[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                  NEW FRONTIERS IN QUALITY INITIATIVES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 18, 2004

                               __________

                           Serial No. 108-60

                               __________

         Printed for the use of the Committee on Ways and Means


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                      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               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. 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               LLOYD DOGGETT, Texas
PHIL ENGLISH, Pennsylvania
JENNIFER DUNN, Washington

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


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of March 11, 2004, announcing the hearing...............     2

                               WITNESSES

U.S. Department of Health and Human Services, Agency for 
  Healthcare Research and Quality, Carolyn Clancy, Director......     7
Medicare Payment Advisory Commission, Glenn M. Hackbarth, 
  Chairman.......................................................    19

                                 ______

Federation of American Hospitals, Charles N. Kahn, III...........    56
National Citizens' Coalition for Nursing Home Reform, Sarah G. 
  Burger.........................................................    61
Pacific Business Group on Health, Arnold Milstein................    37
PacifiCare Health Systems, Inc., Samuel Ho.......................    40
Permanente Foundation, Francis J. Crosson........................    48

                       SUBMISSIONS FOR THE RECORD

American Academy of Family Physicians, statement.................    69
American Association of Homes and Services for the Aging, 
  statement......................................................    71
American College of Surgeons, statement..........................    76
America's Health Insurance Plans, statement......................    78
American Health Quality Association, David G. Schulke, statement.    83
American Hospital Association, statement.........................    87
Alliance for Quality Nursing Home Care, and American Health Care 
  Association, joint statement...................................    91
Compliance Team, Inc., Ambler, PA, Sandra C. Canally, statement..    94
CRUSADE, and Duke University, Division of Cardiology, Durham, NC, 
  Eric D. Peterson, statement....................................    95
Medical Technology and Practice Patterns Institute, Inc., 
  Baltimore, MD, Dennis J. Cotter, letter and attachment.........    97
National Athletic Trainers' Association, Dallas, TX, Eve Becker-
  Doyle, statement and attachment................................    99
Pharmaceutical Care Management Association, statement............   103
Premier, Inc., Richard A. Norling, statement.....................   106

 
                  NEW FRONTIERS IN QUALITY INITIATIVES

                              ----------                              


                        THURSDAY, MARCH 18, 2004

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 11, 2004
HL-6

                      Johnson Announces Hearing on

                  New Frontiers in Quality Initiatives

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on health quality initiatives. The 
hearing will take place on Thursday, March 18, 2004, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 10:00 a.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 the Administration, the 
Medicare Payment Advisory Commission (MedPAC), and the private sector. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    This hearing will focus on the changes needed to improve health 
care quality in America's health care systems. According to MedPAC, 
Medicare beneficiaries were affected by more than 300,000 adverse 
health events, such as postoperative sepsis and respiratory failure. In 
fact, from 1995 to 2002, rates of adverse events in 9 out of 13 
categories tracked by MedPAC increased.
      
    The United States Department of Health and Human Services (HHS) is 
developing, testing, and implementing new measures of the quality of 
care furnished by hospitals, nursing homes, and home health agencies. 
Building on the HHS work, the Medicare Modernization Act (MMA) included 
a provision whereby hospitals were given a financial incentive to 
report on 10 quality indicators, such as whether a patient with an 
acute myocardial infarction receives a beta blocker at admission. As of 
February 12, 2004, more than half (2,727) of all hospitals have 
committed to provide public reporting on the 10 measures.
      
    In addition, physicians are encouraged by provisions in the MMA to 
use e-prescribing to reduce medical errors and to realize 
administrative efficiencies. In addition, hospitals are adopting 
technologies compatible with e-prescribing such as development of 
electronic medical records that capture patients' clinical histories 
and physician orders like laboratory tests and pharmacy. Accurate 
information allows caregivers to better deliver appropriate services at 
the right time.
      
    These initiatives illustrate steps that may be taken to both 
improve quality of care and provide valuable information to patients 
and purchasers. Ultimately, this kind of information can be used to 
encourage the use of providers who deliver high-quality care while 
decreasing health costs.
      
    In announcing the hearing, Chairman Johnson stated, ``In the 
current technological environment, urging physicians to print neatly is 
not enough. We must provide market-oriented incentives that encourage 
the delivery of quality health care. Without good information, 
consumers cannot make intelligent choices between physicians, 
hospitals, or other providers, and better care will not advance.''
      

FOCUS OF THE HEARING:

      
    The MMA includes provisions designed to improve quality of care. 
Advances in the private sector may be instructive in incorporating 
additional methods in the Medicare program. The hearing will focus on 
what is known about the current state of health care quality, recent 
changes to the Medicare program, and what lessons can be learned from 
experiences in the commercial market. The first panel will examine 
public measures of quality and government initiatives to improve care. 
The second panel will discuss private initiatives and the importance of 
competition and comparative information to improve quality.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person or organization wishing to submit written 
comments for the record must send it electronically to 
hearingclerks.waysandmeans@ mail.house.gov, along with a fax copy to 
(202) 225-2610, by close of business Thursday, April 1, 2004. In the 
immediate future, the Committee website will allow for electronic 
submissions to be included in the printed record. Before submitting 
your comments, check to see if this function is available. Finally, due 
to the change in House mail policy, the U.S. Capitol Police will refuse 
sealed-packaged deliveries to all House Office Buildings.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
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 
Committee.
      
    1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in WordPerfect or MS Word format and MUST 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 record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    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.

                                 

    Chairman JOHNSON. The hearing will come to order. I would 
like to open the hearing on new quality initiatives. While 
Americans enjoy one of the finest health systems in the world, 
there are some serious gaps in quality that may threaten 
patient safety and health outcomes. Providers are striving to 
improve quality for their patients but need better information 
and improved incentives to get the job done. The state of play 
in quality shows mixed results. According to Medicare Payment 
Advisory Commission (MedPAC), Medicare beneficiaries were 
affected by more than 300,000 adverse health events, such as 
postoperative sepsis and respiratory failure. In fact from 1995 
to 2002, rates of adverse events in 9 of 13 categories tracked 
by MedPAC increased.
    In 1999, Congress required the Agency for Healthcare 
Research and Quality (AHRQ) to report annually to Congress on 
progress made toward improved health quality. The most recent 
report released in December found that, while 20 of 57 measures 
of quality tracked by the agency have improved, 37 have 
stagnated or worsened. According to the agency, most receive 
the care they need in many geographic areas, but we know low 
rates for primary and preventative care are abundant and vary 
widely across regions. Study after study by the Institute of 
Medicine, the RAND Corporation and others document the 
significant financial and health impact of avoidable medical 
errors and failure to adopt known best clinical practices. 
Medicare beneficiaries and disabled Americans suffer from 
chronic illness in larger numbers than any other groups, they 
use health services more frequently than their counterparts. 
They are disproportionately affected by these deficiencies.
    Congress made great strides in the recently enacted 
Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) (P.L. 108-173) to improve quality for Medicare 
beneficiaries. First and foremost, seniors in both fee-for-
service and managed care under Medicare will have access to 
chronic disease--chronic care management which holds the 
potential to dramatically improve health while reducing costs. 
Our hope is that Medicare will change from a payer of bills to 
a promoter of wellness. Secondly, the new law provides 
financial incentives for electronic prescribing. Too many 
avoidable illnesses and even deaths result from inappropriate 
or counter-indicated prescriptions. Electronic prescribing will 
dramatically reduce adverse drug interactions while promoting 
administrative efficiencies by reducing pharmacist call-backs 
to physicians. The law provides grants to physicians to 
implement these programs and allows plans to provide incentive 
payments to doctors for improving drug compliance.
    Thirdly, the law requires development of formularies by 
practicing doctors and pharmacists, mandates drug utilization 
review and quality assurance and sets up a grievance and 
appeals process for off-formulary drugs. It expands the work of 
the Quality Improvement Organizations to Part C and D and 
requires the Institute of Medicine to evaluate and report on 
health care performance measures. Lastly, as a condition of 
receiving a full update for hospital services, the law requires 
the reporting of 10 quality indicators so that we have a 
baseline for hospital performance. The Administration has also 
made great strides, and I welcome Dr. Clancy from AHRQ to 
discuss their initiatives to improve quality. Specifically, the 
Administration will discuss data-reporting initiatives provided 
by hospitals, nursing homes, and home health agencies. These 
initiatives will make providers, consumers, and purchasers 
better informed about their health positions.
    Finally, we want to learn from the work conducted by the 
private sector. Purchasing strategies, such as paying for 
performance, and improving information collection, and 
dissemination are important, and hopefully, we will be able to 
use their successful experience in the private sector to 
improve public policy governing our seniors, both to improve 
the quality of care and to reduce its costs. Our distinguished 
panel includes experts from hospitals, consumer advocates, 
employers and health plans, and we look forward to their 
testimony. I also am very pleased to welcome Dr. Hackbarth of 
MedPAC for in their current report and also in their report of 
6 months ago, they focused heavily on quality indicators and 
how Medicare specifically can move toward providing higher 
quality care to our seniors. Mr. Stark?
    Mr. STARK. Well, Madam Chair, I want to thank you very much 
for having this hearing and once again to reopen a topic which 
I know you are very concerned about, and that is quality. 
Recent RAND studies suggest that adults receive appropriate 
care roughly only half of the time, resulting often in 
preventable deaths or more serious illness. I know that, and I 
have to talk about some philosophic things here and some budget 
things. I hope I can say this in a nonpejorative sense, but I 
think it would be fair to suggest that on your side of the 
aisle, many of your Members have trouble with government 
regulation.
    I then get to this question of information technology (IT) 
for people like Dr. Hackbarth, Dr. Clancy, National Institute 
of Health, unless we are able to collect data and get 
everybody, I don't care whether it is the doctors and the 
chiropractors and the pharmacists, to agree on a format and a 
system, we aren't ever going to get anywhere. That means that I 
am going to have to help you to do whatever you need to do to 
convince your Members that there are--I have three credit cards 
here. I can walk into a store and put one in to get money out, 
and it will say, ``You are a bum.'' So, I could put the other 
credit card in to another bank on the other side, and they 
still know I am a bum. Yet, we can't do that when going in to 
buy a prescription. If I go in to RiteAid, they may not have 
the same information as Walgreens Co. Somehow I think you have 
to take the lead to create the atmosphere in the community 
where we are going to have standardized reporting and 
standardized forms, and I assure you that I will do whatever I 
can to make that an easier task for you.
    I want to, also, while I did vote against the Medicare 
bill, it did include $50 million for AHRQ. I don't believe your 
budget includes it, and I bet ours doesn't either. I would like 
to help if I can to see if we can get that $50 million. It 
wasn't in the Bush budget. I don't know if it is in the House 
Republican budget. I am not at all sure that it is in the 
Democratic budget, because it is one of those things that often 
falls through the cracks--but I would pledge, if you want to 
continue to push for that, to try and get that $50 million for 
our friends at AHRQ who do such a good job, and I am pleased to 
see Dr. Clancy here. I want to help, and I am sure that my 
colleagues will help on our side in any way we can. You have to 
lead it. It is going to be your group that is going to have to 
approve both the legislation and push it through or add it 
someplace if we can do it, and we certainly intend to help you 
in every way we can. Thank you again for the hearing.
    Chairman JOHNSON. Thank you very much, Mr. Stark, and we 
certainly will have to make sure the $50 million is there.
    Mr. STARK. I would also like to ask unanimous consent to 
put a much more eloquent statement that my staff wrote in the 
record.
    [The opening statement of Mr. Stark follows:]

