[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                              MAY 1, 2001


                           Serial No. 107-20


         Printed for the use of the Committee on Ways and Means

74-220                     WASHINGTON : 2001

                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL S. ENGLISH, Pennsylvania        XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona              LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
RON LEWIS, Kentucky
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel


                         Subcommittee on Health

                NANCY L. JOHNSON, Connecticut, Chairman

JIM McCRERY, Louisiana               FORTNEY PETE STARK, California
PHILIP M. CRANE, Illinois            GERALD D. KLECZKA, Wisconsin
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               KAREN L. THURMAN, Florida
PHIL S. ENGLISH, Pennsylvania

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

                            C O N T E N T S

Advisory of April 24, 2001, announcing the hearing...............     2


Library of Congress, Madeleine Smith, Ph.D., Specialist in Social 
  Legislation, Domestic Social Policy Division, Congressional 
  Research Service...............................................    50


AvMed Health Plan, Bruce Weiss, M.D..............................    25
Group Health Cooperative, Cheryl M. Scott........................    12
Moon, Marilyn, Urban Institute...................................    66
Project HOPE, Michael J. O'Grady.................................    59
UnitedHealthcare, Victor E. Turvey...............................    19
University of North Carolina at Chapel Hill, Hon. William L. 
  Roper, M.D.....................................................    56

                       SUBMISSIONS FOR THE RECORD

Suffolk County, New York, Robert J. Gaffney, statement...........    83
Wallace, Samuel B., Washington, DC, statement and attachment.....    85



                          TUESDAY, MAY 1, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:10 p.m., in 
room 1100 Longworth House Office Building, Hon. Nancy Johnson 
[Chairwoman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]


                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
April 24, 2001

    Johnson Announces Hearing on Medicare+Choice: Lessons for Reform

    Congresswoman Nancy L. Johnson (R-CT), Chairwoman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on Medicare+Choice: Lessons for Reform 
The hearing will take place on Tuesday, May 1, 2001, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 2:00 p.m.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include representatives from Medicare+Choice plans and 
program experts. However, any individual or organization not scheduled 
for an oral appearance may submit a written statement for consideration 
by the Committee and for inclusion in the printed record of the 


    The Medicare+Choice program as we know it today was created through 
the Balanced Budget Act of 1997 (P.L. 105-33). The new program, 
Medicare's Part C, was intended to significantly expand the range of 
health care options available to Medicare beneficiaries. 
Medicare+Choice gives beneficiaries the option of choosing to enroll in 
private, integrated health plans that often offer coordinated benefits 
and additional benefits, such as prescription drugs. Today, 15 percent 
of Medicare beneficiaries are enrolled in Medicare+Choice.
    Although Medicare+Choice has proven popular with many 
beneficiaries, the program has recently encountered problems, resulting 
in significant plan withdrawals, premium increases and benefit cuts 
over the past three years. Policy analysts have attributed these 
developments to payment and regulatory problems. In the past two years, 
Congress has acted to increase plan payment rates and to decrease the 
regional variations in rates and benefits afforded to participants, 
with the goal of stabilizing the program and expanding beneficiary 
access to a wider array of choices. However, fundamental payment and 
regulatory problems remain.
    In announcing the hearing, Chairwoman Johnson stated: 
``Medicare+Choice has a great deal to offer Medicare beneficiaries, 
ranging from important innovations in prevention and disease management 
to reduced cost-sharing responsibilities and increased benefits offered 
through some of the plans. Our challenge is to learn from the 
experience of implementing Medicare+Choice so that we can strengthen 
the program as part of our efforts to improve and modernize Medicare 
this year.''


    The hearing's first panel will include representatives of 
Medicare+Choice plans, who will address their experiences and discuss 
the innovations in care made possible through an integrated and 
coordinated health care delivery model. The second panel will include 
experts to discuss the complicated Medicare+Choice payment system, the 
regulatory environment created by the Health Care Financing 
Administration and its impact on program implementation. Panelists will 
also suggest solutions to the program's problems that will help make it 
more market-oriented.


    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Tuesday, 
May 15, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Health office, room 1136 Longworth House 
Office Building, by close of business the day before the hearing.


      Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
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comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. Witnesses are advised that the Committee 
will rely on electronic submissions for printing the official hearing 
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
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these specifications will be maintained in the Committee files for 
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    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
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    4. A supplemental sheet must accompany each statement listing the 
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the designated representative may be reached. This supplemental sheet 
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    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://www.house.gov/ways__means/''.

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


    Chairwoman Johnson. The hearing will come to order.
    Mr. Stark is on his way, and we do have Members from both 
sides of the aisle, so I'm going to start with my opening 
statement. I will read it to him afterwards, if he wants to 
hear it.
    Today the Subcommittee continues its series of hearings on 
ways to strengthen and improve the Medicare Program. This is 
our fourth Subcommittee hearing on Medicare modernization. In 
other hearings this year, we have undertaken a general overview 
of reform ideas, explored the impact of Medicare's regulatory 
burden on providers, particularly on small providers, and 
discussed the issues we will confront as we add a much needed 
prescription drug benefit to the program.
    In addition, the Ways and Means full Committee has examined 
the issue of program solvency with Secretary of the Treasury 
O'Neill, and talked about the administration's health care 
priorities with Secretary Thompson.
    Today's hearing focuses on Medicare+Choice. This important 
program has significantly expanded the range of health care 
options available to some Medicare beneficiaries. In fact, 15 
percent of the program's beneficiaries are now enrolled in 
Medicare+Choice, and many of these beneficiaries enjoy reduced 
cost-sharing obligations, richer benefits, and a more 
coordinated approach to preventive health care and to disease 
    However, we all know that the program has confronted real 
implementation problems. Plan pullouts over the past 3 years 
have been significant. Premiums have increased and benefits 
have been cut. Payment systems are complicated and result in 
inequities that affect both plan participation and the richness 
of the benefit package offered to enrollees. The regulatory 
environment has stifled rather than fostered plan development.
    Over the past 2 years, Congress has acted to increase plan 
payment rates and to decrease the regional variation in rates 
and benefits afforded to participants, with the goal of 
stabilizing the program and expanding beneficiary access to a 
wider array of choices.
    However, a real problem remains. This afternoon we will 
hear from two panels of witnesses who will help us focus on 
both the strengths of the Medicare+Choice program and the 
challenges it faces. Our first panel consists of 
representatives of three health plans participating in the 
program. These witnesses will talk about the valuable services 
Medicare+Choice plans offer beneficiaries. I am particularly 
interested in the innovations in disease management made 
possible through the coordinated care delivery model at the 
heart of the Medicare+Choice program.
    Our second panel will focus on two of the most complicated 
challenges facing the Medicare+Choice program: its convoluted 
payment system and its stifling regulatory environment. Our 
final witness, Mike O'Grady, will suggest solutions to the 
program's problems to stabilize it and make it more responsive 
to the needs of America's seniors.
    I look forward to our witnesses' testimony and to working 
with my colleagues as we develop legislation to ensure that 
Medicare beneficiaries across the country enjoy real choices in 
a healthy, competitive system.
    I might add for the Committee Members, I find one of the 
most difficult responsibilities to bear, as a Member of 
Congress, is to stay in touch, be aware of and open to the 
strengths of the programs that also have very real problems and 
about which there are real concerns.
    If we are to modernize Medicare, we have to modernize 
Medicare fee-for-service and modernize the Medicare+Choice 
program, because each of them hamstrings in different areas of 
the country, and each of them make significant contributions. 
If we are to provide the best quality health care for our 
seniors, we have to have both programs strong, growing, and 
developing, and through each, we will learn different things 
that then, through their interactions, will fulfill the promise 
of Medicare, which we currently are not fulfilling, and that is 
the promise of access to state-of-the-art health care at a 
price you can afford.
    [The opening statement of Chairwoman Johnson follows:]
  Opening Statement of the Hon. Nancy Johnson, M.C., Connecticut, and 
                   Chairwoman, Subcommittee on Health
    Today the Subcommittee continues its series of hearings on ways to 
strengthen and improve the Medicare program. This is our fourth 
Subcommittee hearing on Medicare modernization. In other hearings this 
year, we have undertaken a general overview of reform ideas, we have 
explored the impact of Medicare's regulatory burden on providers, and 
we have discussed the issues we will confront as we add a much-needed 
prescription drug benefit to the program. In addition, the full Ways 
and Means Committee has examined program solvency with Treasury 
Secretary O'Neill and talked about the Administration's health care 
priorities with HHS Secretary Thompson.
    Today's hearing focuses on Medicare+Choice. This important program 
has significantly expanded the range of health care options available 
to some Medicare beneficiaries. In fact, 15% of the program's 
beneficiaries are now enrolled in Medicare+Choice. Many of these 
beneficiaries enjoy reduced cost-sharing obligations, richer benefits, 
and a more coordinated approach to preventive health care and disease 
    However, we all know that the program has confronted real 
implementation problems. Plan pull-outs over the past three years have 
been significant. Premiums have increased and benefits have been cut. 
Payment systems are complicated and result in inequities that affect 
both plan participation and the richness of the benefits offered to 
enrollees. And the regulatory environment has stifled rather than 
fostered plan development.
    Over the past two years, Congress has acted to increase plan 
payment rates and to decrease the regional variations in rates and 
benefits afforded to participants, with the goal of stabilizing the 
program and expanding beneficiary access to a wider array of choices. 
However, real problems remain.
    This afternoon we will hear from two panels of witnesses who will 
help us focus on both the strengths of the Medicare+Choice program and 
the challenges it faces. Our first panel consists of representatives of 
three health plans participating in the program. These witnesses will 
identify talk about the valuable services Medicare+Choice plans offer 
beneficiaries. I am particularly interested in the innovations in 
disease management made possible through the coordinated care delivery 
model at the heart of the Medicare+Choice program.
    Our second panel will focus on two of the most complicated 
challenges facing the Medicare+Choice program--its convoluted payment 
system and its stifling regulatory environment. Our final witness, Mike 
O'Grady, will suggest solutions to the program's problems to make it 
more market-oriented and more responsive to the needs of Medicare's 
    I look forward to our witnesses' testimony and to working with my 
colleagues as we develop legislation to ensure that Medicare 
beneficiaries across the country enjoy real choices within a healthy, 
competitive system.


    So I welcome our panelists. I am pleased to start this 
hearing, and I'm delighted that Mr. Stark has been able to 
conclude his work that we all have, with our hospitals in town 
today, and I do----
    Mr. Stark. How did you know?
    Chairwoman Johnson. Because your staff told me. But I just 
finished with my hospital people, and some from other States, 
and that's very, very important because we'll never understand 
the problems if our own providers don't line them out for us in 
pretty clear terms. Mr. Stark.
    Mr. Stark. Thank you, Madam Chair, and thank you for 
accepting my tardy slip. I thank you for holding this hearing.
    I think a lesson we can learn from Medicare+Choice to date 
is that it's not a program that will solve Medicare's ills. In 
fact, it has created a number of new problems, including seeing 
Medicare beneficiaries dropped from their health plans on a 
yearly basis, something that we never experienced prior to the 
existence of Medicare+Choice.
    I have no quarrel with making private plan options 
available to Medicare beneficiaries, but the choice to enroll 
should be a choice. We have for years been paying these plans 
beyond their costs, and the plans use the excess payments to 
seek and maintain enrollment by offering extra benefits.
    The General Accounting Office (GAO) and the Office of the 
Inspector General (OIG) of Health and Human Services have 
confirmed that the actual payment rates for Medicare+Choice 
plans have risen faster than per capita health care spending 
since 1997. The experts believe we are now paying private plans 
at least 98 percent of the fee-for-service costs, without 
taking into effect any risk selection.
    As the Chair will recall, these same HMOs told us they 
could provide savings to Medicare, which was why the rate was 
set at 95 percent in the first place. To those who argue that 
we should be paying these private plans the same amount as the 
fee-for-service costs, we're already paying more. There is just 
no sense to that argument.
    The GAO estimated that the HMOs were paid 21 percent more 
in 1998 than would have been paid under traditional Medicare to 
provide the same covered benefits to the HMO enrollees. That 
resulted in excess payments, relative to what they would have 
paid under Medicare, of over $5 billion. That's a thousand 
bucks a year per beneficiary. That would probably pay for their 
``Medigap''. Actually, I guess they said it was $1,200 per 
patient, and I guess that could be spent by these managed care 
plans on additional non-Medicare benefits, as could we, if we 
had those savings in the fee-for-service Medicare, which most 
of our beneficiaries are now in.
    The administrative costs of the managed care plans ran up 
to 32 percent, and the OIG found numerous questionable 
administrative costs that plans had submitted for payment, 
including in one case $250,000 for meetings and $800,000 in 
lobbying costs. I'm sure, Madam Chair, you and I didn't eat 
$800,000 worth of dinners from those managed care plans. And 
fines, which we paid for, for some reason.
    Last year we gave the managed care plans a boost of more 
than $12 billion over 10 years, and Chairman Thomas took the 
floor and said every dollar that is added must be converted to 
benefits for individuals. This is not always for providers. 
It's supposed to be for beneficiaries. But I don't know as 
we've seen the Chairman's assertion become a reality.
    The Health Care Financing Administration (HCFA) found that 
just four organizations returned to the program, after we 
raised the payments to them, and more than 65 percent of the 
money was going to enhance provider networks. So I'm willing to 
bet that providers will be in here later this year asking for 
more money again, and we will also hear that the managed care 
plans are overregulated or inappropriately regulated by an 
organization that favors their so-called competitor, and I 
think that's not true. It says here that's pure hogwash, but I 
would just tell you that I don't think it's true.
    Just as major employers run their various health plans--
fee-for-service to PPOs, HMOs--under one umbrella, so should 
HCFA run the plans under one umbrella. To argue that the agency 
favors one part of the program over another I think is 
ludicrous on its face and it would be inappropriate and 
inefficient to try and separate out of the program this managed 
Medicare+Choice program to a different regulatory agency. If we 
think we have problems monitoring the quality now, just think 
of the problems we would have doing it with more than one 
    So at the end of the day, this much is true. Despite an 
infusion of reform and resources, enrollment in managed 
Medicare+Choice is the same now as it was when we started this 
journey in 1997. Industry consolidation has led to fewer plans 
participating, and that trend is echoed in the private market 
and in Medicaid and the Federal Employees Health Benefits Plan 
as well. Plans admit that money is not always the problem; 
there are other issues that dictate plan participation.
    I would say this experiment has failed, but for reasons 
other than those that will be given by my colleagues and by our 
witnesses today. I am also saying let's not repeat this mistake 
by just restructuring in the name of reform.
    I look forward to today's testimony, Madam Chair. Thank 
    [The opening statement of Mr. Stark follows:]
   Opening Statement of the Hon. Fortney Pete Stark, M.C., California
    Madame Chairwoman, I thank you for holding this hearing on the 
Medicare+Choice program. I share your desire to expand our knowledge of 
what is going on with this program--though I think the reasons for our 
interest are quite different.
    There are many lessons we can and should learn from 
Medicare+Choice. These lessons provide valuable insights about how to 
move forward with changes in the Medicare program. I think the most 
important lesson we can learn from the Medicare+Choice program to date 
is that it is not a program that will solve Medicare's ills. In fact, 
it has created a number of new problems, which include Medicare 
beneficiaries getting dropped out of their health plans on a yearly 
basis--something that was never experienced prior to the existence of 
    I have no quarrel with making private plan options available to 
Medicare beneficiaries. In fact, for decades, Kaiser Permanente has 
provided health care for fully half of my constituents and most of them 
are happy with that care. When those people become Medicare-eligible, 
many of them--like my in-laws--insist on staying with Kaiser. I support 
making it possible for them to do so. However, the choice to enroll in 
a private plan should be just that--a voluntary choice. Medicare's 
policies should be neutral with respect to whether beneficiaries should 
enroll in such plans. The program's payment policy and other rules 
should neither discourage nor encourage enrollment in HMOs or other 
private plans. Yet, while neutrality is desirable, for years plans have 
been paid beyond their costs and used the excess payments to seek and 
maintain enrollment by offering extra benefits at no or low extra cost.
    Both the General Accounting Office and HHS Office of the Inspector 
General have confirmed that actual payment rates for M+C plans have 
risen faster than per capita spending since 1997. Experts believe we 
are now paying the private plans at least 98 percent of fee-for-service 
costs, without taking into account risk selection. And remember, HMOs 
said they could provide savings to Medicare, which is why the rate was 
set at 95% of the fee-for-service rate in the first place. Those who 
argue that we should be paying the private plans the same amount that 
as the fee-for-service costs can rest assured, because in many 
instances we are already paying more. In fact, the only way most of 
these plans can survive is to bribe beneficiaries to give up freedom of 
choice by offering better benefits than the traditional program--
usually in the form of prescription drug coverage, lower cost-sharing 
and coverage for preventive services.
    The GAO estimated that HMOs were paid 21 percent more in 1998 than 
would have been paid under traditional Medicare to provide covered 
benefits to the HMO enrollees, resulting in excess payments--relative 
to traditional Medicare--of $5.2 billion. The GAO also found that plans 
which terminated their Medicare contracts in 2000 or 2001 spent 22 
percent of their Medicare payments--equal to approximately $1,200 per 
patient--on additional non-Medicare benefits, including prescription 
drugs, preventive services and lower cost-sharing.
    Another investigation by the HHS OIG found M+C plan administrative 
costs in 1999 of up to 32 percent. It found numerous questionable 
administrative costs that plans had submitted to Medicare for payment, 
including nearly $250,000 for one HMO's costs associated with meetings, 
more than $800,000 in lobbying costs for seven HMOs, and more than 
$48,000 in fines and penalties for late tax payments by two HMOs. Yet 
these same plans tell us they are underpaid. It simply doesn't add up--
for the taxpayers or for the beneficiaries.
    Last year, Congress gave the M+C plans a payment boost of more than 
$12 billion over 10 years, not counting more than $20 billion in 
indirect increases that result from increased fee-for-service spending. 
Chairman Thomas took to the floor on October 26, 2000 to promise that 
``Every dollar that is added must be converted to benefits for 
individuals.'' He went on to say, ``Let us remember that this is 
supposed to be not always for providers, it is supposed to be for 
beneficiaries.'' But a recent study by HCFA found that just four 
organizations returned to the program and more than 65 percent of the 
money is going to enhance provider networks.
    While it is clearly important to have strong provider networks, is 
it really Medicare's responsibility to pay private plans more to 
contract with providers who generally already serve Medicare 
beneficiaries in the traditional program? While Medicare margins are 
generally quite comfortable for many providers, there is no doubt that 
some providers have signed unacceptably low contracts with private 
plans. But that's not the taxpayer's fault, nor it is Medicare's fault, 
nor is it the beneficiaries' fault. Yet all are paying the price as a 
result. Even so, I am willing to bet that providers will be in here 
later this year asking for more money. Accordingly, I hope that HCFA 
and the plans can document the increased provider rates that are being 
paid by the plans as a result of our most recent investment in the M+C 
    Another cry that we will no doubt hear today is that the M+C plans 
are over-regulated or inappropriately regulated by an organization that 
favors their so-called competitor, fee-for-service Medicare. That's 
pure hogwash.
    Just an major employers run their various health plans--often 
ranging from fee-for-service to PPOs to HMOs--under one umbrella, so 
should HCFA. To argue that the agency favors one part of the program 
over another is ludicrous on its face. It would be inappropriate and 
inefficient to separate out the M+C program to a different regulatory 
agency. If you think we have trouble monitoring quality now, just try 
doing it across different agencies.
    For years, plans have been asked to provide concrete examples of 
the regulatory burden. The most frequent complaint appears to be 
related to the requirement to collect encounter data. But surely many 
of the plans already monitor these data for commercial populations; if 
they are not, I believe it is not too much to ask that they do so now. 
After all, how do they deliver preventive benefits and run disease 
management programs? How do they coordinate care? How do they manage a 
business in the absence of this critical information? Shouldn't we 
instead be asking about the beneficiary burden of not properly risk-
adjusted payments or adequately monitoring quality-of-care?
    At the end of the day, this much is true: Despite an infusion of 
reform and resources, enrollment in M+C is about the same now as it was 
when this stage of the odyssey began in 1997. Industry consolidation 
has led to fewer plans participating in the program, but that trend is 
echoed in the private market, Medicaid and the Federal Employees Health 
Benefits plan, too. Plans freely admit that money is not always the 
problem. There are other issues that dictate plan participation.
    I would say this experiment has failed, but for reasons other than 
those that will be given by some of today's witnesses. The creation of 
M+C was a solution looking for a problem, and it's now created one. 
Let's not repeat this mistake by taking the entire program down the 
road of radical restructuring in the name of reform. I look forward to 
today's testimony, and I thank the Chair.


    Chairwoman Johnson. Thank you, Mr. Stark.
    I'm glad you didn't use ``hogwash'', because good people 
can differ on these issues, and we do. Now I would like to 
recognize Mr. Ramstad for purposes of an introduction.
    Mr. Ramstad. Thank you, Madam Chair, and thank you for 
calling this hearing today to discuss the Medicare+Choice 
    Madam Chair and colleagues, it is my pleasure to introduce 
to the Subcommittee Vic Turvey, who is President of the Midwest 
Region of UnitedHealthcare. I think everyone on this 
Subcommittee knows that UnitedHealthcare and its parent 
company, UnitedHealth Group, are important corporate citizens 
in my district in Minnesota. I am glad to see United 
represented at the hearing today.
    This is truly an outstanding company that provides a 
shining example of the high quality, cost-effective health care 
that the private sector, working with the Federal government, 
can bring to Medicare beneficiaries.
    I have spent considerable time with United's 
Medicare+Choice staff, and I know that United's employees are 
very dedicated. They care about the beneficiaries. Time and 
time again, I am amazed at the many high quality, innovative 
programs that United has developed. Certainly UnitedHealthcare 
and UnitedHealth Group have truly been a national leader in the 
health care field for seniors, and certainly in the 
Medicare+Choice program, always looking for new solutions to 
improve care for beneficiaries in the Medicare+Choice program, 
and in Medicare in general.
    UnitedHealthcare and UnitedHealth Group are certainly very, 
very important players in Medicare+Choice. They have done it 
right, simply stated. So I look forward to hearing Vic describe 
some of United's efforts to enhance Medicare beneficiaries' 
health care coverage that are above and beyond the traditional 
programs offerings, and I am pleased again, Vic, to welcome you 
to the Subcommittee. Thank you for being here today.
    I yield back. Thank you, Madam Chair.
    [The opening statement of Mr. Ramstad follows:]
       Opening Statement of the Hon. Jim Ramstad, M.C., Minnesota
    Madam Chairwoman, thank you for calling this hearing today to 
discuss the Medicare+Choice program.
    As a representative from a state hurt by the unfair and unjust 
inequity in the Medicare managed care reimbursement formula, I know 
firsthand the difficulties faced by seniors when irrational decisions 
at the federal level deny them the choices they deserve. As I have said 
repeatedly before this Committee, because Minnesota has a history of 
efficient health care, we are penalized by low Medicare+Choice 
    The Medicare+Choice program does improve the coordination of care 
and provide our seniors with increased benefits, if reimbursements are 
high enough.
    Today, we will hear about the innovative, comprehensive and 
coordinated care offered by great companies like UnitedHealth Group. 
These benefits aren't easily quantified or put on a chart for a cost/
benefit analysis. However, they are incredibly important, especially 
for managing chronic diseases and keeping people healthier longer.
    But when HCFA continues to penalize states like Minnesota which 
have historically provided excellent care at a low price, 
Medicare+Choice beneficiaries suffer. Any system that rewards the least 
efficient and penalizes those who watch the bottom line simply isn't 
    That's why I was pleased that last year we were able to increase 
the minimum floor payment for Medicare+Choice to $475 in rural counties 
and $525 in urban counties. This first step toward fairness has allowed 
the two Medicare+Choice plans in Minnesota, UCare Minnesota and 
HealthPartners, to both reduce their premiums and increase benefits. 
This is the kind of responsible health care Minnesota is known for, and 
I am proud of what they've done.
    Madam Chairwoman, I know this is a controversial issue, I know that 
everyone here today doesn't see eye-to-eye on the Medicare+Choice 
program. However, I know that managed care has an important role in 
improving patient care in the Medicare system and provides needed 
choices for our seniors.
    Thanks again for your leadership. I look forward to learning more 
from today's witnesses on how we can best address this issue.


    Chairwoman Johnson. I would also like to recognize 
Congresswoman Dunn for purposes of introduction.
    Ms. Dunn. Thank you very much, Madam Chairman. I want to 
welcome Cheryl Scott, who is the President and chief executive 
officer of Group Health Cooperative to the Subcommittee today. 
She has been with Group Health since 1979, and she assumed her 
presidency in 1997.
    She has served on the boards of the American Association of 
Health Plans, the Greater Seattle Chamber of Commerce, and the 
Health Care Forum. Cheryl also teaches as an associate clinical 
professor in the graduate program in health administration at 
the University of Washington.
    She is recognized as a leader in health care and has 
focused her community involvement on addressing the uninsured 
and on education. Cheryl and Group Health have been committed 
to serving the seniors in Washington State. I commend them for 
reducing their premiums in the Medicare+Choice program once 
Congress passed the Benefits Improvement and Protection Act 
last year.
    Madam Chairman, I appreciate having this opportunity to 
introduce her, and I think we can all look forward to hearing 
her suggestions to improve the Medicare+Choice program. I yield 
    Chairwoman Johnson. I would like to recognize Mr. McDermott 
for purposes of welcoming.
    Mr. McDermott. I second the remarks of Ms. Dunn, but I also 
want to say that Newsweek ranked Group Health as the best HMO 
in the Northwest. It is no surprise to any of us who live 
there. Congratulations.
    I think her testimony is good to listen to, because they 
have been operating since 1947 with lots and lots of experience 
in this area. Thank you.
    Chairwoman Johnson. Thank you, Mr. McDermott.
    My welcome to the first panel, which consists of Cheryl 
Scott, President and Chief Executive Officer of Group Health 
Cooperative of Puget Sound, Seattle, WA; Victor Turvey, 
President of the Midwest Region, UnitedHealthcare, Maryland 
Heights, MO.; and Dr. Bruce Weiss, Vice President, Medical 
Operations, AvMed Health Plan, Gainsville, FL. We welcome all 
three of you and look forward to your comments. Ms. Scott.
    Mr. Ryan. Madam Chair?
    Chairwoman Johnson. Yes, please.
    Mr. Ryan. I would just ask unanimous consent to insert an 
opening statement into the record.
    Chairwoman Johnson. Certainly, you may. We're glad to have 
you with us, a new member of our Committee.
    [The opening statement of Mr. Ryan follows:]
        Opening Statement of the Hon. Paul Ryan, M.C., Wisconsin
    Two years ago, in the district I represent, the First District of 
Wisconsin, we had many seniors who were about to lose their 
Medicare+Choice benefits because two providers had to stop providing 
services. The reimbursement rates in Racine, WI, were simply too low 
for these providers to be able to continue to provide quality care.
    I held a town hall meeting on the withdrawal of these providers. 
Over 2000 seniors showed up at this meeting to express their support 
for continuing a Medicare+Choice program. Seniors in my district told 
me they did not want to lose the choices and benefits that this program 
provides them.
    Thanks to the efforts of one senior in attendance at that meeting a 
petition drive was started to improve the reimbursement rates for 
Medicare+Choice providers in Wisconsin. With the help of Congressman 
Bill Thomas, Members of this committee and the efforts of health care 
providers in the first district of Wisconsin, we were able to persuade 
a Medicare+Choice provider to stay in my district.
    That experience taught me two things: 1) Seniors want and deserve 
to have choices in Medicare beyond those that the traditional Medicare 
system are able to offer; and 2) the current Medicare system is 
woefully inadequate to meet the needs of this population.
    Medicare is plagued by inadequate reimbursements for managed care 
organizations all over the country but Wisconsin is one of the states 
that is hardest hit. The Medicare+Choice system developed under the 
Clinton administration does not adequately reflect the cost of care to 
    Medicare HMOs in some areas of the country are able to provide 
prescription drug coverage through the Medicare+Choice program. 17% of 
all Medicare beneficiaries receive prescription drug benefits through 
this program. Currently, due to inadequate reimbursement rates, 
Wisconsin seniors and seniors in other parts of the country are not 
able to take advantage of prescription drug benefits in their 
Medicare+Choice HMOs.
    The inadequate reimbursement rates for providers and the inability 
of Medicare to keep up with the changing needs of seniors, especially 
in states like Wisconsin, show the need for comprehensive Medicare 
Reform. I believe we need to allow seniors to have more choices in 
health care. I think Medicare+Choice has shown us that seniors want and 
need these choices.
    The Medicare system needs reform because many current provisions 
are proving to be unworkable. The current system is overly complex and 
too many providers are not receiving adequate reimbursements-this 
situation threatens the benefits that seniors are receiving. Medicare 
should be reformed to allow seniors to have the same number of choices 
that Members of Congress receive in their health plan. Seniors have a 
right to choose the coverage that provides for their specific needs.


    Chairwoman Johnson. Excuse me, Miss Thurman. I didn't 
realize you wanted to be recognized. My mistake. Before we 
proceed, it is my pleasure to recognize Karen Thurman of 
    Mrs. Thurman. Thank you, Madam Chairman.
    I just want to say a few things about Dr. Weiss. He is the 
Chief Medical Officer and Group Vice President of Medical 
Operations at AvMed Health Plan. Just for our information, that 
is Florida's oldest and largest not-for-profit health 
maintenance organization and we believe they provide quality 
health care coverage for about 325,000 commercial Medicare and 
Medicaid Members Statewide.
    However, interestingly, as we go through this hearing 
today, and as he will cite to you, the Medicare+Choice numbers 
have actually fallen over the last several years because of 
changes, actually going from about 75,000 to 30,000 since 1999. 
But he has done a very good job, I think, of pulling together 
disease management studies on patients in and around the area, 
and not only coordinating their health care needs on site, but 
also their health care needs in home health care with their 
nursing staff, and providing some expertise that we believe 
actually gives us an advantage in management of disease control 
to our constituents.
    I might add that they are actually in my district, their 
operations are there, and just so this Committee will know, we 
have had good times and bad times together, so I don't want it 
to be said that we've always had the best relationship, but we 
have also had a very good working relationship. I think that's 
kind of what happens in these situations when constituents 
    Dr. Weiss, we're glad to have you here today.
    Chairwoman Johnson. And I welcome the panelists. Ms. Scott.


    Ms. Scott. Thank you very, very much, and I particularly 
thank you, Congresswoman Dunn and Congressman McDermott, for 
your kind words. I means quite a bit.
    What I would like to do today is to talk a little bit about 
Group Health and our philosophy of care, and I want to talk 
about innovation in a particular way. I really do appreciate 
the Subcommittee's interest in innovation, the Committee's 
interest in the patient. Oftentimes, I believe, when we get 
into the Medicare+Choice debate, we get into technical issues. 
This is a great opportunity to step back and take a look at 
what can we do for the beneficiaries, for our consumers, and 
for our citizens.
    A bit about the Cooperative. It is not-for-profit. We take 
care of about 600,000 citizens in the State of Washington, 
including 60,000 Medicare beneficiaries. We are the Nation's 
largest consumer-governed health care organization. Our board 
of trustees--and I think Mr. McDermott was alluding to it--is 
elected by the Membership. Therefore, we, and I personally, are 
accountable to the Membership for the care they receive. It's a 
unique model and a model that we believe in quite strongly.
    In terms of Medicare, we have been an active participant in 
the Medicare program since 1976, so we do have many experiences 
to talk about.
    What I would like to talk about is something that is 
fundamental to this discussion around innovation, and that is a 
prepared financing mechanism. Prepayment gives the health care 
organization an ability to take care of the patient without 
tying economics to whether a patient is hospitalized, whether 
there's a physician visit, or whether there's a procedure. 
Therefore, you can design a whole continuum of care on behalf 
of that consumer. That continuum of care, the ability to not 
only treat disease but also to prevent illness, is an 
incredible gift, an incredible opportunity, and a choice that 
we believe, particularly at the Cooperative, obviously, is a 
choice that is worth making.
    It also allows you to really focus on working with 
physicians and consumers, because they choose to align 
themselves with health care organizations such as Group Health. 
Our success in large part is because our physicians and our 
consumers choose us, and they choose this kind of philosophy of 
    Is this for everyone? No. But it is an option, and a very 
exciting one, for a lot of people who would like to see their 
services coordinated on their behalf by a group of physicians 
accountable to their consumers in terms of their overall 
    So let's talk a little bit about the innovations that we've 
achieved, and I will give you three examples.
    One is called evidence-based care. I think the Subcommittee 
probably knows this, but on a monthly basis, there are over 
30,000--let me repeat--30,000 different citations in the 
medical literature. How is a practicing physician, let alone a 
consumer, to know what is the right evidence? What we have been 
able to do is start an evidence-based program for every single 
one of our physicians, particularly our primary care 
physicians. We actually have a group of doctors, pharmacists, 
nurses, who go over that literature and then publish, through 
our intranet, guidelines based on that evidence.
    An example of how this works involves a Project HOPE study 
which said that we should increase our ACE inhibitors--that's 
for cardiovascular disease--we should increase the dosage and 
double it. We were able to get that recommendation out to our 
physicians and actually start to change our practice patterns 
almost immediately. That is very difficult to do when you're 
not population-based. That is very difficult to do when you 
don't have a continuum of care of services or a system of care. 
It is not impossible, but it's much more difficult to do.
    The other thing that we are able to do is every single one 
of our physicians has a registry, a listing of each of their 
patients and the chronic care diseases, that they're dealing 
with. For instance, if I'm a doc at Group Health, I can go to 
my computer and see in my panel of about 2,000 or 2,500 
patients, who has cardiac artery disease, who has diabetes. In 
terms of diabetic care, physicians can see whether patients 
have gotten their eye exams or their foot care exams.
    In the case of cardiac artery disease a physician could 
ask, ``Should I bring some patients in now based on this new 
study? Can I prevent illness before it occurs?''
    That notion of technology, by the way, the ability to use 
automated clinical information systems, is key in terms of both 
health promotion and also taking care of people who are ill.
    But it really goes beyond disease. What we really try to do 
is manage populations, not diseases. We are really there for 
the consumer, not necessarily just for the visit, the day, or 
the hospitalization.
    The other issue that I would like to talk about is this 
notion of the mental and psycho-social issues associated with 
our seniors. In my written remarks I talked a lot about 
exercise and fitness. This isn't around attracting healthy 
seniors and trying to change your risk pool. This is quite the 
opposite. This is giving people's lives back who have chronic 
debilitating diseases, and we have numerous programs--you can 
see in the testimony what those programs are--to give those 
people their lives back, to give them a sense of pride, to give 
them a sense of what's right.
    Again, that is not tied to a visit a day or a 
hospitalization or a procedure. That is tied by the basic 
financing mechanism of prepayment.
    Finally, uniquely to Group Health, we do have opportunities 
because we are a consumer organization. We are very, very 
committed to being accountable to our consumers. Again in my 
testimony you will see many different allusions to the programs 
that we provide.
    Undoubtedly, we need to look at Medicare with new, fresh 
eyes. The reform debate holds great opportunities for us. This 
notion of prepayment, the ability to take care of patients in a 
different kind of way because we are prepaid, because we can 
offer a continuum of care, I think that is where the innovation 
can really flower. Working in partnership with government and 
with our consumers, I think we can be very, very successful.
    Thank you very much.
    [The prepared statement of Ms. Scott follows:]

 Statement of Cheryl M. Scott, President and Chief Executive Officer, 
             Group Health Cooperative, Seattle, Washington

I. Introduction

    Madam Chairwoman and members of the Subcommittee, thank you very 
much for the opportunity to testify on our experiences in serving 
Medicare beneficiaries. I am Cheryl Scott, President and Chief 
Executive Officer of Group Health Cooperative based in Seattle, 
Washington. Founded in 1947, Group Health is a not-for-profit and with 
nearly 600,000 members, is the nation's largest consumer-governed 
health care organization.
    Group Health Cooperative has a long-standing commitment to serving 
Medicare beneficiaries. Shortly after Medicare's creation, we began 
working with the government to design a program that would allow 
Medicare to work with prepaid health care organizations like Group 
Health. In 1976, we were the first organization to partner with the 
government under what was then referred to as the Medicare risk 
program. At present, we serve nearly 60,000 Washington state 
beneficiaries under Medicare+Choice.

II. Value in the Pre-Paid Model of Care

    Over the years, the program's name has changed, but the fundamental 
concept-- serving Medicare beneficiaries through a pre-paid model of 
care--has remained the same. This model allows us to direct resources 
to areas of greatest need and to be creative and innovative in 
designing programs. Simply stated, when you are not paid on an 
encounter by encounter or procedure by procedure basis, you can shift 
your focus to include longer-term improvement in health outcomes.
    Pre-payment has enabled Group Health to deliver care over a broad 
continuum by investing in prevention programs to help people stay 
healthy, while at the same time making sure that individuals receive 
comprehensive care they need when they are ill. It also has enabled 
Group Health and other plans to develop highly integrated and 
coordinated care delivery systems by creating opportunities for 
physicians, hospitals, and other health providers and facilities to 
associate with each other. These systems of care are particularly 
crucial for Medicare members, who often have multiple health issues and 
see more than one provider.

III. Innovations in Serving Medicare Beneficiaries

    Group Health has developed programs related to chronic illnesses 
common in the elderly including depression, diabetes, and heart 
disease. We also have initiatives in prevention and acute care for 
conditions such as breast, cervical, and colorectal cancer. At present, 
work is underway on a ``senior care roadmap'' that will unify these 
initiatives with other special needs of seniors, including fall 
prevention and medication management.
    Although the programs span a wide spectrum of health care 
conditions and approaches, they all reflect the partnerships created 
between an organization, patients, clinicians, and other providers that 
are the heart of the pre-paid model of care. Group Health Cooperative, 
our members, and providers have worked hard to devise these programs. I 
am pleased to have the opportunity to share more information about some 
of them today and to talk about how we partner with our providers and 
members in developing them.

