the plan created.''
    By substituting a de novo review, you essentially make the 
appeal itself the reviewable action. If I am still unhappy with 
the result of the external review and I go to court, the court 
is going to be looking at the record created by a much more 
impartial external review process. If you don't make it de 
novo, then there is a danger that when I finally do appeal to 
court, the court is still going to go back to the original plan 
decision and look at the record created by the plan.
    So for purposes of protecting people all the way up the 
line, you have to make this a de novo review. Also, for the 
integrity of the review, it has to be de novo.
    Mr. Brown. You insist in your testimony that we shouldn't 
limit the scope of appeal to questions only of medical 
necessity and experimental treatment. You have touched on 
something. Give us an example, if you will. In Senator 
Jefford's bill, it is my understanding that he limits his bill 
to the question of medical necessity. That is not good enough, 
I understand? Give us an example.
    Ms. Rosenbaum. An example of a decision that involves 
medical judgment, but that is not a medical necessity decision 
is a case, for example, of a child who is terribly burned, or a 
child who is born with a congenital anomaly, like a cleft 
palate. A benefit plan or an insurance contract has a standard 
clause in it saying, ``We exclude coverage for cosmetic 
surgery.''
    An exclusion is not a medical necessity holding. An 
exclusion is saying that no matter how necessary you think this 
care is, it is simply uncovered. It is outside the contract. 
Yet, if you stop and think about it, the same process of 
medical judgment that one needs to make a medical necessity 
decision is what you need to bring to bear on a burn case, or a 
cleft palate case. Somebody is looking at the facts and 
deciding if the child's condition falls on this side of the 
line or that side of the line. Therefore, any case in which 
there is a medical judgment is exactly the kind of case that 
you are setting up the external review system for.
    If you don't cover all medical judgment, you leave insurers 
essentially free to write all of their denials as simply ``not 
covered.''
    Mr. Brown. Mr. Atkins?
    Mr. Atkins. Can I comment on that, quickly? I agree with 
Ms. Rosenbaum. I want to make one clarification.
    If a plan says that it doesn't cover plastic surgery, which 
is a procedure, then when a case comes forward that involves 
plastic surgery, there really is no question. The plan does not 
cover it. That may be cruel that the plan doesn't cover it, but 
it is just not covered by the plan. It is not available, no 
matter what decisionmaking was involved. What the patient 
needed is not available.
    However, cosmetic surgery involves a medical interpretation 
to determine whether the plastic surgery is cosmetic or not. So 
what I think she is defining is a situation where you have 
terms that are used that have implicit medical judgment 
involved. The participant should have the opportunity to raise 
that issue with the external review and say, ``I think there 
really is medical judgment involved in coming to this 
conclusion''; then let the review entity make that 
determination about whether it should go forward to review or 
not.
    Mr. Coburn. Would the gentlemen yield? Does that fit into 
the flexibility requirements that we heard earlier, in terms of 
external review? It has to be flexible enough so that you can 
encounter something like this?
    Ms. Rosenbaum. It is certainly part and parcel, part of the 
external review process. You want the process to be flexible 
enough to be able to consider and pass on any decision in which 
medical judgment is involved. As Mr. Atkins points out, there 
may be cases where on the face of the contract you see the 
exclusion.
    I don't know enough about plastic surgery to know how this 
fits, but if the contract says, ``We don't cover acupuncture,'' 
and somebody wants acupuncture, under my proposal, the external 
reviewer would not accept the appeal. The external reviewer 
would say, ``There is no medical judgment here. This is simply 
wanting something that is outside the contract.'' If the issue 
is the cosmetic surgery issue that I gave before, then the 
external reviewer would say, ``Yes, somebody had to exercise 
some medical judgment to make this call. I am going to accept 
the case.'' Then he would go on to decide it.
    Mr. Coburn. Dr. Ganske, 5 minutes.
    Mr. Ganske. Thank you, Mr. Chairman. I guess I am not the 
last one. I bet this panel wishes that I were. I want to thank 
the panel for being very patient all day long. I could see 
several of you reacting emotionally during prior testimony.
    Mr. Atkins, are you an attorney?
    Mr. Atkins. No, I am not.
    Mr. Ganske. Ms. Rosenbaum?
    Ms. Rosenbaum. I am.
    Mr. Ganske. Mr. Dunne?
    Mr. Dunne. No, I am not.
    Mr. Ganske. Okay, so we have one attorney on there. Mr. 
Coburn, and I, and Mr. Norwood agree on a lot. But there is one 
provision in this bill that has to do with the certificates of 
medical eligibility. I want to raise a question to Ms. 
Rosenbaum.
    By the way, I appreciate the advice you have given my staff 
in the past who has talked to you. I think you do have a point 
on medical judgments. We, in my bill, decided not to go that 
route because we wanted to use a form that basically had been 
used before, which was prevailing standards of medical care 
where you could get a handle on that.
    Maybe I will get a reaction from the other members on this. 