  Opening Statement of The Honorable Pete Stark, a Representative in 
                 Congress from the State of California

    Thank you Madam Chair.
    I am very pleased that we are again talking about quality 
healthcare and hope this year we can begin again to work together to 
ensure those who actually have access to healthcare services get the 
best quality of care possible. While the U.S. is first in healthcare 
spending relative to other countries, many of our health indicators 
(e.g., life expectancy, etc.) fall short. This suggests we could be 
getting more bang for the U.S. healthcare buck.
    In fact, a recent RAND study suggests that adults receive 
appropriate care roughly half of the time, resulting in serious threats 
to the health of the American public that could contribute to thousands 
of preventable deaths in the United States each year. Fortunately there 
are some very innovative ideas under discussion that could have a real 
positive effect on patient care and outcomes.
    Advances in information technology have been widely utilized in 
other sectors of the economy, but healthcare continues to lag behind in 
implementing technology that is shown to improve quality and 
efficiency. Electronic medical records, computerized physician order 
entry and clinical decision support programs can all increase quality. 
We need to find a way to ensure that providers implement these kinds of 
technological advances, and I hope some of our witnesses today will 
have ideas on how we can improve quality through the use of information 
technology.
    We have talked about adopting pay-for-performance policies for 
years, and it finally seems like purchasers and providers are catching 
on. Physicians and other providers will improve quality if 
reimbursement is tied to specific clinical and service measures. I 
think the Medicare program can truly lead the market in this respect, 
and I hope we can learn from the Premiere demonstration project and 
create a broad pay-for-performance program in the near future. I look 
forward to MedPAC's testimony on this topic and want to recognize their 
efforts to advance this debate.
    In addition, a discussion about quality of care would not be 
complete without talking about the use of evidence-based medicine to 
improve clinical practice. Though I voted against the Medicare bill, it 
did include $50 million for AHRQ (ark) to study the comparative 
clinical effectiveness of healthcare services and prescription drugs. 
The Bush budget, however, does not include money for this program, 
jeopardizing an important area of research that could lead to improved 
quality through evidence-based practice standards and lower costs.
    Finally, I want to say that I am pleased to see Dr. Clancy here. 
Our Committee has an important historic relationship to your agency 
that has been under-utilized in recent years. AHRQ is conducting and 
supporting a lot of important research on quality, innovation and cost 
of healthcare that can be used to improve Medicare and other public and 
private programs. I hope we will renew and strengthen our ties to the 
agency in the future.
    I look forward to hearing from all of our witnesses today, and hope 
to work together with many of you on an ongoing basis to improve 
healthcare quality.

                                 

    Chairman JOHNSON. So acknowledged. Also on the issue of 
standards for technology and standards for meeting, for 
demonstrating quality, I think we will learn a lot about that 
in this hearing, and I think a number of avenues of action will 
be clear to us. I do have a very advanced legislative 
initiative in the area of technology and standards, but there 
are a lot of things we will be able to work on. That is why we 
are having this hearing. This is a totally bipartisan issue, 
and we thank you all for being with us today. Actually, I don't 
know protocol. Dr. Clancy?

 STATEMENT OF CAROLYN CLANCY, DIRECTOR, AGENCY FOR HEALTHCARE 
   RESEARCH AND QUALITY, U.S. DEPARTMENT OF HEALTH AND HUMAN 
                            SERVICES

    Dr. CLANCY. Good morning, Chairman Johnson, Congressman 
Stark and distinguished Subcommittee Members. Thank you for 
inviting me to testify at this important hearing on initiatives 
to improve the quality of health care in America. We know that 
challenges exist in making sure all Americans receive the high 
quality healthcare services they deserve, and I want to assure 
you that addressing those challenges is a top priority for 
President Bush, Secretary Thompson and the entire U.S. 
Department of Health and Human Services (HHS). My written 
testimony, which I am pleased to submit for the record, details 
numerous examples of current HHS quality improvement 
activities, especially those affecting Medicare beneficiaries 
and people enrolled in Medicaid and the State Child Health 
Insurance Program (SCHIP).
    I want to take a few minutes to highlight some examples of 
these activities. The mission of AHRQ is to improve the 
quality, safety, efficiency and effectiveness of health care 
for all Americans. We help achieve that goal by sponsoring 
research and other programs that target the quality challenges 
we face and develop the tools and resources to overcome them. 
Thus we are health care problem solvers working with doctors, 
nurses, patients, purchasers, hospital administrators, States 
and others to help them make the critical health care decisions 
they face every day. This work includes assisting our 
colleagues at Centers for Medicare and Medicaid Services (CMS) 
responsible for managing the Medicare and Medicaid programs as 
well as working with beneficiaries themselves. Because the vast 
majority of physicians and hospitals provide care to both 
publicly and privately insured people, close collaboration 
between the public and private sectors in assessing and 
improving quality of care is not just a nice idea, it is 
actually essential. You can't have providers confronting two 
sets of requirements.
    That kind of collaboration is at the heart of how we 
operate at AHRQ and throughout the Department. The private 
sector can benefit from public investments in science measures 
and tools as well as the power of CMS as a purchaser while the 
public sector can learn from the private sector's flexibility 
and capacity for innovation in delivering health care. 
Hospitals and other health care facilities often struggle with 
how to collect information to gauge the quality of their 
services, as Mr. Stark noted. To address that problem, AHRQ has 
developed a family of measures sometimes called indicators that 
address key aspects of care. These indicators can be used with 
other information hospitals already are collecting to help them 
monitor their performance, compare how they are doing with 
other facilities in their State or region and to make 
improvements when needed.
    The investment required to develop these indicators is not 
one that hospitals can shoulder alone, but once the indicators 
are available, hospitals have the capacity in place to use 
them, and we are very pleased they were included in the MedPAC 
report. In the critical area of patient safety, we are helping 
to find out more about how and when medical errors occur and 
how science-based information can help make the health care 
system safer. This has resulted in reports like the one we 
produced highlighting 73 proven patient-safety practices that 
would help improve quality by reducing medical errors across 
the health care system. Specifically, the report identifies 11 
practices that are known to work but are not routinely used in 
the Nation's hospitals and nursing homes. I am very pleased 
this has become a blueprint or a starting point for many 
organizations as they start their safety efforts.
    To help get all of this information to people in the field 
who can speed up the process of quality improvement, we have 
developed innovative strategies to share new findings about 
safety and quality of care. For example, we sponsor monthly 
web-based medical journals that showcase patient-safety issues 
drawn from actual cases of what are referred to as near misses. 
This online journal allows busy health care professionals to 
learn right at their own computers and benefit from insights 
beyond their own institutions and also get CMS credit for doing 
so. In general, IT, including computerized order-entry systems, 
computer monitoring for potential adverse drug effects and 
handheld electronic devices for electronic prescribing has 
shown tremendous promise in reducing errors and improving 
safety.
    The President's fiscal year 2005 request for AHRQ includes 
$84 million for patient safety, and $50 million of that will be 
focused on helping hospitals and other health care 
organizations invest in these new technologies in evaluating 
their impact on quality and safety. This funding particularly 
targets small communities in rural hospitals which often don't 
have the resources or the information needed to implement 
cutting-edge technologies like the ones mentioned.
    The CMS is spearheading a number of equally ambitious and 
important quality-of-care activities. Under Secretary 
Thompson's leadership, HHS launched the Secretary's Quality 
Initiative in 2001, focused on achieving better quality of care 
in nursing homes, home health care and in hospitals. In 
general, the initiative is built on ensuring that Americans 
receive high-quality health care in these settings through 
improved information for consumers coupled with the 
implementation of specific improvement strategies implemented 
either directly or through Medicare's quality improvement 
organizations. The Nursing Home Quality Initiative is a four-
pronged effort which involves, first, regulation and 
enforcement efforts conducted by CMS and State survey agencies; 
second, community-based quality-improvement efforts; third, 
collaboration with nursing home experts; and fourth, hosting 
nursing home performance information on CMS's Nursing Home 
Compare website.
    In our role as problem solvers, AHRQ is assisting by 
putting together research findings that can help with the 
quality-improvement piece. For example, a recent AHRQ study 
found that educational programs targeted at nurses and doctors 
can reduce the use of drugs like nonsteroidal anti-inflammatory 
drugs and substitute Tylenol so the patients can avoid serious 
complications from the nonsteroidal drugs. The Home Health 
Quality Initiative uses a similar four-pronged approach. On the 
Hospital Quality Initiative, also known as the Voluntary 
Hospital Reporting Initiative, CMS has worked closely with the 
American Hospital Association, the Federation of American 
Hospitals, the American Association of Medical Colleges, 
American Association of Retired Persons (AARP), the American 
Federation of Labor-Congress of Industrial Organizations (AFL-
CIO) and others to help expand the information available to 
consumers on health care hospital quality.
    The AHRQ is a close partner in this initiative working 
side-by-side with CMS to develop a new standardized survey that 
hospitals can use to find out patients' perspectives on the 
care they receive. This new survey is based on AHRQ's 
successful Consumer Assessment of Health Plans (CAHPS) project, 
so the new survey will be called Hospital CAHPS (H-CAHPS) and 
will help consumers make more informed choices about the 
hospitals they use and create further incentives for hospitals 
to improve the quality of care they provide.
    More recently, provisions in the MMA will further enhance 
CMS's quality-improvement activities. MMA, includes provisions 
designed to encourage the delivery of high-quality care, 
especially through demonstration projects focused on improving 
care for people with chronic illness, where we provide the 
worst care and spend the most money, as well as identifying 
effective approaches for rewarding superlative performance. We 
are particularly excited by provisions in the MMA to improve 
chronic illness care through disease management care and pay 
for performance demonstrations, and AHRQ is working very 
closely with CMS on these initiatives.
    It is important to note that as significant as all of these 
Federal efforts are, the public sector can't improve quality of 
care on its own. I am very pleased to report that the private 
sector is very involved and, in some cases, leading the way on 
the issue of health care quality, particularly in hospitals. We 
are working closely with them to make sure that our efforts are 
synergistic and complementary. We have attempted to further 
these private-sector initiatives through grants and other kinds 
of support. For example, AHRQ sponsors a program called 
Partnerships for Quality, which includes a grant to the 
Leapfrog Group, a consortium of more than 135 large health care 
purchasers that buy benefits for more than 35 million 
Americans. Our support is helping the Leapfrog Group continue 
exploring how purchasers can create incentives for quality 
improvement through their contracts with providers and plans.
    We have also recently developed a partnership with the 
American Hospital Association and the American Medical 
Association to distribute evidence-based information on what 
patients and their families can do to help improve patient 
safety of care right now while we are waiting for better 
information. I have brought you copies of posters that describe 
the five steps to safer health care. Again, I want to thank you 
for inviting me to discuss with you today the important issue 
of health care quality and the initiatives that HHS has 
underway to improve quality of care. I look forward to 
answering any questions.
    [The prepared statement of Dr. Clancy follows:]