Partnering with Providers to Improve Care Delivery for Medicare 
Focus on Evidence-Based Medicine
    Since Medicare's inception, the practice of medicine has changed 
dramatically. Technologies and therapies considered to be highly 
advanced just years ago are quickly becoming outdated. Helping our 
providers keep up with changes and the best approaches to care is one 
of the most important contributions of Group Health's care delivery 
model. Our focus on evidence-based medicine--a systematic approach to 
collecting and critically evaluating available scientific evidence on 
treatment options--seeks to offer practitioners and patients the 
information they need to make informed decisions about treatment 
options. It also helps ensure that health care dollars are being spent 
on treatments that have proven benefits.
    Since 1990, clinicians working in collaboration with the Guideline 
Development Support Team have developed more than thirty guidelines. 
Several of these guidelines address the treatment or prevention of 
conditions prevalent among Medicare beneficiaries including cancer 
screenings, diabetes, cardiovascular disease, heart failure, 
depression, and osteoporosis. These guidelines are meant to be useful 
aids in determining appropriate practices for many patients with 
specific clinical problems or prevention issues. They are not intended 
to replace an individual practitioner's clinical judgment or establish 
a rigid standard of care.
Teaming Up On Heart Disease Through The Heart Care Road Map Team
    The Heart Care Road Map Team is one specific example of how our 
evidence-based approach can improve health outcomes for our Medicare 
members. The Team includes cardiologists, family practitioners, nurses, 
pharmacists, a health educator and quality improvement specialists, 
among others. Together, the Team works to analyze and evaluate 
available scientific evidence about heart disease and best available 
treatment methods, and then shares its findings and recommendations 
with our practitioners.
    Recently, the Team decided to recommend doubling the prescribed 
dosage level for an angiotensin-converting-enzyme (ACE) inhibitor given 
to patients with heart disease. The decision was based on a Project 
HOPE study of nearly 10,000 subjects from 270 hospitals that indicated 
that for every 27 patients treated with an ACE inhibitor for five 
years, one death from cardiovascular disease, myocardial infarction, or 
stroke was prevented. Our system for evaluating and implementing 
evidence-based medicine, as recommended in the recent Institute of 
Medicine report, allowed us to respond quickly to this breakthrough 
    In addition, Group Health has an electronic disease registry, which 
helps our practitioners monitor whether cardiac patients are getting 
the treatment they need and clearly shows whether a patient is due for 
a cholesterol check or has been offered the currently recommended 
therapies. We know that our work in this area is paying off. Our 1999 
Health Plan Employer Data and Information Set (HEDIS) performance 
measure showed that 87 percent of our adult members who had a heart 
attack received beta-blockers, which have been shown to lower blood 
pressure and reduce risk for another heart attack.

Improving Beneficiaries' Health and Well-Being Through Exercise

    In the early 1980's, Group Health partnered with the University of 
Washington to examine key determinants of seniors' health and found 
that regular exercise and social interaction were the two most 
important factors. Since then, other studies have validated their 
findings. There is no segment of the population for whom exercise is 
not important. Whether an individual is 65 or 95, whether they are 
already physically active or restricted to wheelchairs, whether they 
are healthy or have painful crippling conditions, we know that exercise 
can make a difference. We also know that people with functional 
deficits have been shown to benefit the most from exercise.
    With this in mind, Group Health set out to bring the benefits of 
exercise to individuals who have disabilities or serious, chronic 
medical conditions such as heart disease, chronic obstructive pulmonary 
disease (COPD), arthritis, diabetes, and depression. One outcome of 
this effort is the ``Lifetime Fitness'' program offered in 5-week 
sessions in community senior centers around the area. Aside from the 
fitness component, the program offers members opportunities to 
socialize and to develop a community support network. To give you an 
idea of this aspect of the program, I share with you the following 
quotation, which appeared in Group Health's Senior Outlook Newsletter:

        ``We have a telephone committee that calls members who have 
        been absent two times in a row, just to tell them we miss 
        them,'' he says. ``A greeters committee helps new members feel 
        at home, and another committee organizes occasional lunches out 
        after class.''
                           Group Health Medicare+Choice Member, Age 87;
                               Lifetime Fitness Participant for 2 Years

    In addition to Lifetime Fitness, the Care Center at Kelsey Creek, 
Group Health's long-term care and skilled nursing facility, is working 
on an exercise program for nursing home patients that will serve as a 
model for our most frail beneficiaries. Finally, I urge you all to read 
the article submitted as an attachment about ``Dancing Ladies'' a 
ballet-based exercise program for women, many of whom have serious 
mobility difficulties.
    Group Health takes its work in this area very seriously, and we 
continually strive to improve our programs. As such, we are evaluating 
our fitness programs to assess their impact on key health indicators. 
These evaluations will help us identify the need for any modifications 
to ensure that our programs meet the goals of ``healthy aging''--
optimizing function, preventing avoidable decline in health status, and 
enhancing quality of life.

Providing Beneficiaries Opportunities To Have A Greater Voice In Their 

    We believe that pre-payment is the basis for our innovations in 
health care for Medicare beneficiaries and that it creates unique 
opportunities for patients and providers that are not necessarily 
available in an encounter-based system of care. Unlike a system that 
pays by the encounter, a pre-payment system lends itself to 
establishing longer-term relationships and partnerships between the 
organization and individual. Group Health's Senior Caucus, a board-
recognized special interest group, is perhaps one the best examples of 
these partnership opportunities. Senior Caucus members participate in a 
variety of activities including the work on our senior care roadmap. 
Group Health provides support for its activities, but the Senior Caucus 
operates independently under its own rules and policies. Since its 
founding nearly twenty years ago, members of the Senior Caucus have 
helped to develop:
     The Senior Peer Counseling Program, which offers short-
term problem solving and ``talking support'' by trained senior 
     The Group Health Resource Line, which is staffed mainly by 
senior volunteers. Originally the Senior Information Line, it was 
expanded in 1990 to include health information for Group Health 
patients of all ages and connects Medicare members to services 
available through group Health and the greater community.
     Silver Glen, the only senior housing cooperative in the 
Greater Seattle area.
     The Senior Outlook Newsletter, which educates all senior 
members with timely articles about health promotion and current events 
in and around the Cooperative.
     Senior health promotion pamphlets, available through Group 
Health medical centers and the Group Health Resource Line.
    In addition to having a say in program development and the 
Cooperative's governance, Group Health seeks to provide our Medicare 
members with a greater voice and role in their own care through our 
health education and promotion projects. At present, we have classes, 
workshops, forums, and support groups on a wide range of topics 
including Alzheimer's disease, cancer, diabetes, grief and loss.
    One more specific example is Group Health's ``Living Well with 
Chronic Conditions Workshop,'' a six-session workshop to help people 
learn how to manage their conditions and improve their quality of life. 
Workshop participants learn how to set realistic goals, achieve 
successes and build confidence in managing their health, covering 
topics such as nutrition, exercise, stress management, medication 
management and planning for the future.

IV. Ensuring The Viability Of The Medicare+Choice Program

    Group Health Cooperative, like other plans here today, offers 
Medicare beneficiaries lower out-of-pocket costs and additional 
benefits not available in fee-for-service Medicare. These aspects of 
Medicare+Choice are tremendously important to our members, particularly 
those with lower incomes who might otherwise face financial 
difficulties in accessing needed care. As described here today, our 
model of care under the Medicare+Choice program--for which the keystone 
is pre-payment--enables us to provide beneficiaries much more.
    Group Health appreciates Congress' efforts to address payment and 
regulatory issues that in recent years have challenged plans' abilities 
to continue their participation in the program. As a result of the 
Benefits Improvement and Protection Act (BIPA), Group Health was able 
to reduce our members' 2001 Medicare+Choice monthly premium by $13. We 
put some of the additional funds into the benefits stabilization fund 
to help minimize any future premium increases that we might have to 
make. We also increased payments to our physicians and hospitals. We 
believe, however, that more needs to be done, particularly with respect 
to the regulatory environment. With that in mind, we offer the 
     Honor the Intent of Congress When Implementing Risk 
Adjustment: The Health Care Financing Administration's (HCFA) current 
approach to risk-adjustment reduces Medicare+Choice payments, which has 
contributed to the instability in the program. Group Health urges HCFA 
to implement the risk-adjuster in a budget neutral manner, as expressed 
by Congress in the conference agreement that accompanied the Balanced 
Budget Refinement Act of 2000. In addition, HCFA's approach to 
implementing the ``all-site'' model based on collection of 100 percent 
encounter data from inpatient and outpatient settings is placing 
enormous demands on organizations and their providers. We urge HCFA to 
consider less burdensome alternatives that meet the goals of risk-
     Improve the Partnerships between HCFA and Medicare+Choice 
Organizations by Establishing Single Administrative Unit for 
Medicare+Choice Program Oversight: We recognize that HCFA has many 
competing demands and responsibilities. However, the current oversight 
infrastructure for Medicare+Choice--which involves three separate 
offices--has often resulted in fragmented and unnecessarily complex 
policy making, which has been problematic for Medicare+Choice 
organizations and beneficiaries. We believe that consolidating 
Medicare+Choice program administration and oversight within one HCFA 
division, which has a Director who reports directly to the HCFA 
Administrator, would go a long way toward improving the partnerships 
between HCFA and plans.
     Refocus HCFA's Quality Program: Clearly, Medicare+Choice 
organizations must be held accountable for the quality of care they 
deliver to Medicare beneficiaries. We believe, however, that HCFA's 
current approach to implement the quality requirements of the Balanced 
Budget Act of 1997 (BBA) through the Quality Improvement System for 
Managed Care (QISMC) has presented some challenges.
    Group Health has received accreditation from the National Committee 
for Quality Assurance (NCQA). One of our primary concerns is that QISMC 
continues to lack clear coordination with NCQA and reporting standards 
of other organizations. This lack of coordination undermines the 
ability to develop and implement a meaningful process for deeming plans 
in compliance with quality requirements, which was a goal of the BBA. 
In addition, when QISMC is fully implemented, the number of quality 
projects required to be undertaken at one time, as well as the follow-
up work on completed projects, will challenge plans' abilities to 
devote sufficient attention to each one. For these reasons, we 
recommend that HCFA reassess its quality oversight requirements. 
Specifically, we urge HCFA to reconsider its deeming approach to avoid 
undue interference with private sector standards and to reduce the 
number of QISMC projects.
     Reduce the Scope of Standardization of Beneficiary 
Materials: Group Health supports the goals of the standardization 
project--to ensure that information conveyed to beneficiaries is easily 
understood and to enable easy comparisons among plans. The HCFA 
initiative to standardize beneficiary materials appropriately focuses 
on comparative information about Medicare+Choice benefits. However, it 
also includes beneficiary information that is not used for plan to plan 
comparisons and which contains plan-specific information. We recommend 
revising the standardization initiative to focus solely on continuing 
to improve the standardized Summary of Benefits, which even though it 
has been in use for two years, still includes language that is 

V. Conclusion

    The current debate on Medicare reform presents tremendous 
opportunities for the same type of innovation in care delivery that we 
and other plans achieved by working with Congress and the 
Administration more than twenty years ago. The Medicare+Choice 
program--the latest iteration of pre-paid Medicare--has much to offer 
both in the present and future. We urge the Subcommittee to consider 
the valuable contributions made by organizations like Group Health in 
serving our nation's beneficiaries and to preserve and strengthen a 
pre-paid option under Medicare.

``Dancing their way to better health''

from Group Health Cooperative's Senior Outlook, Fall 2000

    Last year I noticed that a number of the senior patients in my 
family practice at Northgate Medical Center were in downward spirals.
    Many of them were coming into my office, the emergency room, or the 
hospital because of chest or stomach pain, arrhythmias, fatigue, 
headaches, depression, and anxiety. Often their children would come 
with them and plead, ``Mom/Dad is going downhill. Isn't there anything 
you can do?''
    There wasn't. Not in my entire medical bag of tricks. Medications 
never solved their problems and, while I encouraged them to exercise 
and get out socially, they lacked the motivation and will.
    When I thought about the patients as a group, their stories were 
very similar. A couple of them had lost spouses in the last few years 
and had become isolated from the world. Some were facing moves from 
their lifetime homes to retirement apartments and were suffering major 
depression. Most of them had chronic conditions that were limiting 
their independence and their ability to enjoy life.
    In short, each of my patients was facing huge losses. They all 
believed they were burdens to their families and friends, and the most 
common way they described themselves was ``useless.''
    One day I was talking to a ballerina friend of mine who was 
preparing a dance about the miracle of the aging female body. I 
suddenly knew what we could do for those patients I'd been worrying 
about so much. We could start an exercise group at Northgate Medical 
Center--led by ballet instructors--that focused on muscle strengthening 
and flexibility, beauty and grace.
    I went back to each of the patients and invited them to a ballet-
based exercise program that would meet three times a week for four-and-
a-half months. I told them that they should join only if they could 
come regularly and would be willing to put on a performance in the 
community at the end of the program. I also invited everyone to have 
lunch together one day a week after class.
    Out of the 21 people invited to participate, 16 of them--all 
women--joined and attended almost every session. The most physically 
challenged of them had to take ACCESS vans or cabs to get there, and 
all of them had to challenge themselves to ``just do it.'' That's no 
small feat when you're depressed and anxious, as we all know, but they 
came and they did do it.
    About a month into the program, the women started talking about how 
much the class was helping them physically. ``I can turn my head to 
look out the back window of the car now instead of just depending on 
the mirror,'' one said. ``I can stand up and even hold a cup of 
coffee,'' said another who had been suffering from major balance 
    At the weekly lunches after class, we talked about our lives, our 
families, our challenges, and our accomplishments. The women bonded as 
a group in a powerful way and, as they did, they began talking about 
the class in terms of friendships, perseverance, renewal, support, and 
love. Their strength and social integration had already gone further 
than I had ever imagined--and the wonderful result was that they almost 
never had to visit my medical office.
    The idea of putting on a performance at the end of the program was 
originally just a tool for getting the women to think about who they 
were, how remarkable they were, and what they would say to the world if 
they had a chance. What piece of wisdom, or glimpse into their lives 
and history, would they share?
    The performance was held at On the Boards in downtown Seattle in 
May. That night, backstage, these once shy and withdrawn women were 
like beautiful 16-year-olds--giddy and nervous. Their spouses, 
children, grandchildren, and friends were in the audience, ranging in 
age from 96 years to 10 days.
    One by one, each woman took her turn at the microphone at center 
stage. One got up from her chair by herself--something she'd been 
struggling to do for three months--and walked unassisted to the mike, 
where she recited a poem about blossoming. Another rolled her oxygen 
tank to the mike and read ``When I Am Old, I Will Wear Purple.'' Still 
another told the audience of the amazing sense of accomplishment she 
felt in simply being able to get dressed every day.
    They made us laugh and they made us cry. In between their personal 
presentations, they had us clapping, stomping, and hollering as they 
did stretching, muscle building, and dancing routines to glorious 
    In the end, they hugged each other and some cried. They were so 
proud--and their families were so proud of them--they just glowed. 
These women, who had felt like worthless burdens for so long, had 
accomplished a major transition. I felt honored to know them.

    --by Dr. Chris Himes


    Chairwoman Johnson. Thank you. Mr. Turvey.


    Mr. Turvey. Thank you, Chairwoman Johnson, and 
distinguished Members of the Subcommittee, for the opportunity 
to testify today on our experience in the Medicare+Choice 
    I am Vic Turvey, Regional President of UnitedHealthcare, 
responsible for our Midwest health plan operations, including 
Medicare+Choice offering in Iowa, Nebraska, Missouri, Wisconsin 
and Illinois. I am pleased to speak today on behalf of our 
experience in the program.
    UnitedHealthcare and its parent company, UnitedHealth 
Group, have a longstanding commitment to Medicare 
beneficiaries. We are the largest provider of health care 
services to seniors in America. For over 20 years, we have 
provided seniors and disabled individuals a comprehensive 
alternative to traditional Medicare benefits, now known as the 
Medicare+Choice program.
    Today, close to 400,000 beneficiaries are enrolled in our 
Medicare health plans in 63 counties across the country. 
Through our Evercare program, we provide coordinated care 
services to an additional 20,000 frail elderly individuals in 
various care settings. Separately, we provide Medicare 
supplement or Medigap coverage and hospital indemnity insurance 
to roughly 3.5 million AARP members nationwide through AARP's 
Health Care Options programs.
    I want to provide you with a snapshot of Medicare+Choice, 
focusing first on the value we bring to Medicare beneficiaries, 
and then on issues with the current program structure that are 
detrimental to our Members.
    First, we bring value beyond the traditional Medicare 
Program by coordinating the fragmented, diverse elements of the 
health care system and organizing the delivery of care around 
the best interests of the patient. We offer innovative services 
that help our Members lead healthier lives by empowering them 
to make their own choices, working with their physician, 
supported by information, and the best clinical evidence 
    Since 1996, we have offered beneficiaries a health plan 
that requires no additional premium beyond the monthly part B 
premium. In most markets, Members also get coverage for 
prescription drugs.
    Members also benefit from our value-added features such as 
individually assigned customer service representatives, access 
to a 24-hour nurse line, and internet-based health information 
resources and programs that track their special health 
conditions and remind them to get regularly scheduled 
diagnostic tests. They also become a part of our care 
coordination program, where dedicated nurses follow their 
hospitalizations and make sure that services are understood, 
accessible and coordinated before, during and after they are in 
the hospital. These services are unavailable outside of the 
Medicare+Choice program.
    Let me describe some of these services in more detail.
    Under care coordination, this allows Members to work 
directly with their physician to determine the best way to 
coordinate their own health care needs. Care coordination is 
designed to make it easier to get care while identifying and 
addressing gaps in care. It encompasses hospital admission 
counseling, health education, prevention and reminder programs, 
inpatient care advocacy, phone calls to high-risk Members post-
hospitalization, identification and support programs for 
Members with complex and chronic illnesses, and long-term 
assessment and education programs to support Members with 
asthma, cardiovascular disease, and diabetes. We have received 
many letters over the last 2 years from Members describing how 
this program has changed their perception of what a health care 
plan can do for them and what a health care plan ought to be. 
We have also seen a notably improved health outcome.
    Our personal service specialists are individually assigned 
to each Member. They provide them with one name to call to 
answer any question they may have and to resolve problems. This 
program helps to provide a familiar face to the health plan. It 
helps beneficiaries navigate the complexities of the health 
care system, a service which is particularly important to 
    Our Care 24 Program provides Members 24 hour a day, 7 day a 
week access to registered nurses, masters-level counselors and 
lawyers, to get answers to questions about medical issues, 
personal and emotional health, legal and financial issues, 
eldercare and other concerns. It also offers recorded messages 
from a health information library on over 1,000 health topics.
    Finally, UnitedHealth passport allows Members to obtain 
coverage for routine care when they travel to other 
UnitedHealthcare Medicare+Choice markets. This is invaluable 
for ``snow birds'' that spend part of their year in Florida and 
other parts of the country.
    All of these offerings are underscored by our commitment to 
support the physician-patient relationship. Our close 
relationship with physicians, hospitals and other health care 
providers is critical to improved medical outcomes. Our medical 
directors, physicians themselves, work closely with network 
providers to share our data on best practices within their 
community and in other cities as well. This is comparative 
information that doctors have generally never had available to 
them, and they love it.
    When physician groups are incented to apply this quality 
and cost data we provide to them, they can achieve better 
outcomes at lower cost. While UnitedHealthcare is an industry 
leader in its ability to develop and distribute outcomes data, 
several other companies are also developing similar 
capabilities, so it is not unique to us.
    The fundamental point is that this data, combined with 
proper balanced incentives from health plans, and then aligned 
with incentives originating from hospital system, is absolutely 
essential to efforts to improve quality and moderate cost 
    Now, there are difficulties facing the Medicare+Choice 
offering. Our experience with physicians, hospitals and other 
health care providers illustrates one of the most significant 
problem areas in the current environment. As stated earlier, 
one of our hallmark offerings is----
    Chairwoman Johnson. Mr. Turvey, the red light has gone on. 
I know you're just starting at your recommendations. But if you 
could just give a very brief overview, I will come back to them 
in the question period.
    Mr. Turvey. OK.
    Chairwoman Johnson. I have read your testimony and I----
    Mr. Turvey. On the recommendations, in summary, here is 
what we would recommend.
    There are four key areas for program improvement: 
reimbursement, administrative simplification, provider 
relations, and an allowance for evolutionary benefit design.
    Fundamental reform of the reimbursement is necessary to 
ensure long-term stability and viability of the program. We 
need a fair and comprehensive payment approach that more 
closely aligns current medical cost trends and factors in cost 
variability in different markets.
    We need current administrative requirements to be 
streamlined at HCFA. We believe Congress ought to explore the 
reasons behind the increased difficulties with hospital and 
physician plans participation in Medicare+Choice, particularly 
focusing on plans' limited payment leverage in markets with 
dominant hospital systems.
    Finally, we think reform of the system must recognize the 
evolutionary nature of the health care system itself, 
developing a program that allows for change as the system 
    We encourage Congress and HCFA to study successful 
contracting arrangements in the employer sector, such as 
nonrisk-based alternatives, as the basis for its own contracts 
with private health plans, in rural areas especially. HCFA 
could then operate like an employer, who self-funds employer 
coverage and partnering with health plans to bring value to 
their offerings by administering and managing the health and 
operational aspects of the benefit.
    We think Medicare+Choice has much to offer, but the 
problems today are very real, and yet there is a great 
opportunity for positive change.
    Thank you.
    [The prepared statement of Mr. Turvey follows:]
       Statement of Victor E. Turvey, President, Midwest Region, 
              UnitedHealthcare, Maryland Heights, Missouri
    Thank you Chairwoman Johnson, Congressman Stark, and other 
distinguished members of the Subcommittee for the opportunity to 
testify on our experience in the Medicare+Choice program. I am Vic 
Turvey, regional president of UnitedHealthcare, responsible for our 
Midwest health plan operations, including Medicare+Choice offerings in 
Iowa, Nebraska, Missouri, Kansas, Wisconsin and Illinois. I am pleased 
to speak on behalf of our experience in the Medicare+Choice program.
    UnitedHealthcare and its parent company, UnitedHealth Group, have a 
longstanding commitment to Medicare beneficiaries. Our participation in 
the Medicare program is fundamental to our core mission--to support 
individuals, families, and communities to improve their health and well 
being through all stages of life.
    UnitedHealth Group is the largest provider of health care services 
to seniors in America. For over 20 years, we have provided seniors and 
disabled individuals a comprehensive alternative to traditional 
Medicare benefits, now known as the Medicare+Choice program. Today, 
close to 400,000 beneficiaries are enrolled in our Medicare health 
plans in 63 counties across the country. Through our Evercare program, 
we provide coordinated care services to an additional 20,000 frail 
elderly individuals in various care settings (under the auspices of the 
Medicare+Choice program and a demonstration project). Separately, we 
provide Medicare Supplement (``Medigap'') and Hospital Indemnity 
insurance to roughly 3.5 million AARP members nationwide through AARP's 
Health Care Options program.
    I want to provide you with a snapshot of Medicare+Choice, focusing 
on the value we bring to Medicare beneficiaries and a number of issues 
we face in the current program structure that we believe are 
detrimental to our members.
    We bring value beyond the traditional Medicare program by 
coordinating the fragmented, diverse elements of the health care system 
and organizing the delivery of care around the best interests of the 
patient. We offer innovative services that help our members lead 
healthier lives by empowering them to make their own choices, working 
with their physician, supported by information and clinical evidence. 
Since 1996, we have offered beneficiaries a health plan that requires 
no additional premium beyond the monthly Part B premium. Beneficiaries 
who enroll in our plans get comprehensive coverage, much like the 
commercial coverage that many had through their employers. In most 
markets, members also get coverage for prescription drugs (typically 
offered on a two-tiered basis, with lower copayments for generic 
equivalents and higher copayments for brand name drugs).
    Members also benefit from our value-added features such as 
individually assigned customer service representatives, access to a 24 
hour nurse line and internet-based health information resources, and 
programs that track their special health conditions and remind them to 
get regularly scheduled diagnostic tests. They also become a part of 
our Care Coordination program where dedicated nurses follow their 
hospitalizations and make sure that services are understood, accessible 
and coordinated before, during and after they are in the hospital. 
These services are unavailable outside of the Medicare+Choice program.
    Let me describe some of these special features in more detail:
     Care Coordination SM allows members to work 
directly with their physician to determine the best way to coordinate 
their own health care needs. Care Coordination is designed to make it 
easier to get care while identifying and addressing gaps in care. It 
encompasses hospital admission counseling, health education, prevention 
and reminder programs, inpatient care advocacy, phone calls to high-
risk members post-hospitalization, identification and support programs 
for members with complex and chronic illnesses and long-term assessment 
and education programs to support members with asthma, cardiovascular 
disease and diabetes. We have received many letters from members 
describing how this program has changed their perception of what a 
health plan can do for them and have notably improved health outcomes.
     Personal Service Specialists are individually assigned to 
each member, providing them one name to call to answer any questions 
they may have and resolve problems. This program helps to provide a 
familiar face to the health plan, helping beneficiaries navigate the 
complexities of the health care system--a service particularly 
important to seniors.
     Care24 provides members 24 hour a day, 7 day a week access 
to registered nurses, masters-level counselors and lawyers to get 
answers to questions about medical issues, personal and emotional 
health, legal and financial issues, eldercare and other concerns. It 
also offers recorded messages from a health information library on over 
1,000 health topics.
     UnitedHealth Passport allows members to obtain coverage 
for routine care when they travel to other UnitedHealthcare 
Medicare+Choice markets. This is invaluable for ``snow birds'' that 
spend part of the year in Florida and other parts of the country.
    All of these offerings are underscored by our commitment to support 
the physician-patient relationship. Our relationship with physicians, 
hospitals and other health care providers is critical. Our medical 
directors, physicians themselves, work closely with network providers 
to share our data on best practices within their community and in other 
cities as well. We also have undertaken a number of initiatives to 
simplify a doctor's interaction with the health plan so that they can 
focus on their patients instead of paperwork. Our Medicare health plans 
have been most successful in markets--such as St. Louis-- where we work 
with physician groups who are incented to apply the quality and cost 
data we can provide to them. UnitedHealthcare is an industry leader in 
its ability to track utilization patterns and outcomes data; several 
other companies have similar capabilities. The fundamental point is 
that proper, balanced incentives aligned with incentives originating 
from hospital systems are absolutely essential to efforts to improve 
quality and moderate cost increases.

Difficulties facing current Medicare+Choice offerings

Provider Contracts: Our experience with physicians, hospitals and other 
health care providers illustrates one of the most significant problem 
areas in the current Medicare+Choice environment. As stated earlier, 
one of our hallmark offerings is providing members access to broad, 
diverse, fully qualified providers. However, in many markets this has 
been hindered, as hospital systems increasingly prefer to revert to the 
Medicare fee-for-service payment system because it offers higher 
payment and no third party (health plan) involvement. In some markets, 
hospital systems have terminated their relationship with us mid-year 
(inconveniencing our members who often have to find new primary 
physicians in the remaining network or disenroll from their health plan 
to maintain their physician relationship); in others they have demanded 
payments on par with traditional Medicare.
    This occurs as the gap between payment for hospital services under 
the traditional Medicare program and Medicare+Choice plans grows and 
provider groups pick and choose between participation in the two 
programs. Last year's Medicare, Medicaid and SCHIP Benefits Improvement 
Protection Act of 2000 (BIPA) served to widen the gap considerably as 
hospital payment increases generally outpaced Medicare+Choice 
increases. Consequently, in most markets we were forced to dedicate all 
BIPA increases to hospital and physician reimbursement to meet 
contracting demands and maintain adequate networks.

Reimbursement: In our experience, beneficiaries have seen a 
deterioration of benefit offerings since enactment of the Balanced 
Budget Act (BBA) in 1997, as annual payment increases have not kept 
pace with inflation. We have been able to continue to provide quality 
coverage to beneficiaries in many markets by streamlining our 
administrative procedures. We also have had to adjust benefit coverage, 
increasing copayment amounts for outpatient visits and hospitalizations 
and reducing or eliminating our coverage for prescription drugs. In 
almost half of our Medicare+Choice markets we no longer offer coverage 
for outpatient prescription drugs. Where we do offer coverage, the 
annual maximum is in the $200 to $500 dollar range (with the exception 
of Dade County, Florida where it is $1,500) with coverage limited to 
generic equivalents or steep copayment differentials for generic and 
brand. While we would like to see additional funding for the program, 
we believe that fundamental reform of the reimbursement system is 
necessary to address the many moving parts of the payment system and 
ensure long-term stability and viability of the program.

Administrative Issues: We believe that regulation and accountability is 
important and necessary to ensure fair, quality coverage for Medicare 
beneficiaries. However, the way that current administrative rules and 
procedures are established and enforced is burdensome and strains 
health plan resources. The complexity of Medicare+Choice administrative 
requirements, coupled with the lack of coordination between states, 
HCFA regions and central HCFA, means that plans may face conflicting 
interpretation of rules and be subject to multiple audits. In addition, 
the number of new rules has grown exponentially since enactment of the 
BBA. The new HCFA monitoring guide used to evaluate health plans during 
their biennial site visits includes 279 items for review (not including 
the BIPA requirements); before BBA, there were 146 items.
    Based on our experience, the more problematic administrative items 
     2002 Enrollee ``Lock-In.'' The new lock-in requirement, 
which will be phased--in beginning next year, will likely add to 
beneficiary confusion and anxiety about the product, placing additional 
strains on a Medicare+Choice plan's ability to attract and retain 
members. We have found that the ability to disenroll at any time 
provides added comfort for a beneficiary who is enrolling in 
Medicare+Choice for the first time. If he or she is unhappy with the 
plan, the beneficiary can revert back to original Medicare or try 
another Medicare+Choice plan at any time.
     ACR process. The new June filing deadline (formerly in the 
fall) makes it very difficult to make accurate financial projections, 
and thus appropriate benefit decisions, given that only first quarter 
(January through March) data is available at that time.
     Encounter data collection. The current requirement to 
submit encounter data is very time consuming and costly, given 
questionable returns. Foremost in our concerns is the process for 
submitting the data to HCFA, which is cumbersome and resource intensive 
under the current fee-for-service based claims system. Additionally, 
the scope of data required for submission seems excessive, given the 
more limited data that is required for risk adjustment.
     Standardized beneficiary materials. HCFA's new requirement 
to use a standardized Summary of Benefits (created automatically from 
the database used for ACR submissions) has been problematic for our 
members. While standardization is helpful in allowing comparisons 
between plan offerings, some information and materials do not lend 
themselves well to standardization. In some cases, standardization has 
resulted in inaccurate descriptions and has made it difficult for 
beneficiaries to gain specific information about individual 
Medicare+Choice benefit offerings and health plan administrative 
     Marketing materials/HCFA review. The new marketing and 
member communication requirements, particularly the 45-day review 
period, make it very difficult to get materials finalized in a timely 
manner. The 45-day period has had a particular impact on our ability to 
communicate product changes with our members in a timely manner, often 
leading to confusion for our those who hear about changes in media 
reports, but then fail to receive notice until much later. This is 
particularly troublesome when we are held to a 30-day notice period for 
changes to the network or mid-year benefit improvements. In a number of 
markets we hear from the reviewers that they do not plan to comment on 
the materials until the end of the review period. If they ask for 
changes on day 44, the 45-day review period begins all over again. 
Moreover, the prescriptive nature of the review often requires the 
materials to be very generic, taking away our ability to make 
statements reflecting on our unique attributes.
     Regulatory implementation. The frequency and content of 
new regulatory and policy changes has increased staff time and 
resources considerably. In 2000, HCFA issued 15 new Official Policy 
Letters (OPLs), two revisions of one OPL, and the final Medicare+Choice 
regulation (the ``mega reg''). Inconsistencies between regional offices 
and central HCFA add to the strain of regulatory interpretation, 
particularly for national health care organizations, such as 

How do we fix the program and ensure its future viability?

    While there clearly are a number of obstacles facing the current 
Medicare+Choice program, we believe the program continues to have much 
to offer seniors and disabled individuals and believe there are a 
number of changes that could significantly enhance the future viability 
of the program. First and foremost, we believe that the program must 
undergo fundamental reform to provide beneficiaries broad choices of 
coverage that best meets their needs in a manner that they can count on 
for years to come.
    There are four key areas for program improvement: reimbursement, 
administrative simplification, provider relations, and allowance for 
evolutionary benefit design:
     Fundamental reform of the reimbursement system is 
necessary to address the many moving parts of the payment system and 
ensure long-term stability and viability of the program. A fair, 
competitive payment approach that is more closely aligned with current 
medical cost trend and factors in cost variability in different 
geographical markets and care settings is desirable.
     A thorough review of current administrative requirements 
with an aim to streamline processes, improve coordination and eliminate 
items that have negligible benefits for members would be advantageous.
     Congress should explore the increasing difficulties with 
hospital and physician participation in Medicare+Choice, focusing 
particularly on Medicare+Choice plans' limited provider payment 
leverage in markets with dominant hospital systems. Also, payment to 
hospitals and physicians should include incentives for efficient and 
appropriate health care delivery and outcomes.
     Reform of the system must recognize the evolutionary 
nature of the health care system, developing a program that allows for 
change as the system warrants. We encourage Congress and HCFA to study 
successful contracting arrangements in the employer sector (such as 
non-risk-based alternatives) as the basis for its own contracts with 
private health plans. HCFA could operate like an employer who leverages 
its assets by self funding employee health coverage and partnering with 
health plans, like ours, to bring value to their offerings by 
administering and managing the health and operational aspects of the 
benefit. In addition, Medicare+Choice should recognize the value of 
specialized programs like Evercare and allow them to exclusively serve 
frail elderly beneficiaries.
    Medicare+Choice has much to offer. We encourage Congress and HCFA 
to experiment with different types of product offerings within Medicare 
that are tailored to specific populations and geographic areas. To this 
end, we already have begun to explore options with HCFA that bring the 
many unique, value-based attributes of our product offerings to the 
more traditional Medicare benefits and may be more sustainable in 
certain markets than risk-based Medicare+Choice offerings. Working 
together to address many of the items raised today, we can help to 
develop a renewed Medicare program that meets the needs of today's and 
tomorrow's beneficiaries. The problems with the program are very real, 
but there is a great opportunity for positive change.
    Thank you for the opportunity to share our thoughts. I would be 
happy to answer any questions you might have.


    Chairwoman Johnson. Thank you very much, Mr. Turvey. Dr. 