Those certificates of medical eligibility basically set up a 
panel to determine fact finding. The Supreme Court has rejected 
removing fact finding from America's juries. In Granfinacierra 
v. Norberg, the court rejected Federal law that authorized 
certain claims that would be transferred from article III 
courts to article I bankruptcy tribunals. Chief Justice 
Rehnquist, writing for the court concluded the Federal law was 
unconstitutional because it eliminated the party's right to 
trial by jury.
    In this legislation, in this one very limited section, I 
would have to disagree with some of my colleagues on this. I 
think that it would take factual issues, place them in the 
hands of a private entity, and that would, in fact, violate 
prior Supreme Court determinations on this. Ms. Rosenbaum, do 
you have any comment on that?
    Ms. Rosenbaum. It has been awhile for me since I have seen 
the proposal. I have talked extensively with your staff, and 
appreciate the opportunity to have input. As I understand the 
proposal, you are not creating an administrative process that 
precludes judicial relief. In fact, as I understand it, nobody 
is suggesting opening up the judicial review provisions of 
ERISA and foreclosing remedies that already exist.
    Mr. Ganske. In the last draft that was given to the 
committee chairman, there was a provision that basically said 
that an independent panel of medical professionals would 
determine, in fact, whether an injury had taken place.
    Ms. Rosenbaum. This is on the liability provision?
    Mr. Ganske. Yes.
    Ms. Rosenbaum. The liability provision, as I was listening 
to the discussion, I was, in fact, not at all sure that this 
would be constitutional.
    Mr. Ganske. This was the problem that I have with this. I 
am concerned this will open up a big can of worms. For 
instance, I think the existence of personal injury can involve 
some important policy matters that are traditionally left to 
the courts and the States.
    For example, until relatively recently, an unborn child was 
not deemed a person for purposes of tort actions or injuries 
before birth. State courts evolved differing approaches to 
prebirth, or even preconception torts, although a majority of 
States allow recovery for prebirth injuries. Those sensitive 
policy decisions were made by the Judicial Branch, or in some 
cases, with the State legislatures. I think they should not be 
left with private bodies who are not accountable to anyone. 
There is nothing that would prevent an external appeal entity 
from reverting to the notion that a fetus is not a person; and 
therefore, there was not personal injury for birth defects, or 
for other harm occurring before birth.
    This, in my opinion, is a section that needs to be more 
fully vetted. Would you tend to agree with that?
    Ms. Rosenbaum. I certainly think it would be wise in any 
provision dealing with redress for injuries to get the advice 
of outside lawyers on the question of whether you could have a 
situation where an external panel makes a binding decision on 
causation.
    Mr. Ganske. I appreciate that. Thank you.
    Mr. Coburn. The gentleman from Texas is recognized.
    Mr. Hall. Ms. Rosenbaum, I want to talk you a little more 
about external appeals. I don't think that has been mentioned 
today.
    Ms. Rosenbaum. Just a little.
    Mr. Hall. About over a thousand times. You know, they can't 
solve all of our problems. I want to go beyond that a little 
bit.
    There are times when getting care doesn't do any good 
because the damage is already done. For that reason, many 
people think we need the liability provision in there. The 
whole point of external review is to make sure patients have a 
rapid way to get the care they need when they need it. It is to 
prevent delays in treatment that could be potential harmful for 
patients. There are cases though, are there not, where an 
external appeals entity because the plan has improperly denied 
care, and the harm is already done?
    Ms. Rosenbaum. Certainly.
    Mr. Hall. So what can you do in these cases? Mr. Atkins, 
from his testimony, indicates that he seems to think that the 
remedies that ERISA currently provides are sufficient to 
compensate people when a benefit was denied. But the harm was 
already done, and external reviews or external appeals are 
futile. What rights would a patient have under the current 
ERISA law as I have set out here?
    Ms. Rosenbaum. If the injury arises out of a benefit 
decision, under the current ERISA law a patient has no remedy 
other than payment of the benefit. So in the case of Mrs. 
Corcoran, had she won her case on the merits, she could have 
gotten recovery, of course, for the value of the 
hospitalization for the pre-term labor. So you are quite right 
to note there is no recovery now, other than the payment of the 
benefit if you are injured and it involved a benefit 
determination.
    Mr. Hall. Then, Mr. Atkins, do you disagree with that?
    Mr. Atkins. No, I agree with that assessment of how it 
works.
    Mr. Hall. Then, Ms. Rosenbaum, in an external appeal 
decision discuss whether or not you think the decision ought to 
be binding on the patient.
    Once again, Mr. Atkins has agreed to the contrary as to 
what I set out a moment ago. I am glad he did. I appreciate him 
doing that. But he says on page 15 of his testimony that 
external review programs work, because in most cases decisions 
of reviews can't be challenged in State court or undercut by a 
jury.
    I think that where the review process is successful is 
because it helps patients get care quickly. It has nothing to 
do with limiting an individual's legal rights. I would ask you 
to comment on that. Would we want an external review process 
that limited a person's further legal rights?