  Statement of Carolyn Clancy, M.D., Director, Agency for Healthcare 
   Research and Quality, U.S. Department of Health and Human Services

    Chairman Johnson, Congressman Stark, distinguished Subcommittee 
members, thank you for inviting me to this important hearing on 
initiatives to improve the quality of health care in America. Quality 
health care for all people is a high priority for President Bush and 
the Department of Health and Human Services (HHS). Quality health care 
is a statutory responsibility for my agency, the Agency for Healthcare 
Research and Quality (AHRQ), and it is a key area of emphasis for the 
Centers for Medicare & Medicaid Services (CMS).
    My testimony today will address three areas: first, current 
activities of the Department to improve the quality of care, including 
the use of health information technology; second, the significant 
provisions of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) that both build upon and advance our 
efforts to improve the quality of health care; and finally, I will 
provide a brief overview of private sector quality initiatives.

I. THE DEPARTMENT'S QUALITY INITIATIVES
    Under Secretary Thompson's leadership, the Department has developed 
a variety of quality initiatives involving hospitals, doctors, skilled 
nursing facilities, and other providers. The Secretary has also placed 
great emphasis on our different agencies functioning as ``one 
Department''; as my testimony will outline, this has meant that AHRQ is 
increasingly serving as a science partner to CMS in its many quality 
initiatives.

AHRQ QUALITY OF CARE INITIATIVES
    AHRQ's specific mission is to improve the quality, safety, and 
effectiveness of health care for all Americans. To fulfill our role as 
a science partner for CMS and State initiatives to improve quality, I 
believe that AHRQ must become a true ``problem solver.'' We must 
marshall existing and develop new scientific evidence that targets the 
critical challenges these programs face in improving the quality of 
health care they provide and the efficiency with which they operate. My 
goal as Director is to ensure that AHRQ's work is useful to those who 
manage these programs so that the taxpayers receive true value for 
their tax dollars and to those who rely upon these programs so that 
they receive appropriate, high quality care. There are four aspects of 
AHRQ's work that I will discuss: research to support evidence-based 
decisionmaking, using data to drive quality, accelerating the pace of 
quality improvement, and improving the infrastructure for quality 
health care.

Research to Support Evidence-based Decisionmaking
    AHRQ's research seeks to improve quality by developing and 
synthesizing scientific evidence regarding two aspects of health care: 
the effectiveness and quality of clinical services and the 
effectiveness and efficiency of the ways in which we organize, manage, 
deliver and finance health care. With respect to clinical services, we 
assess the effectiveness of health care interventions; for example, do 
Medicare beneficiaries with multiple chronic illnesses benefit as much 
in daily practice from a new intervention or drug as those in the 
clinical trial who usually have only one problem? We also look at 
comparative effectiveness: how effective is a given intervention versus 
the alternatives and what are the comparative risks and side effects? 
These are critical issues for physicians making treatment 
recommendations and for patients who are in the best position to assess 
the risks they are willing to take. For example, cholesterol lowering 
drugs--commonly called ``statins''--have different safety and 
effectiveness profiles. Comparative studies with statins could have 
revealed that some are more likely to cause a serious life threatening 
adverse event instead of relying upon adverse event reports that 
eventually caused one of them to be taken off the market.
    In addition, every aspect of the financing and delivery systems for 
health care can matter. Our research asks similar questions in those 
areas: what is effective, how does it compare with other strategies, 
what is most efficient and what are the risks of unintended 
consequences. Currently, we are completing two research syntheses that 
focus on what research tells us needs to be taken into account in 
implementing an insurance drug benefit and how employers have responded 
and could respond to increases in health insurance costs.
    Our work in patient safety is an excellent example of how improving 
the quality and safety of health care involves both health care 
services and the systems through which care is received. Our research 
is addressing key unanswered questions about when and how medical 
errors occur and how science-based information can make the health care 
system safer. We know, for example, that medication errors are a major 
issue and have made research on the safe and appropriate use of 
pharmaceuticals a significant focus of our research agenda. For 
example, a recent research finding has identified a disturbingly large 
number of pregnant patients receiving prescriptions for drugs that are 
contra-indicated during pregnancy. We are working with the FDA and 
other HHS agencies to develop collaborative strategies for addressing 
this problem. At the same time, medication errors also result from 
faulty work flow procedures or unnecessarily complicated equipment. 
Once again, we are working closely with the FDA on research on the 
processes related to medication prescribing and delivery, the use of 
information technology, development of an effective bar coding system, 
and ``human factors research.'' This is a field of science that can 
inform the design of health care equipment, like infusion pumps, to 
ensure that busy, distracted, and tired health care workers are less 
likely to make an error in entering the information for delivery of an 
intravenous drug.
    Health care decisionmakers need a synthesis of the best evidence 
that is understandable, objective, and places the ever-increasing 
number of scientific studies in context. AHRQ is committed to 
accelerating the adoption of science into practice so that all 
Americans benefit from advances in biomedical science. An example in 
the patient safety area is our evidence report, titled Making Health 
Care Safer, A Critical Analysis of Patient Safety Practices. This 
report highlighted 73 proven patient safety practices which would help 
health care administrators, medical directors, clinicians, and others 
improve quality by reducing medical errors. Specifically, the report 
identified 11 practices that are proven to work but not used routinely 
in the Nation's hospitals and nursing homes.
    It is also critical that we foster ongoing learning from experts in 
the field to expedite quality improvement. For example, a critical 
challenge in making health care safer is that providers do not share 
lessons learned from errors and near misses due to fear of liability. 
To help health care professionals benefit from insights beyond their 
home institutions, AHRQ is sponsoring a monthly, Web-based medical 
journal that showcases patient safety lessons drawn from actual cases 
of near-errors. This unique online journal allows health care 
professionals to learn about avoidable errors made in other 
institutions, as well as effective strategies for preventing their 
recurrence. One case each month is expanded into a ``Spotlight Case'' 
that includes an interactive learning module that features readers' 
polls, quizzes, and other multimedia elements. Practicing physicians 
may obtain continuing medical education credit by successfully 
completing the spotlight case and its questions, and trainees can 
receive certification credits for doing so.