    Dr. Weiss. Madam Chair and Members of the Subcommittee, my 
name is Dr. Bruce Weiss. I am the Chief Medical Officer for 
AvMed Health Plans, based in Gainesville, Florida, in the heart 
of Representative Karen Thurman's district.
    AvMed is the oldest and largest not-for-profit HMO in 
Florida. We serve some 300,000 Members, including approximately 
30,000 Medicare Members, and 10,000 Federal employees and their 
dependents. AvMed is Federally qualified and accredited by both 
the National Committee for Quality Assurance (NCQA) and the 
Joint Commission on Accreditation of Healthcare Organizations 
    I appreciate the opportunity to participate in today's 
hearing to describe the nature and scope of disease management 
programs in managed care plans and specifically the programs my 
plan offers to all Members, especially our Medicare members.
    Disease management programs are one of he major 
enhancements over traditional fee-for-service Medicare that 
beneficiaries receive by enrolling in Medicare+Choice options. 
This is from the newest Provider Sponsored Organization (PSO) 
to the largest HMO. These programs are important elements of 
every Medicare managed care option--providing coordination of 
care, promotion of best practices, and patient empowerment.
    Numerous studies have demonstrated that well-designed 
disease management programs have significantly impacted 
participants' well-being and overall health status. Patients 
with moderate to severe congestive heart failure have improved 
their functional status through disease management programs. 
This means that a patient who is essentially home--or bed-bound 
can get out and go to church, shop, or visit family. This is a 
major improvement in their quality of life.
    At AvMed, we have eight care or disease management 
programs, six focusing on the illnesses of our Medicare 
beneficiaries: congestive heart failure, diabetes, end-stage 
renal disease, chronic wound care, and chronic obstructive 
pulmonary disease. All of these programs require an investment 
in staff, materials, and information systems to be successful. 
Nurses regularly call Members to assess their progress. 
Patients who appear to be deteriorating are referred to their 
primary care physicians or specialists for assessment and 
modification of their treatment. Medical problems are 
identified and addressed earlier, avoiding risk for the 
patient, hospitalization, and medical costs.
    Unfortunately, these programs are labor and resource 
intensive and, therefore, limited to just a small percentage of 
our Members, focusing predominantly on those at highest risk.
    AvMed and others are looking at new technology that will 
allow us to more efficiently monitor larger numbers of patients 
with lower administrative costs. Today, we have a pilot program 
in which each morning our Members step on an electronic scale, 
which weighs the Member, asks several key clinical questions, 
and then electronically transfers this information to AvMed. 
Those Members reporting worsening symptoms or weight gain above 
limits set by their physicians are contacted by one of our 
nurses. In addition, this daily information is available to the 
Members' treating physicians in a summary form for ongoing use 
in managing their care.
    It is through ongoing investments such as this that disease 
management programs are going to reach their full potential and 
be expanded to include a larger patient base. However, these 
population-based programs are expensive, require staff and 
expertise that is generally not available in most physician 
offices, and is not reimbursable under most fee-for-service 
    I would like to share with you the experience of one of our 
Members. Mrs. ``B'' is a delightful 80-year-old North Florida 
Medicare beneficiary who joined AvMed in February, 2000. She 
was enrolled in our congestive heart failure program due to 
heart damage caused by her diabetes.
    Last July, her husband died from lung cancer. In January, 
she fell and developed cellulitis, a serious infection of her 
leg, for which she was prescribed oral antibiotics. Shortly 
thereafter, she called our 24-hour Healthy Heart Hotline 
because her heart symptoms worsened and she was having 
increased difficulty breathing.
    Mrs. ``B'' had stopped taking her antibiotics because she 
felt it was making her swell up. Our nurse contacted her 
physician, who called her and instructed her to resume her 
antibiotics. A nurse was then sent to her home and found that 
she had gained over five pounds and that she was only taking 
half the dose of her prescribed diuretic/water pill. An 
intravenous dose of a diuretic was given, and during follow-up 
visits, it was noted that Mrs. ``B's'' blood sugar was over 350 
and that she had not been taking her insulin since her 
husband's death, since he was the one who was giving her 
    Arrangements were made for Mrs. ``B'' and her daughter, 
also a diabetic, to be seen by her physician in his office, and 
both were instructed on giving insulin, following a diet, and 
exercising. Since this visit, Mrs. ``B'' has moved in with her 
daughter and both have become more compliant with their diets, 
managing their diabetes, and exercising.
    As the administration and Congress consider options for 
stabilizing the Medicare+Choice program and pursuing reforms in 
the Medicare Program, it is critically important to ensure that 
Medicare is administered efficiently and effectively. The 
regulatory framework should be designed to promote, rather than 
impede, the implementation of disease management programs that 
improve health care quality for Medicare beneficiaries.
    Again, I thank you for the opportunity to share with you 
some information regarding the exciting opportunities with 
disease management.
    [The prepared statement of Dr. Weiss follows:]
 Statement of Bruce Weiss, M.D., M.P.H., Chief Medical Officer, AvMed 
                   Health Plan, Gainesville, Florida
    Madam Chair and members of the subcommittee, my name is Dr. Bruce 
Weiss. I am Chief Medical Officer of AvMed Health Plan. Based in 
Gainesville, Florida, in the heart of Representative Karen Thurman's 
district, AvMed is Florida's oldest and largest not-for-profit HMO, 
serving some 300,000 members in 11 counties, including approximately 
30,000 Medicare members and 10,000 federal employees and their 
dependents. Due to the instability in the Medicare+Choice program, the 
number of Medicare members we serve has declined from 75,000 to 30,000 
since 1999. AvMed contracts with close to 7,000 physicians and 126 
hospitals, is federally qualified and is accredited by both the 
National Committee for Quality Assurance (NCQA) and the Joint 
Commission on Accreditation of Healthcare Organizations (JCAHO).
    I appreciate the opportunity to participate in today's hearing and 
to describe the nature and scope of disease management programs in 
managed care plans and specifically the disease management programs my 
plan offers to all our members, especially our Medicare members. 
Disease management programs are one of the major enhancements over 
traditional FFS Medicare that Medicare beneficiaries receive by 
enrolling in a Medicare+ Choice option--from the newest PSO to the 
largest HMO. These programs are important elements of every Medicare 
managed care option--providing coordination of care, promotion of best 
practices and patient empowerment through education.

Disease Management Programs

    Let me explain the process we use to implement disease management 
programs. First, our goals are to:
     empower our members through education;
     provide our members and health care providers with tools 
to improve our members' quality of life and promote preventive 
lifestyle choices; and
     facilitate a comprehensive and integrated health care 
delivery team concept to assure the best clinical and economic 
    To achieve these goals, we have developed a strategy that involves:
     identifying the high-risk population;
     implementing and promoting national guidelines;
     implementing critical pathways;
     promoting effective client self-directed interventions;
     designing and implementing comprehensive case management 
and home health interventions;
     promoting safe and effective physician intervention; and
     measuring outcomes.
    We implement this strategy using an integrated approach among 
health care professionals. Care coordinators serve as the liaison 
between members and health care providers, coordinating care and 
services while also performing educational and patient advocacy roles. 
Health care providers deliver treatment plans according to accepted 
``best practice'' guidelines, while assisting with the coordination of 
care and providing continuous feedback on results. Home health care is 
also an important component of many disease management programs.
    We evaluate our disease management programs using measures that 
focus on patient satisfaction and clinical outcomes, as well as 
performance indicators developed by the NCQA. These programs have been 
particularly important to our senior population in Medicare+Choice.
    Numerous studies have demonstrated that well-designed disease 
management programs can have a significant impact on participants' 
well-being and overall health status. Patients with moderate to severe 
Congestive Heart Failure have been documented to improve their 
functional status through a CHF disease management program. This means 
that patients who were essentially home--or bed-bound can get out and 
go to church, shop or visit friends--a major improvement in their 
quality of life.
    At AvMed we have 8 care or disease management programs--6 focusing 
on the illnesses of our Medicare beneficiaries: Congestive Heart 
Failure (CHF); Diabetes; End Stage Renal Disease (ESRD); Chronic 
Wounds; and Chronic Obstructive Pulmonary Disease (COPD). All of these 
programs require an investment in staff, materials and information 
systems to be successful. Nurses regularly call members to assess their 
progress. Patients who appear not to be improving are referred to their 
primary care physicians or specialists for assessment and modification 
of their treatment.
    With care management, medical problems are identified and addressed 
earlier, avoiding potential risk to the patients, hospitalizations and 
medical costs. AvMed and others are looking at new technology that will 
allow us to more efficiently monitor larger numbers of patients, with 
lower administrative costs. Today we have a pilot program in which each 
morning our members step on an electronic scale, which weighs the 
member, asks several key clinical questions and then electronically 
transfers this information to AvMed. Those members reporting worsening 
symptoms or weight gain above limits set by their physicians are 
contacted by one of our nurses. In addition, this daily information is 
available to the members' treating physicians in a summary form for on-
going use in managing their care.
    It is through on-going investments such as these, that disease 
management programs are going to reach their full potential and be 
expanded to a larger patient base. However, these population-based 
programs are expensive, require staff and expertise that is generally 
not available in most physician offices and is not reimbursable under 
most FFS plans.
    To illustrate, I want to share the experience of one of our members 
with you. Mrs. ``B'' is a delightful 80 year-old North Florida Medicare 
beneficiary who joined AvMed in February 2000 and was enrolled in our 
Congestive Heart Failure Program due to heart damage caused by her 
diabetes. Last July her husband died from lung cancer. In January, she 
fell and developed cellulitis, a serious infection of her leg, for 
which she was given oral antibiotics. Shortly thereafter, she called 
our Healthy Heart Hotline because her heart symptoms worsened and she 
had increased difficulty breathing. Mrs. B had stopped taking her 
antibiotic for her leg problem, because it was making her swell up. Our 
nurse contacted her physician who called her and instructed her to 
resume her antibiotic. A home health nurse was also sent to her home 
and found that she had gained over 5 pounds, and that she was only 
taking half the dose of her diuretic/water pill. An intravenous dose of 
a diuretic was given. During follow up visits, it was noted that Mrs. 
B's blood sugar was over 350 mg/dl and that she had not been taking her 
insulin since her husband's death--he was the one who gave her insulin 
    Arrangements were made for Mrs. B and her daughter, also a 
diabetic, to be seen by her physician in his office and both were 
instructed on administering insulin, following a diet and exercising. 
Since this visit, Mrs. B has moved in with her daughter and both have 
become more compliant with their diets, managing their diabetes and 
Issues Facing the Medicare+Choice Program
    The future success of the Congestive Heart Failure Program--and 
other innovative disease management programs offered by AvMed and other 
Medicare+Choice plans--depends on the long-term stability of the 
Medicare+Choice program. As effective as Medicare+Choice plans are at 
using disease management strategies to improve health care quality for 
Medicare beneficiaries, we cannot succeed without adequate funding and 
a sensible regulatory environment.
    This hearing's focus on administrative and regulatory issues is 
highly appropriate, given the reality that the costs of Medicare's many 
regulatory requirements are rarely measured in comparison to their 
benefits. This forces health plans to spend scarce resources on 
compliance activities of questionable value and, as a result, leaves 
plans with fewer resources to spend on disease management initiatives.
    Payment and regulatory requirements dictate the environment in 
which Medicare+Choice plans operate. The current payment and regulatory 
environment has forced many plans to make difficult decisions regarding 
their participation in the Medicare+Choice program. We are deeply 
concerned that the administrative and regulatory actions taken by the 
Health Care Financing Administration (HCFA), together with the 
unintended results of the Medicare+Choice payment formula, have 
undermined the program's stability. Rather than enjoying expanded 
coverage choices as planned under the Balanced Budget Act of 1997 
(BBA), many beneficiaries face fewer coverage choices today.
    Regrettably, this loss of choices means that fewer Medicare 
beneficiaries have access to the high quality health care services that 
are delivered through the disease management programs that AvMed and 
other Medicare+Choice plans are implementing. Ideally, all Medicare 
beneficiaries should have access to these services. In recent years, 
however, hundreds of thousands of beneficiaries have been forced to 
give up their Medicare+Choice plans and enroll in the old-style fee-
for-service Medicare program.
    Restoring these choices and stabilizing the Medicare+Choice program 
should be Congress' top priority in the 2001 Medicare debate. 
Medicare+Choice has the potential to serve as a foundation for the 
Medicare program of the future.
    As the Administration and Congress consider options for stabilizing 
the Medicare+Choice program and pursuing structural reforms in the 
Medicare program, it is critically important to ensure that Medicare is 
administered efficiently and effectively. The regulatory framework 
should be designed to promote, rather than impede, the implementation 
of disease management programs that improve health care quality for 
Medicare beneficiaries.
    Again, I thank you for the opportunity to briefly share with you 
some information regarding the exciting opportunities surrounding 
disease management.