    Ms. Rosenbaum. My answer would be no. I think that with an 
external review process the number of appeals to court would 
actually be infinitesimal at that point. You would have gone 
through a fact finding on your case. A de novo fact finding on 
the case is better than a court review under an arbitrary and 
capricious standard.
    If you try to make the decision binding on individuals at 
this point, you are going to have to open up the judicial 
review provisions of ERISA. You are going to have to start 
dealing with changing the jurisdiction of the courts under 
ERISA.
    Mr. Hall. You have a lot of things to address, like efforts 
to compromise are not admissible. You have to ride around that, 
haven't you?
    Ms. Rosenbaum. I think that you already have such a 
complicated bill on your hands that to add to that list a 
revision of the provisions of ERISA regarding access to courts 
in health benefit cases would probably be a serious error, at 
this point.
    Mr. Hall. You might even have to redefine ``hearsay 
evidence.''
    Ms. Rosenbaum. You would have to redefine a lot of things, 
including an historic obligation of courts and right of courts 
to review the decisions of administrative agencies.
    Mr. Coburn. Will the gentleman yield on this?
    Mr. Hall. I do yield, sir.
    Mr. Coburn. I just would make a comment that patients are 
worth that. If that is what it costs for us to have the right 
treatment, even if it means we may have to work a little 
harder. There is nothing wrong with saying that you ought to 
have to have an injury before you get to sue somebody, rather 
than just suing because you don't have an injury. If we have a 
binding external appeals, we won't see any lawsuits if they are 
truly binding. The whole key is that the liability portion of 
it is there as a hammer in case it doesn't work. That is what 
we are seeing in Texas.
    Nobody wants to generate lawsuits. We also don't want to 
limit people's rights. You testimony just then is that we dare 
not should get into that area because we have so much work to 
do before us. I just wanted to challenge that. I will grant the 
gentleman the time that I took.
    Ms. Rosenbaum. I meant in the context of appeal from an 
external decision.
    Mr. Hall. But there is a difference in the plan. Discuss 
that, if you would.
    Ms. Rosenbaum. Finding on the plan?
    Mr. Hall. Yes. Finding on the plan.
    Ms. Rosenbaum. Currently, in today's fabric of life, plans 
don't appeal. If, in the current scheme of things the internal 
review process for an ERISA plan finds in favor of the 
claimant, that is the end.
    Mr. Hall. Can the plan be bound?
    Ms. Rosenbaum. The plan's fiduciaries have to honor the 
decision that becomes the position of the fiduciary. You are 
not taking away the appeals rights of plans. It is just not an 
issue here.
    Mr. Hall. Is my time up, Mr. Chairman?
    Mr. Coburn. I believe it is.
    Mr. Hall. Will we get another shot at them in a minute? You 
cut me off a while ago. You recognized two Republicans in a 
row.
    Mr. Coburn. Well, I will be sure and make that error again 
in the future, Mr. Hall. I recognize the gentleman from 
Arizona, or is the gentleman from Tennessee? Who has privilege? 
The gentleman from Tennessee.
    Mr. Bryant. I thank the Chair. I thank my colleague from 
Arizona.
    I apologize to the panel, and to the previous panel. I had 
to leave. I have been working very diligently on a TVA matter 
regarding the energy bill, which is very important to my 
district. I did want to come back and catch up a little bit.
    I apologize to you, because if I am repeating what has 
already been discussed, just ignore me--or tell me. I sort of 
jumped in my opening statement about this liability issue. I 
know there has been some discussion. I hope it has been 
minimal. I know there has been some reference to that.
    While I am at it I would to ask unanimous consent to attach 
to the record of this hearing, the documents--a Scott and White 
letter to some senators, our colleague Mr. Edwards, and its 
attachments.
    In that letter, the liability issue in Texas, tells me that 
it is not the panacea that seems to be floating around. There 
are problems in Texas. Particularly being a lawyer, having 
practiced law on the defense side, defending doctors, dentists, 
and other people when they are sued, I know when you get 
involved in litigation it takes a lot of time; it takes a lot 
of money. There are lots of other problems there.
    That is why I am somewhat reluctant to advocate litigation 
and liability as the end all to this situation. I understand 
from the Scott and White letter that I have attached that costs 
have, in fact, gone up out of fear. Any time you face potential 
litigation, and in a medical environment I think any doctor 
will tell you that when you face the possibility of going to 
trial and putting your whole financial stake in the hands of a 
judge and jury, it is kind of scary. Sometimes you over-treat. 
I think that is one of the criticism that I have heard from my 
doctors when we talk about medical malpractices: ``I get sued 
every time I don't do this test and cover myself.'' I think 
maybe we are seeing that, a little bit, in Texas.
    I wanted to ask Mr. Atkins, are you familiar with the Texas 
situation?
    Mr. Atkins. Somewhat, because we worked on that bill in 
Texas--or tried to work on it.
    Mr. Bryant. Can you tell me where I am right or wrong on my 
testimony here?