Using Data to Drive Quality
    To improve quality, you need strong measures, good data, and 
somebody with strong reason to use them. Responding to user needs, AHRQ 
has played a fundamental role in creating the measures and the data. 
I'll give you two examples. The first focuses on hospital care. In 
response to requests by state hospital associations, state data 
organizations and others, AHRQ developed a set of Quality Indicators 
which can be used in conjunction with any hospital discharge data to 
let a hospital know how it is doing in terms of safety and quality. A 
subset of these indicators also lets us use information about hospital 
admissions to assess the performance of the health system of the 
community. At the same time, employers, CMS and others who wish to 
reward good-quality hospitals can use these measures with data from 
particular hospitals or regions. Or they can use the module on 
preventable admissions to target and launch major health improvement 
efforts on a community-wide scale. These indicators have been used by a 
number of states and communities to improve care and to determine how 
their own hospital or health system's performance compares to other 
hospitals in key areas. We have a support contract to make this easy 
for all users.
    A second example has to do with improving the patient experience of 
care, a widely recognized component of overall quality. Several years 
ago, AHRQ created a survey, CAHPS, which health plans could use to 
question patients about their care experience. CAHPS is now an easy to 
use kit of survey and reporting tools that provides reliable 
information to help consumers and purchasers assess and choose among 
health plans, providers and other health facilities. The first CAHPS 
surveys, which assessed consumers' perceptions of the quality of health 
plans, are used by more than 100 million Americans, including those in 
Medicare managed care plans, enrollees in the Federal Employees Health 
Benefits Program, and participants in the Department of Defense's 
health programs.
    An H-CAHPS survey built on AHRQ's earlier work in establishing 
surveys and will measure the hospital care of those patients' involved 
in the pilot. The survey is being considered by CMS as part of the 
National Voluntary Hospital Reporting Initiative. CMS has received 
comments and has lessons learned from the pilots, which could be 
helpful in working with AHRQ to develop a standardized H-CAHPS.
    AHRQ is stepping up its efforts to provide assistance, often web-
based, for those who are seeking to improve the quality of patient 
care. For example:

      AHRQ recently launched a web-based clearinghouse 
[QualityToolsTM.gov] providing practical tools for assessing, 
measuring, promoting and improving the quality Americans' health care. 
The site's purpose is to provide health care providers, policymakers, 
purchasers, patients, and consumers an accessible mechanism to 
implement quality improvement recommendations and easily educate 
individuals regarding their own health care needs.
      In addition, AHRQ is helping patients and their families 
improve the quality of the health care they receive and play an 
important role in preventing medical errors. AHRQ and CMS collaborated 
on a campaign to promote new ``5 Steps to Safer Health Care'' posters. 
In addition, campaigns with the American Hospital Association, the 
American Academy of Pediatrics, American Medical Association, and AARP 
are working to implement evidence-based information that help patients 
know how talk to clinicians about safe health care.
      While the text of AHRQ's recent reports, National 
Healthcare Quality Report and the National Healthcare Disparities 
Report, are currently available on the web, AHRQ is developing a more 
sophisticated search engine that will enable those seeking to improve 
the quality of care at the local or state level to link to the myriad 
of charts and data that are summarized in the report. Over time we 
expect this to be an indispensable tool for those seeking to develop a 
``road map'' for their own quality improvement efforts.

Accelerating the Pace of Quality Improvement
    To accelerate the pace of quality improvement, AHRQ has launched a 
program called Partnerships for Quality. The purpose of the 
Partnerships program is to support models or prototypes of change led 
by organizations or groups with the immediate capacity to influence the 
organization and delivery of health care as well as measure and 
evaluate the impact of their improvement efforts. For example, AHRQ has 
awarded a grant to The Leapfrog Group, which is a consortium of more 
than 135 large private and public health care purchasers buying health 
benefits for more than 33 million Americans. Leapfrog has devised a 
plan for conducting and rigorously evaluating financial incentive or 
reward pilots in up to 6 U.S. healthcare markets in two waves over the 
next three years.
    Another approach to accelerating quality improvement is to involve 
health care system leaders in the research enterprise itself from the 
outset. AHRQ currently has three delivery-based networks that follow 
this approach. The Primary Care-Based Research Network is a group of 19 
primary care networks across the country that do research 
collaboratively on ways to improve preventive care and other issues of 
interest to primary care providers. The HIV Research Network is a 
network of 22 large and sophisticated HIV care providers around the 
country who share information and data so that they can learn from each 
other what can work to improve quality. They also provide timely 
aggregate information to policymakers and other providers interested in 
improving quality and answering other questions about access and cost 
of care for people with HIV. Through the work of this network and other 
large HIV care providers, for example, AHRQ is looking to identify and 
remedy major causes of prescribing errors for patients with HIV.
    A third network, the Integrated Delivery System Research Network 
(IDSRN), is a field-based research network that tests ways to improve 
quality within some of the most sophisticated health plans, systems, 
hospitals, nursing homes, and other provider sites in the country. In 
the past year for example, provider-researcher teams have been working 
on ways to reduce falls in nursing homes, and ways to limit medication 
errors. Often we partner with others in the Department on these 
efforts. For example, CMS asked us for a handbook on ways to improve 
cultural competency of health care providers, and is now using this 
handbook as the key part of their training for Medicare and Medicaid 
providers. One of our contractors developed a tool to help hospitals 
prepare for bioterrorist events and other emergencies, and the American 
Hospital Association has since shared this tool with all of their 
members and in fact provide technical assistance on how to use it.

Improving the Infrastructure for Quality Health Care
    Two critical elements for improving the quality and safety of 
patient care are expanding the use of information technology (IT) and 
investing in human capital. The most recent report from the Institute 
of Medicine's quality chasm series emphasizes the need for improved 
information at the point of care and the deployment of the still 
developing National Health Information Infrastructure (NHII) to improve 
patient safety and quality of care, for which HHS has the lead Federal 
role working with the private sector. Both AHRQ and ASPE have several 
initiatives underway to advance the adoption and appropriate use of IT 
tools and enable the secure and private exchange of information within 
and across communities.
    In FY 2004, AHRQ has launched a new initiative to improve health 
care quality and reduce medical errors through the use of information 
technology. AHRQ will award $50 million to help hospitals and other 
health care providers invest in information technology designed to 
improve patient safety, with an emphasis on small communities and rural 
hospitals and systems, which don't often have the resources or 
information needed to implement cutting-edge technology. An important 
aspect of this program is that it will foster the implementation of 
proven technology through the health care system and establish 
important building blocks for the NHII.
    As the NHII is developed, it will enable appropriate access to 
important patient information and evidence to assist clinicians in 
making diagnostic and treatment decisions that are based on the best 
available science. If a Medicare beneficiary typically receives care 
from an internist and specialist in Connecticut for 6 months of the 
year but has different physicians in Florida during the winter, their 
medications, labs, x-rays and other important health information would 
be available to all their physicians at any point in time. This will 
allow clinicians to provide continuous high quality of care regardless 
of where a beneficiary accesses the health care system. While the 
intention of HHS is to facilitate the development of the NHII, we 
recognize that the most realistic strategy is to foster and support 
community-based health information exchanges with the ability to share 
information within and across communities nationally over time. In 
addition, the FY 2005 Budget requests a new $50 million within the 
Office of the Secretary to support communities with the development of 
these health information exchanges in FY 2005 and disseminating lessons 
learned to ensure the success and long-term viability of these local 
efforts across the country.
    Another infrastructure issue is the ability to share health 
information in ways that enable us to make significant strides towards 
improving patient safety, reducing error rates, lowering administrative 
costs, and strengthening national public health and disaster 
preparedness. To share health data, agencies need to adopt the same 
clinical vocabularies and the same ways of transmitting that 
information. This sharing information within and between agencies 
establishes ``interoperability.'' Public and private groups have 
emphasized how interoperability through standards will enable us to 
share a common electronic patient medical record and in turn greatly 
improve the quality of health care. The Consolidated Health Informatics 
(CHI) initiative will establish a portfolio of existing clinical 
vocabularies and messaging standards enabling Federal agencies to build 
interoperable Federal health data systems. This commonality will enable 
all Federal agencies to ``speak the same language'' and share that 
information without the high cost of translation or data re-entry. 
Federal agencies could then pursue projects meeting their individual 
business needs aimed at initiatives such as sharing electronic medical 
records and electronic patient identification. CHI standards will work 
in conjunction with the Health Insurance Portability and Accountability 
Act (HIPAA) transaction records and code sets and HIPAA security and 
privacy provisions. Many departments and agencies including HHS, VA, 
DOD, SSA, GSA, and NIST are active in the CHI governance process.
    Even when the best tools available are used appropriately, 
achieving consistent high quality care requires a solid understanding 
of the delivery process and inherent risks in the system that will 
never be mitigated through automation. In recognizing the importance of 
intellectual component of quality improvement, AHRQ recently 
established the AHRQ-VA Patient Safety Improvement Corps, a training 
program for state health officials and their selected hospital 
partners. During the first annual program, 50 participants will 
complete coursework in three 1-week sessions at AHRQ's offices in 
Rockville, MD. Participants will analyze adverse medical events and 
close calls--sometimes known as ``near misses''--to identify the root 
causes of these events and correct and prevent them. Anticipating that 
the growing demand for patient safety expertise will exceed the 
capacity of this intensive program, one aspect of this initiative will 
be to develop web-based training modules. These will be in the public 
domain and could be used independently or by private sector training 
programs that would provide additional ``hands on'' experiences.