    Chairwoman Johnson. Thank you.
    I would like to make a comment on the GAO study that my 
colleague, Mr. Stark, mentioned at the beginning that suggested 
that Medicare managed care plans were being overpaid.
    In 1998, the Medicare+Choice plans were paid at 2 percent 
more than the fee-for-service sector. That spending was 2 
percent above the fee-for-service sector, but that was at a 
time, remember, when everyone agreed that through the 1997 
Balanced Budget Act we had grossly over reduced reimbursement 
rates. And, frankly, the whole Medicare fee-for-service system 
was in terrible shape, and if we hadn't moved promptly to 
increase reimbursements, we would not have thousands of 
providers that are still alive out there.
    So the fact that Medicare+Choice plans were 2 percent above 
that is, I think, not a testament to overpayment. If you look, 
and you take the projections that are on the books out, you 
will see that in coming years, the Federal Employee Health 
Benefit Plan (FEHBP) will be way up there, California Public 
Employees Retirement System (CalPERS) will be next, Medicare 
fee-for-service will be next, and Medicare+Choice plans will be 
the lowest-cost plan in 2001 and 2002.
    So I don't necessarily consider that a good thing, that the 
Choice plans will be below fee-for-service. I think what we are 
about here today is to look at the strengths that Choice plans 
have brought to the issue of health quality for our seniors and 
then to look at some of the problems that you were running 
    And in that vein of problems that you are running into, Ms. 
Scott, you didn't get a chance to talk about what the problems 
that you would like to see solved, having consumed your 5 
minutes, a terribly piddling amount of time, however, 
admittedly, you did not get to talk about the problems that you 
think it is necessary to solve for you to survive in the Choice 
arena. Would you enlarge on that, please.
    Ms. Scott. Thank you for that. I concentrated on prepayment 
because I think without prepayment and the philosophy of 
prepayment, the problems we are trying to solve take on 
    Chairwoman Johnson. Actually, just put that prepayment 
issue--I am very glad you mentioned that. You know, the Federal 
government pays States to take children out of the home. That 
is the way we make foster care payments. We will not pay States 
to keep children in the home, and that issue of tying payments 
to place of care is extremely destructive.
    And I hadn't really made the parallel until you made such a 
clear statement about this in your testimony that one of the 
benefits of the integrated approach is that you get the payment 
and then you can decide what is the best location, as well as 
the most costive location for care. That was very well-taken. 
Thank you.
    Ms. Scott. Thank you, Congresswoman.
    Group Health has four recommendations for the Committee to 
consider, in terms of issues to stabilize the Medicare+Choice 
    The one is to honor the intent of Congress, when 
implementing the risk adjuster, and we can get into more of the 
detail about that. I think there is an appropriate role to have 
a risk adjuster, particularly in our State. Our State Employees 
Benefits Board, they work with a risk adjuster with us. We 
accept that. So we do not question for a minute the need for 
one. What we question is the mechanisms, and the methods, and 
the approaches by which to do that. And so that would be one 
area that we would like to discuss.
    Secondly, I think the notion of HCFA and how HCFA is 
organized. There are very good people in HCFA. Unfortunately, 
they are siloed, if you will, in different parts of that 
organization, and so we can't do the best job in terms of a 
partnership with HCFA. Because of the silos, you do get 
different regulations. Sometimes they are at cross-purposes 
with each other. Our recommendation would be can we take a 
fresh look at how that is organized within HCFA and think 
through, in a thoughtful way, how we can partner best with 
    I remember the days where there used to be an office in 
HCFA that did strategy, and pilot projects and demonstration 
projects, and we are really very interested in testing out new 
ideas. That would be an affirmative recommendation for this 
Committee, in terms of its relationships with HCFA.
    The third area is HCFA's quality program. Again, it is the 
theory of unintended consequences. There is absolutely 
everything right about accountability for quality at Group 
Health, and I am sure my sister plans here would agree about 
that accountability. Unfortunately, Murphy's jumps up again on 
this particular issue of asking a different set of metrics, a 
different set of process, a different set of approaches around 
quality management and not necessarily coordinating those with 
existing accrediting bodies. Our worst fear, obviously, is that 
will create more administrative hassle, more rework, with not 
necessarily any beneficiary advantage.
    And, finally, I think we do need to think about, and this 
is very technical, and I apologize, but as you know, seniors 
get confused by all of the stuff that comes at them. My mom and 
dad call me up and say, ``What does this mean?'' They are 86 
and 84, and they are pretty good 86--and 84-year-olds, but 
still it is very, very confusing. So the idea of standardizing 
language, again, a very good idea, very good intent. The 
unintended consequence, though, is that we are afraid that is 
going to become even more confusing for our consumers simply 
because the standards that HCFA may say, in terms of 
definitions, may be different than what an employer for people 
under 65 might be saying. And, again, we have been dealing with 
different standards.
    Chairwoman Johnson. We do need to look at that issue.
    Because my time is also limited, I want to ask Mr. Turvey, 
and I hope some of my colleagues will allow you time to go into 
more specifically your recommendations as to how to overcome 
the challenges. But you do make, that is, the barriers to your 
future as a Choice plan, but you made a very interesting 
statement at the end of your testimony. You say, ``To this end, 
we already have begun to explore options with HCFA that bring 
the many unique value-based attributes of our product offerings 
to the more traditional Medicare benefits.''
    That issue of how can we translate what you have learned 
and what you have brought to the quality of senior care into 
the fee-for-service plan interests I think all of us very much. 
Could you enlarge on that statement.
    Mr. Turvey. Sure. This is a concept that we are considering 
as a pilot project in Iowa. The scenario we have in Iowa is a 
rather disorganized or at least not organized group of 
physicians in rural areas, especially. We are looking to 
develop a program similar to Medicare+Choice in that area.
    These physicians, because they are not organized in large 
groups, because they don't have a great deal of capital 
available to them, cannot necessarily take on a significant 
risk that you would normally transfer to them under a 
prepayment mechanism or a standard capitation approach. And so 
we are looking to do something that is more on the order of a 
gain-sharing approach, where there is very limited economic 
risk on the downside. What we are looking to do is to set some 
quality incentives for them. And if they are to hit those 
quality incentives, then they would qualify for financial 
incentives, should there be any. So quality is placed first and 
then the financial side economics second. But, basically, it 
would be a minimal-risk program for them in rural areas to get 
their feet wet in Medicare+Choice.
    Chairwoman Johnson. Interesting. Mr. Stark.
    Mr. Stark. Thank you, Madam Chair.
    Just a couple of questions to see if--my guess is that all 
Medicare+Choice is not alike, but, Ms. Scott, in Group Health 
Cooperative, are you a staff model or are all of your 
physicians on salary?
    Ms. Scott. That is a good question, Mr. Stark. Four hundred 
thousand of our six hundred thousand consumers are served by 
the staff model, and----
    Mr. Stark. I beg your pardon?
    Ms. Scott. We have 600,000 Members; 400,000 are served by 
staff model group practice physicians, much like Kaiser, and 
200,000 are served by community physicians in different 
communities throughout the State.
    Mr. Stark. And with those 200,000 physicians, do you 
capitate the primary care doctor?
    Ms. Scott. We capitate primary care, and then we pay fee-
for-service on specialty.
    Mr. Stark. And do you downstream the risk to the primary 
care docs in that 200,000 who are not in a staff model?
    Ms. Scott. I understand your question. We capitate, but 
there is no downside risk to the physicians.
    Mr. Stark. So there is no disincentive for those physicians 
to refer out for surgery or something like that.
    Ms. Scott. No, sir.
    Mr. Stark. Do you, in your staff model, do you own your own 
hospital facilities, for the most part?
    Ms. Scott. That is another good question. We used to own a 
lot more hospitals than we do now. We mostly contract with 
hospitals right now.
    Mr. Stark. You are not-for-profit?
    Ms. Scott. We are not-for-profit. We are a consumer 
    Mr. Stark. Do you have a figure that you announce publicly 
that you would call an overhead figure or loss ratio or however 
you want to term it?
    Ms. Scott. Sure. The term ``medical loss ratio'' is kind of 
a crazy term, isn't it?
    Mr. Stark. What was the term?
    Ms. Scott. The term ``medical loss ratio'' is kind of a 
nutty term in some ways. Our overhead is approximately 10 to 12 
percent, and we shoot for margins, in terms of return back into 
our programs of 3 percent.
    Mr. Stark. Mr. Turvey, does United operate as a staff model 
or do you----
    Mr. Turvey. No, we are generally referred to as an IPA 
model or an independent contract.
    Mr. Stark. And your primary care docs, do you downstream 
the risk?
    Mr. Turvey. We do. We do, generally, capitate primary care 
and pay off of a fee schedule to specialists.
    Mr. Stark. A little louder. I am sorry. These mikes are 
bad. You have got to darn near swallow the microphone. I am 
    Mr. Turvey. We capitate primary care physicians and pay a 
fee schedule to specialists, although, depending upon the 
health plan and depending upon the arrangement, we do have some 
sharing in surpluses and deficits for specialists and hospitals 
as well.
    Mr. Stark. But, basically, the primary care docs are at 
risk for some amount.
    Mr. Turvey. Yes, they are.
    Mr. Stark. And you don't own your hospital or diagnostic 
facilities, you contract that out, generally?
    Mr. Turvey. We contract with hospitals. We own no hospitals 
or physician practices.
    Mr. Stark. You are a for-profit/nonprofit?
    Mr. Turvey. We are a for-profit publicly held.
    Mr. Stark. What would you classify as your overhead in the 
same--it is hard with a cooperative, but if you add in 
stockholder return and whatever else you add in, what would you 
classify your, if you make that public.
    Mr. Turvey. Sure. We just released our first-quarter 
financials the other day. I think what was released was a 
medical cost ratio or benefits ratio of 84 percent, 10 percent 
for administration and 6-percent pretax profit margin, all 
products combined.
    Mr. Stark. Let me try that again.
    Mr. Turvey. An 84-percent medical cost ratio, 6-percent 
pretax profit, 10-percent administration.
    Mr. Stark. Or 16 percent, if I were comparing what Ms. 
Scott just gave me and what you are giving me, she is saying 10 
to 12, you are saying 16.
    Mr. Turvey. That is correct, pretax.
    Chairwoman Johnson. I thought she said 12-percent overhead 
and 3-percent profit for 15 percent.
    Ms. Scott. Excuse me. It is 10 percent, if you will, 
administrative overhead and 3-percent margin.
    Chairwoman Johnson. OK. Thank you.
    Ms. Scott. So 13-percent total.
    Chairwoman Johnson. Appreciate it.
    Mr. Stark. Dr. Weiss, AvMed Health Plan. How are you 
    Dr. Weiss. We are not-for-profit. We are an IPA or a 
network model, where we contract with the community physicians. 
We do capitate our primary cares, but only capitate them for 
the services that they provide.
    Mr. Stark. Are they at risk for other services?
    Dr. Weiss. No, they are not, and the specialists are paid 
on a fee-for-service basis.
    Mr. Stark. And how would you state your overhead in the 
same terms that----
    Dr. Weiss. Our medical cost ratio is 85 percent, our 
administrative expense is about 11 percent, and we target a 
margin of between 2 and 4 percent.
    Mr. Stark. Thank you very much. It has been, well, I might 
as well ask this same question. Dr. Weiss, are you currently 
being sued by any of the medical associations in these RICO 
    Dr. Weiss. No, we are not.
    Mr. Stark. Anybody else after you for any major----
    Dr. Weiss. Not that I am aware of.
    Mr. Stark. Wow. Mr. Turvey, are you a plaintiff in any of 
these State Medical Association cases?
    Mr. Turvey. I am not familiar with any. Certainly, not 
within the Midwest Region, the States I am responsible for.
    Mr. Stark. It is my understanding the Medical Association 
of Georgia has named you as a defendant--you are in good 
company, along with Aetna, Coventry, and Cigna--but if that is 
not your division, you might not know. Could I ask, Ms. Scott, 
is the State of Washington Medical Association after your hide?
    Ms. Scott. No. Well, they are not suing us. Let us put it 
that way.
    Mr. Stark. All right. My time has----
    Mr. McDermott. If the gentleman will yield.
    Mr. Stark. I would be glad to. I know you are the only one 
that is in court in Washington.
    Mr. McDermott. The physicians, the State Medical 
Association had to be sued by the Group Health Doctors to get 
into the medical association back in the fifties.
    Mr. Stark. Thank you, Madam Chair.
    Chairwoman Johnson. Mr. Johnson of Texas.
    Mr. Johnson Of Texas. Thank you, Madam Chairman.
    Thank you all for being here. I like your comments, 
``siloed.'' Maybe HCFA is stuck in the mud, too, what do you 
    Mr. Johnson Of Texas. Mr. Turvey, in your testimony, you 
point out a new June filing deadline, formerly in the fall, to 
make accurate financial projections and, thus, appropriate 
benefit decisions. Given only the first quarter, January 
through March, data is available right now, at the time for 
plans to submit their adjusted community rate (ACR) to HCFA, 
this is the plan's estimate of its costs for covering any 
additional benefits or additional beneficiary costs.
    Based on the adjusted average per capita cost (AAPCC) and 
the ACR, which will determine those things, you know, more data 
I think will allow you to submit a more accurate ACR. What do 
you think an appropriate date should be for ACR submission to 
    Mr. Turvey. I think October would be reasonable. The reason 
is, if you are looking at a June deadline, you have got really 
only that first quarter that is halfway complete. So, if you 
can bump it back to October, you at least double your amount of 
credible experience data for the benefits priced in that 
current year.
    Mr. Johnson Of Texas. That makes sense to me, and that is 
what most people are saying. How will this impact the 
beneficiary enrollment period, in your view?
    Mr. Turvey. I think if we can get HCFA's administrative 
review streamlined, that should not be problematic at all. At 
one time, I believe the ACR was done back in the October 
timeframe, so I don't think that should be problematic.
    Mr. Johnson Of Texas. So you think you will be OK if you 
are given until October to figure it out.
    Mr. Turvey. I think we would, and what is more, because of 
the more accurate, more complete data, we would be able to 
sharpen our pencil a little bit better and perhaps offer a 
little bit better benefit for the cost because we would have to 
build in less conservatism for the unknown.
    Chairwoman Johnson. Would the gentleman yield?
    Mr. Johnson Of Texas. Yes, Madam Chair.
    Chairwoman Johnson. This is a point of real concern to us. 
The problem with the October 1st date is that you won't 
necessarily know exactly what Congress is going to do, and to 
what extent we have addressed some of the barriers that in your 
testimony you bring to our attention in quite some detail.
    If allowed you to make the decision after you are likely to 
know, then we are talking about your having that data, having 
made your decision in November, because you aren't likely to 
know until the end of October, when we should conclude our 
budget work.
    So do you need the November 1st date? And if you made your 
proposal by November 1st, is there a review process that would 
still allow us to develop some reasonable rhythm to the open 
enrollment period?
    Mr. Turvey. Actually, I think we would find it greatly 
improved if we could back it up to later September. I wouldn't 
want to go into November. I agree that is really pushing it.
    Chairwoman Johnson. And you think you can make the 
decision, even though it might not be completely clear what we 
are doing?
    Mr. Turvey. Well, that is problematic. You are right.
    Chairwoman Johnson. I am not going to take this out of Mr. 
Johnson's time because this is something the Committee really 
has to be, we have to be realistic about. Now how many plans 
are going to be able to, briefly, how many of you are going to 
be able to make the decision about the next year and the year 
after, if you don't know exactly what we are going to do about 
reimbursement rates and regulatory barriers?
    Mr. Turvey. I think we are going to have to know as soon as 
possible. I think what is really at risk here is that there are 
many health plans in critical markets, where I am sure they 
don't want to pull out because, as I think you all know, once 
you pull out of a market, it is very, very difficult to get 
back in. Your reputation is sullied. You can't just say 6 
months later, ``Well, we decided to reenter this major 
market.'' So plans are very reluctant to leave, thinking when 
they do, they may be out for a long, long time.
    But it is really critical that, as plans make this 
decision, especially if they are losing a lot of money, and we 
are, in UnitedHealth Care in a few markets, a few major 
markets, it is going to be very, very important for Congress to 
come back and say, ``Here is what we can do to at least limit 
your losses, your potential loss, for calendar year 2002,'' and 
that could at least buy some time for the health plans to stay 
in the markets, while some of these other factors, 
administrative and revenuewise, are being worked on over the 
intervening months.
    Chairwoman Johnson. Now, Ms. Scott, you are a cooperative. 
You are exactly the kind of entity with long experience. Would 
you agree with Mr. Turvey that it will be hard to make the 
decision about where to stay in and where to go out?
    Ms. Scott. I couldn't agree more.
    Chairwoman Johnson. Would you have to make the decision to 
leave markets if we don't address some of the barriers that you 
have identified?
    Ms. Scott. Thankfully, because of the Beneficiary 
Improvement Protection Act (BIPA), we are no longer faced with 
that decision in the State of Washington. There are other 
States where that is not the case, but in the State of 
Washington, it did definitely help us. But having gone through 
market withdrawals in the past, I will tell you the current 
situation is untenable because you are making decisions with 
just not enough data.
    Chairwoman Johnson. Sorry, Mr. Johnson. I will give you 
another minute or two on your own time.
    Mr. Johnson Of Texas. Bless your heart.
    Dr. Weiss, you know, you talk about regulatory problems 
with HCFA, and it seems that people are jumping out of 
Medicare+Choice back to fee-for-service because they don't 
understand it or because you all are reducing your benefits 
because of regulation or regulatory morass, I guess is what we 
would call it, and it appears that HCFA has maybe doubled the 
little tick marks they tick on you every time they check on 
you. Is this a real problem, and how can we fix that, in your 
    Dr. Weiss. Well, the amount of regulatory oversight has 
increased dramatically in the last several years. We have no 
problem with accountability, the problem is or, actually, it 
appears that we are being accountable to multiple entities at 
the same time, sometimes with conflicting direction.
    As far as for us to send a letter to our Members, we have 
to submit the letter to HCFA, waiting sometimes the 45 days 
before we can send it out. It has had some impacts on 
implementing programs that we have scheduled and had to adjust 
the date or hold off doing programs that we think would have 
had some major benefits.
    Also, as far as the scheduling of reviews, we are being 
reviewed annually by HCFA, and then we are also having all of 
our accreditation visits coming in. So it seems like we are 
usually in the accreditation or survey mode, where we are 
always having staff spending a great deal of time preparing for 
the next review. In our case, we get three reviews--we will 
have three reviews in 1 year between JCAHO, NCQA, and also the 
Medicare reviews.
    Mr. Johnson Of Texas. How many people do they send in on 
those reviews?
    Dr. Weiss. Medicare sent in about six people last year for 
the review and the other accrediting bodies will send in a 
varying number.
    Mr. Johnson Of Texas. OK. Thank you very much. Thank you, 
Madam Chairman. I appreciate the extra time.
    Chairwoman Johnson. Mr. Kleczka.
    Mr. Kleczka. Thank you, Madam Chair. Mr. Turvey, let me 
direct some questions at you, since your UnitedHealth is in my 
Home State of Wisconsin and also covers constituents in 
Waukesha and Milwaukee. Now, over the past year, you went from 
500,000 seniors covered under Medicare+Choice down to about 
410,000. Is that somewhat accurate?
    Mr. Turvey. That is correct.
    Mr. Kleczka. Now, is the reason for that 90,000-decrease 
due to participants leaving the plan or you closing markets in 
various States?
    Mr. Turvey. It is primarily due to us leaving markets in 
various States.
    Mr. Kleczka. Evidently, you were losing money so you packed 
up and left.
    Mr. Turvey. That is correct.
    Mr. Kleczka. You also indicated a short time ago that you 
are still losing money in various segments of the market that 
you are in. Would one of those areas be the State of Wisconsin?
    Mr. Turvey. No, I don't believe so. Chicago is our larger 
    Mr. Kleczka. So it is your intention, at this point anyway, 
to continue to offer Medicare+Choice in the State of Wisconsin, 
and specifically Milwaukee-Waukesha.
    Mr. Turvey. That is our intention.
    Mr. Kleczka. I am sorry. I didn't get the answer. Your 
answer was? Your answer to that was? Mr. Stark said, yes, if we 
would stop eating bratwurst and cheese.
    Mr. Kleczka. And since that won't ever happen, I have to 
rely on you for the correct answer.
    Mr. Turvey. I am sorry. I did not hear the question.
    Mr. Kleczka. All things being equal, you do intend to stay 
in the Milwaukee market.
    Mr. Turvey. Yes, we do intend to stay, regardless of what 
you eat up there.
    Mr. Kleczka. The reason I ask is because at one point we 
had about five providers. We are down to two providers, which 
would be yourself and Medicare Blue. I am familiar with the 
Medicare Blue operation. They are losing money writing in this 
market. I don't know how long they are going to continue.
    So the point I am trying to make is this grand experiment 
of Medicare+Choice is decreasing in popularity and/or is losing 
money in areas so companies like yourself are pulling out. I 
think that is an important point to note because if you look at 
some of the Medicare reforms that we will be looking at, 
specifically, the Breaux-Frist proposal, it would actually 
expand Medicare+Choice. And I am saying if, in fact, you are 
losing money today and pulling out of various markets, and less 
seniors are now covered, how can we go and save the Medicare 
Program by expanding this somewhat failed experiment?
    Now, one of the points you also made was that you are, one 
of the reforms that you are advocating would be a higher 
reimbursement. But we were told during a briefing seminar early 
on in the session, and Mr. Stark made mention of this, that, in 
fact, the Medicare+Choice is proving to be somewhat more 
expensive than fee-for-service. Now, if we are going to use the 
Medicare+Choice to save Medicare and it is more expensive, then 
we are not going to reach our goal by doing that.
    Expand somewhat on one of the reforms being more 
reimbursement, more capita rates or higher per capita rates.
    Mr. Turvey. Well, I think, first of all, the program is 
quite popular, and all we have to do for evidence of that is--
    Mr. Kleczka. If it is so popular, how come UnitedHealth 
went from 500,000 to 400,000? That is a 20-percent loss.
    Mr. Turvey. Yes, but it is popular among beneficiaries. And 
for evidence of that, all you have to do is look at the 
feedback we get when we leave a market. We don't do it without 
a great deal of pain and negative feedback from those members. 
They do love the program. The problem is, as we have seen all 
along, although we have taken some steps to rectify that in the 
reimbursement, the reimbursement is still very uneven from 
market-to-market, and that----
    Mr. Kleczka. And that is something we are trying to 
reimburse on a congressional level, although we are doing it in 
such a slow manner. In fact, just to highlight what you have 
said, Milwaukee-Waukesha, per capita or capitation rate is $553 
a month, Dade County, Florida, $834.
    While we are on that point, what do you offer your 
Wisconsin Medicare+Choice beneficiaries above and beyond the 
fee-for-service program? What services do you offer above and 
beyond the fee-for-service program?
    Mr. Turvey. We offer the services that I detailed in the 
testimony, but beyond that we have reduced co-pays.
    Mr. Kleczka. No, no. Give them again. The first thing I 
would ask is, is there a drug benefit for any of these 
Wisconsinites? And I would assume, based on the per capitation, 
that the answer is going to be no.
    Mr. Turvey. The answer is no in Wisconsin.
    Mr. Kleczka. So what, specifically, do you offer a 
Wisconsinite above and beyond a fee-for-service program?
    Mr. Turvey. Fewer co-pays, and additional benefits, and 
better medical outcomes, and support services that I detailed 
in my testimony.
    Mr. Kleczka. What co-pays does the beneficiary save on, 
    Mr. Turvey. Inpatient, outpatient.
    Mr. Kleczka. Which is, what, the $10?
    Mr. Turvey. Generally, $10. I am not real familiar with 
where Wisconsin is right now, but that is probably about right.
    I think the thing to remember, with respect to comparisons 
to traditional Medicare, is that we offer better outcomes, we 
offer higher Member satisfaction, we offer increased benefits 
and really at no higher cost. Generally, it is somewhat lower 
cost. It is popular with the beneficiaries. What this program 
is not popular with is hospitals who now have had the 
reimbursement bar raised----
    Mr. Kleczka. Well, that is not totally accurate because it 
is not popular with constituents who want to stay with the same 
doctor they have been seeing for the last 40 years, and chances 
are that that doctor or physician, he or she might be part of 
your plan. So we are still getting, from our constituents, the 
fact that they want total choice of provider.
    I know my time has expired. Maybe we will get another 
round. Thank you.
    Chairwoman Johnson. Well, I certainly would just want to 
note that joining a Choice plan is an option. And so if your 
doctor is not in it, as I tell my seniors, don't join it. But 
often, because they are primarily in the densely populated 
areas, the chances are that your doctor and your hospital is 
going to be in it.
    And I think Mr. Turvey's point was that when you look at 
how upset people were when they had to leave a market, it does 
tell you they liked participating in their plan. The purpose of 
this hearing is not to tear anybody down or build anybody up on 
either side of the Medicare Program, but merely----
    Mr. Kleczka. Madam Chair, I don't believe I was tearing 
anyone up or building anyone up. I was just asking some probing 
    Chairwoman Johnson. I think the implication of your 
question of what are people getting for it. Yes, they are 
getting a premium cut, but the real thing they are getting for 
it is what he went into in great detail in his testimony that 
has helped implications: coordinated care, the access to a 
person in the plan so that you can always get your questions 
    But this issue of coordinated care and disease management, 
this has to do with the future of Medicare. Seniors with 
chronic health needs need a different kind of governance and 
involvement. And I think I don't want to just gloss over that 
the only thing he is giving patients is a reduction in premium 
because that isn't the big issue here. The big issue from 
everyone testifying was disease management, was improved health 
    Mr. Kleczka. Madam Chair, if I may respond, evidently, you 
can't read my mind. The reason that I asked that question was 
because of the low capitation in Wisconsin, that is all these 
plans can give my constituents and other Wisconsinites. If I 
would have had additional time, I would have went into the plan 
offerings in Florida, and I can bet you a dollar to a doughnut, 
in Dade County, Florida, there is probably some decent drug 
coverage, but naturally the reimbursement is almost $300 per 
month more. So----
    Chairwoman Johnson. Well, one of his recommendations is 
that they need to have the same increases in reimbursement that 
we are providing to others and that we are providing bigger 
increases to hospitals than we are to the managed care plans 
that have to deal with them.
    Mr. Camp. No, Mr. Ramstad, I guess, is next.
    Mr. Ramstad. Thank you, Madam Chair.
    Mr. Turvey, I would like to ask you a question. When we 
passed the Balanced Budget Act (BBA), Congress was obviously 
focused on the fairness gap issue to address the unconscionable 
disparity in county-based health plan payment rates across the 
    I would like to ask you, based on your experience, was it 
prudent to set up a new payment method separate from fee-for-
service payments or did we effectively create a whole new gap 
with fee-for-service and provider payments?
    Mr. Turvey. I think it was a well-intended move and well 
advised, but I think it had some unfortunate side-effects. 
Primarily, there are two things that happened that I noticed. 
It did not eliminate the disparity among reimbursement from 
county-to-county. And as Mr. Kleczka suggested with respect to 
where Milwaukee stands versus Dade Counties or others, I could 
give you similar stats for Cook County. There are huge 
variations. So that gap has not been narrowed anywhere near to 
the extent it should be.
    Mr. Ramstad. Not to mention the Twin Cities of Minnesota 
vis-a-vis Dade County.
    Mr. Turvey. That is correct.
    Second, the increases that went to hospitals, which I think 
were, to some degree, required, they were needed, they 
essentially raised the bar to where the hospital could come to 
us and say, ``Now you have got a new target to match with 
respect to what you have to pay us.'' There was an arbitrage 
going on by the hospitals between traditional Medicare and 
Medicare+Choice. And so, essentially, we had to take our BIPA 
money and throw most of it to the hospitals, with most of the 
remainder of that to the physicians, and there was very little 
left over, contrary to our wishes, for improved benefits.
    Mr. Ramstad. I would also, Mr. Turvey, like you to 
elaborate about your suggestions for improving and stabilizing 
the Medicare+Choice program by experimenting with nonrisk-based 
alternatives, particularly in low-payment places like 
Minnesota, where I have watched the program all but disappear 
in the last several years.
    Mr. Turvey. I think, in order to get utilization to more 
reasonable levels in areas where utilization is very high, in 
areas where physicians are not practicing under the best 
clinical information, that you need to make an investment in 
these physicians, especially in rural counties, where they are 
not familiar with much of this, and this information does come 
at a bit of a cost.
    I think, if a program, such as that we are looking at in 
rural Iowa, could be established, where there was minimal 
downside risk to a physician for participating, in essence, 
HCFA would be contracting, let us say, with the UnitedHealth 
Care on what we refer to in the industry as an ASO or 
Administrative Services Only contract, where there is very 
little upside, but there is minimal downside as well, we would 
have the opportunity to engage rural physicians in a contract 
with very limited risk.
    And I think then, over a period of a couple of years, as 
you take the clinical information that Group Health spoke of 
and I spoke of earlier, with our physician data sharing, and 
you get that out to physicians, and you give them some 
primarily quality based, but then, secondarily, economically 
based incentives to improve their outcomes, then we will find 
that, as a byproduct, care becomes more cost effective and cost 
savings result.
    I think that is the model we need for the rural areas, 
otherwise they are going to say, ``We want no part of it. We 
can't afford to take significant risk. We will just play, but 
we will play under traditional Medicare.''
    Mr. Ramstad. That is the message we all need to hear, those 
of us working on this situation here in the Congress.
    Let me, finally, ask you about difficulties in contracting 
with providers, particularly hospital systems, and how 
UnitedHealth dedicated the majority of your new, so-called new, 
BIPA payments to increase provider reimbursement. Maybe you 
could share some examples of the types of contract negotiations 
you have been engaged in with provider groups and why you found 
it necessary to devote BIPA dollars almost exclusively to 
    Mr. Turvey. Really, from the hospital's perspective, they 
see two things: Number one, with the increased reimbursement, 
there is a new standard for reimbursement, and they are saying 
match it or we depart--departicipate. For them, it is an 
improved bottom line to go to traditional Medicare.
    Second, by going to traditional and getting out of 
Medicare+Choice, there are a lot of things they don't have to 
do. They don't have to be accountable to health plans or HCFA 
or others for measures of outcomes, especially quality. And I 
can't tell you how many times I have heard hospitals say, 
``Quality measures are a little squishy. They are a little 
elusive, so we if we can't perfectly measure them, let us 
not,'' and I think that is wrong. That is what we have seen, 
and we have seen it in St. Louis, where I have been very 
specifically familiar with it and involved in those 
    Mr. Ramstad. Thank you, again, Mr. Turvey, for your 
testimony and for being so responsive to these questions. Madam 
Chair, my time has expired.
    Chairwoman Johnson. I am sorry.
    Mr. Lewis.
    Mr. Lewis. Madam Chair, since I arrived late, I think I 
should defer to the gentlelady from Florida.
    Chairwoman Johnson. Congresswoman Thurman.
    Mrs. Thurman. I want to talk about the reimbursement issue 
a little bit because I find this a fascinating issue because I 
don't know that it is reimbursement totally. I mean, I think 
that we have done some things. Last year we did some 
incentives. Actually, Mr. Turvey, you, in UnitedHealth Care, 
came into Hernando County after we lost all of our 
Medicare+Choice programs. I don't know what your experience, 
and maybe you can't answer because that is not your part of the 
country, but we gave an incentive program. We tried to 
encourage people to come in there, and you and one other have, 
at this point, and I don't know what is going to happen. I 
mean, we are hearing a lot of rumors in the district that you 
all may be pulling out.
    And I know Dade County gets talked about an awful lot up 
here. That is not the experience for most of Florida. Quite 
frankly, as Dr. Weiss can tell you, that is not. But there is a 
problem in my, I mean, I have the same problem with all of this 
moving around, but then I find situations where companies have 
gone into these areas getting less reimbursement than another 
county, and yet they stay in those counties, but pull out in a 
county that is getting a higher reimbursement. So I don't know 
what that mixture means, and I would love to hear your comment 
on that.
    And the second thing, and this is, quite frankly, one of 
the things that I hear most, is the reason we are taking 
Medicare+Choice programs, I mean, I think, quite frankly, you 
all do a great job in the private sector. I think the 
Medicare+Choice program has some real issues on it.
    But I think one of the reasons people come into that is 
because of the prescription drug. It has been mentioned, and I 
have got a spreadsheet that I have done on all of mine, based 
on what the prescription drug benefit is and what it isn't, and 
what are your feelings based on the HMO Medicare+Choice 
programs that you are seeing?
    Do you think people are staying in these programs because 
of prescription drugs as much as anything, Dr. Weiss?
    Dr. Weiss. I think absolutely on the prescription drug 
benefits. Some of the other benefits, especially as you go to 
the counties with the higher reimbursement, is the lower 
premiums or no premiums. When you look at the cost of a 
Medicare+Choice product in Broward County, which may have a 
premium and a pharmacy benefit, it is substantially below what 
a supplement would cost without a drug benefit. As you get into 
some of the other counties further north and more in your 
district, the pharmacy benefit is still there, but the premiums 
go up, and the pharmacy benefit goes down, I think the main 
draw for most people, is the pharmacy benefit.
    Mrs. Thurman. And, you know, let me ask that, because this 
is a question that always kind of never gets answered, but I 
ask it on occasion. I mean, you all are in different parts of 
the country, but you are also in--well, in your situation, you 
are mostly in Florida. Mr. Turvey, you are across the country, 
but you have different associations within your States, 
different States. You use the same pharmaceutical delivery 
system as we do in Dade County, as you would in Hernando 
County. I mean you have got Eckerd's, you have got Walgreen's, 
you have got K-Mart, you have got whomever is going to offer 
these things. Why is it that we cannot have the same thing in 
some other parts if you are doing--I mean, kind of like we have 
been looking at this whole issue with prescription drugs and 
best management, and third-party persons. I mean, why can't you 
all, in fact, contract with these people for the whole State 
for the cost, giving us the same opportunity to participate in 
a prescription drug as you do in individual areas? The same 
    Dr. Weiss. Well, in fact do have the same contracts 
throughout the State at the same reimbursement rate. What is 
interesting is the prescribing patterns and habits vary greatly 
in certain areas of the State. The most expensive area for us 
historically had been Palm Beach, which is not the highest 
reimbursement area in the State, but it had substantially 
higher costs than Dade or Broward Counties. So it appears that 
the physicians have a much greater ability to impact the cost 
than the contracts would, because again, we pay the same rate, 
whether it is in Gainesville, or Lake City, or down in 
Hollywood or Miami.
    Mrs. Thurman. So it is utilization?
    Dr. Weiss. It is predominantly utilization. It is not the 
reimbursement cost of the pharmaceutical.
    Mrs. Thurman. Mr. Turvey, any one of my three questions.
    Mr. Turvey. Yes. I would say if you are looking for 
differences of why a pharmacy program can't be as rich in one 
county as another, why can't it be Statewide, sometimes the 
difference in hospital rates in a particular county will eat up 
what would have been available for the pharmacy benefit. So you 
have got to look to other components as well, or there may be 
an organized physician group that is a little better at 
negotiating their capitation. So those other elements can 
squeeze out the pharmacy piece.
    You ask another question too, saying, are people initially 
attracted by the pharmacy benefits? I think the answer is yes. 
In my experience, which has been heavily in the St. Louis area, 
where we have 72,000 Members, they sure are. But then they stay 
for other reasons. They stay for the reasons I went through in 
my testimony, because they love the program. And recently we 
had one of our health care providers, an entire system, SSM 
Healthcare, drop from the system because to them, reimbursement 
was better under traditional Medicare, and they didn't have to 
organize their physicians to change their practice patterns for 
better outcomes, which is work, and is politically intrusive 
for them. So it is easy just to say, ``We will go back to 
traditional Medicare and we will just run hospitals'', and that 
is what we all were trained to do 10 and 20 years ago. So that 
is what they are doing.
    But what was interesting is there were 12,000 Members 
affected. The vast majority of them are staying with us, even 
though 60 physicians are no longer available. The other thing 
that is interesting is some of those physicians, employed 
physicians, are now rethinking their employment contracts 
because they want to continue to serve those Members.
    So it has been a great experiment to see how this plays 
out, but the fact of the matter is, people love the program, 
they stay in it, and they will change physicians, and their 
physicians will give it a second thought too. So we have seen 
that happen.
    Mrs. Thurman. So part of--so what I guess, the bottom line 
was--Madam Chairman, I am sorry--then is the fact that it is 
not just reimbursement, that there are private issues that are 
out there as well. I mean, I think that has to be on the record 
because that is all we ever hear about, and quite frankly, that 
is what we get in those letters that Dr. Weiss referred to, is 
``Call your Congress person, increase those reimbursement 
rates.'' And in fact, I don't know how to respond to that 
except the fact of the matter is, I think there are other 
outside issues, and I think we need to let people know that.
    Mr. Turvey. They signed an agreement they were willing to 
negotiate and live with. That is the bottom line on it.
    There is a point I would like to leave everyone with 
because I think it is fundamentally important to the future of 
the program and the future of Medicare as well. I guess I would 
equate the evolution of Medicare+Choice as maybe the auto 
industry in 1920. You know, clearly, this looked like the way 
to go with cars, but they were far from perfect. Now looking 
back 80 years later, you say, ``My God, what if we decide to go 
back to horses?'' I mean, it would now look absolutely 
ridiculous. And here is the parallel. The physician data 
sharing that sophisticated managed-care companies like Group 
Health and United and AvMed and others, what they are doing is 
building on the foundation for significantly better medicine in 
years to come. The information we give a physician when we 
say--your pediatrician--``Here is how you are prescribing. 
Would you like to know how other pediatricians in St. Louis are 
prescribing within your group, within the city? Would you like 
to see how they are prescribing in Denver for a particular 
diagnosis?'' This program--a pediatrician is not a good 
example. Let us say an internist from Medicare. But the same 
thing applies.
    This technology comes from this program and doctors are 
greatly educated by it, and they become better, more cost-
effective practitioners. If the program dies out, this 
technology dies out with it, or at least is restricted to some 
segments of the commercial world. This is the promise of better 
medicine and more cost-effective medicine. And that is why it 
is incredibly important not to abandon this concept at its 
infancy. Fix the problems, and let us keep it going, and let us 
do what we can to keep plans from withdrawing from these 
critical cities, and time is short.
    Chairwoman Johnson. Thank you, Karen. Congresswoman Dunn, 
    Ms. Dunn. Thank you, Madam Chairman.
    Ms. Scott, I want to get your take on a couple of topics. I 
think I will push a bit more on the reimbursement issue. As you 
know, health plans in Washington State are reimbursed on a 
lower rate than health care plans in other States. This is a 
big problem for us. The goal of the Balanced Budget Act 1997 
was to create greater parity in these reimbursements between 
health plans, and yet we continue to see great differences in 
payments. What changes do you think we need to make to the 
reimbursement formula to insure greater equity and payments 
between health plans?
    Ms. Scott. Just building on my colleagues' remarks here, we 
do see these great disparities, county by county. A couple of 
reflections for the Committee. Number one, those are historical 
baseline data that is now five to 6 years old. They have not 
been updated. And that is where you see, you are building the 
Medicare program on a broken chassis, if you will, in terms of 
    Second, one of the things that Congress can obviously do is 
to get rid of budget neutrality when it comes to the blend. The 
blend was enacted with goodwill and good purpose to try to deal 
with those disparities, but as long as budget neutrality is in 
place, it is a zero sum game, and so that is obviously another 
way that we can deal with that.
    So I think we need to update the data. We need to look at 
budget neutrality, and to take a look at the blend. I think 
congresses have been clear that you want the blend. It is 
really a question of how you implement it.
    Chairwoman Johnson. Ms. Scott and Congresswoman Dunn, would 
you yield a minute? Now, on this blend issue, because I don't 
think that even most Members of Congress----
    Ms. Scott. I am sorry. I cannot hear you.
    Chairwoman Johnson. On the blend issue, I don't think most 
Members of Congress realize what actually happened, but the 
blend was supposed to blend your local rate with a national 
rate. The goal was to bring the people below the national rate 
up, and to bring the people who were way outliers above the 
rate, down. But because there were more people below than there 
were above, the budget neutrality provision meant that you 
didn't get the blend portion.
    Ms. Scott. That is correct.
    Chairwoman Johnson. So you really didn't get the 
reimbursement increase out there in the real world that we put 
in the law, because at the end of the chapter, we added budget 
    Ms. Scott. And Ms. Dunn is right, that that has been for 
the State of Washington, sounds like for Chicago and for parts 
of in Florida, in certain counties, that is why we have this, 
if you will, arcane disparity, and there are steps that 
Congress can take to, again, as you say, take the very high 
counties down a bit and bring the other counties back up to 
some normalized amount.
    Chairwoman Johnson. So even in those instances where we 
offered you 2 percent as a minimum, many didn't get the 2 
    Ms. Scott. That is correct.
    Chairwoman Johnson. Yes.
    Ms. Dunn. Let me ask you too, Ms. Scott, on a different 
topic. We have a situation in Washington State that has 
continued to grow out of hand. HCFA doesn't account for health 
services that are provided to Medicare beneficiaries who seek 
care in military facilities, and so the calculation of the 
reimbursements doesn't go into the reimbursements that we 
    Two years ago Congress required HCFA to submit a report 
accounting for the health services furnished by the Department 
of Defense and by Veterans Affairs to Medicare beneficiaries in 
both the Medicare+Choice program and the fee-for-service 
program. We haven't seen that report yet, but I am wondering if 
you would care to comment on how this exclusion has affected 
your plan and any thoughts you might have to work out this 
    Ms. Scott. Thank you. What happens, just for those Members 
who don't know what happens, the population of the people in 
the armed services, and we have many defense bases in the State 
of Washington, are calculated as Medicare enrollees, but the 
cost of their care isn't calculated in our average area per 
capita amount. So you have a numerator and denominator problem, 
so you have a artificially depressed reimbursement rate for the 
State of Washington. That is what Congresswoman Dunn is talking 
    Chairwoman Johnson. Excuse me. Is that on the assumption 
that they are being cared for by the military system?
    Ms. Scott. And we would be fine if then they would be taken 
out of the numerator, but they are in the numerator and not in 
the denominator. That is the inequity. And it is significant. 
And it is particularly, county by county, in Kitsap County and 
in Thurston County and in Pierce County, it is very, very 
significant. Obviously, we have not been able to get the 
traction within HCFA that we would want, Ms. Dunn. And so I 
think the answer may be help from Congress in being more 
explicit about your expectations of that inequity being 
    Ms. Dunn. I do have one more question if the gentlelady 
would yield to me for one question. Thank you very much.
    I wanted to go to Mr. Turvey before we are finished here. 
Mr. Turvey, you point out in your testimony, some of the 
innovative health benefits that UnitedHealthcare provides. 
Specifically, your testimony talks about care coordination, 
long-term assessment, and education programs for diabetes, 
asthma and cardiovascular disease. You go on to relay your 
company's effort to personalize services for your Member 
through dedicated customer service representatives, round-the-
clock access to nurses, legal experts and counselors. What kind 
of feedback are you getting on these services? Do they value 
them? And what sorts of quality indicators do you have 
regarding how these benefits have either improved the quality 
or reduced the cost of care?
    Mr. Turvey. It obviously depends upon the benefit you are 
talking about. The members love them. And they develop an 
astounding relationship between the personal service specialist 
and the Member. You can measure them through surveys. You can 
measure them through short-term and long-term disenrollment 
rates, which for us, our short-term disenrollment rate is about 
5-1/2 percent, which is extraordinarily low, and in the areas 
where we don't have the personal service specialists and plans, 
we didn't put them in first, we see it significantly higher. So 
this is a key thing.
    Members need someone, a name, a person, not just someone on 
the other end of the phone, but someone to talk to that they 
can confide in and say, ``Here is my problem.'' Maybe it is not 
purely health, but if it is health-related or it is depression-
related or it is family related. And through working through 
these issues, that is how the bond is there, that is why people 
stay. And you uncover health issues that you might not 
otherwise uncover.
    Now, you couple that with all the other more clinical 
activities, such as post-discharge. The PSS or nurse-care 
coordinator will call someone's home and say, ``Now, are you 
going to the follow-up visit with the doctor? Did you get a 
prescription filled? Do you have a way to get it filled? We 
have a van that will take you or get your prescription 
    That sort of follow up to prevent readmissions and 
increased costs, we have example after example, but those are 
the kind of things that, while they are not cheap, Members love 
them, and they do pay off. They pay off in the longer term too. 
You can't get a 6-month payback on them.
    Chairwoman Johnson. Thank you. Mr. Lewis.
    Mr. Lewis. Thank you very much, Madam Chair.
    Mr. Turvey, your company, UnitedHealth, has a very visible 
and large presence in Atlanta and Fulton County, Georgia, my 
district. And I know that you are head of the Midwest, but do 
you have any idea what is the status of UnitedHealth and 
Medicare+Choice in Atlanta and Fulton County?
    Mr. Turvey. No, I don't. I know Teri Klein, our chief 
executive officer there, and I would be happy to call her 
tomorrow and get an answer for you tomorrow on that, but I 
don't know offhand.
    Mr. Lewis. I tried to read your testimony, and what do you 
think is the biggest challenge facing the Medicare+Choice 
program in the nation?
    Mr. Turvey. I think--well, of course, there are several of 
them, but I think the biggest one is, in certain counties, huge 
payment differentials from one county to another. I will give 
you a brief example of it. In St. Louis we have two rural 
counties, in Illinois, right around metro St. Louis. One had a 
33 percent lower reimbursement until this past year. It was 
Monroe County, the only county my health plan in St. Louis ever 
wanted to withdraw from and had to, and then the reimbursement 
through BIPA came back and bumped it up 29 percent, made it 
viable. Now, there was no rational reason for it ever being 
that much lower.
    Mr. Lewis. Would it be different say in St. Louis, and then 
in Jefferson County, in the city and----
    Mr. Turvey. Oh, yes, it would. Yes.
    Mr. Lewis. I was in St. Louis yesterday.
    Mr. Turvey. But there are huge differences. Just an 
example, I have got some rates comparing Cook County to others. 
Now, everybody likes to point to Dade County, so that is a 
little unfair. But Miami is 34 percent higher. New York City is 
28 percent higher.
    Mr. Lewis. Miami is 34 percent, Dade County is 34 percent 
    Mr. Turvey. Then Cook County. But it is not just Dade 
County. New York, 28; Philadelphia, 26; Houston, 20; Detroit, 
15; Boston, 14; LA, 11. That 11 percent or even substantially 
less, on an enrollment of 30 or 40,000 Members, means millions 
and millions of dollars. It is the difference between a program 
being viable or being shut down, because you can only transfer 
so many millions of losses to the commercial segment in your 
town, and stay viable in those product lines as well. And by 
the way, up to now, that is exactly what we have done.
    Mr. Lewis. What should we be doing? What should the 
Congress be doing to bring some stability and uniformity I 
guess? Is that what we want, Madam Chair?
    Chairwoman Johnson. Yes, stability.
    Mr. Lewis. Stability. What should we be doing? What is your 
    Mr. Turvey. I think, as she suggested a little earlier, do 
a good detailed review of the risk assessment methodology. It 
needs to be improved. And just look at these county-by-county 
differentials, and it is a real problem. It really is.
    I remember when I ran a not-for-profit health plan for 10 
years in Michigan. There was no way we could ever have a viable 
program in Grand Rapids, but in Ann Arbor, because of the 
university's influence there, I had friends who were starting a 
Medicare Program there. They couldn't spend the money. They 
couldn't come up with enough benefits to file an ACR that would 
have gotten through HCFA. I mean it was ludicrous.
    Now, the gap has been closed, but it is still significant. 
Now, there are other areas that we have covered, but that is 
the biggest problem.
    Mr. Lewis. I want to sort of follow up on a question that 
my colleague and friend from the State of Washington asked, Ms. 
Dunn, about do you get involved in the whole question of 
preventive--do you sponsor, I guess, health care fairs and 
festivals, to help educate? You know, it is very confusing for, 
not just senior citizens, but when you have several 
medications. How do people keep up? Do you get involved with 
the company and outreach?
    Mr. Turvey. We do. We get involved with community outreach. 
One of the things we have done for people who are homebound, is 
to have a van service to take them to their physician's office 
if they have a doctor appointment, because we want them to go 
there and spend some money and be taken care of, rather than 
sit at home because they don't have transportation. We get 
involved in all sorts of clinics, as I think all of my peer 
plans do here, where you get into the community and you go out 
and do education, or you pull your medical directors out to do 
education, where people congregate, in churches----
    Mr. Lewis. Shopping malls.
    Mr. Turvey. In shopping malls, and you do hypertension 
screenings, for example----
    Mr. Lewis. Churches, synagogues.
    Mr. Turvey. Blacks are prone to hypertension, and in the 
inner city, we do hypertension screenings, in the malls, in 
churches, wherever you can get to people and educate them. 
Education is cheap but vitally important. All of those kind of 
things we do.
    Dr. Weiss. All of the Medicare+Choice plans are required to 
an assessment on a new enrollee. And so when someone signs up 
with our plan, in that initial 30 to 60-day period, they do get 
an assessment, frequently right after they enroll, right after 
that, just before, or right after they come on the plan. Also 
most of us do have community-based programs. We have one where 
we are doing health fairs for our diabetics, and inviting all 
of our diabetics to come and get all of their screening done on 
site, having providers come to community locations to do their 
foot exams, their eye exams, to draw their bloods, to do all of 
the things to try to minimize the consequences of diabetes, 
rather than having them go to four or five providers to get 
this all done.
    And that is the whole concept behind trying to do the 
preventive care and the disease management. You can't just sit 
back and wait for them to come to you to provide the service. 
You have to find innovative ways to be able to get these 
services delivered to them, where they are.
    Ms. Scott. You know, in the most simple way, if you are 
prepaid $300 versus if you are prepaid $700, guess what you are 
going to do with $300 versus what you are going to do with 
$700. And the investments you have to make to be a good health 
care organization under the M+C program, and if you are only 
getting $300, you are not going to be able to do these 
wonderful things that my colleagues and I have been suggesting. 
That is where the gap, that is where the issue around the 
blend, I think, I would agree is probably the most significant 
questions that is before this Committee.
    Chairwoman Johnson. Thank you. Mr. English.
    Mr. English. Thank you, Madam Chair.
    Mr. Turvey, in your testimony, you gave a detailed, and for 
some of us, a familiar criticism of the system of reimbursement 
in Medicare+Choice. We have elaborated on that a little bit in 
the course of this discussion. Can I ask you directly, should 
the current Medicare+Choice contribution be based on the 
underlying, and for some of us, rather perverse, county 
spending pattern of the traditional Medicare fee-for-service 
program, or should we go back to the drawing board and try to 
find a different way of providing that contribution?
    Mr. Turvey. I guess my most professional answer is to say I 
would leave that to the actuaries, but I think probably some 
hybrid would be appropriate, because the example I gave with 
Ann Arbor, theirs was ridiculously high because you had a huge 
university center, University of Michigan there. Now, that was 
wrong. It was inappropriate, but other cities, for example, 
Grand Rapids, traditionally conservative medicine, much lower 
expenditure rates, but then it wasn't viable. So some mix 
between those two cities would have probably made it practical 
for both cities.
    Mr. English. Also, Mr. Turvey, in your testimony, you offer 
some complaints with regard to the new HCFA requirement with 
regard to standardized beneficiary materials, and in some cases 
you say ``standardization has resulted in inaccurate 
descriptions and made it difficult for beneficiaries to gain 
specific information about individual Medicare+Choice benefit 
offerings.'' Can I ask you to elaborate on that a little bit?
    Mr. Turvey. When HCFA tries to become too standardized or a 
direct apples-to-apples comparison, it lacks flexibility to 
describe some program elements that may be unique such as 
personal service specialists, Care 24, UnitedHealthcare 
Passport, these sorts of things. And so it really does the 
potential Member a disservice by not fully describing to them 
what a program might offer.
    Mr. English. Ms. Scott, you also, in your testimony, 
offered a similar criticism of the standardized beneficiary 
materials. Can you elaborate, do you agree with Mr. Turvey's 
comments, and do you have any further points to make on this?
    Ms. Scott. No, I really don't. I think he pretty well 
described it. It is intent versus impact. The intent is the 
right intent. The impact is not what we want.
    And coming back to how HCFA is organized, if we had one 
organizational unit within HCFA to problem-solve these issues, 
I don't think they would be coming to Congress. I think we 
would be able to deal with these on an administrative basis and 
not worry you around issues of this level of detail. And I 
would only offer that, sir, as well as an idea that a lot of 
this doesn't need to be coming to you, if we had an interface 
that was effective.
    Mr. English. Mr. Turvey, you also offer the criticism that 
the scope of data collected in the encounter data collection 
seems excessive given the more limited data required for risk 
adjustment. Would you care to elaborate on that, please?
    Mr. Turvey. Again, that is probably a better question for 
consulting actuaries, and I would be happy to even field a 
paper on that to you, but I think it is just administrative 
overkill and there is a cost to it. The encounter data 
collected now is well beyond what is required or the risk 
adjustment formula.
    Mr. English. Finally, for all three of you, many of us who 
represent areas on the margins, rural areas, areas with 
historically lower Medicare fee-for-service reimbursements, 
have worried about the stability of the Medicare+Choice 
program, and I know some of your comments have touched on this. 
But I guess my direct question to all three of you briefly, how 
far do you believe we should go? How far would you be willing 
to see us legislate to protect beneficiaries from the 
disruption of plan withdrawal? What specific safeguards and 
regulations and protections do you think are appropriate to 
write into the law to insure against this sort of disruption? 
Dr. Weiss?
    Dr. Weiss. When you are addressing the withdrawal of the 
plans and the protection, obviously, the Members still will be 
able to continue to see their physicians if Medicare+Choice 
plan withdraws. So I think some of the protections are already 
there. It is not the case that their doctor is leaving. It is 
just that the benefit plan that they may have gotten through 
one of the Medicare+Choice plans are no longer there. And I 
believe the physicians will continue to follow their patients, 
regardless of whether they are in a M+C program or whether they 
are on the fee-for-service program.
    Mr. English. Mr. Turvey.
    Mr. Turvey. The best example I could think was where the 
hospital system I referenced earlier dropped out from our M+C 
program in St. Louis, and while this was more of an urban 
setting, the situation was this: they said to us, ``You can't 
enforce our participation through the end of the year, beyond 
June 30th of this year, through December 31st, and you can't 
show damages.'' And in fact, we couldn't show damages because 
our sharing, our risk-sharing formula was we covered 20 percent 
of the deficits in their hospital fund. And so actually we were 
better off saying, ``Go away, that's fine.'' But we didn't want 
to do it because we didn't think it was the right thing to do 
and we had a commitment to those Members. But We couldn't 
legally enforce the hospital system to perform.
    I think if the government, HCFA, could have some penalty 
for them, that would have changed their decision, and those 
Members would have had that program intact in St. Louis through 
12-31. They wouldn't be changing physicians right now.
    Mr. English. We had a rural hospital in my district in 
precisely the same situation. Ms. Scott.
    Ms. Scott. I think the stability of the program and how we 
protect our beneficiaries from year to year, decisions that 
health plans may make, give us as health plans, some 
predictability about policy. We don't go in and out willy nilly 
and out commitment therefore is that we want to be stable as 
well. It is very hard to read the tea leaves right now, and 
because it is hard to read the tea leaves, as businessmen and 
women, and also as health care vision--you know, people who 
have a mission vis-a-vis health care, when there is instability 
and you can't read the tea leaves, you tend to be more 
    So the one thing that you can help us with the most is give 
us a road map. We want to work with you. We are very much 
engaged in coming up with ideas to see if they work for you, so 
that there is that stability, because as you run your 
organization, and as you are mission driven, then with that, 
you can understand the tradeoffs that you are making, and you 
can stay in longer, because it has a longer horizon than what 
we currently have.
    Mr. English. Thank you, Madam Chair.
    Chairwoman Johnson. I thank the panel. Your comments have 
been very helpful, both in terms of the capacity of coordinated 
care plans, to improve the quality of health care for our 
seniors and better insight into the regulatory problems and the 
reimbursement problems that you face, that frankly, do 
compromise your future. Thank you very much.
    Let me call the next panel forward. I am sorry this has 
been so long, but I do appreciate the Members' thoughtful 
question and the good answers of the panelists.
    Madeleine Smith, from the Congressional Research Service; 
Bill Roper, Dean of the School of Public Health at University 
of North Carolina; Mike O'Grady, Senior Research Director for 
the Center of Health Affairs of Project Hope; Marilyn Moon, a 
Senior Fellow from the Urban Institute.
    Welcome, and if we can just start right ahead, Madeleine, 
we will hear all four Members and then go to questions.
    Dr. Smith. You will have to speak right into the microphone 
and be sure to turn it on. Thank you. I am sorry. It is not on 
yet. And you do have to get very close.


    Dr. Smith. Thank you, Madam Chairwoman and Members of the 
Subcommittee for inviting me to testify about payments under 
the Medicare+Choice program. My name is Madeleine Smith. I am a 
specialist with the Congressional Research Service.
    There are two points that I would like to emphasize about 
the effects of payment reform under Medicare+Choice:
    First, although the number of health maintenance 
organizations or HMOs in the program has declined, the 
proportion of Medicare beneficiaries enrolled in managed care 
has not changed much. In 1997, 14 percent were enrolled, today 
it is 15 percent. However, enrollment reached almost 17 percent 
of beneficiaries in 1998. Fewer beneficiaries have access to 
HMOs, but with the entry of a private fee-for-service plan, a 
type of Medicare+Choice plan, into the program, access for 
rural beneficiaries has risen.
    Second, variation in payment rates has decreased. In 1997, 
the highest rate was three-and-one-half times the lowest rate. 
Today, the highest rate is one-and-three-quarters times the 
lowest rate. Nevertheless, benefits offered by Medicare+Choice 
plans still vary widely across the country.
    There were at least two main reasons behind reform of the 
older AAPCC payment method under the Balanced Budget Act 1997: 
lack of access to a Medicare HMO in many areas and wide 
variation in the payments and benefits offered by HMOs. The 
Medicare+Choice payment rate in a county was set at the highest 
of three amounts: a floor or minimum amount; a blend or average 
of local and national rates; and a minimum update.
    The floor increased rates in low-payment counties more 
quickly than would occur through blending. The minimum update 
cushioned the effects of blending on high-payment counties. 
After payment reform, the Medicare+Choice program has 
experienced three waves of plan withdrawals and service area 
reductions effective at the onset of the Medicare+Choice 
program in 1999 and annually since then. Interspersed between 
announced withdrawals have come two legislative responses.
    Why did plans withdraw? Industry representatives believe 
that inadequate payments are a principal cause. HCFA, the 
Health Care Financing Administration, contends that withdrawals 
reflect strategic business decisions that transcend payment 
rate issues.
    A recent report from Interstudy, which studies the HMO 
industry, indicates HMO failures and withdrawals in the general 
HMO market in 1999. The industry experienced its first annual 
decline in enrollment in nearly 30 years as the boom cycle 
experienced by HMOs in the mid-nineties came to a close.
    In response to plan withdrawals, Congress acted twice to 
increase Medicare+Choice payments. The Balanced Budget 
Refinement Act 1999, the BBRA, made a few modest changes to 
raise future plan payments. The Benefits Improvement and 
Protection Act of 2000, BIPA, made more substantial changes, 
most notably raising the floor and increasing the minimum 
update for one year.
    After a little over 2 years, have problems identified with 
the old payment rate method been fixed? Lack of access was seen 
as a consequence of low payment rates. The payment floor raised 
rates in many counties. Today, more beneficiaries in rural 
areas have access to a Medicare+Choice plan through Sterling 
Life Insurance Co., which operates a new private fee-for-
service plan. As illustrated in the map to my right, Sterling 
offers coverage in 25 States and over half of the counties in 
the country. More than half of beneficiaries living outside 
metropolitan areas reside in Sterling's service area.
    Sterling offers private fee-for-service coverage in the 
areas colored dark blue and light blue on the map. Sterling 
competes for Medicare enrollees with HMOs and other coordinated 
care plans in the light-blue areas. The gold-colored counties 
are served only by HMOs. No Medicare+Choice plans are available 
in the white counties.
    To summarize, despite large payment increases in some 
counties and the entry of a private fee-for-service plan, the 
number of Medicare+Choice plans has decreased significantly 
overall and fewer beneficiaries have the option of choosing an 
HMO. Although the proportion of beneficiaries enrolled is 
slightly higher than it was in 1997, it is lower than in 1998.
    Variation in payments has declined from a difference in 
rates of 3.5 times to 1.75 times. As the payment gap has 
narrowed, benefits generally have declined. Fewer beneficiaries 
have access to a plan with a zero premium, especially one that 
includes drug coverage. Differences in benefits persist today. 
Some plans still offer full drug coverage for no additional 
premium, while others do not.
    Thank you. This concludes my testimony.
    [The prepared statement of Dr. Smith follows:]

Statement of Madeleine Smith, Ph.D., Specialist in Social Legislation, 
   Domestic Social Policy Division, Congressional Research Service, 
                          Library of Congress

    Thank you, Madam Chairwoman and members of the Subcommittee, for 
inviting me to testify about payments under the Medicare+Choice (M+C) 
program. My name is Madeleine Smith. I am a Specialist with the 
Congressional Research Service.
    There are two points that I would like to emphasize about the 
effects of payment reform under Medicare+Choice:
    First, although the number of health maintenance organizations 
(HMOs) in the M+C program has declined, the proportion of Medicare 
beneficiaries enrolled in managed care has not changed much. In 1997, 
14% were enrolled; today, 15% are enrolled. This fairly constant 
percentage of beneficiaries enrolled in HMOs followed a period of rapid 
growth in enrollment that has not continued. Fewer beneficiaries have 
access to HMOs nationwide, but with the entry of a private fee-for-
service plan into the program, access to an M+C plan for rural 
beneficiaries has risen.
    Second, variation in payment rates has decreased. In 1997, the 
highest rate was 3\1/2\ times the lowest rate. Today, the highest rate 
is 1\3/4\ times the lowest rate. However, benefits offered by M+C plans 
still vary widely across the country.
    In the remainder of my testimony, I will review how rates were 
determined before the M+C program, and major reasons for reform of the 
payment system. Then I will turn to a brief discussion of how rates are 
currently calculated. Finally, I will summarize one effect of rate 
reform--plan withdrawals--and changes to the M+C payment rate 
calculations enacted since 1997.


    Medicare has included a managed care alternative to traditional 
fee-for-service for almost 30 years, since the 1970s. Under the risk 
contract program created in 1982 (Section 1876 of the Social Security 
Act), an HMO received a single monthly capitation payment for each of 
its enrollees. This payment was known as the adjusted average per 
capita cost, or AAPCC. In return for the monthly payment, the HMO 
agreed to provide or arrange for the full range of Medicare services 
through an organized system of affiliated physicians, hospitals, and 
other providers.
    The Health Care Financing Administration (HCFA) calculated the 
AAPCC for each of the over 3,000 counties in the US. A county's AAPCC 
was based on the costs of providing care under traditional fee-for-
service (FFS) Medicare to a beneficiary in the county. Basically, HCFA 
determined the average per capita costs by adding together all of the 
Medicare FFS expenditures for beneficiaries living in the county, and 
dividing this by the number of FFS beneficiaries in the county. This 
county-level average per capita cost was adjusted for demographic 
differences between the county's Medicare beneficiaries and average 
beneficiaries nationwide. The county rate was set equal to 95% of the 
AAPCC to account for savings delivered by managed care organizations 
through coordination of care. Actual payments to HMOs for individual 
enrollees were adjusted for risk, using demographic characteristics of 
the enrollees, such as age, gender, and residence in an institution.
    Each HMO was required to submit an estimate of its costs of 
covering Medicare services for its Medicare enrollees. This estimate is 
known as the adjusted community rate (ACR), and is still submitted 
today. If the AAPCC was greater than the ACR, the HMO was required to 
reduce beneficiary cost-sharing, enhance benefits, contribute the 
excess to a stabilization fund, or return the funds to HCFA. Many HMOs 
were able to provide additional benefits, such as prescription drug 
coverage, without charge to an enrollee because the AAPCC exceeded 
their ACR.