    Mr. Atkins. The situation in Texas is very complicated. The 
legislature passed that law, and then it was challenged in 
court. For the period of time during which the challenge was 
ongoing, it didn't actually get implemented. So although there 
was liability, there were no cases that went forward until 
October of last year.
    Then when the court actually ruled on it, they voided the 
external review part of the law. It is important to note that 
there are 18 States that have external review. Employers now 
comply with the external review. It is only in Texas that it 
has actually be challenged. But the external review part of it 
was voided. Then the plans have subsequently decided, as has 
been testified earlier, to voluntarily comply with that part. 
But, no, I don't think anybody is really worried about the 
expense of that part of the law.
    The liability part of the law, the ruling that came down 
from the District Court was that the law could only stand--it 
could not be preempted--as long as the law was consistent with 
prior Federal Court decisions on what kinds of cases can go 
forward under State law. So in other words, under the previous 
interpretation on ERISA's preemption, the courts had said if 
you are suing on a matter of how you are practicing medicine, 
your actual practice technique, or things you have done wrong 
in the practice of medicine, you can sue the health plan, 
because of its supervisory responsibility. That is not 
preempted by ERISA. So the court said that if that is all this 
Texas law is doing, it is not preempted, but it cannot start to 
create liability for the coverage decision.
    So the net effect of the liability law in reality, in terms 
of the number of cases coming forward, hasn't changed anything. 
In fact, the kind of case that did come forward was actually 
reviewed on the same basis as previous cases before the Texas 
law was passed. That hasn't changed anything.
    What has happened with Scott and White--and I think Scott 
and White raised their premiums by 15 percent to employers in 
the wake of that law--they went back and tried to figure out 
where the cost was coming from. About half of that cost, they 
felt, came from all the HMO legislation that the State had 
passed in prior years. I think Ms. Barron referred to it 
earlier, the 1995 law. About half of it was that. After talking 
to the medical directors, the attributed the other half to the 
fact that their medical directors had decided that they would 
create personal liability for themselves, if they delayed or 
denied treatment. They did not know what ``delay'' was under 
the law. So if it looked like they were going to cause delay, 
they would just go ahead and approve. They were basically 
making the decision to go ahead and approve anything where they 
didn't think it was going to harm the patient to provide the 
care. That was causing costs for the Scott and White plan--
fairly substantial costs.
    Now how general that is for other plans in the State of 
Texas, I can't argue. I am not sure that is a hard figure, but 
I think it is a fair reflection of what would happen.
    Mr. Bryant. Mr. Chairman, can I have 2 extra minutes?
    Mr. Coburn. Without objection.
    Mr. Bryant. I think Ms. Barron back there was shaking her 
head in disagreement to some of that. Perhaps Mr. Dunne can 
speak? Do you have a comment or anything?
    Mr. Dunne. Did I understand you to say that the program was 
not in place? Because the law was enacted on September 1. The 
program began November 1997. The judge's ruling in the court 
case did not occur until September 1998. All during the period 
of November through September, the program was in operation. We 
have seen no decrease in the number of cases coming through the 
system, because the plans have continued to voluntarily comply. 
So I would like to say that is a correction to your statement.
    Mr. Atkins. Okay. Then I am sorry. I understood that it was 
voluntary compliance when the case went forward from that 
point.
    Mr. Dunne. Which would be September 1998. But from November 
1997 to September 1998, we received cases.
    Mr. Atkins. I stand corrected. I stand corrected.
    Mr. Bryant. In terms of the balance of the testimony, as 
far as Mr. Atkins is concerned, does that change your 
testimony, Mr. Atkins?
    Mr. Atkins. I stand corrected that they were actually under 
the Texas law. I knew that they were processing external review 
cases. I believed it was voluntary once the action filed, 
because I thought that the court enjoined it. But I guess it 
was not until September that they actually overturned it.
    Mr. Dunne. I think Ms. Barron could perhaps comment to the 
committee on that.
    Mr. Coburn. Well, we will ask her to do that, since she is 
not at the table now. I will also ask staff to inquire of Scott 
and White. We have had testimony that the inference was that 
this law caused them to raise rates 15 percent. We need an 
inquiry to them if that, in fact, is the case for their 
increase in premiums.
    The gentleman from Arizona is recognized for 5 minutes.
    Mr. Shadegg. I thank the gentleman. I think Mr. Hall wanted 
to be recognized as the next Democrat.
    Mr. Coburn. Well, we were having some discussion about who 
is Democrat and who is Republican. Go ahead, gentleman from 
Arizona.
    Mr. Shadegg. I appreciate that very much.
    Mr. Dunne, let me see if I can clarify this--at least for 
myself. What you have told us is that the law was in effect for 
a period of a year. Is that correct--roughly a year?
    Mr. Dunne. Yes, sir. The actual program activity began in 
November 1997. The court ruling on this particular case did not 
occur until September 1998.
    Mr. Shadegg. So the requirement that plans go through an 
external appeal and abide by an it stood, as a matter of law, 
for that time period.