CMS QUALITY OF CARE INITIATIVES
    In November 2001, Secretary Thompson announced the Quality 
Initiative, a commitment to assure quality health care for all 
Americans through published consumer information coupled with health 
care quality improvement support through Medicare's Quality Improvement 
Organizations (QIOs). The Quality Initiative was launched nationally in 
2002 as the Nursing Home Quality Initiative and expanded in 2003 with 
the Home Health Quality Initiative and the National Voluntary Hospital 
Quality Reporting Initiative. The CMS Physician Focused Quality 
Initiative (PFQI) began its implementation this year. Most leaders in 
health care recognize that achieving the safest and highest quality of 
care will require significant enhancements in the use of health 
information technology and strategies to permit sharing of patient data 
within communities. In FY04 and FY05 the Department will invest $150 
million. In addition, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) includes a variety of provisions 
designed to encourage the delivery of quality care, including 
demonstrations to focus effort on improving chronic illness care and 
identifying effective approaches for rewarding superlative performance.

Nursing Homes
    About 3 million elderly and disabled Americans received care in our 
nation's nearly 17,000 Medicare and Medicaid-certified nursing homes in 
2001. Slightly more than half of these were long-term nursing home 
residents, but nearly as many had shorter stays for rehabilitation care 
after an acute hospitalization. About 75 percent were age 75 or older. 
As part of an effort to improve nursing home quality nationwide, the 
Administration has taken a number of steps, including the Nursing Home 
Quality Initiative. Working with measurement experts, the National 
Quality Forum, and a broad group of nursing home industry 
stakeholders--consumer groups, unions, patient groups and nursing 
homes--CMS adopted a set of nursing home quality measures and launched 
a six-state pilot. Encouraged by the success of the pilot, CMS expanded 
the Nursing Home Quality Initiative to all 50 States in November 2002. 
This quality initiative is a four-pronged effort including, regulation 
and enforcement efforts conducted by CMS and state survey agencies; 
continual, community-based quality improvement programs; collaboration 
and partnership with stakeholders to leverage knowledge and resources; 
and improved consumer information on the quality of care in nursing 
homes.
    As part of the effort, consumers may compare quality data, 
deficiency survey results and staffing information about the nation's 
Medicare and Medicaid-certified nursing homes through the Nursing Home 
Compare website, which is updated quarterly. The quality measures 
included on the site help consumers make informed decisions involving 
nursing homes. The Nursing Home Compare tool received 9.3 million page 
views in 2003 and was the most popular tool on www.medicare.gov.

Home Health
    In 2001, about 3.5 million Americans received care from nearly 
7,000 Medicare certified home health agencies. These agencies offer 
health care and personal care to patients in their own home, often 
teaching them to care for themselves. Launched nationwide in November 
2003, the Home Health Quality Initiative aims to further improve the 
quality of care given to the millions of Americans who use home health 
care services. The initiative combines new information for consumers 
about the quality of care provided by home health agencies with 
important resources available to improve the quality of home health 
care. Like the Nursing Home Quality Initiative, the Home Health Quality 
Initiative uses the same ``four-pronged'' approach to regulate the 
industry, ensure consumers have improved access to information, utilize 
community-based quality improvement programs, and collaborate with the 
relevant stakeholders to access resources and knowledge for home health 
agencies. CMS' regulation and enforcement activities will assure that 
home health agencies comply with Federal standards for patient health, 
safety, and quality of care. In March 2004, CMS updated the eleven home 
health quality measures on every Medicare-certified home health agency 
to give consumers the ability to compare the quality of care provided 
by the agencies. To access the information, consumers can call 1-800-
Medicare or use the Home Health Compare tool at www.medicare.gov. Over 
the past six months, the tool has been viewed about 780,000 times.

Hospitals
    The Hospital Quality Initiative consists of the National Voluntary 
Hospital Reporting Initiative (NVHRI), a public-private collaboration 
that reports hospital quality performance information, a three state 
pilot of the Hospital Patient Perspectives on Care Survey (HCAHPS), and 
the Premier Hospital Quality Incentive Demonstration. The Hospital 
Quality Initiative, is more complex, and consists of more developmental 
parts than the nursing home and home heath quality initiatives. The 
initiative uses a variety of tools to stimulate and support a 
significant improvement in the quality of hospital care. The initiative 
aims to refine and standardize hospital data, data transmission, and 
performance measures in order to construct a single robust, prioritized 
and standard quality measure set for hospitals. The ultimate goal is 
that all private and public purchasers, oversight and accrediting 
entities, and payers and providers of hospital care would use the same 
measures in their public reporting activities. The initiative is 
intended to make critical information about hospital performance 
accessible to the public and to inform and invigorate efforts to 
improve quality. Among the tools used to achieve this objective are 
collaborations with providers, purchasers and consumers, technical 
support from Quality Improvement Organizations, research and 
development of standardized measures, and commitment to assuring 
compliance with our conditions of participation.

National Voluntary Hospital Reporting Initiative
    The National Voluntary Hospital Reporting Initiative (NVRI) was 
launched in 2003 in conjunction with the American Hospital Association, 
Federation of American Hospitals, American Association of Medical 
Colleges, and other stakeholders (AARP, AFL-CIO). The NVRI was 
established to provide useful and valid information about hospital 
quality to the public, standardize data and data collection, and foster 
hospital quality improvement. For the previous initiatives, CMS had 
well-studied and validated clinical data sets and standardized data 
transmission infrastructure from which to draw a number of pertinent 
quality measures for public reporting. Hospitals do not have a similar 
comprehensive data set from which to develop the pertinent quality 
measures. Thus, the American Hospital Association, the Federation of 
American Hospitals and the Association of American Medical Colleges 
approached the Joint Commission on Accreditation of Healthcare 
Organizations, the Agency for Healthcare Research and Quality, the 
National Quality Forum and CMS to explore voluntary public reporting of 
hospital performance measures. CMS contracted with the National Quality 
Forum (NQF) to develop such a consensus-derived set of hospital quality 
measures appropriate for public reporting. We selected 10 measures from 
the NQF consensus-derived set as a starter set for public reporting and 
quality improvement efforts and an additional 24 measures from the set 
for the hospital quality incentive demonstration. CMS has worked with 
the Joint Commission on Accreditation of Healthcare Organizations 
(JCAHO) and the QIOs to align their hospital quality measures to ease 
the data transmission process for hospitals. This information is 
currently displayed on the CMSI website and updated quarterly.

Hospital Patient Perspectives on Care Survey (HCAHPS)
    Although many hospitals already collect information on their 
patients' satisfaction with care, there currently is no national 
standard for measuring and collecting such information that would allow 
consumers to compare patient perspectives at different hospitals. CMS 
worked with the Agency for Healthcare Research and Quality (AHRQ) to 
pilot test Hospital Patient Perspectives on Care Survey, known as 
HCAHPS. The HCAHPS survey built on AHRQ's success in establishing 
surveys measuring patient perspectives on care in the United States 
health care system through the development of CAHPS for health plans. 
CMS has received comments and has lessons learned from the pilots, 
which could be helpful in working with AHRQ to develop a standardized 
H-CAHPS.

Premier Hospital Quality Incentive
    The Premier Hospital Quality Incentive demonstration project also 
is part of the Hospital Quality Initiative. This three-year 
demonstration project recognizes and provides financial rewards to 
hospitals that demonstrate high quality performance in a number of 
areas of acute care. The demonstration involves a CMS partnership with 
Premier Inc., a nationwide purchasing alliance of not-for-profit 
hospitals, and rewards the hospitals with the best performance by 
increasing their payment for Medicare patients. There are approximately 
280 hospitals participating in the project. Under the demonstration, 
top performing hospitals will receive bonuses based on their 
performance on evidence-based quality measures for inpatients with 
heart attacks, heart failure, pneumonia, coronary artery bypass graft, 
and hip and knee replacements. The 34 quality measures used in the 
demonstration have an extensive record of validation through research.
    Using these measures, CMS will identify hospitals in the 
demonstration with the highest clinical quality performance for each of 
the five clinical areas. Hospitals in the top 20 percent of quality for 
those clinical areas will be given a financial payment as a reward for 
the quality of their care. Hospitals in the top decile of hospitals for 
a given diagnosis will be provided a 2 percent bonus for the measured 
condition, while hospitals in the second decile will be paid a 1 
percent bonus. In year three, hospitals that do not achieve performance 
improvements above the demonstration baseline will have their payment 
reduced. The demonstration baseline is set during the first year of the 
demonstration. Hospitals will receive a 1 percent reduction in their 
DRG payment for clinical conditions that score below the ninth decile 
baseline level and 2 percent less if they score below the tenth decile 
baseline level.

Physician Focused Quality Initiative
    Similar to the Hospital Quality Initiative, the CMS Physician 
Focused Quality Initiative (PFQI) has several components with multiple 
approaches to stimulating the adoption of quality strategies and 
potentially reporting quality measures for physician services. The 
Physician Focused Quality Initiative builds upon ongoing CMS strategies 
and programs in other health care settings in order to: (1) assess the 
quality of care for key illnesses and clinical conditions that affect 
many Medicare beneficiaries, (2) support clinicians in providing 
appropriate treatment of the conditions identified, (3) prevent health 
problems that are avoidable, and (4) investigate the concept of payment 
for performance.