                       Reasons for Payment Reform

    There were at least three main reasons behind reform of the AAPCC 
payment method under the Balanced Budget Act of 1997 (BBA, P.L. 105-
33): lack of access to a Medicare HMO in many areas; wide variation in 
the payments and benefits offered by HMOs; and volatility of payment 
rates over time.
    Lack of access to an alternative to FFS Medicare was the first 
perceived problem. The risk contract program expanded dramatically 
between 1993 and 1998, when the number of plans tripled from 110 to 
346. In 1998, almost three-fourths of Medicare beneficiaries had access 
to at least one risk plan, and almost two-thirds had a choice of plans. 
Still, over one-quarter of Medicare beneficiaries nationwide lacked 
access to a risk plan, and most of these beneficiaries were in rural 
areas. Over 90% of Medicare beneficiaries in rural areas lacked access 
to a risk plan, while all beneficiaries in central urban areas had such 
access. Many of the counties without plans had low AAPCCs.
    A second perceived problem was wide variation in payments and 
benefits offered by HMOs in different areas. In 1997, the highest 
payment rate was 3\1/2\ times the lowest rate: $767 versus $221 monthly 
for an aged beneficiary. An analysis of ACRs in 1995 showed that HMOs 
in Miami were required to offer benefits worth over $100 per month 
without charging enrollees anything: the payment rate was $100 per 
month higher than the HMO's costs of covering Medicare's benefits. In 
contrast, HMOs in Minneapolis were not required to offer any additional 
benefits: the payment rate was equal to the HMO's costs of covering 
Medicare's benefits. Beneficiaries in the federal Medicare program were 
receiving benefits that differed across localities.
    A third perceived problem was volatility of the AAPCC over time, 
especially in rural counties. This problem occurred because of the 
relatively small number of Medicare beneficiaries in some counties: 
today, one county has 18 Medicare beneficiaries. If one beneficiary in 
a sparsely populated county incurred large Medicare expenditures in one 
year, the average per capita costs would skyrocket. If that beneficiary 
recovered or died, the next year the average per capita costs could 
plummet. Wide variation in payment rates over time was considered one 
obstacle to risk plan entry into some counties.
    Other problems were more technical. The AAPCC was calculated based 
on average FFS Medicare costs. The costs of care provided to Medicare 
beneficiaries by Veterans Affairs (VA) or Department of Defense (DOD) 
facilities were excluded from the calculation. This could depress a 
county's AAPCC. AAPCCs also included payments for disproportionate-
share hospitals (DSH) and graduate medical education (GME) even though 
some questioned whether HMOs were passing these funds through to 

                           Payments under M+C

    In order to address some of these problems, BBA 97 included a new 
payment rate formula. The M+C rate in a county was set at the highest 
of 3 amounts:
     La floor, or minimum amount, set at $367 in 1998;
     La blend, or average, of local and national rates;
     La minimum update representing a 2% increase over the 
prior year's rate.
    The blend calculation used the 1997 AAPCCs as the base local rate. 
National rates were an average of local rates, adjusted to reflect 
differences in input prices in each county. A portion of GME payments 
was excluded from the local rates used to compute the blend, beginning 
with 20% in 1998 and rising to 100% by 2002. The blend was phased-in. 
In 1998, 90% was based on local rates and 10% on the national rate; in 
2003 and thereafter, 50% will be based on local rates and 50% on the 
national rate.
    The formula included a floor and minimum update to alter the 
immediate effects of blending local and national rates. The floor 
increased rates in low payment counties more quickly than would occur 
through blending of local and national rates. The minimum update was 
included to cushion the effects of blending on high payment counties. 
At the time of enactment, analysis projected that over 80% of counties 
would be receiving blend payment rates by 2003. Among remaining 
counties, 16% would receive floor rates and 2% would receive minimum 
    Payment rates were affected by other provisions in BBA 97, 
including statutory reductions in the national per capita growth 
percentage used to compute the local rate and the floor, and the budget 
neutrality provision which requires that aggregate M+C payments equal 
total payments that would have been made without changes to the 
formula. Both of these components were meant to guarantee budgetary 
savings. The M+C payment formula removed funding of GME from the 
calculation, but left DSH payments in the formula. No adjustments were 
made to account for care received through VA or DOD facilities. 
Finally, HCFA was required to implement a new risk adjustment system, 
based on the health status of beneficiaries, beginning in 2000.

               Plan Withdrawals and Legislative Responses

    The M+C program has now experienced three waves of plan withdrawals 
and service area reductions, effective at the onset of the M+C program 
in 1999, and annually since then. Interspersed between announced 
withdrawals have come two legislative responses, the Balanced Budget 
Refinement Act of 1999 (BBRA, P.L 106-113) and the Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA, P.L. 
    Not all HMOs that had operated under the predecessor program chose 
to convert to the M+C program in 1999. According to HCFA, the 66 
organizations that withdrew or reduced service areas affected slightly 
more than 400,000 beneficiaries in risk plans in 1998, about 6% of all 
risk enrollees. Slightly more than 50,000, less than 1% of risk plan 
enrollees, did not have access to another managed care plan and were 
forced to return to traditional FFS Medicare.
    Plans announced further withdrawals and service area reductions in 
1999 and 2000. Of the approximately 300 plans serving Medicare 
beneficiaries at the end of 1999, 99 plans withdrew or reduced service 
areas for the 2000 contract year, and 118 withdrew or reduced service 
areas for the 2001 contract year (GAO, 2000). These changes affected 
about 5% of M+C enrollees in 2000, and about 15% in 2001. About one-
fourth of affected beneficiaries in 2000, and 15% in 2001, had no other 
managed care option available.
    Why did plans withdraw completely or reduce service areas? Industry 
representatives believe that inadequate M+C payment rates are a 
principal cause of plan withdrawals. HCFA contends that withdrawals 
reflect strategic business decisions by M+C organizations that 
transcend payment rate issues. Studies of withdrawals by CRS, GAO and 
others have found that in 2000 M+C plans tended to withdraw from rural 
counties, where they may have had difficulty maintaining provider 
networks, and large urban areas, which they had recently entered or 
where they lacked sufficient enrollment. Similar results were found for 
2001, with the added withdrawal of some plans with more extensive 
program participation. GAO notes that the pattern of M+C withdrawals 
resembles the experience of the Federal Employees Health Benefits 
program (FEHBP), with rapid expansion of plan participation between 
1994 and 1997, followed by withdrawals of more recent entrants with few 
enrollees. A recent report from InterStudy indicates similar events in 
the general HMO market. In 1999, 83 HMOs (12%) ceased operations, many 
through merger, but 29 HMOs failed. The industry experienced its first 
annual decline in enrollment in nearly 30 years. Rural areas accounted 
for the greatest loss in enrollment, and 91% of HMO enrollees now live 
in urban areas. The boom cycle experienced by HMOs in the mid-1990s 
came to a close.
    Congress acted to increase M+C payment rates. The BBRA in 1999 made 
a few modest changes to raise future plan payments by decreasing the 
scheduled reduction in the national per capita M+C growth percentage, 
and by reducing assessments for beneficiary education. It established 
bonus payments for plans that enter areas where no other plan is in 
operation, to encourage participation in rural areas, and it slowed 
down the Secretary's scheduled phase-in of risk adjustment. The BIPA in 
2000 made more substantial changes to increase payments. For 2001, the 
floor rate was raised to $475 per month in lower populated areas, and 
$525 in areas with population of more than 250,000. The minimum 
increase in rates was raised from 2% to 3% for 2001. BIPA also extended 
the current risk adjustment method until 2003 (when a new risk 
adjustment method will be phased-in), and expanded the new entry bonus 
payments to encourage participation. Many other provisions with less 
general impact on payment rates were included. One notable BIPA 
provision allows M+C plans to offer reductions in the Medicare Part B 
premium as an additional benefit to enrollees, beginning in 2003.

                       Effects of Payment Reform

    After a little over 2 years, have problems identified with the 
AAPCC been fixed? Lack of access was seen as a consequence of low 
payment rates. The BBA raised the floor to $367 per month, and the BIPA 
raised it again to $475/$525. Has access increased? In 1997, there were 
over 300 risk HMOs, and in 1998, there were 346. Today there are 179 
M+C plans. The number of plans has dropped to about half.
    Although the number of plans has decreased significantly, the 
proportion of beneficiaries enrolled has not changed much. In 1997, 
about 5.2 million Medicare beneficiaries (14%) were enrolled in risk 
plans. This increased to 6.2 million beneficiaries, or almost 17%, by 
1998. In April 2001, there were 5.7 million Medicare+Choice enrollees, 
representing about 15% of the Medicare population.
    Thirty-three percent (33%) of Medicare beneficiaries lacked access 
to a risk plan in 1997, including 91% of beneficiaries in rural areas. 
By 2001, 37% overall lacked access to an HMO, including about 85% of 
beneficiaries in rural areas. With the entry of a private FFS plan, 
offered by Sterling Life Insurance Company, into the M+C program, 
access has increased. Sterling now offers coverage in over half of the 
states and counties in the country, where 38% of all beneficiaries 
reside, including 57% of beneficiaries living outside metropolitan 
areas. Sterling provides access to 18% of beneficiaries who would not 
otherwise have an M+C option.
    Many counties not served by a managed care plan are served by 
Sterling, as shown in the map.\1\ Sterling tends to operate in lower 
payment counties which previously did not have an M+C option. Sterling 
may serve these areas for several possible reasons. First, M+C payment 
rates may be higher than the average cost of fee-for-service care, 
especially in floor counties. Second, Sterling receives a 5% bonus for 
the first year, and 3% bonus for the second year, for serving counties 
that previously were not served by an M+C plan. Third, private fee-for-
service does not require a network of providers, which is difficult to 
assemble and maintain in rural areas. Sterling pays providers the same 
rate as traditional Medicare, and does not permit providers to bill 
beneficiaries additional amounts (i.e., balance bill). Sterling 
provides very few additional benefits beyond the Medicare defined 
benefit package, but may reduce cost sharing for some beneficiaries, 
depending on the exact services used. Currently, Sterling charges 
enrollees a $65 monthly premium; enrollees must continue to pay the 
Medicare Part B premium of $50 per month.
    \1\ The map illustrates service areas of coordinated care plans and 
Sterling Life Insurance's private fee-for-service plan. Coordinated 
care plans include health maintenance organizations, preferred provider 
organizations, and provider sponsored organizations. Some coordinated 
care plans were not accepting new enrollees in February 2001. These 
plans are not included in the analysis summarized by the map.
    Another goal of payment reform was to decrease the variation in 
payment rates and benefits. This has occurred. In 1997, the highest 
payment rate was three-and-one-half times the lowest rate. Today, the 
highest rate is one-and-three-quarters times the lowest rate ($834 
versus $475), and the spread is even lower across metropolitan areas 
(about 1.6 times, $834 versus $525). This narrowing of differences in 
payment rates has been achieved by raising the minimum payment, or 
floor, while restraining growth in the highest paid counties to a 2% 
(3% in 2001 only) increase per year. (Managed care plans have argued 
that their costs have risen much more than 2% annually. HCFA projects 
an increase of 15.4% in nationwide per capita Medicare costs from 1997 
to 2001. Plans receiving minimum updates over this period saw rates 
increase by 9.3%.) Additionally, as the payment gap has narrowed, 
benefits under M+C generally have declined. In 1999, 61% of 
beneficiaries had access to plans that charged no additional premium, 
and 54% had access to a plan that charged no additional premium while 
including drug coverage. By 2001, only 37% of beneficiaries had access 
to a $0 premium plan; only 26% had access to a $0 premium plan with 
drug coverage.
    Recall the difference in benefits available in Miami and 
Minneapolis in 1997. Differences persist today. Several plans in Miami 
charge enrollees no additional premium and include full coverage of 
prescription drugs, both generic and brand name, for drugs on the 
plan's formulary. Contrast this to Minneapolis, where there are four 
M+C plans, three HMOs and Sterling FFS. Only one HMO offers any 
prescription drug coverage. For $81 per month, Minneapolis enrollees 
are covered for $100 in total drug expenditures every 3 months, for a 
total of $400 of coverage per year. In both cities, the HMO plans 
reduce cost-sharing and provide additional benefits, such as physical 
exams, eye care, and dental care.
    Finally, payment reform was intended to reduce volatility in 
payments over time. Certainly payments have not decreased, as they did 
prior to M+C, but very large increases have occurred in some areas as a 
result of increases in the payment floor. Some counties saw rates rise 
over 100% between 1997 and 2001. The most recent rise in floors 
produced an increase of 14% in rates in non-metropolitan areas (from 
$415 in 2000 to $475 in 2001) and 26% in metropolitan areas (from $415 
to $525). Moreover, some plans are receiving an additional 5% bonus 
increase in rates because they entered previously unserved areas.
    This concludes my testimony. I thank the Committee for this 
opportunity to discuss M+C payment rates and will be happy to answer 
your questions.


    Chairwoman Johnson. Dr. Roper, welcome.


    Dr. Roper. Good morning or good afternoon, excuse me. Madam 
Chair, it is an honor to appear before you and the Committee 
and to discuss this important program. I salute your efforts to 
illuminate this issue and to try to make progress on it.
    I am Bill Roper, dean of the School of Public Health, the 
University of North Carolina, Chapel Hill. I was HCFA 
administrator in the mid-eighties. And in the mid-nineties, I 
was senior vice president of Prudential Health Care and had 
medical management responsibility for our plans nationwide, 
including those in what is now the Medicare+Choice program. So 
I come at this from having run the program and then dealt with 
Medicare+Choice and HCFA later as a health plan.
    The items that I would like to talk with you about are in 
prepared written testimony that I put forward, but I would like 
to speak more informally to ask you all to consider why the 
program undertook this notion of a better way to deliver 
Medicare services to seniors. It begins with the notion that 
the Medicare program, as originally envisioned in the mid-
sixties, is woefully out of date, and the private sector has 
generated innovative new systems for the delivery of health 
care that the Medicare Program has not generally been able to 
take advantage of. These are organized health care delivery 
systems with incentives for quality in the services they 
deliver and efficient delivery of those services, incentives to 
foster innovation, and so forth.
    When I was HCFA administrator in the mid-eighties, we were 
trying to launch this program, and I had the opportunity to 
write an op-ed piece for the Wall Street Journal, entitled, 
``Medicare's Private Option,'' and described the notion of 
allowing beneficiaries choice, not forcing them out of 
traditional Medicare, but allowing them choice of a variety of 
private options that took advantage of the innovations in the 
private health care market, and that began to happen in the 
late eighties and early nineties.
    But through that time, again, when I was at HCFA, I was 
repeatedly asked the question by those representing private 
health plans, whom I was trying to interest in doing business 
in this area, I was asked, ``Is the government a reliable 
business partner? Can we count on HCFA, can we count on HHS to 
deal with us in a fair and evenhanded way over time so that we 
can make long-term business decisions in this area?''
    And I said, in the mid-eighties, ``I think so, but you will 
have to wait and see.'' I think any fair judgment of the last 
10 years would tell you that the Government is not a reliable 
business partner for private-sector plans like the ones that 
you just had testify so eloquently a moment ago.
    In my written testimony, I have some recommendations which 
I commend to you, but they, I can summarize, are:
    HCFA should create a single office within it to provide the 
oversight, and regulation, and guidance for this program. 
Dispersement across HCFA of responsibility for this program has 
been a very unfortunate misstep along the way of overseeing the 
    Secondly, the regulatory oversight needs to be streamlined. 
It does not need to be so cumbersome and so frustratingly 
burdensome for the plans that are trying to do the right thing 
for Medicare's beneficiaries.
    And, thirdly, HHS and HCFA need to improve their 
decisionmaking processes and standardize them and especially 
make them consistent between the regional offices and HCFA's 
central offices so that people around the country, when they 
ask a single question will get the same answer so that people, 
again, can have a dependable business partner with which they 
can do business.
    I think if those things are done, there is the opportunity 
for this program to grow and flourish. But I would urge you, as 
I said at the outset, to consider why you started down this 
path some years ago. It is not simply to create more laws, and 
more regulations and so on, but to offer a much better way for 
Medicare beneficiaries, and I believe that it is still very 
    Thank you.
    [The prepared statement of Dr. Roper follows:]
 Statement of the Hon. William L. Roper, M.D., Dean, School of Public 
      Health, University of North Carolina at Chapel Hill (Former 
          Administrator, Health Care Financing Administration)

                            I. INTRODUCTION

    Good afternoon Mr. Chairman and members of the Committee, I am 
William L. Roper, Dean of the School of Public Health, The University 
of North Carolina at Chapel Hill. Today, I hope to contribute to the 
Committee's dialogue from the perspective of one who has served as HCFA 
administrator as well as an individual who has interacted with the 
agency as a chief medical officer for an organization regulated by the 
    Prior to my current post at UNC Chapel Hill, I was the senior vice 
president for Prudential HealthCare where I was responsible for medical 
management and other services supporting Prudential's health plans 
nationwide, including their Medicare+Choice plans. In this role I 
observed first-hand the intricate web of HCFA's regulatory processes 
and the inefficiencies and burdens they can create.
    Before my tenure at Prudential, I served as the Administrator of 
the Health Care Financing Agency (HCFA) under President Reagan. During 
this time, I was responsible for managing Medicare and Medicaid through 
a period of significant change in these programs.
    My thoughts about giving Medicare beneficiaries choices are long-
standing. In 1987, I wrote an article for the Wall Street Journal 
editorial page on this subject entitled, ``Medicare's Private Option.'' 
My message was simple: keep traditional Medicare intact, but increase 
choices available to Medicare beneficiaries by expanding the role of 
private sector health plans. At that time I wrote--and still believe 
today--that private plans, including managed care and indemnity plans, 
should compete with the traditional program on the basis of quality and 
cost. I oppose forcing older Americans to leave traditional Medicare in 
favor of private health plans. What I support is giving them choice. Do 
not take away the current Medicare system--just give beneficiaries more 
    When I served at HCFA, we believed that well-managed private health 
plans offered an attractive alternative to traditional Medicare 
coverage. We were committed to giving private health plans a fair 
opportunity to compete and letting beneficiaries decide what option 
works best for them. Under this vision for Medicare reform, we at HCFA 
advocated a Private Health Plan Option, or PHPO, based on five goals:
        (1) Ensuring appropriate access to quality care;
        (2) Increasing incentives for efficiency;
        (3) Reducing government's role in deciding how much to pay for 
        individual health care services;
        (4) Reducing government's role in micromanaging medical 
        practice; and
        (5) Expanding the range of choices available to both Medicare 
        beneficiaries and health care providers.
    These five goals--quality, efficiency, less government involvement 
in unit pricing and practice decisions, and more choice--might be 
useful to the Committee as guiding principles as you consider how to 
modernize Medicare.


    As the Administration and Congress consider options for modernizing 
the Medicare program, it is critically important for decision-makers to 
ensure that the program has a strong administrative infrastructure that 
puts beneficiary interests first. To achieve this important goal, HCFA 
should adopt a new vision--a vision that places a strong emphasis on 
building cooperative partnerships with health plans, health providers 
and other private sector partners.
    The goal of policy makers should be to create a more effective and 
efficient administration of the Medicare+Choice program. This includes 
a balanced approach to regulation that:
     Stimulates growth and innovation in Medicare+Choice, and 
provides the maximum benefit and choice to the population it was 
designed to serve. The healthcare system is evolving rapidly and the 
framework that regulates Medicare+Choice needs to be flexible enough to 
allow health plans to respond to these changes with new and advanced 
techniques in order to optimize beneficiary services and choices and 
improve quality.
     Sets priorities for policy-making based on the costs and 
benefits of different regulatory options. The costs of compliance are 
opportunity costs borne directly by Medicare beneficiaries. For every 
dollar Medicare+Choice plans spend on regulatory compliance, there is 
one dollar less to spend on enrollee benefits. Adding or changing 
program regulations should be considered in this context. Also, 
periodic assessments should be made to ensure that the benefits of 
compliance requirements exceed their costs.
     Embraces flexible regulatory strategies for achieving 
program goals. Health care is a dynamic industry where technologies to 
manage information, improve the delivery of services, and control costs 
are constantly evolving. A regulatory framework should promote, rather 
than impede these efforts. For example, the implementation of HCFA's 
risk adjustment approach is making excessive demands on Medicare+Choice 
organization resources and their provider partners that are not 
necessary to achieve the initiative's purpose. The approach is based on 
collection of 100% encounter data from inpatient and outpatient 
settings and requires Medicare+Choice organizations to develop all of 
the systems and staffing necessary to process claims in the same way as 
the fee-for-service Medicare program. The current system is extremely 
burdensome, costly and error-prone and needs complete re-evaluation.
     Builds upon and utilizes existing, successful public and 
private sector initiatives. An efficient regulatory framework will 
build upon existing and successful private sector oversight models and 
encourage the development of private sector best practices that can 
dovetail easily and effectively with program regulations. All too often 
we have seen a ``not invented here'' mentality in public programs that 
can impede the fulfillment of program goals.


    Based on these four principles of effective and efficient program 
administration, I recommend a four-point course of action:

          1) Create a single office for oversight of the 
        Medicare+Choice program. Medicare+Choice currently is governed 
        separately by three HCFA Centers--the Center for Health Plans 
        and Providers, the Center for Beneficiary Services, and the 
        Office of Clinical Standards and Quality. The result has been a 
        complex and needlessly confusing policy making process. All 
        Medicare+Choice oversight responsibilities should be 
        consolidated into one single center.

          2) Streamline oversight responsibilities. The Medicare+Choice 
        program is hindered in its efforts to serve beneficiaries 
        because, since its inception, there has been a fragmented 
        administrative structure that has been unable to set priorities 
        or develop a clear, effective administrative strategy. The 
        result has been a micromanaged and constantly changing 
        regulatory environment that places equal--but arbitrary--
        emphasis on every requirement. Medicare+Choice needs right 
        regulation, not micro-regulation.

          Priorities should be established for the Medicare+Choice 
        program for the balance of 2001, and each year thereafter, to 
        reduce the number of regulations and focus HCFA and 
        Medicare+Choice organizations on ensuring beneficiary rights 
        and plan accountability. For example, there should be an 
        immediate reexamination of the numerous and duplicative plan 
        audits and the site visit schedule should be converted to a 
        two-year schedule. A new oversight approach should be 
        implemented that reduces reviews of organizations that are 
        performing well, and concentrates on those organizations that 
        merit closer review.

          3) Improve decision-making. HCFA's decision-making process 
        involves many different parties at varying levels of seniority 
        and in different Centers. Despite creation of cross-Center task 
        forces, the complexity of this process and the lack of clear 
        decision-making authority below the level of the 
        Administrator's office results in delays that are frequently 
        costly to M+C organizations and disadvantageous to 
        beneficiaries. HCFA should consolidate and simplify its 
        decision processes to respond quickly and correctly to the 
        rapidly changing health care environment.

          4) Create consistency between HCFA Central and Regional 
        offices. M+C organizations across the country frequently 
        receive different instructions and policy interpretations from 
        the ten HCFA Regional Offices and the HCFA Central Office. 
        Regional Office Administrators and HCFA Center Directors report 
        directly to the HCFA Administrator with no direct authority on 
        the part of the Centers to require consistent implementation of 
        Central Office policies in the Regions. HCFA should establish 
        communication procedures to ensure that the Agency and its 
        regional offices speak with one voice.

    There are, no doubt, many specific recommendations that would 
improve the administration of the Medicare+Choice program. I have 
mentioned only a few.
    It is important to note that these administrative changes, which 
can be implemented quickly to improve the regulatory environment in 
Medicare+Choice, do not speak to payment issues or other legislative 
matters health plans must face as they determine the future of their 
participation in the Medicare+Choice program. Administrative reform is 
only one element of a comprehensive reform package that places the 
Medicare+Choice program on a pathway of sustainable growth.
    However, I would be remiss if in addition to the administrative 
issues I have described, I didn't address the issue of payment. 
Adequate payment is critical in order to attract health plans. Any 
payment methodology that departs significantly, either up or down, from 
local fee-for-service spending will cause market distortions. If 
Medicare+Choice rates are held below fee-for-service levels--
essentially impeding the ability of Medicare+Choice from competing in 
local markets with traditional Medicare--ultimately the market response 
will result in fewer options for beneficiaries--options that could 
provide them with additional benefits.

                             IV. CONCLUSION

    The Medicare+Choice program has the potential to serve as a 
foundation for the Medicare program of the future. With its focus on 
beneficiary choice and private sector participation, the 
Medicare+Choice program is designed to offer Medicare beneficiaries 
similar health care options that are available to Americans who obtain 
their health coverage through the private sector. Unfortunately, the 
Medicare+Choice program has suffered because of payment issues and 
administrative burdens.
    An opportunity exists now to create a new regulatory framework that 
will assist Medicare+Choice in fulfilling its promise of preserving and 
expanding health care choices for all Medicare beneficiaries.


    Chairwoman Johnson. Thank you, Dr. Roper. Dr. O'Grady?


    Dr. O'GRADY. Madam Chairwoman and Members of the 
Subcommittee. My name is Michael O'Grady. I am senior research 
director at Project HOPE. I appreciate the opportunity to 
comment today on the Medicare+Choice program.
    As you heard today, certainly, there are still a series of 
problems that plague the Medicare+Choice program. The program 
still has too few incentives for plans to compete for 
beneficiaries, providing the best care at the most competitive 
prices. The program still overpays in some counties and 
underpays in others. The program still relies heavily on fee-
for-service experience to determine payments for plans. In many 
of our most urban and our most rural counties, fee-for-service 
experience is not a very good indicator of what an appropriate 
plan should be.
    There are a number of essential points to consider in 
thinking about how this might be improved, but they all have 
one central theme, which is getting the incentives right. 
Compelling incentives are necessary so that plans really do try 
to offer the best-quality care at the best price.
    There is also a need for incentives for beneficiaries to 
become prudent consumers of their own health care, to shop 
around between these different plans, to have the information 
that they need and to see some difference in terms of premiums 
so they can judge which plan is best for them.
    One of the real advantages, as the beneficiaries tend to 
shop around and tend to be more prudent consumers, is it tends 
to buildup the incentive on the plans to be careful about what 
they offer and how much it costs. That has an additional 
advantage to the taxpayers in terms of slowing the growth rate 
of the program overall.
    It is not particularly constructive to blame the plans for 
responding rationally to the incentives that they are presented 
with. Some counties they are offered very generous payments, 
others not very generous at all. They clearly have moved into 
those counties where the payments are high. They avoided the 
counties where the payments are low. If the incentives change, 
plan behavior should change as well.
    Now how to improve the incentives to get the highest 
quality health care at the most competitive price. How to 
improve plan incentives? By improving the accuracy of the 
payment formula. Clearly, you have heard in other testimony 
today about how the payment formula is this sort of overpayment 
and underpayment.
    Now there are two basic approaches that have been discussed 
in the debate so far. One is the one that we are currently 
using. Go with fee-for-service, but also adjust it. The floors 
that we saw first in the BBA and now the two double floors that 
we have seen coming from BIPA, the idea of you have got this 
distribution of very low-cost, low-payment counties, very high-
payment counties. You truncate that distribution, basically, 
bringing it up using floors. There is not the same in terms of 
a ceiling, in terms of truncating the high, but they were 
limited to a 2-percent growth rate in BBA.
    So the one method of doing it is staying with fee-for-
service and, in effect, scrunching in the two ends from the 
high and the low end.
    The other proposal that is out there is part of many of the 
premium support proposals that you have seen out there, which 
tends to be more likely to use a weighted average approach, 
where you basically look at the plan premiums, plan cost that 
operate in whether it is a county or a market, but all, both 
public and private plans, so you get this average of what is 
going on. If you have very high-cost endings, where the private 
plans are able to offer much more inexpensively than fee-for-
service, that will have a tendency to bring that payment rate 
down. If you are in very low cost, where fee-for-service is the 
lowest, by averaging in all of the plans, you will tend to 
bring that up again.
    Now, right now what we've had, at least pre-BIPA, was we 
had a situation where plans competed for extra benefits and 
lower cost-sharing, as you heard from the first panel. BIPA 
took a first step to allow plans to start to offer actually 
premium differences. We hear of zero premium plans in 
    It's a little bit misleading, because they are still paying 
their full $600 Part B premium. BIPA would allow plans to begin 
to rebate part of that $600, so that in terms of this idea of a 
prudent consumer on the beneficiaries part, they can start to 
shop around. There can be plan competition, not only for 
additional benefits but also for actually lower premiums.
    Now, how to improve the incentives for the government to be 
more effective, to be a more prudent consumer. A number of the 
various reform proposals, not only the premium support, the 
Breaux-Frists and the Breaux-Thomases, but also President 
Clinton's competitive defined contribution, suggested moving 
significantly toward a system of more negotiation and bidding 
rather than the current, somewhat passive, where plans kind of 
complete an ACR, they send it in, those ACRs are audited after 
the fact. But there is not much real give-and-take at that 
point about what benefits are being offered and what premiums 
are being charged.
    BIPA again took a small step in this direction, and there 
is a provision that brings in the Office of the Actuaries. So 
that at a minimum you will have the HCFA actuary sitting down 
with the actuaries from the plans and going over what 
assumptions did they use, what data did they use, and kind of 
what went into these benefit offerings and these calculations 
of premiums.
    I have run out of time. Thank you very much.
    [The prepared statement of Dr. O'Grady follows:]
   Statement of Michael J. O'Grady, Ph.D., Senior Research Director, 
                    Project HOPE, Bethesda, Maryland
    Madame Chairwoman and members of the Subcommittee, my name is 
Michael J. O'Grady and I am a Senior Research Director at Project HOPE. 
Previously I have served on the professional staff of the Senate 
Finance Committee, The Bipartisan Commission for the Future of 
Medicare, The Medicare Payment Advisory Commission and The 
Congressional Research Service. In those various roles I have had a 
chance to extensively study the Medicare program and a number of 
different health insurance programs, including the Federal Employees 
Health Benefits Program (FEHBP), The California Public Employees 
Retirement System (CalPERS) and private sector employer-provided health 
insurance programs. I appreciate the opportunity to comment today on 
the Medicare+Choice program and how it might be improved.
Problems That Still Plague the Medicare+Choice Program:
     The program still has too few incentives for plans to 
compete for beneficiaries by providing the best care at the most 
competitive price.
     The program still overpays in some counties and underpays 
in others.
     The program still relies heavily on fee-for-service 
experience to determine payments to plans. In many of our most urban 
and most rural counties, fee-for-service experience is not a very good 
indicator of appropriate plan payments.
How We Got Here:
    The Medicare+Choice (M+C) program was created as part of the 
Balanced Budget Act of 1997 (BBA) to correct problems that existed in 
Medicare's Risk HMO program. The risk plans had moved into some urban 
counties, but few rural counties. Some of the risk plans enrolled 
healthier, less expensive beneficiaries, but their payments were not 
reduced enough to adjust for their healthier mix of beneficiaries.
    Under the BBA, payments to low payment counties were increased by 
the creation of a guaranteed minimum amount for every county. Payments 
to high payment counties were not cut, but their growth rates were 
limited to no more than two percent per year. In addition, the 
Administration was to develop a ``risk adjustment'' formula that would 
more accurately adjust plan payments to account for the mix of 
healthier and sicker people. The BBA also included a number of across 
the board cuts to plans that had nothing to do with improving the 
payment formula, but were necessary to meet the budget reduction 
targets of the bill.
    By 1999 it became clear that the BBA cut Medicare spending much 
more than the Congressional Budget Office had originally estimated. 
Providers of all sorts, hospitals, physicians, nursing homes and 
Medicare+Choice plans, were arguing strenuously to restore some of the 
BBA cuts.
    The congressional response was the Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act (BBRA) of 1999, and the Medicare, 
Medicaid, and SCHIP Beneficiary Improvement and Protection Act (BIPA) 
of 2000. The BBRA and BIPA went a long way to offset some of the 
``deeper than expected'' BBA cuts. However, there is still a need to 
improve the way Medicare+Choice plans are paid.
Essential Points in Considering Changes to the Medicare+Choice 
        Program--Getting the Incentives Right:
    There are several essential points that need to be taken into 
consideration in thinking about how to improve the Medicare+Choice 
program. Most of these points center on a common theme: getting the 
incentives right. A well-designed Medicare+Choice program will have 
compelling incentives for plans to provide the highest quality benefits 
in the most cost-efficient way. It will also have incentives for 
beneficiaries to be prudent consumers of their own health care, so 
beneficiaries will ``shop'' among plans for the best care at the most 
competitive price. As beneficiaries act in their own interest, they 
exert pressure on the plans to keep premiums as low as possible. This 
competitive pressure slows spending growth, which results in savings 
for taxpayers.
    These sorts of incentives are found in the vast majority of 
consumer decisions Americans make every day. The vast majority of 
prices are set, not by government formula, but by market competition. 
In the Medicare+Choice program the overall price is not set by 
government formula, but the government contribution is set by formula. 
A formula that does not always do a very good job of providing strong 
incentives for plans to offer quality coverage at competitive prices.
    The current formula bases the government contribution on the county 
level spending by the traditional government operated fee-for-service 
(FFS) plan. FFS spending does not provide a good barometer of private 
plan costs in certain types of counties. Using FFS spending results in 
paying too much in some counties and too little in others.
    In many rural counties there are serious problems with a shortage 
of medical providers. This shortage affects the Medicare and non-
Medicare populations alike. It creates severe difficulties in gaining 
access to needed medical care. The result is that many rural counties 
have low FFS spending, lower than it would be if the people in those 
counties were receiving the medical care they needed. Using FFS 
spending as the measure of ``appropriate'' spending and setting the 
government contribution based on that level significantly reduces the 
likelihood that a private plan will find the government contribution 
adequate to offer care in these counties. Compounding this problem is 
the fact that the Medicare+Choice program and its predecessor the 
Medicare risk program have traditionally been exclusively health 
maintenance organizations (HMO). HMO plans have seldom had much success 
in rural areas, especially those with provider supply and patient 
access problems.
    In some urban counties using FFS spending as the measure of 
``appropriate'' spending results in Medicare+Choice plans receiving 
overly generous government contributions. There are a number of 
different reasons FFS spending would be significantly higher than 
Medicare+Choice plan spending in these counties. For example, some 
counties have an oversupply of providers. Hospitals have empty beds and 
physicians, especially specialists, have excess capacity. The FFS plan 
pays providers on a piecework basis. The more procedures they perform, 
the more they are paid. Managed care plans tend to negotiate with 
providers for discounts. Beneficiaries in managed care plans pay much 
less if they go to ``in-network'' providers. As a result, in-network 
providers see a higher volume of patients. Providers who wish to be 
part of the network often have to offer the managed care plan a 
significant discount. The result is that the exact same set of 
circumstances--oversupply and excess capacity--tends to increase FFS 
spending and decrease managed care spending. The FFS incentives are to 
do more procedures to be paid more. The managed care incentives are to 
offer greater discounts to fill more beds and waiting rooms.
    The Medicare+Choice plans respond rationally to the incentives they 
find themselves confronted with. Plans move into counties were the 
payment is adequate or more than adequate, for example Dade and Los 
Angeles counties, and stay out of counties where the payment is less 
than adequate, for example most rural counties.
    The current Medicare+Choice incentive structure result in the 
     In under payment counties--plans cannot afford to operate.
     In over payment counties--plans offer significant 
additional benefits, reduced cost sharing, but have few incentives to 
be cost efficient.
     In counties where the payment is about right--plans offer 
some additional benefits and reduced cost sharing, if they are more 
efficient than FFS.
    It is not particularly constructive to blame the plans for 
responding rationally to the incentives built into the Medicare+Choice 
program. If the incentives change, plan behavior will change.
    In all fairness to the designers of the current formula, it is 
extremely difficult to design an efficient, effective formula for 
hundreds of plans in thousands of counties. And, the government does 
have to have some way of determining what is an appropriate 
contribution. However, in Medicare+Choice the problem is that the 
current program relies too heavily on an inefficient formula-driven 
approach without the assistance of strong consumer incentives for the 
beneficiaries and effective negotiating authority for the government.
Why worry about getting the incentives right?
    While there are obvious reasons to try to improve Medicare+Choice's 
incentive structure, there are also a few less obvious reasons. Two of 
the more obvious reasons are:
     LTo be careful with the taxpayers' money and
     LThe current system results in geographic inequities in 
    Over paying in some counties results in additional benefits and 
lower cost sharing for beneficiaries. On the one hand, if beneficiaries 
are willing to give up some choice of providers by entering a managed 
care plan; they should enjoy the rewards of additional benefits and 
reduced cost sharing. This can be particularly attractive to lower-
income beneficiaries who cannot afford Medigap coverage and are not 
eligible for employer-provided retiree coverage. Still, this means that 
lower-income beneficiaries have this alternative in some counties and 
not in others. This is particularly problematic in rural areas where 
the traditional industries, such as agriculture, have an almost 
nonexistent track record at offering employer-provided retiree 
    Less obvious reasons to try to improve Medicare+Choice's incentive 
structure would include:
     The baby boom is still coming. Making Medicare as 
efficient as possible reduces future pressure to either reduce benefits 
or increase taxes.
     Protect the work-related nature of the Medicare 
entitlement. The greater the financing from general tax revenues the 
less Medicare becomes a benefit people earn and the more it becomes 
subsidized assistance.
    Without a doubt it is better to have a budget surplus, than a 
budget deficit. However whatever the budget situation, the demographics 
of the American population have not changed. The baby boom is still 
approaching retirement and with it will come severe financial pressure 
on the Medicare program. Future Congresses will face difficult choices. 
Raise the taxes of the subpopulation still working, cut the benefits of 
future Medicare beneficiaries, or both? These will be very difficult 
decisions to face. But before confronting such difficult choices it 
seems incumbent on those responsible for the Medicare program to make 
Medicare as efficient a program as possible.
    Most seniors view their Medicare benefits as something they have 
earned during decades of hard work and paying taxes. It is not clear if 
they are aware that in reality, payroll taxes and premiums only pay for 
70 percent of Medicare. The rest is subsidized through general tax 
revenues. As the baby boom retires, the percentage of Medicare paid by 
the beneficiaries is projected to shrink from 70 percent to about 40 
percent. The idea that Medicare is something beneficiaries have earned 
and paid for will be diluted considerably over the next few decades. A 
more efficient Medicare program with a slower growth rate helps 
maintain the work-related aspect of the Medicare entitlement.
How to improve the incentives to provide the highest quality health 
        care at the most competitive price?
     Have plans compete based on offering competitive premiums, 
not just more benefits and lower cost sharing.
     Improve the accuracy of the payments formula to minimize 
under and over payments to plans.
     Move toward a process that involves negotiation and 
bidding, rather than relying solely on administrative procedures.
    Before BIPA, plans were required to pass on all savings to the 
beneficiaries in the form of additional benefits or reduced beneficiary 
cost sharing. Their profits were limited to no more than the percentage 
they made on their commercial business. Unlike much of their commercial 
business, these incentives put plans in competition with one another to 
provide more benefits, rather than lower premiums.
    BIPA allows plans to compete based on premium price, as well as 
benefits. Beginning in 2003, plans can offer beneficiaries a rebate on 
part, or the entire, Part B premium. Some Medicare+Choice plans are 
currently called zero-premium plans, but this only means the 
beneficiary pays nothing beyond their current $600 Part B premium. 
Under BIPA, if plans provide all the Medicare benefits and still have 
savings, they can rebate the entire $600 premium to the beneficiary.
    Table 1 illustrates how premium competition can work in practice. 
The column labeled ``Before Enrollees Switched'' shows what the annual 
premium increase would have been if Federal workers and retirees had 
stayed in the same plan they had been enrolled in during the previous 
year, i.e., if no one switched plans. The column labeled ``After 
Enrollees Switched'' shows what the annual premium increase actually 
was, after workers and retirees chose their new plan for the upcoming 
year. In each of the years the Bipartisan Commission found data 
available, the effect on premium growth was the same--workers and 
retirees acted as prudent consumers and the result was to slow the 
growth rate of the program.