    Mr. Dunne. I would believe so. Yes, sir.
    Mr. Shadegg. Okay. As I understand it from the dialog that 
has gone on between you and Mr. Atkins, since then it has been 
a voluntary program--is that right?
    Mr. Dunne. For the ERISA plans. Yes, sir.
    Mr. Shadegg. Because they can't be bound by State law--
correct?
    Mr. Dunne. Correct.
    Mr. Shadegg. Mr. Atkins, you would agree with that?
    Mr. Atkins. That is right.
    Mr. Shadegg. You made some reference to the fact that only 
in Texas has that been challenged. You weren't trying to imply 
that if a law in Arizona commanding such an external review was 
enacted and was not challenged, that it would in fact be 
binding on a plan, were you?
    Mr. Atkins. What I was saying was that in States that have 
enacted external review, where those programs are in place and 
running now, employers who are using plans that are required 
under State law to go through those processes, have not 
challenged those laws. There are not a lot States in the 
category: Michigan, Florida, Connecticut. There are a number of 
States that are doing it. They are just generally complying 
with those.
    They could challenge those laws. If they did challenge 
those laws, I believe most courts would find the way the Texas 
court found. But the only that ever has been challenged to my 
knowledge was the one in Texas.
    Mr. Shadegg. So you are not arguing that States can pass 
laws which impose upon ERISA plans a binding external appeal 
procedure.
    Mr. Atkins. That is right. That is correct.
    Mr. Shadegg. So if this Congress wants a binding external 
appeal procedure, as every single witness on the last panel 
thought we ought to have, then that much of the law needs to be 
changed. You agree with that?
    Mr. Atkins. I believe that a Federal law needs to be passed 
and applied across the board to all plans. Yes.
    Mr. Shadegg. Okay. Let me go back for a moment. In our 
earlier exchange you said attorneys' fees aren't available now. 
That is, within the discretion of the court that is not 
mandatory--correct?
    Mr. Atkins. Correct.
    Mr. Shadegg. And in point of fact, the Corcorans didn't get 
attorneys' fees, did they?
    Mr. Atkins. I don't believe they did.
    Mr. Shadegg. Let us go through this issue of how we enforce 
a decision following an external appeal. As I understand it, 
you discussed this issue with Dr. Coburn. He explained to you 
that the legislation we have drafted erects a barrier which has 
never been erected before in any other draft legislation.
    You have one external panel that makes a decision, finding 
in favor of the patient or finding in favor of the plan. If a 
plan does not abide by that decision and provide the care, 
there is a subsequent review to determine actual injury. If 
there is actual injury and the plan still has not provided the 
care, a suit may be brought. That suit would require that there 
have been a finding of a medical panel that there was actual 
injury. Do you now understand that aspect of the draft 
legislation?
    Mr. Atkins. Yes.
    Mr. Shadegg. Okay. You don't think that is sufficient? What 
I want to go through is, are there other things that you think 
we ought to erect as additional barriers, or bars, or 
intermediary steps before such litigation can be brought?
    Mr. Atkins. Well, yes. I think that the important 
differentiation to make here is between harm that can be caused 
by a decision to render one treatment as opposed to another 
treatment, and harm that can get caused by delaying or 
interfering with the proper conduct of the process that is 
required under Federal law.
    My feeling is that, where there are process violations, 
ERISA now provides remedies for process violations. I think if 
you wanted impose penalties under ERISA for process violations, 
there is a precedent for doing that. ERISA currently has a 
similar kind of structure.
    That is different from going to arbitrate the question of 
whether or not a decision about treatment caused harm. Because 
that is where I think we get into very difficult and dangerous 
territory. I don't know how you would differentiate between 
legitimate differences of opinion between equally qualified 
medical professional, one being in a plan who says, ``We don't 
think this is the appropriate treatment,'' and another one----
    Mr. Coburn. Would the gentleman yield?
    Mr. Shadegg. I would be happy to yield.
    Mr. Coburn. Under our plan it wouldn't be a difference of 
opinion. It is a three-doctor panel versus the plan's doctor. 
The three-doctor panel, who are actually practicing physicians 
who are state-of-the-art, if they side with the plan, the plan 
has an affirmative defense--even if there is injury. If they 
side against the plan, then there has to be injury. It is not a 
difference of opinion of just two doctors.
    Mr. Atkins. Well, I understand. You know this better than I 
do. I am not even qualified to practice. A lot medicine is 
questions of treatment which are not definitive. Very often 
they are judgment calls. A lot of the practice of medicine is 
an art. You are going to get into decisions about treatment 
where reasonable, well-trained physicians will disagree.
    Mr. Coburn. If the gentleman will continue to yield--the 
point about what you are saying is if our plan doctor doesn't 
think so even though three, highly qualified, peer-equivalent 
doctors think so, we ought to side with the plan, because it 
can't be determined. What we have written is of an injury 
because of the absence of that care specifically related to 
that external appeals panel. So the paper tiger that you put up 
there is not available under our bill.