Doctors' Office Quality (DOQ) Project
    The DOQ Project is designed to develop and test a comprehensive, 
integrated approach to measuring and improving the quality of care for 
chronic diseases and preventive services in the outpatient setting. CMS 
is working closely with key stakeholders such as nationally recognized 
physicians associations, consumer advocacy groups, philanthropic 
foundations, purchasers, and quality accreditation or quality 
assessment organizations to develop and test the DOQ measurement set. 
The DOQ measurement set has three components including a clinical 
performance measurement set, a practice system assessment survey, and a 
patient experience of care survey.

Doctors' Office Quality--Information Technology (DOQ-IT) Project
    CMS recognizes the potential for information technology to improve 
the quality, safety and efficiency of health care services. Through the 
DOQ-IT project, CMS is working to support the adoption and effective 
use of information technology by physicians' offices to improve the 
quality and safety for Medicare beneficiaries. DOQ-IT seeks to 
accomplish this by promoting greater availability of high quality 
affordable health information technology and by providing assistance to 
physician offices in adopting and using such technology.

Payment Demonstration Projects
    CMS continues to examine financial incentives for physicians that 
demonstrate higher quality performance. This approach includes the 
Physician Group Practice demonstration that tests a hybrid methodology 
for paying physician-driven organizations that combine Medicare fee-
for-service payments with a bonus pool derived from savings achieved 
through improvements in the management of care and services.

ESRD Quality Activities
    BBA required CMS to develop and implement, by January 1, 2000, a 
method to measure and report the quality of renal dialysis services 
provided under the Medicare program. To implement this legislation, CMS 
funded the development of clinical performance measures (CPMs) based on 
the National Kidney Foundation's Dialysis Outcome Quality Initiative 
Clinical Practice Guidelines. Sixteen ESRD CPMs (five for hemodialysis 
adequacy, three for peritoneal dialysis adequacy, and four for anemia 
management) were developed and are used for quality improvement 
purposes through the ESRD Networks.

II. QUALITY PROVISIONS UNDER THE MMA
    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) includes a variety of provisions designed to encourage 
the delivery of quality care, including demonstrations to focus effort 
on improving chronic illness care and identifying effective approaches 
for rewarding superlative performance. The law includes a number of 
quality provisions such as demonstrations, electronic-prescribing, 
medication therapy management, and background-checks on long-term care 
facility employees. In addition, the law expands the responsibilities 
of QIOs and develops a closer working relationship between AHRQ and the 
Medicare, Medicaid, and SCHIP programs.

Medicare Health Care Quality Demonstration Programs
    The MMA authorizes a 5-year demonstration program that expands CMS' 
current Physician Group Practice (PGP) demonstration and evaluates the 
effect of various factors such as the appropriate use of culturally and 
ethnically sensitive health care delivery, on quality of patient care. 
This demonstration defines ``health care groups'' as regional 
coalitions, integrated delivery systems, and physician groups and 
allows ``health care groups'' to incorporate approved alternative 
payment systems and modifications to the Medicare FFS and Medicare 
Advantage benefit packages. This demonstration covers both FFS and 
Medicare Advantage eligible individuals and must be budget neutral.

Medicare Care Management Performance Demonstration
    The MMA also authorizes a Care Management Performance Demonstration 
Program in Medicare FFS. Eligible Medicare beneficiaries will include 
those enrolled in Medicare Parts A and B who have one or more chronic 
medical conditions, to be specified by CMS (one of which may be a 
cognitive impairment). The goals of this demonstration are to promote 
continuity of care, help stabilize medical conditions, prevent or 
minimize acute exacerbations of chronic conditions, and reduce adverse 
health outcomes, such as adverse drug interactions. This is a pay-for-
performance 3-year demonstration program with physicians. Physicians 
will be required to use information technology (such as email and 
clinical alerts and reminders) and evidence-based medicine to meet 
beneficiaries' needs. Physicians who meet or exceed performance 
standards established by CMS will receive a per beneficiary payment. 
This payment amount can vary based on different levels of performance. 
CMS will designate no more than 4 sites for this demonstration program, 
which must also be budget neutral.

Voluntary Chronic Care Improvement under Traditional FFS
    The MMA requires that CMS phase-in chronic care improvement 
programs in Medicare FFS. These programs must begin no later than 1 
year after enactment of MMA. Eligible beneficiaries will be those with 
chronic diseases such as congestive heart failure and diabetes. Chronic 
care improvement programs will help beneficiaries manage their self-
care and will provide physicians and other providers with technical 
support to manage beneficiaries' clinical care. The goal of these 
programs is to improve quality of life and quality of care for 
beneficiaries without increasing Medicare program costs. This program 
will be particularly valuable in rural areas and among populations who 
encounter barriers to care by ensuring that nurses and other 
professionals will be available to help chronically ill beneficiaries 
manage their illnesses between office visits. CMS will identify 
beneficiaries who may benefit from these programs, but participation 
will be voluntary. Participating organizations must meet performance 
standards and will be required to refund fees CMS paid to them if these 
fees exceed estimated savings.

Incentives for Reporting
    MMA provides a strong incentive for eligible hospitals to submit 
data for 10 clinical quality measures. For fiscal years 2005 through 
2007, hospitals will receive the full market basket payment update if 
they submit the 10 hospital quality measures to CMS. If hospitals do 
not submit the 10 quality measures, then they receive an update of 
market basket minus 0.4 percentage points.

Electronic Prescribing
    Medication errors caused by poor handwriting and other mishaps will 
be sharply reduced by the electronic prescribing provisions in the MMA. 
Under MMA, the Secretary of Health and Human Services is directed to 
develop a national standard for electronic prescriptions with the 
National Committee on Vital and Health Statistics and in consultation 
with health care providers including hospitals, physicians, pharmacists 
and other experts. With a national standard in place, doctors, 
hospitals, and pharmacies nationwide can be sure their computer systems 
are compatible. This will allow providers to share information on what 
medications a patient is taking and to be alerted for possible adverse 
drug interactions. A seamless computer system also will provide 
information about a patient's drug plan and any prescription 
formularies. This information would let the doctor know whether a 
therapeutically appropriate switch to a different drug might save the 
patient some money.
    A one-year pilot project in 2006 will test how well the proposed 
national standard works, and the Secretary may revise the standard 
based on the industry's experience. Once the final standard is set (and 
no later than April 2008), any prescriptions that are written 
electronically for Medicare beneficiaries will have to conform to the 
standard. There is, however, no requirement that prescriptions be 
written electronically. Electronic prescribing is entirely voluntary 
for doctors. However, MMA authorizes the federal government to give 
grants to doctors to help them buy computers, software, and training to 
get ready for electronic prescribing. The grants will cover up to half 
of the doctor's cost of converting to electronic prescribing, and they 
may be targeted to rural physicians and those who treat a large share 
of Medicare patients. The first public meeting on this initiative will 
take place next week.

Medicare Therapy Management
    MMA requires plans offering the new Medicare drug benefit to have a 
program that will ensure the appropriate use of prescription drugs in 
order to improve outcomes and reduce adverse drug interactions. MMA 
also contains a provision that allows plans to pay pharmacists to spend 
time counseling patients and will be targeted at patients who have 
multiple chronic conditions (such as asthma, diabetes, hypertension, 
high cholesterol and congestive heart failure), are taking multiple 
medications, and are likely to have high drug expenses. The therapy 
management program also will be coordinated with other chronic care 
management and disease management programs operating in other parts of 
Medicare. Medication management was identified by the Institute of 
Medicine as one of 20 priority areas for transforming the health care 
system.
    Medication therapy management will be a new service for Medicare 
plans. In Medicare, the amount and structure of payment will be set by 
the plans offering the new Medicare Part D, according to requirements 
established by the Secretary of Health and Human Services in the coming 
years.

Research on Health Care Items and Services
    The bill requires AHRQ to serve as a science partner for the 
Medicare, Medicaid, and S-CHIP programs. The Secretary is required to 
establish a priority-setting process to identify the most critical 
information needs of these three programs regarding health care items 
or services (including prescription drugs). An initial list of priority 
research is required by early June with the initial research completed 
18 months later.