                                Table 1:

  Average Premium Increases, Before And After Enrollees Switch Plans 
     Under The Federal Employees Health Benefits Program, 1990-1998

                             (In Percent).

                    Before Enrollees   After Enrollees      Result of
       Year             Switched          Switched          Switching

1990               13.3%              8.0%              -5.3%
1991               5.7%               4.1%              -1.6%
1992               8.0%               7.3%              -0.7%
1993               9.0%               8.5%              -0.5%
1994               3.0%               2.7%              -0.3%
1995               -3.4%              -3.8%             -0.4%
1996               0.4%               -0.1%             -0.5%
1997               2.4%               1.6%              -0.8%
1998               8.5%               7.2%              -1.3%
Mean               5.2%               3.9%              -1.3%

    Source: Bipartisan Commission staff analysis of OPM data.

    The FEHBP and Medicare populations are not identical and the effect 
might be different for Medicare. FEHBP is only about 40 percent 
retirees and younger workers are probably more likely to switch plans 
than older workers or retirees. However, even if this consumer behavior 
yielded only half the savings found in FEHBP the effect on Medicare's 
financial well being would be substantial.
    As mentioned above, BIPA has already taken the first step in this 
direction by allowing plans to rebate the beneficiaries' Part B 
premium. Premium price competition is a core component of most recent 
Medicare reform proposals including the Bipartisan Commission 
Chairmen's proposal and President Clinton's Competitive Defined Benefit 
The introduction of premium price competition is a good first step, but 
        plan payments are still based on an inefficient formula that 
        overpays some counties and under pays others.
    What options are available for increasing the accuracy of plan 
     Premium support strategies--base payments on the average 
premiums of all plans, public and private, like FEHBP.
     BBA-style strategies--set payment minimums to bring up the 
low payment counties and set payment maximums to slow the growth of 
high payment counties.
    One of the key design components of premium support strategies 
involves using an average of all plans, both public (FFS) and private 
(M+C), to determine the level of government contribution. The most 
common example of this type of contribution formula is the one used in 
FEHBP where the contribution is set at 72 percent of the average 
premium\1\. The average premium calculation is adjusted to take into 
account the relative size of the different plans' enrollments.
    \1\ FEHBP also has a provision that the government contribution 
will not exceed 75 percent of the total premium.
    During the deliberations of the Bipartisan Commission this design 
caused concern among some Commissioners who feared the traditional FFS 
plan would not be able to compete effectively and the result would be 
higher premiums for beneficiaries remaining in the FFS plan. Using this 
type of formula does mean that all plans, including the government-run 
FFS plan, would have to operate efficiently to keep their premiums 
    In President Clinton's response to the Bipartisan Commission, this 
design feature was modified. Rather than using average premiums, the 
Clinton plan stayed with using FFS spending to determine private plan 
contributions. This modification has the effect of protecting the FFS 
premium. This protection means beneficiaries who remain in FFS will not 
see upward pressure on premiums, but it also means that the incentives 
to operate efficiently will be significantly weakened. The FFS plan, 
which currently comprises about 85 percent of the program, will not 
face the same competitive pressure as the Medicare+Choice plans.
    Another strategy was employed in the BBA and modified in BIPA. 
Rather than trying to replace the underlying formula with a more 
accurate one, the high and low ends of the payment distribution were 
truncated. The BBA used a two percent growth cap for counties with the 
highest payment levels. This did not cut payments to this counties, it 
attempted to limit the growth rate until lower payment counties could 
catch up. The BBA also truncated the low end of the distribution as 
well. It set a minimum amount that Medicare would pay plans regardless 
of the level of FFS spending in the county.
    Under BIPA the idea of a floor payment was expanded significantly. 
A single floor payment amount was replaced with urban and rural floors. 
Floor payments were increased from $415 per month to $475 per month for 
rural counties and $525 per month for urban counties.
    For rural counties this is a significant increase, but payment 
floors are a short-term strategy for a problem that goes well beyond 
Medicare. An under supply of providers and the resulting lack of access 
for both Medicare and non-Medicare people, will not be solved by 
additional money to private Medicare plans.
    While the use of payment floors and ceilings may provide some 
short-term relief, they do not really attempt to determine what the 
appropriate contribution should be. It seems quite unlikely that all 
the low payment counties should be brought up to these higher levels or 
that all the high payment counties should be constrained to no more 
than two percent growth per year.
    Rather than choosing arbitrary minimum and maximum payments, or 
tying payments to only one plan, using data from all the plans, public 
and private, has the advantage of capturing the experience of all 
plans. If private plans are operating at significantly lower costs, 
then the contribution will come down. If private plans are operating at 
significantly higher costs then the contribution will increase. In 
addition, it ensures that all plans, public and private, face the same 
set of competitive incentives.
Enhance the government's ability to act as a prudent consumer through 
        negotiation and bidding.
    BIPA again made a first step in this direction. Pre-BIPA, plans 
filed their benefit and premium offerings with HCFA through the 
Adjusted Community Rate (ACR) process. HCFA determined the completeness 
of the application, but made no judgement on the appropriateness of the 
estimates and calculations involved. After the fact, the ACR's were 
audited by HCFA, but by that time benefits were already received and 
premiums paid by the beneficiaries. BIPA did not replace the ACR 
process, but enhanced its effectiveness by adding a review of all 
applications by the HCFA actuaries. Before accepting a plan's 
application, the government actuaries will review the data and 
assumptions used by the plan to set premiums and benefits. This 
additional review is similar to the review the OPM actuaries make of 
FEHBP plans premium and benefit applications.
    Most reform proposals, including the Bipartisan Commission, 
President Clinton's Competitive Defined Contribution and the Breaux-
Frist proposals, would go further than an actuarial review of data and 
assumptions. They all move toward approaches that rely on some 
combination negotiation and bidding.
    The core element of all these proposals is to attempt to construct 
a set of incentives where plans do well if they provide high quality 
benefits and a competitive price. The government itself can become a 
more prudent consumer of health care and in doing so provide more 
benefits to beneficiaries at a lower cost to tax payers. Still that 
process is greatly strengthened if the incentives are such that the 
beneficiaries also become prudent consumers of their own health care. 
Beneficiaries' shopping to find the best value at the most reasonable 
price creates substantial competitive pressure on plans to offer the 
best benefits at the lowest price.
    These two changes, basing payment on the experience of all plans, 
not just the fee-for-service plan and moving toward negotiation and 
bidding will go a long way toward getting the incentives right. These 
changes move the Medicare+Choice program away from a system that 
rewards plans for gaming a payment formula to system that rewards plans 
who best meet the beneficiaries' needs for the best benefits at the 
most reasonable price.


    Chairwoman Johnson. Thank you very much, Dr. O'Grady. Dr. 
Moon, welcome.


    Dr. Moon. Thank you. I also appreciate the opportunity to 
testify today about this important issue.
    I want to take a different perspective and look at 
Medicare+Choice from the standpoint of beneficiaries. This 
comes from my experience of having written a column for a 
number of years for the Washington Post and answering questions 
about confusion that people have, and from talking to a number 
of groups that do counseling for seniors and disabled persons 
in the Medicare Program, in particular from the Medicare Rights 
Center in New York, which runs a national hotline on HMOs.
    Using private plans as an optional alternative to 
traditional Medicare fee-for-service does hold considerable 
promise for offering services to beneficiaries. Today I think 
you heard from three very good plans and the ideals from Bill 
Roper and Michael O'Grady about how to make those plans work 
    My basic concern is that, in practice, we have not seen 
those kinds of ideal situations in many instances. We have seen 
a much less than ideal reality. Both good quality plans and 
beneficiaries can be put at risk when that is the situation.
    The organizations that contract with Medicare to provide 
counseling and information, or who run specific hotlines for 
beneficiaries, often find a disturbing pattern of denials of 
care in the Medicare+Choice program for some of the operators. 
Plans are supposed to cover all Medicare covered services, but 
hotline clients have included people denied, for example, 
cancer treatment that has been specifically approved in a 
national Medicare coverage determination.
    Another example shared by the counselors was a patient 
effectively denied care because for a brain tumor. He did all 
of the kinds of research that you would want to do to make sure 
you know who should give you that care, but was denied being 
able to go out of network to one of the specialists in that 
particular kind of brain cancer because they had someone in the 
network who had performed that operation twice. I think a lot 
of us would not consider that good quality care.
    Another example is of an individual who needed chemo-
therapy, whose wife was paraplegic, and the chemotherapy center 
was too far away for that person to get to. He offered to stay 
with his son and get care out of network. The plan denied him. 
He had to disenroll. In that case, he only had to wait a month 
to get chemotherapy. Eventually, when there's a lock-in, he 
would have to wait longer than that potentially.
    These are examples of ways in which it is important, as we 
think about changes in the Medicare+Choice program, to remember 
that some of the issues, such as control over plans, such as 
oversight and quality monitoring, are extremely important. 
Unfortunately, not all the plans are as forward thinking as the 
people that we heard from here today.
    If beneficiaries are going to be asked to take greater 
responsibility for their care, it is important to have in place 
the appropriate protections and controls for those who are 
cognitively impaired, frail, non-English speaking, or face 
other barriers to getting their care. This is likely to be half 
or more of the Medicare population.
    The main attractiveness of plans to beneficiaries, at least 
initially, is that plans have been able to offer extra 
services. They have been able to do so, in part, because they 
can save costs on Medicare covered services, but also in part 
because they have received cross-subsidies in the form of 
higher Federal payments. It is the desire of plans to continue 
to get those subsidies and of beneficiaries to continue to have 
extra benefits, but this raises a number of equity questions.
    In thinking about how to improve Medicare+Choice, I have a 
few suggestions to offer. First, I will address the two areas 
that were raised and talked about most today, that is, payments 
to plans and regulatory changes, and then I will discuss two 
other issues that beneficiaries need to have raised on their 
    The payments to plans, as Mike O'Grady very carefully 
spelled out here, can be done in different ways. But I think we 
also heard in the testimony today that there are two strains of 
thought. Plans say ``give us more money to do good things,'' 
but the other argument is, ``let's have competitive bidding to 
save costs to the Medicare Program.'' We haven't found a good 
way to bring those two conflicting goals together.
    Certainly beneficiaries in Medicare+Choice would be happy 
to have you overpay because that would mean they would continue 
to get higher benefits in the Medicare+Choice plans, but that 
would be unfair to those who are in traditional Medicare and 
not able to get those benefits.
    I believe, therefore, a first step is to provide a 
prescription drug benefit that could help to equalize the 
benefits that people get in all settings, and aid in some of 
the payment issues.
    Second, complexity in regulations is certainly a problem. 
Everyone has a horror story, and they're all right, I'm sure. 
But they exist everywhere, not just in HCFA but in the plans 
themselves. A careful overview of regulations with both plans 
and beneficiaries' perspective in mind is appropriate.
    Finally, we need to spend additional resources on helping 
beneficiaries understand these programs, understand their 
advantages and disadvantages, and work on increasing the 
stability of plan offerings. I don't think the answer is to pay 
plans more to bribe them to stay in areas. We need to work on 
finding ways to make the plans more appropriately recognize 
beneficiaries' the need for stability.
    Thank you.
    [The prepared statement of Dr. Moon follows:]
  Statement of Marilyn Moon\1\, Ph.D., Senior Fellow, Urban Institute
    \1\ The views expressed herein are those of the author and do not 
necessarily reflect those of the Urban Institute, its trustees, or its 
    Thank you for the opportunity to be here today to testify about the 
lessons learned from the Medicare+Choice plans and their implications 
for relying on private plans to serve the Medicare population. My 
testimony today emphasizes beneficiary issues, and attempts to contrast 
them with interests of the federal government and private plans when 
appropriate. My concern about beneficiaries is a long standing one and 
has been influenced over the years by writing a column on coverage 
issues in the 1990s, maintaining contact with groups that counsel 
Medicare beneficiaries, and conducting research on Medicare. The 
opinions expressed here are my own and I am not representing any other 
The Promise of Private Plans
    Using private plans as an optional alternative to traditional 
Medicare fee for service holds considerable promise for offering 
services to beneficiaries. And expanding the role of private plans is 
often touted as the solution to Medicare's financing challenges. In 
theory, plans can play a pivotal role by:
     Providing coordinated care to beneficiaries with multiple 
health care needs;
     Experimenting with new and innovative ways of delivering 
     Having the flexibility to offer additional services--like 
transportation services and home modifications--that may facilitate 
traditional care; and
     Competing for enrollment by offering lower prices, more 
services, or higher quality care.
    Health care analysts have long sought to encourage coordination and 
flexibility of care in a capitated setting, giving plans incentives to 
find the least expensive ways to deliver care within a budget. This 
should avoid the overuse of services associated with fee-for-service 
medicine and offers opportunities to try out new approaches. And, if 
there is price competition, economic theory would suggest that this 
will keep the pressure on plans to be attractive to potential 
enrollees, increasing their market share and delivering care 
Medicare+Choice in Practice
    Experience with private plans in Medicare suggests a less-than-
ideal reality, however. Good quality plans seeking to serve patients 
well certainly exist, but a number of problems abound. Medicare has, 
since the 1980s, formally allowed beneficiaries to choose to be served 
by private plans (paid on a capitated basis) instead of remaining in 
the traditional fee-for-service part of the program. In 1997, this 
option was modified to allow plans other than health maintenance 
organizations (HMOs) to participate and to reform the payment system 
which, studies have shown, costs Medicare more for each enrollee than 
if they remained in the traditional program. Even with those changes, 
however, the Medicare program has not saved money for the federal 
    Although payments for most plans should be high enough to cover 
costs of required benefits, private plans have pulled out of markets or 
reduced the extra benefits offered. Further, there is little evidence 
to suggest that most private managed care plans do much to coordinate 
care either in Medicare or for the younger managed care population. 
Thus far, savings have mainly come from obtaining deep discounts from 
doctors, hospitals and other suppliers. And since Medicare had made 
inroads into discounting before most managed care plans came into the 
program, this avenue of savings has not reaped the same differentials 
in costs as were sometimes seen in the employer-based insurance market. 
Thus, the promise of substantially lower costs may be difficult to 
    In addition, beneficiaries have not been treated well by some of 
the private plans. Private plans have sometimes sought to save costs by 
limiting access to new technology, to exclude from their plans sub-
specialists with considerable experience in treating certain types of 
illnesses, and to put in place other barriers to getting care. If done 
carefully and with appropriate medical practice in mind, these methods 
may be a successful way of holding down costs. But, many researchers 
have concluded that these are sometimes arbitrary or problematic 
barriers. A recent study by Berk and Monheit, for example, concluded 
that HMOs work best for the 90 percent of the population which is 
healthy. The problem is that the remaining 10 percent of health care 
users account for 70 to 75 percent of all health care costs (regardless 
of age).
    The organizations that contract with Medicare to provide counseling 
and information or who run specific hotlines for Medicare beneficiaries 
often find a disturbing pattern of denials of care. Those on the 
frontline at the Medicare Rights Center, for instance, cite numerous 
examples of inappropriate denials. Plans are supposed to cover all 
Medicare-covered services, but their clients have included people 
denied a type of cancer treatment specifically approved via a national 
Medicare coverage determination. Patients are often denied access to 
care from specialists outside the network who have particular expertise 
in a given procedure. In one case, the HMO argued that since they had 
an in-network physician who had performed a particular type of brain 
surgery twice, they had no obligation to approve care outside the 
network by a more experienced physician. In another case, a patient 
needing chemotherapy had a transportation problem that prevented him 
from going to the in-network site. His only recourse was to disenroll 
from the HMO and get the chemotherapy in another location. In that 
situation, the delay was only for one month, but when the lock in goes 
into place (in which beneficiaries will have fewer opportunities to 
disenroll), such a patient could be severely disadvantaged. Although 
these are examples and it is not known how many people have such 
difficulties, it suggests that the ``flexibility'' available to plans 
can be problematic and that at least in some cases, patients do not 
have access to all Medicare-covered services. Ironically, these 
examples illustrate denial of ``choice'' in a form that is likely to be 
of more importance to beneficiaries than what is often touted as an 
advantage of private plans offering ``choice.''
    A number of marketing abuses have also been found by those who work 
with Medicare beneficiaries. The family of a beneficiary with 
Alzheimers disease sought help when the beneficiary was suddenly denied 
coverage for various services; they discovered that the beneficiary had 
been enrolled in a managed care plan without the family's knowledge. 
One of the more egregious examples occurred when a group of Spanish-
speaking elderly beneficiaries were taken to Atlantic City and on the 
bus were asked to sign a piece of paper (in English) that they were 
told was to get information about the health plan. In fact, they had 
    While complaints about excessive regulation are often made by the 
industry, there are a substantial number of examples of problems that 
require careful protections for beneficiaries. The denials and 
confusion cited above can be cleared up by case workers but regulations 
are needed to protect patients' rights. If beneficiaries are going to 
be asked to take greater responsibility for care, it is important to 
have in place appropriate protections and controls for those who are 
cognitively impaired, frail, non-English speaking, or face other 
barriers to their getting care. This is a substantially larger group 
than found in other populations served by managed care. In that way, 
Medicare is different and regulatory needs are also different.
    The main attractiveness of plans to beneficiaries is that plans 
have been able to offer additional services. In fact, the ads that many 
plans run suggest the importance of vision, dental and drug coverage 
and mention only in small type that care must be received in network. 
Since plans have received payments higher than necessary for Medicare-
covered services and because they may be providing those services at 
lower costs, they have been able to subsidize their offerings of 
additional benefits. But, over the last three years, these extra 
benefits have been substantially reduced in many plans. For example 
drug coverage has declined from 84.3 percent in 1999 to 70 percent 
having such coverage in 2001. Withdrawals have left a number of 
beneficiaries scrambling to enroll elsewhere or to get Medigap coverage 
if they return to traditional Medicare. And when drug coverage has been 
retained, stringent caps have been applied or substantial premiums 
levied on the beneficiary. The cross-subsidy for these extra services 
has been reduced.
Ways to Improve Medicare+Choice
    Many ideas have been suggested about ways to improve the 
Medicare+Choice option. Two areas for reform have been emphasized both 
by plans and policy makers who wish to have Medicare rely more on the 
private market for managing care. These are reforms in federal premium 
payments to plans and reductions in the bureaucratic complexity that 
restricts what plans can do. A beneficiary's perspective raises caveats 
about these first two issues and suggests additional issues including 
help in understanding the complexities of private plans and offering 
stability to those enrolled.

Payments to Plans. Although there is substantial criticism regarding 
the way in which the federal government pays plans, there is not a 
solid common ground between the goals of private plans and policy 
makers. Policy advocates of changing the way in which plans are paid 
usually focus on moving away from administered prices and toward a 
system of price competition in which plans bid against each other to 
attract patients. But plans are less enthusiastic about price 
competition. Under the current system, plans use extra benefits to 
attract patients. For beneficiaries, one of the main attractions to 
managed care--that is, extra benefits--would be eliminated. And because 
plans use extra benefits both as a drawing card and for offering better 
coordinated care by providing a full range of services rather than just 
those available from Medicare, they are also less interested in 
competitive bidding. The goal of most plans in the last few years has 
been to assure that payments are as high as possible, not to engage in 
competitive bidding.
    Thus, it is not clear where payment reforms are likely to go. If 
the goal is to provide savings to the federal government, then lower 
prices will be necessary. The experience with the competitive bidding 
demonstrations suggests that this will be difficult to achieve because 
of opposition both from plans and beneficiaries who value the extra 
benefits that high payments allow. Further, two key problems need to be 
resolved before any change in payment policy will work well.
    First, without good adjustments for health status, plans face no 
incentives to enroll sicker Medicare beneficiaries. In fact, the lack 
of a risk adjustment mechanism means that the easiest way for plans to 
be ``successful'' in the Medicare program is by attracting and keeping 
healthier beneficiaries and by encouraging those with health problems 
to disenroll. To the healthy beneficiary enrolled in such a plan, 
everything appears to be working well. They get extra benefits and are 
treated well by the plan. The problem is that other plans, traditional 
Medicare and sicker beneficiaries are made worse off by such a 
situation. Until this incentive is changed and plans embrace all types 
of beneficiaries, they will continue to seek a healthier population and 
will have little reason to make inroads in the treatment of the very 
sick. They are simply doing what is best for their business.
    Second, the elephant at the table that no one can figure out how to 
deal with effectively is the geographic variation that exists across 
the United States in use and costs of health care. This is not just a 
problem of administered prices, it will arise under any system as long 
as people are sensitive about differing levels of costs by area. In 
areas where costs traditionally have been high, Medicare+Choice 
payments are also high. If a plan comes into that area and is 
successful at bringing costs of care down closer to the national 
average, they can offer extra benefits and do well in the market. This 
is not because they are more efficient or effective than plans in other 
parts of the country, but because they are working in an environment 
where there is likely excess use of services which make it easier to 
hold down costs.
    The major adjustments tried to help with this problem have been 
unsuccessful. Raising the floor for rural counties does not work well 
since most private plans find it difficult to operate in such areas. 
Moreover, it potentially puts in place a system in which private fee-
for-service plans may come in and provide the same types of services to 
beneficiaries at a rate that is much higher for the federal government 
than care under traditional Medicare. That essentially trades one 
problem for another. Further, the blended rate has not done much as yet 
to ease the situation for areas where costs have traditionally been 
low, largely because low costs in traditional Medicare have slowed that 
implementation. The new urban floors put in place this year are likely 
to have an effect, but again raise costs for the federal government. If 
enough money is thrown at the problem, then it is possible to bring all 
areas up to the level of inefficiency and high cost as now exist in 
only a few areas. That does not seem to be a prudent tact to take.
    A better approach to improving levels of payment would be to add 
crucial benefits such as prescription drugs to the basic Medicare 
package. This would achieve several goals that would help both the 
viability of private plans and those in traditional Medicare who also 
have trouble getting prescription drugs. Adding drugs to the package 
would raise the contributions made to plans naturally, and although 
geographic variation would still be an issue, there would be less 
variation in benefit packages offered by plans. Further, if all plans 
offered a standard drug package, risk selection would be less of an 
issue and competition would work better. And, plans would be better 
able to coordinate care when the benefit package is more comprehensive. 
Finally, this change could reduce inequities in which traditional fee-
for-service beneficiaries receive no subsidies for extra benefits while 
those in HMOs do. Expanding this effort to other benefits such as 
preventive services could also help.
    When the benefit package is comprehensive, it becomes more feasible 
to require plans to compete on price, either through competitive 
bidding or by offering a price discount for the Part B premium. 
Certainly the goal should be to find ways to move to a better pricing 
system, but a number of other changes in Medicare+Choice are needed as 
well, including adopting better risk adjusters, doing more work on 
geographic differences, and conducting demonstrations on alternative 
price setting approaches.

Complexity and Regulations. It is very difficult to determine how much 
plans are disadvantaged by the bureaucratic nature of the 
Medicare+Choice program. How many regulations are enough? What areas 
require the most oversight? While it is tempting to throw the current 
system out and start over again, many regulations continue to be 
needed. Two types of regulation and oversight are essential: assurances 
that quality care is being delivered and that beneficiaries have 
adequate protections from the types of problems chronicled above. The 
federal government as a prudent payer should not simply pay a capitated 
amount to private plans without safeguards and reporting requirements.
    One of the major areas of complaint mentioned by plans are 
requirements to produce data on services provided. But without such 
information, it is difficult to track quality and to determine whether 
payments are appropriate. Is the problem that the federal government is 
requiring any information or does it have to do with formatting and 
other technical issues? It is hard to imagine that a well run business 
does not itself want to know what services are being used by what types 
of clients, so there should be grounds for agreement on providing data.
    Most plans have a large commercial operation in addition to serving 
Medicare clients. Do they want to use the same screens for Medicare as 
they use for the working age populations? That would simplify 
requirements that they face, for example, but may not serve Medicare 
patients well who have different needs than working age families? The 
high rates of morbidity and special needs among the Medicare population 
are likely to require some special adjustments if they are to be served 
well by Medicare+Choice.
    A reasonable goal of reforms in Medicare+Choice should be a careful 
review of existing regulations and requirements. But such a review 
should also closely examine whether there are enough protections for 
beneficiaries. For example, should plans be required to notify patients 
when they are hospitalized that all normal inpatient costs are covered 
by the plan and thus to ignore bills they receive directly from in-
network providers? This common problem can be resolved, but how many 
beneficiaries just pay the bill and don't follow up? Should plans be 
required to get a card to an enrollee within a particular period of 
time so that the patient can access health care services, or be subject 
to a penalty? Again, this is an issue that seems to arise frequently. 
These should be easily resolvable issues, but need to be backed up with 
strong requirements from the federal government. The problems with plan 
oversight do not flow only in one direction, and the needs of Medicare 
beneficiaries should be included in discussions regarding regulation.
    Finally, it is important to note that few private insurance 
companies escape problems of complexity and bureaucracy. Many patients, 
both young and old, find the requirements of their plans to obtain 
approval before getting some services, to determine which doctors and 
hospitals are in network and which are not, understanding the bills 
when they come due months later, and the need to appeal denials of care 
to be cumbersome, complex and overly bureaucratic. Thus, problems with 
the complexity of our current health care system are by no means 
inherent only to government. The goal should be to reduce these burdens 
throughout health care, but to lay the issue at the doorstep of only 
Medicare is misleading.

Better Information and Support for Beneficiaries. One of the key 
lessons of Medicare+Choice is that beneficiaries do not have a good 
understanding of what it means to join a managed care plan, what their 
rights are, or how to choose wisely. Many problems have arisen because 
people do not understand even the basic requirements of being in a 
managed care plan. After an initial start at federal funding for such 
information, today, less, not more, is being proposed for this crucial 
task. The small amount available per beneficiary is insufficient to 
provide the information needed for beneficiaries to be knowledgeable 
health care consumers. When private insurers spend 10 percent or more 
of their per capita allocation on marketing (which translates into $600 
per Medicare beneficiary), they are implicitly acknowledging how 
expensive it is to reach this audience.
    Medicare also needs to offer its beneficiaries more than just 
information. It needs to provide resources to help beneficiaries follow 
up with problems and to fund independent sources of information that 
will help consumers make good choices. Independent rankings of plans 
and centralized enrollment for private plans through Social Security 
offices or elsewhere are two examples of ways in which the federal 
government could help empower consumers. Independent analysis comparing 
effectiveness of prescription drugs should be an essential piece of any 
prescription drug coverage. Special provisions to allow beneficiaries 
to disenroll to prevent abuses when the lock-in provision goes into 
effect may be needed as well.

Stability. Another issue that has come to the forefront is the 
disruption caused by plan withdrawals. In a market system, withdrawals 
should be expected; indeed, they are a natural part of the process by 
which uncompetitive plans that cannot attract enough enrollees leave 
particular markets. If HMOs have a hard time working with doctors, 
hospitals and other providers in an area, they may decide that this is 
not a good market. And if they cannot attract enough enrollees to 
justify their overhead and administrative expenses, they will also 
leave an area. The whole idea of competition is that some plans will do 
well--and in the process drive others out of those areas. In fact, if 
no plans ever left, that would likely be a sign that competition was 
not working well and/or that payments were too high. But this also 
means that beneficiaries have legitimate concerns about disruptions 
that will occur under any private plan option. Reforms in 
Medicare+Choice need to take into account the need for special 
protections and procedures for beneficiaries caught in these disruptive 
Is Medicare Ready for Greater Private Plan Participation?
    In many ways, the Medicare+Choice benefit has been one of the less 
successful changes that have occurred in Medicare. Despite payments 
that should be sufficient to compensate plans for the costs of 
Medicare-covered services, the number of withdrawals of plans and 
cutbacks in services for those who remain reached a peak at the end of 
2000. The resulting disruptions for beneficiaries have been 
problematic. At present, the program is neither saving money for the 
federal government nor achieving good, stable care for many of its 
enrollees. Private plans certainly have a role to play in Medicare, but 
many of the issues described above need to be resolved and the current 
program working well for beneficiaries before greater reliance is put 
on private plans under Medicare.