    Mr. Atkins. But, Congressman, I am not saying that. I am 
saying that if you have a good external review process, that 
process' decision is binding on the plan. It doesn't matter 
what the plan doctor or the plan medical director thought. That 
decision is binding.
    The further question, then, is, what do you do when you go 
to court? Was harm caused by the treatment decision? The plan 
denied it, in the first instance. Then there was a time delay 
while this being adjudicated, and this caused harm.
    Mr. Coburn. You would never get to court under our plan 
unless there is a predetermination that the absence of that 
care caused that harm.
    Mr. Atkins. I don't doubt for a minute that you can 
establish was caused by the choice of one treatment versus the 
other, because courts do it all the time.
    Mr. Coburn. No, the absence of treatment. The absence of 
treatment. We are very careful on how we have written this. It 
is the absence--the withdrawal, not application--of a specific 
treatment that was appealed on external appeal. You are talking 
about a very specific thing.
    Say I want this woman to have an ultrasound at 38 weeks 
because I am worried about her baby. ``You can't have it, 
Doctor.'' I am appealing it. The appeals panel agrees with me 
that we can. The company says, ``No, you can't.'' There is 
injury to the baby. If there is injury related to the absence 
of that care being applied, that is what we are talking about.
    Mr. Atkins. I understand that. I really don't have any 
confidence that we have a judicial system that can deliberate 
questions of whether harm was caused by choice of one treatment 
or another--or the absence of one treatment or another.
    Mr. Shadegg. Reclaiming my time----
    Mr. Atkins. I understand we do it, but I don't believe we 
should discipline the medical system that way. That covers the 
decisionmaking level. I think it has huge implications for 
Medicare and for us.
    Mr. Shadegg. Reclaiming my time, let me try to make sure, 
at least in my own words, that you understand the standard that 
we laid out in the legislation. If you don't agree with it, 
that is fine. We can have a legitimate disagreement on whether 
it ought to be the standard. I just want to explain, in my own 
words as an attorney--not a doctor, how I think the legislation 
is designed.
    The way the legislation is crafted, it is not a different 
opinion. What has to happen is you go through the first 
external appeal. I am a little troubled with your position. 
Because you say that if the external appeal concludes that the 
care ought to be provided, it is your position that the care 
will be provided. And that is really the end of the discussion.
    However, under our legislation, if at that point in time 
the care is not provided, there is a separate external appeal 
panel, also made up of medical professionals, also completely 
independent. They make a separate decision. That is not simply 
a second guess. Was this the best care or the right care? Would 
I have done that treatment, or not done that treatment?
    There really are two steps at that point. A majority of the 
doctors on the separate external appeal panel have to say the 
plan violated the standard of care for the treatment of this 
illness. There might have been two or three treatments that 
were available. The plan didn't give any one of those 
treatments. That constituted a violation of the standard of 
care. That is finding No. 1.
    But that alone is not sufficient. Dr. Coburn can correct me 
if he has a different understanding about that language. They 
have to show first they violated the standard of care.
    Second, that same external panel has to certify that that 
specific violation of the standard of care resulted in actual 
injury. That is the second piece of the hurdle that doesn't 
exist in any other system. That is where we believe we have 
gone above and beyond. We are really not asking the judicial 
system to make that decision. We are saying that with that 
subsequent decision, were they both a violation of the standard 
of care? Did this doctor, operating for this plan, screw up and 
fall below the standard of care?
    We are going beyond that. We are saying that we are not 
going to let a lawyer, at that moment, get to a jury to make an 
emotional case. We are going to say, ``Before you get to a jury 
to make the emotional case just based on that breach of the 
standard of care, there also has to be a proximately caused, 
actual injury.''
    Mr. Atkins. If I could comment on that.
    Mr. Shadegg. I would like a comment. Then I just want to go 
over three other pieces that I think could be erected as 
barriers. I want to find out if you are going to be opposed to 
all three of them.
    Mr. Atkins. Well, that is probably the case. I mean, I 
think what you have defined is a respectable process. It has a 
lot of merit, all right? I think that the bigger question of 
creating Federal tort liability at all, as a way to discipline 
this process, is a huge question. I recognize all the controls 
you are putting in it. But I am very concerned that those 
controls are not going to be adequate. I think it is far better 
if we have a good process and we make it work effectively. We 
won't have these problems. If we do, if there are people who 
are guilty of misconduct in the process, I think penalties are 
in order. But I think the penalties should be those kinds of 
penalties that can be imposed within the existing structure 
without creating a whole new area of Federal tort liability.
    Mr. Shadegg. With all due respect, we are not creating 
anything. There was no immunity until ERISA passed. So ERISA 
created immunity. What we are doing is talking about repealing 
back--ratcheting back very, very slightly--the immunity that 
ERISA created.
    Second, I would point out that sovereign immunity, which 
existed when this country was created, was a doctrine which 
this Nation rejected a long time ago. It rejected it on the 
notion that sending the message to anyone that you are not 
responsible for the consequences of your conduct is wrong. Long 
ago in this Nation we said the English rule of sovereign 
immunity--the king can do no wrong--is irrational and 
unfounded.