III. QUALITY INITIATIVES IN THE PRIVATE SECTOR
    In the past few years, the private sector has become very involved 
in the issue of healthcare quality, particularly for hospitals. Several 
well-publicized landmark studies identify significant gaps and 
variations in the quality and safety of health care, at a time of 
rapidly escalating health costs. These reports have accelerated efforts 
by accrediting bodies, large purchasers and employer coalitions, and 
others to track quality at the national, state, and provider level, 
publish comparative quality reports, launch quality improvement 
efforts, and use public and private purchasing power to reward better 
quality.
    AHRQ has been an important partner in these efforts, providing 
tools and data, lending technical assistance, and helping all of the 
players learn from these efforts. For example, with respect to 
accreditation, our research and tools have provided the basis for 
measures used by HEDIS and JCAHO.
    To facilitate internal quality improvement, AHRQ's Quality 
Indicators (QIs) have been used by hospitals and state hospital 
associations for benchmarking. Statewide hospital associations run the 
indicators for all hospitals in their state and then share the 
information with hospitals that can not only track their own 
performance but also compare it with that of their peers. This use of 
our indicators takes place in New York, Georgia, Montana, Missouri, 
West Virginia, Illinois, Kentucky, Oregon, and Wisconsin. In Texas, the 
Dallas-Fort Worth Hospital Council uses our indicators to target and 
direct interventions to improve care diabetes in the community and 
thereby prevent the need for many hospitalizations. In Illinois, Blue 
Cross Blue Shield profiles hospitals uses 10 of our measures and 
expects to add more shortly.
    A major change in the past several years has been an acceleration 
of public reporting efforts, particularly for hospitals, and this has 
brought a tremendous amount of interest in AHRQ's Quality Indicators. 
Two large states now have comparative quality data for all hospitals 
using AHRQ's Inpatient Quality Indicators. In New York, the Niagara 
Business Coalition has published statewide comparative data for two 
consecutive years. The Texas Health Care Information Council also 
published public scores for all 400 Texas hospitals using all 25 of 
AHRQ's Inpatient Quality Indicators. The reports are posted on their 
web site and a Readers' Guide is available to help consumers understand 
the information. This is a new use of the Quality Indicators--one we 
had not even anticipated in our original work, which was more focused 
on quality improvement. To inform these public reporting efforts, AHRQ 
is finalizing a guidance document for states, purchasing coalitions and 
others wishing to use AHRQ's Quality Indicators for this purpose.
    Another way we facilitate the private sector's reporting efforts is 
to work with those using the data to find ways we can improve it. For 
example, many in the private sector favor use of administrative data 
because it is readily available and inexpensive. But the value of this 
information can be improved by selectively linking in clinical data. 
For example, the Pennsylvania Health Care Cost Containment Council 
already requires that hospitals collect and submit selected clinical 
data elements to supplement the administrative data and the UB-02 
committee is considering adding some of these to the minimum data set. 
AHRQ has funded a project to describe the value of administrative data 
and is anticipating future projects focused on integrating clinical 
data elements into administrative data.
    Several private sector organizations are already using quality 
information to guide their provider selection and payments. For 
example, an increasing number of large employers and coalitions are 
using a common Request for Information (eValue8) to solicit information 
about quality from health plans seeking to do business with them. 
Through the Leapfrog Initiative, alliances of large employers and 
business coalitions are asking hospitals to provide data on three 
safety practices: computer physician order entry, evidence-based 
hospital referral and ICU physician staffing. In addition, both private 
and public purchasers are establishing programs basing payment amounts 
and/or contractual referral relationships on provider quality 
information. In some cases payment is linked to mere provision of the 
quality data, whereas in others it is linked to the score itself. For 
example, Anthem Blue Cross in Virginia rewards hospitals for reporting 
performance on several indicators, including AHRQ's Patient safety 
measures. Several of AHRQ's Patient Safety measures are being used in 
the CMS demonstration with Premier and, in fact, Premier is now 
tracking their performance against all of these indicators as part of 
an overall quality improvement effort.
    AHRQ also is working closely with employers, business coalitions 
and others involved in pay-for-performance initiatives. For example, at 
the suggestion of Alliance Healthcare Coalition in Wisconsin, we have 
done a review of what the evidence shows about the impact of financial 
incentives on quality. In addition, AHRQ is doing an evaluation of 
seven large pay-for-performance demonstrations involved in the Robert 
Wood Johnson's Rewarding Results program, which should help purchasers 
and others in the future as they design pay-for-performance schemes.

CONCLUSION
    Chairwoman Johnson, Congressman Stark, distinguished Subcommittee 
Members, thank you again for inviting me to discuss the health quality 
initiatives that the Department of Health and Human Services is 
undertaking to improve the quality of care delivered by the health care 
systems across the nation. This Administration is committed to working 
with the health care industry and the various stakeholders to improve 
the quality of care, while also ensuring patients have access to the 
information they need to make educated decisions involving their health 
care. Thank you again for this opportunity, and I look forward to 
answering any questions you may have.

                                 

    Chairman JOHNSON. Thank you very much, Dr. Clancy, for that 
speedy review of, really, an enormous amount of work on behalf 
of the Executive Branch. I have never seen the Executive Branch 
involved in so many aspects--and leadership--in so many areas 
on health care technology, information systems, best practices 
and so on. I really am excited about the base we have laid down 
for action. Mr. Hackbarth, if you will continue now with 
MedPAC's role in all of this?

  STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, MEDICARE PAYMENT 
                      ADVISORY COMMISSION

    Mr. HACKBARTH. Thank you very much, Chairman, Mr. Stark, 
other Members of the Subcommittee, and I want to add what you 
just said, AHRQ and CMS, others in the Department and outside 
the Department have created some tremendous tools that have 
allowed MedPAC and others to begin evaluating the quality of 
care provided to Medicare beneficiaries and the population at 
large. What we did in our March 2004 report is examine care 
provided to Medicare beneficiaries over a period of time using 
these measures developed by AHRQ and CMS. For most of the 
measures, the period of time examined was 1995 to 2002. On some 
of the measures, it was 1998 to 2001. We looked at quality 
applying a framework developed by the Institute of Medicine, 
namely that quality of care should be effective care safely 
delivered in a timely fashion, in a patient-centered manner.
    We selected measures that would allow us to get at these 
various component parts of quality. The measures we looked at 
included hospital mortality, adverse events that occurred 
during the hospital stay, adherence to standards of effective 
care, both inside and outside the hospital, potentially 
avoidable hospital admissions and patient satisfaction. On some 
of these measures, we were able to compare care in the 
traditional fee-for-service program against care in the 
managed-care portion of Medicare. Our findings, as has been 
true of other research on quality, were mixed. We found that 
patient satisfaction was high and stable over the whole period 
we examined. Hospital mortality improved in most instances as 
did adherence to effective standards--standards of effective 
care. However, we found that even after improvement in 
adherence to standards of effective care, many Medicare 
beneficiaries, often 20, 30 percent or more, are not receiving 
care proven to be effective.
    In addition, we found that adverse events within the 
hospital increased for 9 out of 13 measures that we examined. 
We also found that avoidable hospital admissions increased in 7 
out of 12 measures that we examined. So, in sum, of course 
Medicare beneficiaries receive technologically advanced care 
for the most part. They usually receive a lot of care. However, 
as others have found, we found significant quality gaps. To 
help improve quality, in our view, we must attack the problem 
with multiple tools. Of course, there are the traditional 
Medicare tools of conditions of participation and 
accreditation. More recently, CMS has added quality-improvement 
targets and efforts and public disclosure of data to the 
arsenal. What we are advocating in our March report is that we 
take now the next logical step, which is to link payment for 
service to the quality of care delivered. We do this with the 
simple conviction that you get what you pay for. Right now, we 
pay more for volume. We pay more for technological advancement. 
The payment system, as currently constructed, is at best 
neutral toward quality and, arguably, in some instances, 
hostile to quality.
    What we propose in our report is that we begin to apply 
quality standards and payment in areas where there are clearly 
defined consensus measures of quality with existing methods of 
data collection in place. As we look at the Medicare program, 
we see two noteworthy examples of that. One is in dialysis care 
for patients with end-stage renal disease, and the other is in 
care provided by private plans to Medicare beneficiaries. Our 
recommended approach is that we take the existing payments to 
those at work in the sectors, and set aside a small portion of 
those payments to be redistributed based on performance against 
quality measures. It would be a budget-neutral program. The 
intent of our recommendation is that all of the dollars put 
into the quality pool would be paid. We further recommend that 
the dollars be distributed in two ways: one piece of it going 
to the organizations with the highest absolute level of 
quality, and then another piece delivered to organizations that 
show large improvement in their quality. We believe in using 
this two-pronged approach, because it will distribute dollars 
in a way that provides maximum opportunity and incentive to 
improve quality.
    This is a complicated endeavor, a challenging endeavor. It 
would be less than candid to say it is not without its 
complications and, therefore, potential risk. The potential 
risks that I am most concerned about are, one, creating an 
incentive for health care providers to avoid the most difficult 
patients, the most challenging cases, because it might make 
them look bad on quality measures. A second concern is that you 
might, in effect, put teaching to the test with providers 
focused exclusively on improving what is measured and paid for 
as opposed to other opportunities for improving quality. Those 
are real risks. We think that they need to be looked at in 
context. The risks of the status quo, in our judgment, are even 
greater. Continuing as we are with the payment system that is 
neutral or even negative towards quality is costing us a great 
deal, not just in dollars but in terms of health for Medicare 
beneficiaries. Thank you very much.
    [The prepared statement of Mr. Hackbarth follows:]

   Statement of Glenn M. Hackbarth, J.D., Chairman, Medicare Payment 
                          Advisory Commission

    Chairman Johnson, Congressman Stark, distinguished Subcommittee 
members, I am Glenn Hackbarth, chairman of the Medicare Payment 
Advisory Commission (MedPAC). I appreciate the opportunity to be here 
with you this morning to discuss improving quality in the Medicare 
program through Medicare payment policy, a subject that has been of 
particular interest to the Commission.