    Chairwoman Johnson. I thank the panelists very much.
    I'm going to raise a slightly different issue, and it may 
not be one on which you would care to comment, but it is 
central to our discussion of more appropriate payment rates for 
managed-care plans. It goes to this issue of the disparity 
between geographic areas.
    In a preceding hearing, we had quite an interesting 
discussion about this, and the opinion of most of the experts 
there was that the disparities are not driven as much by 
difference in price for service as in patterns of utilization. 
One expert pointed out that he thought it was, indeed, unfair 
for the government to force a change in patterns of utilization 
on an area, that that should be a matter of medical practice 
and so on and so forth.
    Now, there are some really scary issues about having your 
reimbursement rate determine what you're going to utilize when 
in that region the utilization pattern is very much higher. It 
is particularly disturbing when you look at the fact that the 
highest rates are where the densest medical capability lies. 
So, in Boston, where you have a lot of technology, in Miami, 
where you have a lot of technology, in the centers where you 
have incredible capability, you also are attracting patients 
from outside the district. You need that capability. So you 
don't necessarily want to bring the low areas up to that level. 
They would be terribly overpaid. And if you force the high 
areas down to some kind of--which is what the blend is doing, 
it's an arbitrary policy. But this is one of the problems with 
it. It arbitrarily brings the top down without looking at the 
services bought.
    I think from the beneficiaries' point of view, this is 
extremely concerning. The arbitrariness, the mechanicalness, of 
our efforts to change payment policy to somehow meet our 
political understanding, and the simplistic understanding of 
what ought to be an equitable payment rate is very flawed from 
the point of view of health practice.
    I would like you to comment on that in the context of how 
do we honestly get to some payment structure, some formula, 
that will enable us to reimburse plans for the genuine costs 
that they experience in providing care to seniors. Dr. Roper, I 
will let you go first, since you were the former Administrator 
of HCFA.
    Dr. Roper. Thank you, ma'am.
    You raise the central question in all of this. As the 
testimony has played out, you can see the vagaries of an 
administered price system and the challenges that flow from 
trying to come up with the perfect calculation, when really 
what the program should be trying to do is say: what does it 
cost for the efficient delivery of quality health care to the 
average Medicare beneficiary in a particular local area, when 
practicing according to national norms of practice style and so 
    That cannot be arrived at, I would assert, by some fancy 
administrative system with lots of computers. That has to be 
determined by local doctors in their local area, asking them 
through a bidding process what the price ought to be for that 
efficient provision of care in their local area.
    Now, you can't do that overnight, but you ought, though, 
begin heading the program in that direction because, otherwise, 
the already arcane system is only going to get more encumbered 
and encrusted with all of the fixes that you are, with good 
intentions, trying to put in place.
    But to answer the other part of your question that you 
began with, is it appropriate for a national program like 
Medicare to dictate to doctors how they should practice in a 
local area, should you force them to follow Jack Winberg's good 
evidence that practice across the country is quite different 
and it does not result in better outcomes for greater intensity 
of care.
    I don't think we ought to dictate to doctors how they 
should practice medicine, but I don't think the Medicare 
Program ought to be foolish, either, and simply to overpay 
based on historical practices that bear not connection to 
reality is not a wise thing for the Medicare Program to do. 
Therefore, again, what seems best to me is encouraging us to 
move toward a system that rewards efficient delivery of care in 
each local market, and you can only determine that by a bid 
    Chairwoman Johnson. Thank you. Would anyone else wish to 
    Dr. O'Grady. Yes, I would like to make one slight comment 
in terms of having looked at the various reform proposals over 
the last few years.
    There is one part of it that was fairly interesting in 
President Clinton's proposal, actually, having to do with how 
they would adjust geographically and how they would take this 
into account. Given the politics of it, it was a little 
interesting also because the Clinton approach was more market 
based than the Breaux-Thomas and some of the others, where they 
really did take a look at this notion of what were both the 
public and the private plans doing in a particular area.
    In a discussion with the people who worked on that 
proposal, what they said is--They were driven by certain 
things, the same kind of concerns you're talking about, where 
if you look at something like poor Dade County, who keeps 
getting beaten up in most of these discussions, they are saying 
that in discussions with various providers in Dade County, it's 
a situation where many people do not have their extended 
family. Their children do not live there, they have retired, 
they have come down. So whether you're working in fee-for-
service or for one of the plans, you are somewhat more likely, 
if you're a physician, to keep that person in the hospital 
perhaps an extra day, day and a half, than you would if you 
were in Minneapolis or some other city, where you knew that 
their son or daughter was going to come and pick them up and 
take care of them.
    So there may be some actual reasons why these sort of bump 
ups that we see have very reasonable ways to go on. I wouldn't 
say the full amount in Dade County, but something there. By 
taking that into account, you would see that sort of extra day 
in the hospital in both the behavior of the public and the 
private plans.
    Again, there is that attempt to try and capture what you 
think is really going on in this area, what is the practice 
pattern, and how do different plans deal with it.
    Chairwoman Johnson. Dr. Moon.
    Dr. Moon. I would like to add just two things, because I 
think my colleagues have talked very well about some of the 
challenges of moving in this direction. I agree that you have 
to do it slowly.
    I believe there should also be attention given to a large 
market comparability. The disparity of plan payments in 
counties that are next to each other is where a lot of people 
get upset, because they see those disparities across plans 
operating in a metropolitan area. Benefits and even coverage 
are excluded for some because of payment levels. A blending of 
those rates as well could be useful.
    Secondly, I would add that the idea of moving to a benefit 
package that's more standardized over time makes enormous 
sense, but only if we invest in the kinds of information that 
are necessary to lead to good norms and standards of care. I 
think we're woefully ignorant of that in many cases. I 
certainly don't think the national average of spending is the 
right amount. The question is how on Earth do we standardize 
without good information?
    I believe the Federal government has a role in 
understanding and pursuing, for example, best practices 
information and disseminating that to people.
    Chairwoman Johnson. Thank you. Congresswoman Thurman.
    Mrs. Thurman. Thank you, Madam Chairman.
    Dr. Roper, let me first ask you this question, to reiterate 
I think something you have already said. You recommended that 
all Medicare+Choice oversight responsibilities should be 
consolidated into a single office and----
    Dr. Roper. Yes, ma'am.
    Mrs. Thurman. Similarly, I guess, to what had happened when 
you were there?
    Dr. Roper. I created such an office, yes, ma'am, in 1986.
    Mrs. Thurman. Who do you think they should report to?
    Dr. Roper. I recognize where your question is headed. My 
bias is to have that office report to the HCFA Administrator. 
That's what you have that person there for. I believe that the 
Secretary and HCFA Administrator are charged with running the 
Medicare Program and they ought to be doing it in a way that is 
appropriate. If they're not, you get rid of them and get 
somebody else. But I think separating it out creates another 
series of problems that may not be for the best.
    Mrs. Thurman. Let me ask all of you this question. Dr. 
Moon, I think you made an excellent statement just a few 
minutes ago, because I happen to be in one of those areas in 
Florida where we have such situations, because I have kind of 
centered around large urban areas and, quite frankly, in many 
of those areas their reimbursement is less than what is in the 
counties next to them. So if you go to St. Pete and Tampa and 
those areas, I get about right about $450 a patient, and you go 
to the county next to them, Pasco or Hernando, and they're 
getting about 500-and-something dollars, about $530 per 
patient. Yet they get less benefits and they have problems out 
    I was just talking to the Chairwoman and kind of similarly 
to what I said to the folks before you. Medicare is based on 
risk, that the 39 million keeps the cost down, has the ability 
to do that.
    Why is it--I know kind of why, because we have set up these 
territories. But if I live in the State of Florida, quite 
frankly, I think you deliver health care services in Dade 
County at a cheaper cost than you do in Hernando County. I just 
think that's a fact. But yet their reimbursement is higher.
    Why could you not do an integrated system throughout the 
entire State, so that if you had $800 in Dade County but $500 
in Pasco, but the same insurance company or the same plan is, 
in fact, covering them, why couldn't they collapse all of their 
patients together, give the money that they get, and then be 
able to provide the services with the same benefit plan than 
all of this ``well, I live in Dade--'' You know, Dr. Moon, I've 
got to tell you, I have a lot of people that move from Miami 
into my district, and let me tell you how mad they are when 
they get to the district. You know, ``I don't have this plan, 
this is the same company, I stay signed up with them, I now pay 
a premium, I don't get a prescription drug''--they don't like 
it. Tell me what you think.
    Dr. Roper. Were you directing it to anybody in particular?
    Mrs. Thurman. I would like all four of you to answer that. 
You can start.
    Dr. Roper. That is a very appealing and elegant solution. 
The problem is, though, to accomplish that means bringing down 
the amounts that you're paying into Dade County, just to pick 
on them as an example. To do that requires telling doctors--I'm 
a doctor--telling doctors that you're going to pay them less 
than they have been used to getting from time immemorial, and 
changing the way they practice so that they practice in a more 
efficient, I would say, modern, up-to-date, data-driven 
fashion. To do that runs counter to the perceived wisdom the 
American public has bought into over the last five or six 
years; that is, how dare anybody try to tell a doctor how to 
practice medicine.
    Mrs. Thurman. I'm suggesting that you take this kind of 
blend, so if you keep the $800 in Dade, you keep the $500 in 
Pasco--because those are kind of your numbers--and you add 
those all together and have this risk pool because they don't 
spend all of the money every month for every patient, and you 
kind of set it up like you do with Medicare.
    Dr. Smith.
    Dr. Smith. I have two comments about this.
    As I know you are aware, under the current law, a Governor 
can, with the consent of the governed, make a single payment 
area out of the State. In order to do that, the Governor would 
have to convince representatives of Dade County to take a lower 
payment rate than they do under the current situation.
    I think one fact of the Medicare+Choice program that makes 
it impractical to do this is the competitive nature between 
plans. If plans can choose the areas in which they want to 
provide services, they can enter Dade County and not enter your 
countries. A plan that goes forward and says I will cover the 
whole State, and I will use some of the payment that I receive 
in Dade County to subsidize services that I deliver in lower 
payment counties, will be at a competitive disadvantage to a 
plan that does not take that position.
    Mrs. Thurman. Unless you said that everybody had to do it.
    Dr. Smith. Unless everybody were forced, unless the 
playingfield were leveled to force everybody to take that 
position, yes.
    Dr. O'Grady. I would agree with my colleagues here. I would 
say there is even a greater danger than what Dr. Roper laid 
out. You would also be alienating the beneficiaries, because 
you would be telling the beneficiaries in Dade County they were 
going to see their benefits come down to raise the benefits in 
the other counties.
    Mrs. Thurman. Not my district.
    Dr. O'Grady. Now you would have this sort of new, 
standardized benefit package.
    Now, the private fee-for-service plan that Madeleine talked 
about, that, in effect, says for the State we're going to offer 
this fee-for-service benefit package, so it is--I mean, you're 
seeing that sort of a dynamic. They will take the payment rates 
from all the different counties. They certainly have to keep 
their fingers crossed, that they'll get enough people enrolling 
from the higher payment counties to balance off the people in 
the lower payment counties to make the numbers work right.
    As far as I know, unless you know differently, they have 
one benefit package that they're offering across 22, 25 States.
    Dr. Smith. Right. It's a nationwide benefit package with a 
nationwide premium, so they have pooled half the States.
    Chairwoman Johnson. This is a very interesting case. One of 
the things that I have stumbled across in talking to plans is 
that one of the things they don't like is that they are 
mandated to treat everybody actually the same. So unless the 
State of Florida developed a special deal with HCFA, they could 
not allow a plan to serve all of Florida and pay providers 
slightly less where, in fact, the costs were less, and pay 
providers slightly more. I believe they are obliged by law to 
pay everybody the same, aren't they? Can they vary payments 
within their payment area?
    Dr. O'Grady. They negotiate rates, certainly, with 
different hospitals and different groups of providers.
    Chairwoman Johnson. Right.
    Dr. O'Grady. I didn't think it was uniform.
    Chairwoman Johnson. That way, they could actually, if there 
was a negotiating process, they could actually sustain the 
rates in Miami if they were appropriate, because some of those 
rates will be appropriate because Miami has big teaching and 
research centers that simply are more costly than other 
    That is one of the reasons we have to look at how could we 
blend the concept of negotiation into merging over these 
different designated payment areas, because they are so 
arbitrary and are based on data that is so old. We have to find 
some way to bridge that. I don't think you can merge. I think 
you have to go over.
    Dr. Moon. What you want to do also is start with very 
defined catchment areas, where people in that area are getting 
their care. That avoids some of the problems, that people are 
actually getting very different kinds of care. So it may mean 
that you do less blending than you would otherwise, and instead 
of incorporating ten counties, you incorporate only three that 
are more similar.
    If you did that, I think you also have to worry about some 
requirements on plans participation in those areas, if you give 
them a blended rate. You might be able to do an experiment in 
which you essentially say we'll give you a blended rate but you 
have to agree to participate in all three counties, for 
    Mrs. Thurman. Madam Chairman, the reason I bring that up is 
because--you know, whether you take Florida or take it by 
region or wherever, the fact of the matter is--This is the 
whole problem I see with the Medicare+Choice program today. 
It's because of the fact that it is still the taxpayers' 
dollars, who are, in fact, paying for these Medicare+Choice 
programs, and they are different, which is what bothers me when 
we start talking about privatizing any of this. I have no 
control. I have less control now, today, with the people that 
I'm representing--and that's why I said, in my county, that 
doesn't work. It may sound good, but I don't have an answer for 
them when we talk about reimbursement. So I think we have a 
legitimate issue here.
    Dr. Roper, while I don't disagree, to cut this out in its 
infancy, I also think that we have learned to walk now. Let's 
make it so that it's something that has parity for all 
Medicare+Choice patients and not just a few that happen to live 
in those areas where it's great, because I'm paying the same 
tax that they paid and I'm going to get a different benefit 
than they do.
    Dr. Roper. Quickly, two responses.
    Yes, the issues of payment variation are mind-numbingly 
complex. But you run the whole Medicare Program and you face 
those same issues with part A payments to hospitals under the 
reflective payment system, and part B payments to doctors under 
the RBRVS system, and direct medical education payments to 
hospitals under that part of the program. So these disparate 
things that have arisen because of the way people did something 
back in the sixties, that no longer make sense today, are not 
unique to this particular program, is my first point.
    Second point. The alternative, Congresswoman, is greater 
and greater attempts by you, as very well-meaning, elected 
Representatives, and the good people over in the Humphrey 
Building, to micromanage the Medicare Program instead of saying 
we will entrust--And that's what you're doing. You said you 
couldn't control them, and you're right. But entrust the 
program to people in the private sector that you then audit and 
look over their shoulders, and if they don't do the right 
thing, kick them out of the program.
    I think the alternative to that is ever more intense 
micromanagement of the fee-for-service program.
    Mrs. Thurman. But don't you think if we sent it out there 
and didn't get the results, that we wouldn't jump right back in 
and start micromanaging?
    Dr. Roper. You know, I accept your point.
    Chairwoman Johnson. Mr. Lewis.
    Mr. Lewis. Thank you very much, Madam Chair.
    Dr. Moon, in your written testimony you describe a 
situation regarding Spanish-speaking seniors. Can you share 
that situation with the Committee, and do you have any ideas on 
how we can correct these abuses?
    Dr. Moon. The particular problem was that a group of 
Spanish-speaking Medicare beneficiaries were offered a trip to 
Atlantic City, with the purpose that on the way down they would 
get some information about joining an HMO. They were asked to 
sign what they thought was a sheet saying they were going to be 
sent additional information.
    The presentation was in English. They signed an English 
document and it turns out they all had enrolled in that HMO. 
Most of them did not know that and continued to go to their old 
doctors, but got denied payment for the care. The people the 
counselors found out about, were retroactively disenrolled, but 
they don't know what happened to everyone.
    This is an issues where some of the enrollment practices 
need better oversight. It is entirely possible that we could 
have better places where people got information and could 
enroll, for example in Social Security offices or over the 
phone to a government official rather than through the plan.
    That might also help with the problem when there were a lot 
of withdrawals last November. Many of the plans fell way behind 
in getting the information out, so people didn't know if their 
enrollment ``took.'' They enrolled in several plans when they 
hadn't gotten a card for 3 months, for example.
    A number of problems need to be addressed to help 
beneficiaries wend their way through this system. I don't think 
by any means that we have all the actors in line who have just 
the beneficiary issues at heart, and I think, in fact, to 
protect the ``good guy'' managed care plans, you need to have 
some of these kinds of controls.
    Mr. Lewis. Earlier, Dr. Moon, in your testimony you stated 
that we need to spend additional resources, additional money, 
to explain and to educate people what is in a plan.
    If you had all of the unlimited resources, and you had to 
come up with a plan, what type of blueprint or road map would 
you provide for the Congress to accomplish----
    Dr. Moon. I think this is a tough problem, because a lot of 
these plans are complicated, and when people are making 
comparisons, it is difficult to know whether one plan is 
offering you, for example, a nurse that's going to answer all 
your questions which is a service you're going to love, as we 
heard earlier, or someone who is going to tell you that you 
cannot go to the doctor or you cannot get a particular service 
provided, which is another role that you can have a telephone 
person play. It is very difficult to sort out.
    We need to fund some independent analyses of private plans. 
The Federal Government should help establish some entities that 
will go out and do consumer reports, and get them started and 
get them going. The work itself can't be from the government. 
They can't say that ``x'' plan is good and ``y'' plan is bad. 
Boards of actual consumers, who look and rate these plans could 
    I think a lot of the support for beneficiaries needs to be 
done on a one-on-one basis in person, rather than through some 
of the written materials. The idea of health fairs providing 
roundtable discussions by independent counselors is not a bad 
idea. You can train the trainers; that is, you can have some of 
the people that do counseling now go out and train other folks 
to then deal directly with people.
    I know the Medicare Rights Center, for example, has some 
private money to train people in libraries to provide 
information, but also train them to understand and be able to 
deal with the questions. They also go out and train people in 
senior centers. These are all different ways in which you can 
get information out to the public.
    But most of the activities of that particular organization 
go on because they get private grants and cobble together 
money, not because the Federal government is helping to provide 
this information.
    Mr. Lewis. I thank you very much, Dr. Moon.
    Dr. Roper, given that you support maintaining private 
options as an option for senior citizens, will you be concerned 
if a competitive model indirectly forces people into private 
plans? Would that be a concern of yours?
    Dr. Roper. Pardon me, sir. I didn't understand. Would I be 
concerned if who forced who?
    Mr. Lewis. If some competitor entity or agency forced 
people into a private plan.
    Dr. Roper. I would surely be opposed to that. People ought 
to be making free choices based on what is best for them and 
their health care needs. And they ought to have the residual 
option of staying in traditional Medicare.
    Mr. Lewis. Thank you.
    Chairwoman Johnson. As we conclude, I would just like to 
have Dr. Roper and Dr. O'Grady discuss this issue of how one 
should govern Medicare+Choice plans. I think that Dr. O'Grady 
is on record thinking that the governance should be outside 
HCFA. This is not an easy issue. If you each would enlarge a 
little bit on your opinions, I think it would be helpful to the 
    Dr. O'Grady. It is a very tough question, to know exactly 
how to do this. There's a number of different things. And 
whether it can be done within the current corporate culture of 
HCFA, yes, I tend to see that as a very tough row to hoe.
    We know that those sorts of decisions, some of the changes, 
some of the negotiations that Dr. Roper talked about, are 
currently done under the Federal Employee Health Benefits Plan 
(FEHBP). You know, a GS-15 at OPM, are they somehow a very 
different person than a GS-15 at HCFA? Well, they operate in 
two different agencies with two different corporate cultures. 
There is no real reason that a GS-15 in Baltimore couldn't do 
it, but they don't.
    HCFA is an organization that, when I've gone and talked to 
them, there is a lot of ability to be homegrown. Many of the 
people have not had extensive outside experience. They have 
been with HCFA for the vast majority of their career. So what 
it would take to get HCFA to the point that they could sort of 
break out of their current way of looking at things, I guess I 
am concerned that it would take more than a reorganization, 
that it would take an infusion of people who had some private 
sector experience, not just government experience, who had 
worked for either large HMOs or large insurance companies, or 
from outside.
    HCFA has done some very good work at bringing in people 
from outside, in terms of medical innovation, and some of their 
work on consumer information, they have done very good. But to 
think about their relationship with plans, so they could have 
more than just HMOs, which they have traditionally had for a 
long time, but we really haven't seen any PPOs, and we've seen 
only one fee-for-service, that idea of really having this wide 
variety, this wide choice for beneficiaries, and to move out of 
a formula-based approach into a more open negotiation, maybe it 
could be done. It just looks like a very tough haul to do 
within the current environment.
    Now, one could argue from the other side. If you suddenly 
opened up tomorrow the new Medicare competitive agency or board 
or whatever, who would be the most likely people to sign up? 
Well, there's a fair number of people in Baltimore who might be 
interested in those jobs. So, to a certain degree, do you try 
and reform HCFA, do you try and start over again? You know, 
either way there's pluses and minuses to both.
    Dr. Roper. Michael has done a nice job of ``on the one hand 
and on the other hand.'' I tend to believe that, of course, as 
he was saying, the new organization, wherever it's located, 
needs to be populated by people who know about how the private 
sector works. They need to be led by political appointees who 
know how the private sector works and can take advantage of all 
of those things.
    My answer to Miss Thurman a moment ago was, having done all 
of that, and facing the option of having that person report to 
somebody other than the HCFA Administrator or reporting to the 
HCFA Administrator, I would opt to the latter.
    If I can take one further moment, though, there is another 
alternative that has been raised, of moving all of this even 
outside of the Department of Health and Human Services and have 
it report to a free-standing board, supposedly to take politics 
out of the process. My urgent caution to you is that that would 
not take any politics out of it. It would just change the 
politics of the process. The notion that the Social Security 
Administration (SSA) is now depoliticized I think is evidence 
of that.
    Chairwoman Johnson. Well, I hear the arguments that you're 
both making. I would have to say that I'm terribly discouraged 
with some of the experience that I've had with HCFA over the 
recent years and consider some of the people that were brought 
in last year to be very talented and capable people. I worked 
closely with Dr. Berenson on just trying to get the letters to 
the nursing homes simple and real. That man was smart and he 
was determined.
    We could not get a letter written that said this patient 
does not qualify for Medicare. You look today and it's just 
reference to paragraph this, paragraph that, section so and so, 
section so and so. This is to my small nursing homes. We talked 
to him about this and he understood it. He tried and he worked 
hard, and he's able. To my rural nursing homes, who can only 
hire the kid who graduated from high school accounting, this 
won't do. This won't do.
    The government in Washington does not get that. I don't 
care how many appointees you put in at the top, if you're not 
out there and you don't try to train this kid to do what she 
can do in terms of accounting, it doesn't work. She puts that 
letter aside. She knows it's a denial. But she's worried. She 
told me this herself. ``Then I look at it next week. I know 
it's a denial. I know it's time to move. But I think to myself, 
I'll call just to be sure.'' Another week passes.
    Remember, the way we're doing nursing home reimbursements 
at this moment, which is absolutely insane, is that we will not 
reimburse you for care you delivered in February if your 
January bills aren't completely signed off and paid.
    Now, why the government thinks that that's possible, when 
they make it so hard to pay bills, I don't know. But that's the 
system. So if this kid loses courage, January's bills aren't 
complete, and the February bills can't be paid. Then it 
compounds and compounds.
    That is the kind of bureaucratic problem--I could give you 
20 examples of this. I have oncologists out in the sticks who 
haven't been paid for three months. This represents millions of 
dollars of oncology drugs. You know how expensive they are, at 
$10,000 a shot. It's because we have a small problem in 
Washington that we haven't been able to figure out.
    It has nothing to do with oncology. It has nothing to do 
with reimbursement rates. It only has to do with this 
bureaucracy talking to that bureaucracy, talking to the 
bureaucracy out in Connecticut--and I won't use the language 
that immediately comes to mind. People trying to deliver care 
to senior citizens in America, who are eligible for that care, 
can't get it, or won't be able to get it, if we can't solve 
these problems.
    So I appreciate, Dr. Roper, in the best of all possible 
worlds, I do think it should all be within HCFA. But whether 
that is possible in today's world, at this time, I really think 
there is not the evidence to think that it is. So you want 
coordination in HHS. After all, it's all within one agency. You 
want accountability, and you definitely want oversight. But you 
don't want the kind of oversight of the HCFA Audit Division.
    You know, I had them in my office a couple of weeks ago, 
and they said to me--and I appreciate this, and I'm very, very 
grateful--they said they had decided that a consent decree is 
not a good mechanism. Well, if you are a sole practitioner out 
in the woods of Connecticut, and someone comes in and looks at 
some of your cases and then, instead of sitting down with you 
and talking with you about why they think you under-coded or 
over-coded, instead they send you a consent decree, and at the 
bottom of the paper it says ``you ought to get a lawyer'', you 
know, we have lost our cotton-picking minds here in Washington. 
We forget that we're dealing with very small providers. If we 
forget that, those seniors will not have access.
    So I have spent literally the last 3 months, and most of 
last year, on this level of provider problem. That is why I had 
a hearing on the administrative burden. I am dead serious. I 
don't care what else we do on the macro issues, we're going to 
clean up this shop.
    And it's not that we don't have good people in HCFA. We do 
have good people in HCFA. They have been very cooperative and 
very helpful. They have said to me over and over again, ``we're 
so glad you called. We need to talk to real people out there.'' 
So it's not their fault.
    The system, if you're setting 10,000 rates and adopting it 
in 3,000 counties, and we keep adding new technologies, new 
diagnostic techniques, and now prescription drugs, you can't do 
it. You can't do it in a way that allows you the time to call 
the provider. So this is a big issue.
    Mrs. Thurman. Madam Chairman, I concur with your passion. I 
think you can tell us up here because we are the ones that face 
those questions and answers all the time, and probably because 
we sit on this Committee which means we get a lot more of those 
kinds of requests than others might.
    I, quite frankly, think that Dr. Roper was kind of agreeing 
with what you are saying in a different way, that if you can 
consolidate them, one person is responsible instead of this 
bureaucracy or that bureaucracy or another, that one person 
would have oversight over one particular program--I don't want 
to put words in your mouth----
    Dr. Roper. Thank you, ma'am, for the opportunity.
    If you begin with the assumption that leaving it in HCFA 
means you continue the morass that has been there, of course, 
that's a stupid decision. It may well be, Madam Chair, that 
there is no way to right the wrong without moving it out. If 
that's the case, then I would be the first to say move it out 
of HCFA.
    Chairwoman Johnson. My concern is the level of reality that 
is a practical reality, in the regulations and in every area, 
that latent understanding of how people have to do this in the 
real world, in many areas, has been lacking. One of the reasons 
is, if you read the detailed testimony of the groups that 
testified here before us--and they were model plans--they can't 
stay in if we don't start doing some things.
    How did we get there? We got there because, actually, the 
government's experience in the private sector is so limited 
that it's very hard to make practical regulatory decisions and 
provide good oversight.
    Just the whole thing that one of them talked about, which 
he didn't go into detail here, but you read back in the 
testimony what JCAHO does and we approve of, and then we put a 
whole different system in place and we don't talk about how 
they can meld, and we get you caught in between the two quality 
improvement programs, and the second one we did, we spent time 
doing, why don't we spend time thinking about JCAHO that's out 
there and that quality process?
    I don't want to damn the people in HCFA. I think they have 
been absolutely overwhelmed. They don't have state-of-the-art 
technology. We haven't supported them in the way we needed to, 
and we have given them so many new responsibilities. Nobody in 
America really understands what to do to manage the health care 
sector right now, none of the actors and none of the government 
    But, given that, and recognizing that, we can ill-afford to 
move ahead with such an insensitivity to the practical reality 
of delivering care to seniors, because if we continue to be so 
insensitive, there won't be care delivered and we wouldn't be 
arguing about Medicare+Choice because there will only be fee-
for-service and it will be just like Medicaid. It will be so 
lousy that it will really provide very limited access.
    That's my fear. If we don't shape up, we will have a plan 
just like Medicaid. I can tell you, no woman in New Britain, CN 
has access to an obstetrician outside of the community health 
center and the hospital clinic under Medicaid, because 
reimbursements have dropped so far below cost. So I am 
concerned about how we do that and we will think this through 
    Thank you very much for your testimony.
    [Whereupon, at 5:00 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

 Statement of Robert J. Gaffney, County Executive, Suffolk County, New 

    Chairwoman Johnson and members of the Ways & Means Health 
Subcommittee, thank you for the opportunity to present testimony on how 
the Medicare HMO terminations have affected the senior citizens of 
Suffolk County, New York.
    To put this issue into perspective, let me offer the following 
salient facts. Suffolk County has the largest population in the state 
outside of the five boroughs of New York City. The county is suburban 
and rural in nature--situated on 100 square miles of the eastern 
portion of Long Island. Of our population of 1.4 million residents, 
163,000 are 65 years and older. According to our most recent estimates, 
our senior population has grown by more than 15% since 1990 and the 
increase over the next ten years is expected to be even more 
significant with the aging of the ``baby boomer'' population.
    Over the past three years, our seniors have been adversely impacted 
by the withdrawal of health maintenance organizations (HMOs) from 
Suffolk County's Medicare market. In 1998, ten HMOs operated in Suffolk 
County's Medicare market. That same year, two companies notified 14,000 
senior clients that their insurance coverage would end January 1, 1999. 
By the end of 2000, six more HMOs had pulled out of Suffolk County, 
leaving over 35,000 seniors scrambling to find health coverage; now 
only two HMOs remain in the Suffolk Medicare market. Over half of the 
New York State seniors affected by the HMO terminations live in Suffolk 
County. Last year, 35,552 of the county's 47,489 Medicare+Choice 
enrollees learned that they would be disenrolled from their HMO 
effective January 1, 2001. Those affected represent an incredible 75% 
of the plan's local enrollees. Clearly, the Medicare+Choice program is 
not working in Suffolk County.
    Many of the affected seniors have been forced to switch insurance 
companies three times in as many years, often with less coverage and 
more out-of-pocket costs than when they first joined an HMO. The reason 
seniors often choose HMOs over traditional fee-for-service Medicare is 
that traditional Medicare generally has higher out-of-pocket costs and 
does not offer prescription drug coverage. To receive coverage 
comparable to that offered by an HMO, they would have to purchase a 
Medigap policy. Medigap policies can only be offered in ten 
standardized plans, identified as plans ``A'' through ``J.'' Plan ``A'' 
is the least costly covering only basic benefits such as coverage for 
hospital co-payments, additional hospital days, and part B Medicare co-
payment coverage. Costs for a Plan ``A'' policy range from $72.00 to 
$115.00 per person, per month. Plan ``J'' is the most expensive plan at 
$296.00 per person, per month and includes co-payments, deductibles, 
prescription coverage, and other benefits. Unfortunately, Medigap 
policies are financially out of reach for many older people who 
enrolled in HMOs for the very reason that they cannot afford additional 
health costs such as premiums, co-payments, and prescription costs.
    I would like to share with you the experiences that two seniors 
from Suffolk County had as a result of the HMO terminations. In the 
fall of 2000, Mrs. K. was notified that her HMO would no longer operate 
in Suffolk County in 2001, and she would have to join another HMO or 
return to traditional fee-for-service Medicare. After reviewing her 
options, Mrs. K. chose to join one of the two HMOs remaining in Suffolk 
County. The new HMO would cost her $300.00 more per year and offer 
fewer prescription benefits. In December 2000, her current HMO notified 
her that they would remain in the market but her premiums would cost an 
additional $840.00 per year and she would have to absorb higher out-of-
pocket costs. Due to her familiarity with the doctors in the network, 
Mrs. K. decided to re-enroll in her original HMO despite the higher 
costs. She notified both plans of her wishes and received confirmation 
from both companies that she now had coverage with her original HMO. 
However, due to an error resulting from the large number of seniors 
enrolling and disenrolling in the plans, Mrs. K. learned that she was 
not enrolled in any plan. Despite her best efforts she was unable to 
resolve the issue on her own, which caused her undue anxiety and stress 
and left her without coverage. During this time, Mrs. K. felt she could 
not afford to go to a medical specialist for a needed treatment because 
the HMO did not have her in their system as an enrolled beneficiary and 
the services of her doctor would not be covered. It was not until the 
Suffolk County Office for the Aging intervened that Mrs. K. got the 
coverage she wanted and the medical treatment she needed.
    In another case, Mrs. D., an 80-year-old Suffolk County senior, has 
been enrolled in three different HMOs since 1997. Initially, she was 
with an HMO that offered medical services at a center near her home. 
After that HMO withdrew from the market, Mrs. D. joined another HMO. 
Two years later, the second company withdrew from the market and Mrs. 
D. had to find a new carrier yet again. She is now enrolled in one of 
the two HMOs left in Suffolk County. Unfortunately, the changes in 
insurance coverage forced Mrs. D. to change primary care physicians 
three times in four years. For any patient, such a change is 
unsettling; for seniors, who frequently suffer from chronic ailments, 
the lack of continuity in care can pose a real danger to their health. 
In addition to these difficulties, Mrs. D. now must pay $900.00 a year 
in premiums for her insurance with higher out-of-pocket expenses than 
she had in 1997. At her advanced age, Mrs. D. should not have to worry 
about who her doctor is and if she can afford to pay for her coverage. 
Sadly, these stories are familiar to many Suffolk County seniors.
    It is my understanding that the Medicare+Choice program was created 
in the Balanced Budget Act of 1997 to help alleviate some of the 
inequities experienced by Medicare beneficiaries living in rural areas 
and to improve Medicare's financial situation by controlling spending. 
The formula developed by the Health Care Financing Administration 
(HCFA) to accomplish these goals considered several factors including 
mortality rates, service costs and utilization of services. As a result 
of these changes, HMOs operating in the downstate area of New York now 
receive the least reimbursement for Suffolk County enrollees. Finding 
that it was simply not profitable for them to do business in Suffolk 
County, the HMO companies made a business decision to withdraw from our 
    The two remaining Medicare HMO providers in Suffolk County have 
increased their premiums and co-payments for 2001. In addition to 
higher costs, our seniors have been forced to change health care 
providers and in some cases have lost access to a number of local 
hospitals. Of equal concern is the limited prescription drug coverage 
offered by both plans--one has a $450.00 per year maximum allowance; 
the other covers only generic drugs. As was made clear in the 2000 
presidential campaign, this aspect of health care is of grave 
importance to our senior population. Any plan that does not provide 
adequate coverage for prescription medications does not truly protect 
the health of seniors.
    The Suffolk County Office for the Aging has been doing what it can 
to assist seniors affected by the HMO terminations by informing them 
about their health insurance options. However, the plan withdrawals 
have left our seniors confused and frightened about their health 
coverage. We are fearful that seniors who can't afford the increased 
costs will no longer seek necessary medical assistance and forgo their 
prescribed medication.
    The complexity of the formula used by HCFA to reimburse HMOs has 
made it difficult for local governments alone to determine what changes 
need to be made. Nevertheless, steps must be taken to make Suffolk 
County's Medicare market more competitive. I strongly urge congress to 
amend the 1997 Balanced Budget Act to restore adequate reimbursements 
for HMOs doing business in the Suffolk County Medicare market. You must 
revisit the methodology used by HCFA to establish individual county 
reimbursement rates. If the Medicare+Choice program cannot be 
adequately amended to provide relief to Suffolk's seniors, you must 
consider enhancements to traditional fee-for-service Medicare. 
Specifically, prescription drug coverage, premiums and co-payments must 
be included in order to provide the comprehensive coverage our seniors 
    As an elected official, I have always believed that it is our duty 
and responsibility to provide for those who cannot otherwise provide 
for themselves. Just as our children are our future, our seniors are 
our heritage and we owe it to them to do all that we can to provide for 
their health and welfare.


   Statement of Samuel B. Wallace, Medical Researcher, Washington, DC

                           PREVIOUS TESTIMONY


I AND III AIDS--Written Testimony before Subcommittee Health House Ways 
and Means Com. Samuel B. Wallace 1221 M St. 417, Washington D.C. 20005
    The Importance of the Antibiotic Medicines in Health Care Reform 
can not be better illustrated than by the example of HIV I and III AIDS 
Therapy. Where alternatives to Antibiotics not only fail to cure that 
Disease but in the process increase the costs of unsuccessful Health 
Care ten thousandfold!


    HIV I AIDS which was discovered in Japan in 1977 and is common to 
many parts of the world including South Africa where it is the dominant 
form. HIV AIDS I has been cured in Japan,the United States, Italy and 
elsewhere with the common Antibiotics such as Penicillin and the 
Antineoplasm Antibiotics. One case of the Antibiotics curing HIV I AIDS 
was reported in the British Journal of Hematology 1984, V. 58, 723-7: 
``Successful Chemotherapy with (the Antibiotic) Deoxycoformycin (which 
is similar in structure to Adriamycin or Doxorubicin) in Adult T Cell 
Lymphoma-Leukemia.'' (A Retrovirus similar to the HIV I and III AIDS 
    The Cure of HIV I AIDS with Antibiotics such as Penicillin, 
Tetracycline, Bestatiin etc. has also been reported for thousands of 
Clinical Trials in Japan and it is often cured with the common 
Antibiotics even in the United States and Europe particularly among 
Medical Students and Nursing Students where it is called ``Cat Fever'' 
which is acquired by catabolizing or dissecting cats. It is also known 
as Cat Leukemia and is cured with Antibiotics by Veterinarians.


    Although, it is not commonly known to the medical science there is 
important evidence from the scientific literature and from the science 
that suggests that HIV III AIDS has also been cured with the Common 
Antibiotics such as Penicillin, Tetracycline, Streptomycin, Bestatin as 
well as the Antineo-plasmic Agent Adriamycin also called 
Doxorubicin.\1\ AZT and the weak Protease Inhibitors (Antibiotic 
derivatives) on the other-hand have been admitted by their 
manufacturers as not being a Cure for HIV AIDS. It seems rather 
obvious, then, that Public Policy should be directed toward the 
application of the Antibiotics which CURE HIV I AND III AIDS rather 
than promulgating the use of the Non-Curative AZT and the relatively 
ineffective Protease Inhibitors which its makers admit do not Cure HIV 
I or III because failure to Cure AIDS can harm many.
    \1\ Clinical Studies of the common Antibiotics such as Tetracycline 
and its special form Dioxicillin have produced Cures of HIV Leukemia. 
See for example Biomed. Pharmacological Therapy 1990; 44(2): 93-101. 
Randomized controlled study of Chemoimmuntherapy with Bestatin in acute 
Leukemia; Ota K, Ogawa, N. Nagoya Memorial Hospital, Japan. Rinsho 
Ketseuki, 1998 July;39(7);487-92:, ``Effective Pentostatin-based 
Treatment of Adult T Cell Leukemia and severe artheritis.'' ``Patients 
given Pentostatin and achieved complete remission.'' Molecular Cell 
Biochem. 1993 Feb 17;119(1-2):35-41: ``Mechanistic Effect of Kijimicin 
on Inhibition of Human Immunodeficiency Virus Replication.'' By 
Yamauchi, t. Nakamura, M, Honama, H. Kawashima, K. Ohno, T. Biomed 
Pharmacological Therapy, 1991;45(2-3): 55-60:Review of Ubenimex 
(Bestatin) Immunomodulating Agent with low toxicity brings about 
significant improvements in the Immune Response. (Bestatin is composed 
of an Antibiotic combined with Napohazolene Hcl in weak solution as is 
Doxorubicin also called Adriamycin.) For other Scientific Evidence of 
the Curative Properties of Penicillin See Med Trop --1998,58(3),297-
306: Article in French by Saissy, J.M., Ducouran, J.P., Tchoua, R, 
Diatta, B., . . . l'Hospital d'Instruction des Armees Bel . . . Mande, 
France: (paraphrased with direct quote: (For a) a Staphalocus Infection 
combined with AIDS: ``Treatment is Antibiotic Therapy with Penicillin 
PATIENTS.'' A somewhat delphic statement which may indicate that the 
HIV AIDS and streptococus, treated with Penicillin survived both 
Infections. Far more relevant is the number of studies indicating that 
a patient with AIDS and Karpi sarcoma (Cancer) treated with a Common 
antibiotic or a an AntiCancer Drug was cured of the Karposi Sarcoma 
Cancer. And even when death did ensue ultimately from AIDS, there is 
the strong possibility that had the Antibiotic Therapy continued in the 
AIDS Patients treated for a short period of time with the Curative 
Antibiotic might well have survived AIDS if treated with the Antibiotic 
``Systemically and Locally'' for a far longer period time. See Dr. 
Bonadonna's 80% Cure Rate for Breast Cancer Treated ``Systemically and 


    Even though thousands of Clinical Studies have been reported in 
Japan indicating that the ordinary Antibiotics: Penicillin and 
Tetracycline cure HIV I Leukemia better known as HIV I AIDS. It is 
better to use more systemic Antibiotic therapies because HIV III is 
more of a systemic Disease which is initiated in the Macrophage which 
also acts as a reservoir for the infection and because HIV III destroys 
both the Immune and Metabolic Systems, Cures 2,3,4 described below 
follow a more ``systemic and local'' approach directed to the Innate 
Immune System: i. e.-Macrophage-Direct Activation of the Enzyme 
Complement C-3 Pathway. (Complement and Macrophage both have 
Epinephrine Receptors.)
    It was in Reported by the United Nations and the WHO and in an 
Article in the New York Times dated: April 6, 2000 that when the simple 
Antibiotic Bacitran was applied to Patients infected with AIDS in sub-
Saharan Africa that the mortality rate for those AIDS Patients was 
reduced by 50%. It is said that this Antibiotic Curative Therapy in 
Africa cost $8.dollars per patient. The following Cures are more 
effective in actually curing HIV I and III AIDS and are Safe Antibiotic 
AIDS Therapies that rely heavily on the AIDS Patients'' Natural Innate 
Nonspecific Immune System. Universally acknowledged to be the First 
Line of Defense against all illness. Those Therapies should produce a 
Cure Rate of better than 80% rather than merely slowing its culmination 
as is the case with AZT and the weak Protease (Enzyme Inhibitors) 
Normal times of Cure should be two weeks at a cost of pennies per 
    1. An ordinary course of Penicillin or Tetracycline in 500mg units 
three times per day over a two week period Cures HIV I and sometimes 
    2. Penicillin K or Tetracycline combined with the Nasal 
Decongestant containing synthetic epinephrine such as Neosynephrine 
made in the USA and Rimidol made by Squibb in Brazil.
    3. Injection of Penicillin or Tetracycline or those Antibiotics 
combined with synthetic epinephrine into the surface of the bones of 
the four limbs and into surface of the cranium.
    4. Capsules of Penicillin or Tetracycline that also contain small 
quantities of Synthetic Epinephrine at 1% Solution.
    All the last three of the four Antibiotic AIDS Therapies cure HIV I 
and III AIDS in five to 14 days. And all of these Curative Therapies 
cost less than $8.00 dollars per patient and produce a Cure Rate 
approaching 90% because those therapies avail themselves of the 
Patients' Innate nonspecific Immune System universally recognized as 
the Patient's First Line of Defense against Infection.

                               NOSE DROPS

    While ordinarily Injection of Antibiotics into the veins is 
considered sound ``Systemic'' Therapy,that form of Therapy treats the 
Immune System through Venular Blood System largely neglecting the 
glandular system. It is significant, that Penicillin and Tetracycline 
Nasal Decongest-ant Nose Drops That I Rediscovered in Brazil in 1969 or 
1970 whose effectiveness against Bacteria, Viruses etc. I reported in 
Testimony before the Subcommittee on Health of the House Ways and Means 
Committee Dec. 4, 1975 is the best Curative Therapy for HIV I and III 
because a very wide range of illnesses were cured in a far shorter 
period of time with ten percent of the PDR's recommended Curative 
Dosage. This Antibiotic Therapy was described in Goodman and Gilman's: 
The Pharmacological Basis of Therapeutics 1955-1958 Edition, P. 1346-
47: ``A Cure for Asthma: Penicillin and a Nasal Decongestant'' as well 
as the Spanish Pharmacopiae 1993 edition: ``Nasal Decongestant Cures 
Respiratory Illnesses'' which shows that such Therapy is the most 
effective ``systemic'' therapy for a wide range of Viral and Bacterial 
Illnesses. And should always be used in ``Systemic'' Therapy for all 
forms of Cancer and Leukemia. That application of Antibiotic Nose Drops 
is the best form of ``Systemic'' Therapy is also shown because:
    (1) Application of the Antibiotic Nose Drops treats the entire 
glandular system to which the Lungs are attached as well as the entire 
Blood system through which Blood passes through the Lungs to the heart. 
Therefore, that form of treatment is truly ``Systemic'' in that it 
enters all the Immune Systems.
    (2) This is also proven by empirical evidence because as is 
indicated in the Spanish Pharmacopiae 1993: ``A Nasal Decongestant Nose 
Drops combined with Penicillin Cures Respiratory Infections.''
    (3) My Empirical tests in Brazil indicate that it cures a wide 
range of Bacterial and Viral Illnesses. And that it reduces severe 
bacterial and viral fevers as soon as it is applied as Nose Drops. And 
it uses only ten percent of the normal initial curative dosage as 
recommended by the PDR which is 500 mg Penicillin for the treatment of 
Pneumonia, for example. The Nose Drops produce the same curative effect 
with only 50 mg. of Penicillin. It is proved that that the curative 
process is begun immediately. because only the Activation of Blood 
Serum Complement can so swiftly reduce fevers.
    (4) Adriamycin has been designated by the American Cancer Society 
as the most effective Anticancer and Leukemia Agent, the Japanese 
Pharmaceutical Industry on the other hand showed in Chemical Abstracts 
April 15, 1985 that PD-3; Penicillin Diversum combining Synthetic 
Epinephrine or Napha-zoline Hcl in weak solution with Penicillin was 
98% effective against Bone Cancer in vitro, the highest rating ever 
given an Anticancer Antibiotic in vitro!
    (5) Other forms of Cancer stemming from HIV III AIDS, such as 
Karposi Sarcoma have been cured with the common Antibiotics such as 
Penicillin, Adriamycin and Bleomycin (a Penicillin complex compound) 
(It should be noted that these are forms of Cancer stemming from HIV 
AIDS, itself.)
    (6) The Antibiotic Nasal Decongestant Nose Drops also act as an 
Amazing Immunological growth factor that can cause the Immature Stem 
Cells that proliferate in Leukemia Patients to begin growing once more 
which reverses the Leukemia proliferation process.
    No other form of Systemic Therapy uses smaller quantities of 
Antibiotic to produce Cures in much shorter periods of time. See 
Testimony Samuel B. Wallace, Subcommittee of Health of the House Ways 
and Means Committee, Dec. 4th, 1975. Therefore, the best 
systemic therapy particularly for HIV III AIDS Leukemia is the 
application of the Antibiotic Nasal Decongestant Nose Drops which 
treats the Lung Immune System, the most powerful Immune System in the 
human body because it is directly linked to both the Blood and 
Glandular Systems. This is confirmed by a prestigious Cancer Research 
Institute in Japan as well as by Dr. Bonadonna's five year Clinical 
Studies for Breast Cancer.\2\
    \2\ In May 1988, Dr. Bonadonna, a Surgeon at Instituto Tumari, 
Milan, Italy and also an NIH Grantee indicated in Cancer Research May 
1988 Treating Breast Cancer ``Systemically'' and ``Locally'', produced 
over a five year period higher Cure Rates than with Surgery or 
Radiation. That modality of Breast Cancer Antibiotic Therapy has 
produced Cure Rates as high as 80% but has not been applied to other 
forms of Cancer and Leukemia by the NIH. Dr. Bonadonna, an NCI Grantee, 
proved that when Breast Cancer is treated systemically and locally, a 
higher cure rate resulted than could be achieved when Surgery or 
Radiation is applied. It would seem cogent to also apply Systemic and 
Local Therapy to HIV AIDS Patients to prevent relapses and ``latent 
metastasis'' leaving a possible reservoir of AIDS infection in the 
supposedly cured AIDS Patient, see Umtae Kim, the Routes of Invasion 
and Routes of Reoccurrence and Metastasis are similar. They are Blood, 
Glandular, (and Bone Marrow.) Therefore common sense and sound Smedical 
practice would suggest that in order to prevent ``latent'' reoccurrence 
or continued development of the HIV III AIDS Virus that ``Systemic'' 
and ``Local'' Antibiotic Curative Therapy is required.