    Yet, when we passed ERISA in 1974, we created that again. 
We said that health plans can do no wrong. They are immune for 
the consequential damages of their negligence, or their 
intentional conduct. So I suggest that we are not creating 
anything. What we are doing is repealing--I think--the overly 
broad extension of immunity in ERISA.
    Let me ask you, quickly: Would you be comfortable, as a 
further extension of our legislation, if there were a cap on 
punitive damages?
    Mr. Atkins. Well, you are laying out that there are 
punitive damages to begin with.
    Mr. Shadegg. Under our legislation, if a plan is told by a 
binding panel, ``Yes, you must provide this care,'' and then 
they don't, because they have gone against the decision of the 
binding appeal, we make punitive damages available.
    Mr. Atkins. I honestly believe that, if there is injunctive 
relief, you know I have the punitive damages.
    Mr. Shadegg. But we provide for punitive damages. I am 
asking you if you would be comfortable if we added on top of 
that----
    Mr. Atkins. Would I be more comfortable with punitive 
damages if they were capped than if they were not capped? To 
the extent that I am not comfortable with punitive damages at 
all, I would be probably somewhat less uncomfortable with 
punitive damages capped. I would have to agree to that.
    Mr. Shadegg. I presume you would make the same statement 
with regard to a cap on pain and suffering?
    Mr. Atkins. Yes. I am not going to walk down the line 
saying, ``If it is capped, it is okay.'' Under either scenario, 
we are not happy with it.
    Mr. Shadegg. I understand. I hear you. You would say it is 
less bad.
    Let me ask you another one. We have not put into our 
legislation a provision that in any litigation following a 
decision by a binding appeal that you would have ``loser 
pays.'' But I guess I want to ask you--I am personally of the 
believe that loser pays is an additional disincentive to 
unnecessary litigation.
    I think you have said all along, if an external panel says 
that you must provide the care it is your belief that that plan 
will provide the care. If that were true, I take it you would 
be more comfortable, for example, with a version that says, 
``loser pays.'' So if they don't provide the care, they must 
mandatorily pay the attorneys' fees. The same, by the way, 
would be true of an appeal by a patient, were the panel to go 
against them.
    Mr. Atkins. Hypothesizing on a legal process which I really 
don't want to see, the answer is I guess I would be less 
unhappy, yes.
    Mr. Shadegg. If there were a loser pays provision to 
discourage frivolous litigation?
    Mr. Coburn. The gentleman's time is up.
    Mr. Atkins. I can't imagine there is going to be much 
frivolous litigation here. Once you have done external review, 
the standards get kind of hardened up.
    Mr. Shadegg. Then we are in agreement. There is not going 
to be much frivolous litigation.
    Mr. Coburn. The gentleman from Texas is recognized for a 
final 5 minutes.
    Mr. Hall. Mr. Chairman, thank you.
    As a matter of fact, if you removed the ERISA shield, Mr. 
Atkins, the State law would come into effect, wouldn't it?
    Mr. Atkins. Yes.
    Mr. Hall. I doubt seriously if the legislature would check 
with you as to your comfort degree in that instance.
    Mr. Atkins. I haven't met a legislature that would, yet.
    Mr. Hall. Let me ask you a question. You represent some 
wonderful companies here. You are president of Health Policies 
Analysis, Inc., in behalf of Corporate Health Care Coalition. I 
think there are 24 of them. I either personally know, or am 
familiar with, about 17 of the CEO's of those companies. Are 
most of them self-insured?
    Mr. Atkins. I think they are all self-insured, in one form 
or another, although they also all buy insured arrangements.
    Mr. Hall. And their greatest asset is their employees?
    Mr. Atkins. Absolutely.
    Mr. Hall. They believe that and want care for them don't 
they?
    Mr. Atkins. That is right.
    Mr. Hall. Do you understand that under this legislation 
here that the companies are not liable unless they are the ones 
that make the decision that causes the damage?
    Mr. Atkins. Well, almost every one of my companies would 
probably do something that would be interpreted by the courts 
as exercise of discretion. If you look at the Xerox case as a 
definition of what that would be, almost all of my companies 
would be found guilty of exercise of discretion.
    Mr. Hall. That is probably right. If this Congress should 
decide, and the President sign the bill to remove the ERISA 
shield, do you have an opinion as to whether or not we would 
have more litigation, or less litigation?
    Mr. Atkins. I think you would have very significant 
litigation.
    Mr. Hall. Do you think you would have more or less?
    Mr. Atkins. More, much more. The reason is because there 
huge rationing issues that are going on every day in this 
country about who should get care, and how should that care be 
delivered, that Medicare is dealing with and everybody else who 
provides health care. Those issues would move to the courts, 
many of them. If you look at what the court decisions have been 
on, like autologous bone marrow transplants, which the National 
Cancer Institute says you shouldn't be doing. Plans, when they 
have denied them, have been taken to court and sued. They lose 
the cases. That is the kind of change in the environment that 
would go on.
    Mr. Hall. Ms. Rosenbaum, would you like to comment on that?
    Ms. Rosenbaum. Yes. Actually, I don't agree that there 
would be a lot more litigation if we simply repealed Pilot Life 
and went back to law prior to 1986. That is because a good 
lawyer today can characterize any case, just about, as a 
quality of care case. If you characterize the case as a quality 
of care case, you can get yourself out from under ERISA 
preemption. All State and common law remedies are available to 
you since ERISA does not preempt quality of care cases.
    I was very interested in Congressman Norwood's point 
earlier. What ultimately is going to happen, I believe, is that 
the courts will understand completely that a treatment decision 
in the guise of a benefit determination is a quality of care 
case. Once the courts understand that, then the shield will be 
down. So I don't think that opening up the door, either through 
a limited roll-back or through a full roll-back, would 
significantly alter the outcome of events.
    Mr. Hall. Mr. Dunne, as you know the law passed by the 
Texas Legislature includes the ability of individuals to sue 
their plans for damages if the plan doesn't abide by the 
decision of the IRO. That is correct, isn't it?
    Mr. Dunne. Yes, sir.
    Mr. Hall. In your opinion, what impact does evidence-based 
medical record of the independent external review by matched 
peer experts have on these cases?
    Mr. Dunne. It would appear that the experience in Texas is 
that the evidentiary medical record, or the medical fact-based 
record coming from the review may reduce the number of cases 
that are brought to court after the IRO review is complete, for 
several reasons.
    Mr. Hall. Tell us why you believe that.
    Mr. Dunne. The record itself, and the so-called work paper 
documents that are developed by the IRO demonstrate the 
complete rationale for our decision as an IRO. That decision is 
made available to everyone: the plan, the State agency, the 
patient, and the provider of care. Rationale is very clearly 
documented. Everyone has access to that information.
    No. 2, it is my understanding that evidentiary-based record 
would be admissible in any legal action. Finally, this 
process--in my mind--brings more confidence, both to the 
patient and the to plan because it is open and independent. I 
think when you take all of those factors together, as Ms. 
Barron and other have said, if you have a well-documented, 
clearly explained, timely performed record, and it says that 
this is the decision, the parties--why would they feel like 
they are in a very good position to go forward?
    Mr. Hall. Mr. Chairman, may I have just 30 more seconds to 
ask Ms. Rosenbaum if she agrees with that?
    Mr. Coburn. Yes, sir.
    Ms. Rosenbaum. Yes, I do.
    Mr. Hall. And do you, Mr. Atkins?
    Mr. Atkins. Yes.
    Mr. Hall. I yield back my time.
    Mr. Coburn. I would like to make one comment. I think Dr. 
Dunne had testified that 50 percent of the cases agreed with 
the plans; 50 percent didn't. I want to make the same point 
that I made at the end of the last panel: Binding external 
review increases quality of care, improves education of 
doctors, improves education of plan management. The fact that 
it is open will accomplish that.
    What we have heard today is some worry about the liability 
question. I will tell you, the last thing I want to do is 
create another lawsuit in this country. I want to tell you 
also, my patients who aren't getting care in Oklahoma today 
because of managed care bought through by some of these 
companies deserve better. If that what it takes to get it, I am 
for getting it.
    Mr. Hall. Will the Chair yield?
    Mr. Coburn. Yes, sir.
    Mr. Hall. You mean that to be binding on both the patient 
and the plan?
    Mr. Coburn. Absolutely. What I will tell you is that I am 
willing to move any way we can to make sure that plans deliver 
the care that they tell the employer/purchaser that they are 
doing. If binding will do it, and binding with a fine up to the 
level of the cost of treatment within a short period of time, I 
am happy to back off of litigation.
    But don't think we are going to get that. I think the 
people you represent don't want any crack in ERISA. They see it 
as a negative. If we can't move to something like Mr. Hall 
said, let us work it out before we get to the floor of the 
House, we are not ever going to accomplish it.
    Mr. Atkins. I just want to say that we are willing to 
support you in getting a tough, binding external review 
provision that is enforced through penalties. It does not 
create liability. I think if we can start there and watch the 
process work, you will see that is happening in Texas. We are 
finding a lot out about what plans are making bad decision and 
which ones aren't. It equips our purchasers, our employers, to 
go after those plans. So I think you will see a huge sea change 
in the way decisions get made, once you put in a good external 
review provision and get this all out in the light of day. I 
don't think liability is necessary--as a first step, anyway.
    Mr. Coburn. The real way is what Mr. Shadegg suggested 
earlier: Let the market work. Let patients own their health 
care. Then they will decide what they want to do with it.
    I want to thank this panel. I apologize for the lengthy 
delay. I appreciate your testimony.
    The record will remain open for 3 days for additional 
questions, if no objections.
    We are dismissed.
    [Whereupon, at 7 p.m., the subcommittee was adjourned.]
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