                           ANTIBIOTIC THERAPY

    The NIH influenced Practitioners have long treated the Bone Marrow 
Immune System which requires suppressing completely the AIDS Patient's 
Immune System and in particular the T Cell system including the much 
needed T4 Cells particularly in AIDS Patients which HIV III severely 
diminishes or destroys. But some studies have shown that such 
transplants because of such adverse factors as MHC rejection that Bone 
Marrow Transplants are themselves often fatal, sometimes at the rate of 
almost 50% which approaches the unlawful DeVorkian Type Medicine!
    In 1985, this author proposed an alternative to treating the Bone 
Marrow with medicines that were both safe and effective-namely, by 
Injecting Antibiotics into the Bone in my Testimony given before the 
Subcommittees on Health of the House and Senate Appropriations 
Committee May 1985. In that Testimony indicated that all forms of 
Cancer should be treated ``Systemically'' and Locally'' with the 
Curative Antibiotics and that the Antibiotics should be Injected into 
the bones of Cancer Patients in order to thoroughly treat such Patients 
and in order to prevent future reoccurrence and metastasis, citing the 
ten year work of Dr. Umtae Kim of the Rosewell Institute, Buffalo, N.Y. 
Injection of Antibiotics into the bone is the safest way to Administer 
Antibiotics and can even be given to new-borns before their veins are 
fully matured. My own research indicates that Injection of Antibiotics 
into the Bones, thus treating the bone Marrow Immune System is second 
only to the Nasal Decongestant Nose Drops in terms of effectiveness. 
Thus, such treatment reduces a fever within approximately an hours 
time, while the Antibiotic Nasal Decongestant Nose Drops reduces the 
fever shortly after it is applied. Clinical Studies by Japanese 
Oncologists have proven that Injection of Antibiotics into the Bone is 
a very powerful and effective form of Cancer and Leukemia Therapy. 
Apparently, there were in 1999 in Japan 50 Clinical Trials where 
Injection of Antibiotics were given in the Treatment of Cancer and 
Leukemia. Therefore it would seem logical that this safe and effective 
Cancer and Leukemia Therapy would also prove effective against HIV III 
AIDS Leukemia which resides in the Bone Marrow as well of course in the 
Lymph Nodes, Blood and Glands. Therefore, the Best Form of Antibiotic 
``Local'' Curative therapy for HIV III Patients is Injection into the 
four limbs and the surface of the cranium, as well as injection into 
the AIDS Patient's Lymph Nodes because:
    (1) It is in the Bone Marrow that Immune Cells normally grow and 
where obviously HIV Leukemia suppresses the growth of normal immune 
cells including the B, T and Macrophages and particularly the T4 Immune 
Cells which play an important role in the Regulation of the Immune 
Cells in the Immediate Immune Response as well as influencing the role 
of the circulatory Lymphocytes.(Susumi Tonegawa the Noble Laureate 
emphasized that without the T Cells even in the case B Cell and 
macrophage complement activity that those responses without the T Cell 
participation would fail. (See Scientific American, October 1985, 
Tonegawa on the Molecular activity of the Immune Cells, Page 128. 
Therefore Injection of Antibiotics into the Bone treats the HIV AIDS 
Infection in its locus.
    (2) The Bone Marrow Immune System is the second only to the Lung 
Immune System in its power to begin the Immune Response and then 
effecting a Positive result, which is a Cure. For example, applying a 
Nasal Decongestant Antibiotic as Nose Drops to the Lung Immune System 
initiates the Curative Process immediately as is shown by its ability 
to reduce Bacterial and Viral Fevers which is accomplished almost 
immediately. Reduction of Fevers by Injection into the Bones is 
accomplished within one or two hours far shorter times than is normal 
which generally takes four to six hours. See the Medical Physiologist, 
Arthur Guyton.
    (3) Injection of Antibiotics into the Bone thus Treating the Bone 
Marrow Immune System has proven to be one of the most effective ways to 
Treat and Cure various forms of Cancer and Leukemia. See Japanese 
Internet 1999 showing 50 Clinical Trials where Antibiotics cured 
various forms of Cancer and Leukemia.

                              ONLY VAGUELY

    The author and Medical Research Scientist has given some indication 
that HIV I and III Leukemia can be cured by Antibiotics and that 
Japanese Physicians have been treating and curing HIV I and III 
Leukemia or ``AIDS'' for many years. And their Ministry of Health 
Report indicating 600 cases of infection out of a 126 Million, the 
lowest rate of incidence for any modern nation in the world where 
international commerce is carried out, also proves that AIDS is cured 
in Japan where the doctors rely more heavily on Antibiotic Medicines 
than any other country on earth.
    I pointed out above that ``Systemic and Local'' Antibiotic Therapy 
achieved by Dr. Bonadonna, Instituto Tumari that produced an 80% Cure 
Rate for Breast Cancer. See his Clinical Trials reported in Cancer 
Research, May 1988. And that a similar Antibiotic combined with an 
Immune Hormone cured HIV I and III reported in 1984 in The British 
Journal of Hematology V. 58, P. 272-279. I also pointed out that the 
Antibiotics had been used in some cases to treat and cure HIV Leukemia 
or AIDS in Europe and in the United States that doctors in Hospital or 
Clinics had encountered AID Strains resistant to Antibiotics a 
phenomenon that usually occurs where the same Antibiotic and the same 
disease have been recycled hundreds of times according to a biological 
study at Queens Hospital Sydney Australia.
    It was obvious that as I had suggested in 1979 and 1985 that these 
two approaches to the treatment of HIV Leukemia had not only proved 
effective in the case of Dr. Bonadonna's Treatment for Breast Cancer. 
But had later been reported as being effective for Bone Cancer Therapy. 
See ``PD-3. Penicillium Diversum: 98% Effective'' in vitro the highest 
rating given any Antibiotic including the American Cancer Society's 
favorite Antibiotic, Adriamycin.
    I emphasized in my Testimony of 1985 that the ``Rediscoveries'' 
that I had made in Brazil in 1970 and reported to the Subcommittee of 
Health of the House Ways and Means Committee, Dec. 4th, 1975 
could be used to cure a very wide range of Viral, Bacterial and 
Protozoa Fevers and illnesses. See the Spanish Pharmacopiae 1993: ``The 
Antibiotic Penicillin combined with a Nasal Decongestant (immune 
Congress in December 4th, 1975 had shown that using 
Penicillin combined with the Immune Hormone Naphazolene Hcl (now known 
as Penicillium Diversum) cured Bacterial, Viral and Protozoa Illnesses 
in one third time less and required ten percent of the normal curative 
dosage as indicated by the Physician's Desk I Reference for Diseases 
that it indicated were curable by means of the Antibiotics. (Fifty 
milligrams of Penicillin rather than 500 Mg. As indicated by the 
Physican Desk Reference, for example.) And my ``Rediscovery'' of what 
is now called by Japanese Physicians: Naphazoline Hcl in 1% solution 
combined with Penicillin and administered as Nose Drops Is so effective 
that it could be tested in one days time against the rhino Virus 
illness, Asthma which it cures in one days time. Or tested in one days 
it reduces a fever to normal levels as soon as it is applied as Nose 
Drops. A fact that I pointed out to NAIDS and to Dr. Fauci at an 
informal conference which was ignored when my Petition requesting one 
day tests was denied. That request was undoubtedly one of the least 
expensive requests ever made at the NIH and could have been conducted 
for less than one hundred dollars one hundred Patients at the NIH. 
Generally, similar Research Grants award the participating scientists 
millions and some times tens of millions of Dollars. That same formula 
Cures HIV I also called ``Cat Leukemia'' because Medical Students are 
infected dissecting or ``catobolizing'' Diseased Cats. Which in America 
is usually cured by a fifteen day course of Penicillin or Dioxicillin. 
And is cure by a Phenyephrine Hcl Nasal Decongestant similar to 
Naphazoline Hcl combined with Dioxcillin or Tetracycline or Penicillin 
    Therefore, this Researcher had indicated a safe and effective low 
cost Cure for HIV I Leukemia or HIV I AIDS which could be readily 
duplicated by one day pilot tests or by full tests in five days. While 
the NIH, Buroughs Welcome now Welcome Galaxy and Hoffman LaRouche had 
offered expensive and ineffective nostrums which they admitted 
prolonged life but did not Cure HIV I or II Leukemia, Herpes, or even 
the relatively mild Asthma. In effect, they touted an ineffective 
treatment which they admitted did not cure mild viral illnesses 
including Asthma. HIV treatment costs the AIDS Patient or the U.S. 
Government TWENTY THOUSAND DOLLARS PER YEAR! Which was in sharp 
contrast to my proven Rediscovery which is Safe and Effective and costs 
mere pennies per patient: Penicillin or Tetracycline combined with a 
Nasal Decongestant containing Synthetic Epinephrine: Naphazoline Hcl 1% 
Sol or Phenylephrine Hcl in 1% sol.

                              ONLY VAGUELY

    The worldwide Medical Community, generally with the exception of 
Japan, has followed lockstep the NIH unsubstantiated hypothesis ``the 
Antibiotics do not cure Viral Illnesses'' and this despite the NIH's 
own Medical Text: Goodman's Pharmacology 1955-1958: Page 1388: ``The 
Antibiotics Tetracycline and Penicillin cure Viral Illnesses.'' Even 
the prestigious World Health Organizstion or WHO has followed the NIH 
Guidelines with the exception of its actions within the U.N. of April 
6, 2000 where is recommended the use of Ordinary Antibiotics to treat 
AIDS in Subhararian Africa after some studies indicated that mortality 
due to HIV had been reduced by 50% by use of Antibiotics to treat and 
cure AIDS at a cost of $8.00 a year per patient. However, contemporary 
Medical Science has within the past several years produced new evidence 
that proves the Antibiotics Cure Viral Illnesses including further 
evidence that they cure HIV I and III. And this by means of the Innate 
Immune System Research where normally the Macrophage upon contact with 
the Virus or other antigen activates Blood serum complement through the 
C-3 alternative pathway. I had proved in 1970 that this process can 
cause an instantaneous reduction of a Viral, Leukemia or AIDS Fever by 
the application Nasal Decongestant Penicillin Nose Drops sure evidence 
that the Macrophage, the principal immune cells that line the Lungs 
immediately and directly activate Blood Serum Complement before any 
circulating Immune Cells have time to act in a similar manner. 
Contemporary Science now indicates by vague indirect proofs of its own 
that the Antibiotics treating Patient's Innate Immune System can 
activate complement and begin the curative process for various viruses 
including HIV I and III. That proof lies in the Discovery of Defensins 
which are natural Antibiotics which the human body, animals and plants 
produce. And by the recent Discovery of Alveolar Macrophages which are 
V iricidal and Antiturmor.


    As I just indicated above Contemporary Science indicates to vague 
indirect proofs of its own that the Antibiotics treating Patient's 
Innate Immune System can activate complement and begin the curative 
process for various viruses including HIV I and III . . . That proof is 
the Discovery of Defensins which are the Antibiotics which human body, 
animals and plants produce. And the Discovery of Alveolar Macrophages 
which are tumidical as well as general Macrophage-Cancer-Leukemia 

                        HUMAN BEINGS WORLD WIDE

                              VIRUSES ***

    The existence of Natural Human Antibiotics which are produced by 
myeloid precursor cells residing in the bone marrow and stored in the 
cytoplasm granules of mature cells that are capable of destroying 
bacteria and viruses is significant for several reasons:
    First it destroys a fundamental fallacy of the NIH which 
contradicted its own Text Goodman & Gilman's Pharmacology 2nd Ed. 1955-
1958,Pharmaceutical Conferences in 1940 to 1950 and Armed Forces 
Records WWII and the American Cancer Society's and Japanese Doctors 
success in treating and curing Cancer and Leukemia Viruses with the 
Antibiotics. This contradictory conduct by the NIH is the basis for its 
reliance on ineffective and unsafe Antiviral Agents which have 
displaced low cost Safe and Effective Antibiotic Medicines that have 
long cured HIV I and sometimes HIV III Leukemia. This NIH fallacy has 
resulted in the World-wide AIDS Epidemic which has been characterized 
as Security Issue by the United Nations and may have resulted in the 
infection more than 100 Million human beings.
    Second, the displacement of the low cost safe and effective 
Antibiotic Medicines by the NIH's Unsafe and ineffective nostrums has 
resulted in the rise in the cost of Medicines from 5,000 fold to 20,000 
fold and has produced many new categories of formally curable illnesses 
being reclassified as incurable.
    Third, the failure to make available synthetic Antibiotic Medicines 
has resulted in unnecessary loss of human life. And now animal life 
with the whole sale destruction of livestock caused by fear of infected 
animals that are now not given precautionary Antibiotics.


    Kazuyoshi Imaizumi, N. Hasegawa et al found that stimulation of the 
Alveolar Macrophage and Antigen Presenting Cells through the CD40 and 
CD40L complement receptors which expressed tumor cells could enhance 
the cytotoxic effect of macrophages and the Antitumor Immunity of the T 
Cells by investigating Antitumor activity against Lung Cancer cells. 
(The Lungs usually express low antigenicity and it is difficult to 
induce lung-cancer specific cellular immunity. They found that when 
murine Alveolar Macrophage were incubated with antiCD40 IgM antibody or 
3LLSA-Cd40L cells alone, that no tumoricidal activity was shown. 
However, when alveolar macrophages were incubated with IFN-y 
(Interferon) that both the CD40 and IFN-y activated the tumoricidal 
activity of the alveolar macrophage, but that macrophage of CD40 
complement receptor mice showed no such enhancement of tumoricidal 
activity . . . American Physiological Society; March 8, 1999.
    Interferon is one of the weakest stimulants of Macrophage (perhaps 
a 5% cure rate against Asthma as opposed to a 90% cure rate with the 
Antibiotic Penicillin (k) combined with Naphazolene Hcl in 1% solution. 
See also PD-3: Penicillin Diversum=Naphazoline hcl combined Penicillin 
98% effective in test tube against Yoshida Sarcoma or Bone Cancer Chem. 
Abstr. April 15, 1985 . . . See Congressional Testimony Samuel B. 
Wallace before,Congressman Rostenkowski of the House Ways and Means 
Committee, Dec. 4, 1975 where the author indicated that when a Nasal 
Decongestant containing the Immune Hormone synthetic Epinephrine 
combined with Penicillin and applied to the Lungs as Nose Drops that 
Bacterial, Viral and Protozoa Fevers were reduced to normal (which 
would include Cancer, Leukemia, HIV I and III AIDS Fevers which also 
demonstrates that Alveolar Macrophage tumoricidal activity is enhanced 
greatly by the application of the Nasal decongestant Antibiotic Nose 
Drops. See also the human body's ability to manufacture new Antibiotics 
called Defensins particularly after similar stimulation by antigen and 
the Nasal Decongestant Nose Drops . . . Which is also readily confirmed 
by Immuno Assays as indicated by the observed activity of Neutrophils 
which contain four Defensin human protein (HPN 1,2,3 and 4) 30% to % 0% 
See ASM Mews 5;56;315, 1990; R.I. Lehrer, Ganz and Selested. Who noted 
an increase in Cytokin NK-killer cells, an increase in Antibodies to 
viral antigen, and a decrease in the temperature of feverish mice and 
after Complement was activated and an increased pyrogens and Cytokins 
such as Interferon Gama (IFN-y.)
    [Note: The Human Genome Project-the mapping of all known Human Gene 
sequences should be put in proper perspective. First, it should be 
recalled that a genetic predisposition to an illnesses does not mean 
the illnesses is incurable because genes by their nature are always 
changing. These changes in their structure caused by chemical or 
biological agents are commonly called mutat-ions in which the sequence 
of DNA coding is altered to produce a nucleotide sequence of mRNA which 
in turn codes an altered an altered polypeptide chain.)Thus, Genes are 
influenced by other components of the Immune Response. Therefore, a 
Genetic predisposition to a disease say caused by heredity is not a 
sentence to the inevitability to a disease or death because Genes are 
always changing and are subject to biochemical activity including that 
caused by medicines and Immunological responses to past illnesses. 
Second Genes do not act alone they act in conjunction with Immune 
Hormones, Enzymes, Immune Cells and Complement of which they are 
integral components, thirdly Antigen, B Cells, Antibodies, T Cells and 
Blood Serum Complement Protein and other Immune cells all act and are 
acted on by the genes. The latter fact being of great medical 
significance because though the genes cause the development of proteins 
such as the Antibiotics which act on the genes themselves. The Proteins 
are of greater importance in terms of the cure of the actual disease. 
Genes do not of themselves cure illnesses, they are instrumental along 
with Immune Hormones and Immune Cells in the process of synthesizing 
and augmenting the immune cells and Proteins that do in fact produce 
cures. Therefore to overemphasize the role of the genes is not good 
medicine because it distorts the curative process. Although the Genes 
do not of themselves produce cures, they are essential Components of 
the curative process and are markers for disease and by acting on the 
amino acids the precursors of Proteins, they do play an important role 
in the curative process. The Genes it must be emphasized do not 
directly Cure Illness or directly prevent Disease.]
    The Amino acids are the building blocks of Protein that also help 
produce it at the site of ribosomes through the action of hormones, 
enzymes and low molecular weight RNA causing the release of ATP Energy 
in the Mitochondria Cells. This complex process is described at length 
in Albert Lehninger's BIOCHEMISTRY, 2nd Edition, 1978. 
Chapter 33: Translation: the Biosynthesis of Proteins P.929-954. This 
process is partially summarized in the same chapter on P. 952,Summary:
    The synthesis of proteins from activated amino acids takes place on 
the surface of the ribosomes. Amino acids are first activated in 
cytoplasm by aminoacyl1-tRNA synthetases, which catalyze the formation 
of the amino esters of homologous tRNA; simultaneously, ATP is cleaved 
to AMP and pyrophosphate. The aminoacyl-RNA synthetasis are highly 
specific for both the amino acid and its corresponding tRNA . . .


    The Genes by genetically coding the Amino Acid sequences in 
Proteins regulate the form and function of proteins that are 
reflections of those amino acid sequences. Genetic information is 
stored in the deoxyribonucleic acid (DNA), the informational 
macromolecule of the chromosomes.
    ``. . . This information instructs each cell to produce a 
characteristic set of proteins in accordance with the central statement 
of molecular genetics: i.e., genetic information flows in the direction 
DNA--RNA--protein. It is the sequence of amino acids in the polypeptide 
chain of each type of protein that is ultimately specified or coded by 
the sequence of nucleotide residues in deoxyribonucleic acid (DNA)> The 
segment of a DNA molecule specifying one complete polypeptide chain is 
called a cistron or gene. . . . Gene normally remain in the chromosomes 
and do not directly serve as the coding templates during the 
biosynthesis of proteins, which takes place on the ribosomes. Instead 
the genetic message in the gene is first enzymatically transcribed to 
form a specific type of ribonucleic acid called messenger RNA [mRNA], 
whose nucleotide sequence is complementary to that of the DNA of the 
gene. . . .

                            CURATIVE PROCESS

    As just described in my discussion of the Human Genome put in 
perspective above, I feel obliged to emphasize once more:
    Genes are always changing and are subject to biochemical activity 
including that caused by Medicines and Immunological responses to past 
illnesses. Second Genes do not act alone they act in conjunction with 
Immune Hormones, Enzymes, Immune Cells and Complement of which they are 
integral components, thirdly Antigen, B Cells, Antibodies, T Cells and 
Blood Serum Complement Protein and other Immune cells all act and are 
acted on by the genes. The latter fact being of great medical 
significance because though the genes cause the development of Amino 
Acids which in turn synthesize Proteins such as the Antibiotics which 
act on the the Antigen and the Genes within the Antigen and within the 
Immune Cells themselves. For example in 1979 Dr. Hamao Umezawa proved 
that the Antibiotic Adriamycin altered the Genetic structure of Cancer 
and Leukemia Cells and the Patients Immune Cells. In fact the 
Antibiotic Proteins by their nature always alter the Genetic Structure 
of the Antigen and the affected Immune Cells.
    Professor Lehninger in his text Biochemistry Chapter 3, Table 3-3, 
P. 64: Proteins and their Biological Function describes the Biological 
activity of Proteins including Hormones, Enzymes, Hemoglobins, 
including the protective proteins of Antibodies, Complement etc.
    There are two basic forms of Immunity and Therapeutic Immune 
Response and the Acquired Response. The Innate Non-specific Immune 
Response which is basically Antigen Macrophage Activation of Blood 
Serum Complement through the its C-3 Complement Enzymatic Pathway. The 
Innate Immune Response is described universally as ``the first defense 
against all disease.''
    However, all the very same Medical Textists go on to elaborate for 
the remainder of their text on the the Acquired Immune response which 
is Antigen Macrophage to B Cell-Antibody Activation of Blood Serum 
Complement or Antigen to T Cell to T4 & T8 Activation of Blo0od Serum 
Complement. My Research has emphasized the use of the Innate Immune 
Response which generally produces cures in shorter periods of time 
using smaller quantities of Curative Medicines which more often than 
not cost pennies per Patient. And therefore it is the Protein the 
Antibiotics properly applied Bacterial and Viral Illnesses. Therefore 
it is the Protein and not the Genes which actually cause the prevention 
and cure of the Disease.
    Thus, it seems obvious that the Genetic Genome while admittedly 
important to medical research does not hold the key to discovering new 
Medicines capable of curing illnesses.
    And obviously the Proteins which are the actual components of the 
Immune Cells and Antibiotics have historically proved capable of 
producing Cures and not unfulfilled promises.
    Dr. Hamao Umezawa, Ministry of Health Tokyo in 1980 indicated in a 
Research Paper titled: Screening of Small Molecular Products Modulating 
Immune Responses, P. 119:
    P. 119: Very low concentrations (0.001-0.1 ug/ml) of Bestatin seem 
to modulate the differentiation of Bone Marrow Stem Cells.
    P. 123: . . . Clinical studies in the past two years in Japan have 
shown that daily oral administration of 30mg Bestatin increased the 
percentage of T Cells.Blumgren, H., (1979) Studies in the immuno-
stiumlatory effect of Bestatin in vitro and in vivo. Bestatin 
Conference, March 30th, 1979 in Tokyo, Japan.
    P. 123: In (another) Clinical Study Bestatin administered orally in 
dosages of 30mg daily eliminated carcinomas without relapse after 
thirty days. . . . (And) . . . during those studies doctors noted that 
the frequency of other infections decreased.
    P. 124: Conclusion: (Paraphrased)Studies of various Antibiotics and 
various Enzyme Inhibitors have shown that microorganisms are the 
treasures of organic compounds which have various structures and 
various bioactivities. The Genetic studies on the biosynthesis will 
elucidate the mechanism by which the microorganism has gained the 
ability to produce so many secondary metabolites . . . It is 
reasonable, therefore, to search for small molecular immunomodulators 
in microbial culture filtrates. I have established a method to find 
microbial products that can bind to immune cells. In fact, applying 
this screening method. I found small molecular immunomulators. Among 
them Bestatin which enhanced immune responses in mice, that have been 
shown to enhance the human defense system. Small molecular inhibitors 
do not seem to be antigenic, and are thought to be useful in analyzing 
the biochemical mechanisms of the immune response and to have potential 
activity in the treatment of Cancer.''
    Because of his discoveries in Cancer and Leukemia Medicine, his 
dedication, hard work and intelligent research which he was willing to 
share not only with his colleagues and students but to foreigners in 
conferences that he participated all over the world, I suggest that the 
United States Congress should use its influence to see that this great 
Doctor, Teacher and above all Medical researcher who in his research 
answered many of the questions that Researchers today are trying to 
discover is awarded the Nobel Prize for the first time in history, 
Posthumously, as the Medical Researcher of the past century.
    It does seem logical from the standpoint of good medical science as 
Dr. Hamao Umezawa has shown that low cost Antibiotic Safe and Effective 
Innate Therapies which cure HIV I and III AIDS as well as a host of 
other Viral and Bacterial Diseases should be used as Curative Therapy 
before noncurative ``antiviral agents'' which cure nothing and cost 
fortunes are used for the treatment of the sick, here in America and 
throughout the world.

                           HEALTH CARE REFORM

    Failure to emphasize the Requirements of the FDA Act as amended by 
Senator Kefauver and signed by JFK. Which demonstrates that not only 
great harm can come to Patients but also that great Economic damage can 
be done to the richest nation on earth due to failure to enforce the 
requirements of the FDA Act of Safety and effectiveness. No one can 
argue against the proposition that the current use of AZT etc with its 
notorious severe side effects and the use of extremely weak 
``cocktail'' combination of extremely weak Antibiotic derivatives shows 
that both patients and our national economy are severely injured by 
such blatant and unnecessary violations of the FDA which ignore good 
medical science and practice. The result is that HIV I and III 
Patients, here, and throughout the world are not being healed but the 
lives are being slightly prolonged as also happens to patients with 
Asthma for similar reasons. The cost of such spurious unorthodox 
treatments for many many illnesses including AIDS is often 
astronomical. NonAntibiotic Antiviral AIDS Therapy generally costs 
approximately 20,000 dollars per year as contrasted to the five dollars 
total cost of Antibiotic Medicines and perhaps $50 to $100 dollars per 
year for the Antibiotic Medicines that can produce safe and effective 
cures for AIDS, for example.


    Today as I pointed out in House Testimony of 1985, Doctors enjoy an 
undeserved monopoly in being permitted to solely prescribe medications 
for the sick when for example students of Pharmacy study medicines and 
their effects for a period of five years as opposed to the two years of 
the study the medical students who are really being prepared to be a 
surgeons rather than a Medical Doctors. Likewise experienced Nurse 
Practitioners and well educated Respiratory Therapist knowledgeable 
about Antibiotic Respiratory Therapy are also precluded from 
prescribing safe and effective cures for even Asthma 0which causes the 
cost of medicine to be raised 5,000 fold and again places the patient 
in a position where he must continue to go to the doctor until he 
finally succumbs to the a disease readily cured by Antibiotics. Again 
the doctor being the sole person authorized to prescribe medications is 
allows him to exercise an actual monopoly powers. And as such he may 
well be techniquely in violation of our Antitrust laws. Particularly 
when he uses noncurative medicines in place of low cost antibiotic 
medicines in order to enhance his own income by perineal treatment 
readily cured by the Antibiotics within a few days or less.
    These problems have become so great in terms of their economic and 
medical impact that just recently it was reported in the New York Time 
May 11, 2001 that the Insurance Companies are proposing that Allergy 
Drugs be sold over the counter without a prescription because the 
heavily touted prescription drugs are placing a 4.7 Billion dollar 
burden on the Insurance Industry. I had proposed to David Mathews, the 
Secretary of HEW that the FDA should lift the prescription requirements 
of low cost safe and effective Antibiotics in small quantities for such 
medicines as Penicillin and Tetracycline which are known to be very 
safe and effective and nontoxic. My Petition was opposed at the 
Administrative Level and never resolved in the U.S. District Court for 
the District of Columbia. The Defendants had stated falsely ``the 
Antibiotics due not cure Viral Illnesses'' and my own testimony about 
empirical results that I had obtained in Brazil 1969-1974 against a 
wide range of viral and bacterial illnesses was not considered 
sufficient. I was not aware at the time that the NIH was in opposition 
to the very Medical Text it co-authored 1955-1958,Goodman and Gilman's 
Pharmacology 2nd Ed., 1958, P. 1388 or Pharmaceutical Conference 
Records and Armed Forces Medical Records which also indicated the 
Antibiotics cured Viral Illnesses. The NIH's position was also in 
direct opposition to the American Cancer Society's Text: ``Oncology'' 
which indicated that hundreds of Antibiotics were capable of Curing 
Cancer and Leukemia caused by various Viruses.


    ``In an escalating battle between Insurance Companies and Drug 
Manufacturers over the rising cost of prescription medicines. One of 
the nation's largest health insurers, (Wellpoint Health Networks) will 
argue today at a federal (FDA) hearing that Claritin, the top-selling 
prescription allergy drug, and two of its competitors should be sold 
over the counter. (parenthesis added). . . . The insurer also says that 
the drugs, which are heavily promoted in television commercials . . . 
had a combined sale in the United States of $4.7 billion dollars last 
year, are putting a growing financial burden on the health care 
    ``Prescription durg costs are increasing at a rate that is not 
sustainable,'' said Dr. Robert C. Seidman, Wellpoint's chief pharmacy 
officer. ``We filed this petition to make health care more 
    As a Senior Citizen on Social Security, I recently faced a similar 
problem. I finally found a doctor who would prescribe an Antibiotic for 
Arthritis, my previous doctor having left this country to return to 
France several years ago. However, the cost for that Medicine was ten 
dollars per tablet of minocyclin antibiotic which has also been shown 
to be effective against artheritis. And then discovered that even the 
common Antibiotic Tetracylcine recommended by Dr. Brown of the 
Artheritis Clinic in Arlington now cost as much as ten dollars per 
capsule which I also could not afford. Tetracycline I have is 
manufactured and sold in countries like Brazil and Costa Rica and 
Mexico at a cost of pennies per capsule. I could for example journey to 
Mexico and the money it cost to travel from Washington to Mexico would 
be less than the money that I would pay for ten capsules of 
Tetracycline. Those same Medicines would be manufactured by American 
Pharmaceutical Countries in those countries! Obviously, if a 
multibillion dollar Health Care Insurer can not afford the current 
price of Pharmaceuticals, then certainly a poor citizen on Social 
Security can not. It als o seems obvious that the Pharmaceutical 
Companies that do business in Central and South America meet their 
profit margins required to remain in business in those countries. And 
one wonders whether a Pharmaceutical Company that raise the costs of 
medicine from 25 cents a capsule to ten dollars a capsule an increase 
of 40,000 per cent is not making unconscionable profits according to 
Antitrust Standards? I suggested that it was in proceedings against the 
NIH from 1995 to 1999. And I estimated that the failure to use low cost 
safe and effective Antibiotics against a wide array of Viral Illnesses 
cost the U.SA. 300 Billion per year! Unfortunately, our court system 
however, did not consider that and the number of lives lost 
    A saving of three hundred billion per year in high medical costs by 
the FDA lifting prescription requirements for the low cost Safe and 
Effective common Antibiotics would allow the present administration to 
cut taxes and would lift an economic burden imposed on the entire 
American Industry by ever soaring Health Care costs that they are often 
required to underwrite. Joseph Califano for example, who once reformed 
Chrysler Car Corporation's Health System Administratively, still found 
that Automobiles produced in Canada by that corporation's plants in 
Canada still cost ten percent more. The Canandian Health System relys 
more heavily on Antibiotics than does our own. And in Puerto Rico in a 
study for the Health Finance Administration, Miss Pagan indicated that 
the Puerto Rican Health Care System operated at ten percent per person 
of the American Public Health System. Thus, Puerto Ricans who are much 
poorer than Americans whose doctors attend American Medical Schools 
through the more extensive use of Antibiotic Medicines in their 
therapy-particularly for viral illnesses including Cancer and Leukemia. 
The Puerto Rican Health System is not only much more effective and 
efficient than the American Public Health Care System their Public 
Health System results in better qualifty health care and greater 
longevity. Interestingly enough it was reported in a recent RAND 
Corporation Study that the United States despite spending more person 
than any country in the world rank 37th in terms of the 
qualitity of care its citizens received in comparison to the quality of 
care and the resultant longevity of citizens of other countries. 
Obviously, then Americans are not getting what they pay for in terms of 
the quality of the the Health Care that they receive.
    It has been argued by the Pharmaceutical Industry that lifting the 
prescription drug requirement for antiallergy drugs and by inference 
Antibiotic Medicines woulld disadvantage the Pharmaceutical Industry 
which has a right to charge as much for its medicines and nostrums as 
the market will bear. Unfortunately, this is an oversimplification 
because in the process of touting the more expensive and ineffective 
panaceas rather than the Curative Antibiotics, that Industry together 
with the Gene Tech Industry, particularly in touting the ineffective 
and sometimes dangerous antiviral agents such as AZT, Interleukin-2, 
Intereferon for the treatment of diseases that those products can not 
cure has in many instances violated many laws of this country including 
the laws prohibiting false advertising, fraudulent practices of selling 
ineffective products when there were low cost safe and effective 
Antibiotic alternatives about which they had full knowledge, which most 
legal experts believe would come under the category of a per se 
violation of our nation's antitrust laws. Those same corporations by 
continuing to tout AZT for eample, as a therapy for HIV I and III AIDS, 
AZT and even the weak Enzyme Inhibiting socalled ``cocktail'' when 
there are Safe and Effective Antibiotic alternatives not only violate 
the Safety and Effectiveness requirements of the FDA Act but even go so 
far as to violate the Dr. Divorkian Laws etc. So it is possible for the 
federal government to impose legal sanctions and to discourage such 
blatant examples of industry wide price fixing which enormously raises 
the price of even the Antibiotic Medicines. And if the Pharmaceutical 
Industry insists on continuing to sell Antibiotics at inordiantelyand 
unconscionably high prices to the consumer in its Medicare and Medicaid 
Programs, the government might well consider the establishment of a 
government run Antibiotic Productive Facility much like our national 
Post Office. Because the government should not be subisidizing blatant 
fraud and price gauging.
    It is also noteworthy that the Antitrust laws apply to 
Pharmaceutical Companies in Europe and that many violations of 
Antitrust Laws here are also a violation of similar Antitrust Laws in 
    Recently one rather large Pharmaceutical conglamerate which 
manufactures Antibiotics that have cured HIV I AIDS offered 200 Million 
dollars to fight HIV I AIDS in South Africa with the noncurative 
Antiviral Agents such as AZT and the other combinations which do not 
cure AIDS where the HIV I strain of AIDS is dominant. And the United 
States under the Bush Administration has pledged 200 Million dollars to 
fight AIDS in the developing countries. The sum of 200 hundred million 
dollars that that Pharmaceutical Company promised to contribute to the 
South African government to use Noncurative AIDS Medicines, if the 
Antibiotics particularly combined with the Nasal Decongestant Synthetic 
Epinephrine such as Naphazoline Hcl in 1% solution applied as Nose 
Drops three times per day for five days would if applied to the entire 
population cure AIDS in the entire country for a few million dollars. 
Since such Antibiotics HIV I treatment and cure costs pennies per 
patient. And in fact HIV I and III not AIDS could be virutually 
eliminated from all the countries of Africa if the entire population of 
Africa were treated with the same Antibiotic Nasal Decongestant Nose 
Drops for less than the 200 Million Dollars that a leading manufacturer 
of Antibiotics pledged in its ``noncurative'' ``fight'' against AIDS. 
This Congress might well ask that Manufacturer of Antibiotics why it 
was pledging so much for ineffective panaceas in South Africa but not 
making its curative Antibiotics available to the people it pretended to 
help. And that company might be asked was this offer made for purposes 
of evading taxes? Similarly, the United States Congress might require 
the American Pharmaceutical Industry to contribute to the costs of 
distribution of medicines to the poor in India where the Antibiotics 
are manufactured more cheaply but where the average Indian laborer can 
not afford even one tablet of Penicillin because it costs more than a 
days wages. Such an approach would actually save the American 
Pharmaceutical Companies much money in that it could be the basis of 
removing possible liability for what may well be a major Antitrust 
conspiracy to raise the price and fix the prices of Medicines world-
wide. And because the false information that that industry has spread 
world wide that the Antibiotics do not cure Viral Illnesses despite 
their ability to cure the most virulent of the viruses Cancer and 
Leukemia and their fraudulent use of non-curative Viral Agents has 
contributed much to the spread of HIV AIDS all over the world.
    The Congress might also consider the question of should our Patent 
Laws be revised so for example, exemptions to disclosure can be waived 
for major epidemics for which new medicines and new uses of old 
medicines are discoveed. True Health Care Reform common sense and good 
medical science and recent history has demonstrated requires the 
appropriate Curative Antibiotic Medicines today as it did in the time 
of Senator Kefauver.