The Quality of Care for Medicare Beneficiaries Needs to Be Improved
    Ensuring that Medicare beneficiaries have access to high quality 
care is the principal objective of the Medicare program. Yet Medicare 
beneficiaries receive care from a system known to have quality 
problems. While care is improving in several settings, as RAND, Jencks 
and others have reported, significant gaps remain between what is known 
to be good care and the care delivered. Studies documenting the gap 
between high-quality care and the care currently delivered have called 
attention to the need for improvement. As the Institute of Medicine 
reported, the safety of patients, particularly in hospital settings, is 
also of concern.
    In our March report to the Congress, we document aspects of the 
quality of care for the Medicare population using quality indicators 
developed by the Agency for Healthcare Research and Quality (AHRQ) and 
results from CMS using other measures. We find that although some 
measures of quality show improvement over the last decade, many do not 
and improvement is possible in many more.
    We find quality varies based on the indicators used. Hospital 
mortality rates are improving (table 1). The rate of in-hospital 
mortality--an indicator of effectiveness--generally decreased between 
1995 and 2002 on all conditions and procedures measured. At the same 
time, many beneficiaries experience adverse events in hospitals. 
Measures of the safety of patients in the hospital reveal that 9 out of 
the 13 rates of adverse events we tracked for hospitalized Medicare 
beneficiaries increased between 1995 and 2002 (table 2). Beneficiaries 
are being admitted to hospitals for conditions that might have been 
prevented in ambulatory settings (table 3). Seven out of 12 indicators 
show increases in admissions between 1995 and 2002 for potentially 
avoidable admissions. For beneficiaries who are hospitalized, measures 
used by CMS's quality improvement organization program show 
improvement. Fourteen out of 16 measures of appropriate provision of 
care in hospitals improved between the periods 1998 to 1999 and 2000 to 
2001 as reported by Jencks. Although improving, gaps still exist 
between care delivered and optimum care.
    Simply providing more care does not necessarily lead to improving 
quality. The amount of care Medicare beneficiaries receive varies 
widely across the nation. Yet, as noted in our June 2003 report to the 
Congress, higher use of care does not appear to lead to higher quality 
care; in fact it appears that states with the highest use tend to have 
lower quality than states with the lowest use. Wennberg, Cooper, Fisher 
and other researchers have found similar phenomena in smaller 
geographic areas--areas with the highest service use tend to have 
lower, not higher quality.

An Approach to Improving Quality
    Quality varies from low to high among providers. This implies both 
that high quality is achievable, and that a multi-faceted approach to 
quality is needed to account for the differing starting points of 
providers. For example, conditions for participating in the program can 
assure that all providers meet minimum standards but encouraging high-
quality providers to maintain or improve their quality requires a 
different approach. The ultimate goal is to find ways to continually 
improve quality delivered by all providers. As a first step, quality 
has to be measured and evaluated.
    Measures of quality and guidelines for appropriate care are 
becoming increasingly available. The Medicare program has been a 
leading force in these efforts to develop and use quality measures 
often leading initiatives to publicly disclose quality information, 
standardize data collection tools, and give feedback to providers for 
improvement. CMS has also revised its regulatory standards to require 
that providers, such as hospitals, home health agencies, and health 
plans, have quality improvement systems in place. By offering technical 
assistance to providers, the Quality Improvement Organizations have 
been a critical part of these efforts. In some sectors, these steps are 
showing results. The Commission views CMS's focus on quality as an 
important contribution and an excellent foundation for future 
initiatives.
    The private sector also has taken steps to improve quality. In our 
June 2003 report, we document that most private sector organizations 
began their quality improvement efforts by developing quality measures 
and then providing feedback to providers followed by public disclosure. 
This helped establish credibility and acceptance of the measures used 
as well as developed the process for data collection. But many 
organizations found that those steps alone did not achieve sufficient 
improvement and began designing financial incentives to tie payment to 
quality. Early experience has shown improved quality and in some cases 
cost savings.
    Medicare payment systems do not incorporate financial incentives 
tying payment directly to quality. Current payment systems in Medicare 
are at best neutral and at worst negative toward quality. All providers 
meeting basic requirements are paid the same regardless of the quality 
of service provided. At times providers are paid even more when quality 
is worse, such as when complications occur as a result of error. It is 
time for Medicare to take the next step in quality improvement and put 
financial incentives for quality directly into its payment systems. 
Linking payment to quality holds providers accountable for the care 
they furnish. In addition, financial rewards would accrue to providers 
investing in the processes that improve care encouraging investment in 
such improvements. Through its actions Medicare can act as a catalyst 
for improvement throughout the health delivery system.
    In our June 2003 report to the Congress, the Commission recommended 
that CMS move toward using financial incentives for all types of 
providers and plans participating in Medicare. We also developed the 
following criteria for choosing the most promising settings for 
introducing payment for quality performance:

      To be credible, measures must be evidence-based to the 
extent possible, broadly understood, and accepted.
      Most providers and plans must be able to improve upon the 
measures; otherwise care may be improved for only a few beneficiaries.
      Incentives should not discourage providers from taking 
riskier or more complex patients.
      Information to measure the quality of a plan or provider 
should be collected in a standardized format without excessive burden 
on the parties involved.

    Building on this analysis, in our March 2004 report to the 
Congress, we develop as a general design principle that a system 
linking payments to quality should:

      reward providers based on both improving the care they 
furnish and exceeding thresholds,
      be funded by setting aside a small proportion of total 
payments, and
      be budget neutral and distribute all payments that are 
set aside for quality to providers achieving the quality criteria.

    We also analyze and make specific recommendations on linking 
payment to quality for two sectors judged the most ready for financial 
incentives: providers of dialysis services, and private plans in 
Medicare.

    Using payment incentives to improve dialysis quality. The 
Commission recommends that the Congress establish a quality incentive 
payment policy for physicians and facilities providing outpatient 
dialysis services. Although quality of outpatient dialysis services has 
improved for some measures, it has not for others. Despite some 
improvement in dialysis adequacy and anemia status, patients and 
policymakers remain concerned about the unchanged rates of 
hospitalization during the past 10 years and the poor long-term 
survival of dialysis patients. By directly rewarding quality, Medicare 
will encourage investments in quality and improve the care 
beneficiaries receive. The recommendation would reward both the 
dialysis facilities and physicians who are paid a monthly capitated 
payment to treat dialysis patients. Physicians are responsible for 
prescribing dialysis care and facilities are responsible for delivering 
it; only together can they improve quality in the long term.
    The outpatient dialysis sector is a ready environment for linking 
payment to quality. It meets all of our criteria. Credible measures are 
available that are broadly understood and accepted. All dialysis 
facilities and physicians should be able to improve upon the measures. 
Obtaining information to measure quality will not pose an excessive 
burden on dialysis facilities and physicians, and measures can be 
adjusted for case mix so that dialysis facilities and physicians are 
not discouraged from taking riskier or more complex patients.
    In keeping with our general design, MedPAC recommends a system 
linking payments to quality that would:

      reward facilities and physicians based on both improving 
the care they furnish and meeting thresholds,
      be funded by setting aside a small proportion of total 
payments, and
      distribute all payments that are set aside for quality to 
facilities and physicians achieving the quality criteria.

    Measuring the quality of care and holding providers financially 
accountable will take on additional importance if Medicare broadens the 
dialysis payment bundle to include commonly used injectable drugs and 
laboratory services.
    CMS is already planning to use quality incentives in the agency's 
new end-stage renal disease management demonstration. Medicare will pay 
program participants--dialysis facilities and private health plans--an 
incentive payment if they improve quality of care and if they 
demonstrate high levels of care compared with the national average. We 
applaud CMS for linking payment to quality in the demonstration. 
Quality incentives should not, however, be limited to demonstration 
efforts, but rather should apply to all fee-for-service dialysis 
providers so care for as many patients as possible will improve. In 
addition, when using quality incentives only in a demonstration, 
bidders may primarily consist of high-quality facilities and not be 
representative of all facilities. By contrast, we recommend incentives 
that are part of the outpatient dialysis payment system and will affect 
both low- and high-quality providers.

    Using payment incentives to improve the quality of care in private 
plans. To reward improvements in quality for beneficiaries enrolled in 
private plans we recommend that the Congress establish a quality 
incentive payment policy for all private Medicare plans. This program 
is a promising sector for applying payment incentives to provide high-
quality care because it meets the criteria for successful 
implementation. Private Medicare plans already report to CMS on a host 
of well-accepted quality measures. Plans vary in performance on the 
reported quality measures and room for improvement exists on almost all 
measures. Because plans are responsible for the whole spectrum of 
Medicare benefits, they have unique incentives to coordinate care among 
providers which is an important aspect of quality.
    Although CMS would have work to do before it would be ready to 
administer any incentive program, in keeping with our general design 
principles we recommend creating a reward pool from a small percentage 
of current plan payments and redistributing it based on plans' 
performance on quality indicators. To reach the most beneficiaries, 
Medicare should reward plans that meet a certain threshold on the 
relevant performance measures and plans that improve their scores. The 
program should be budget neutral and CMS would need to create a 
mechanism that insured budget neutrality.

Next Steps to Link Payment to Quality
    The Commission seeks opportunities to improve the quality of care 
all Medicare beneficiaries receive. As we have discussed, beginning in 
2005 we recommend paying for quality in two sectors where there is 
consensus on measures and they are regularly collected--outpatient 
dialysis and Medicare private plans. We anticipate expanding 
recommendations on payment for quality to other sectors in the future 
as better measures become available.
    To help target quality improvement initiatives, we will continue to 
analyze the quality of care in hospitals, ambulatory settings, post-
acute care settings, and private plans using a range of available 
indicators. The hospital and ambulatory settings affect a large number 
of beneficiaries and thus quality in those settings is critical to the 
program. This work will raise questions for further research, but may 
also point to where payment incentives are most needed. The Commission 
will also investigate the relationship between cost and quality. Work 
in the dialysis sector showed no correlation between cost and quality 
for services paid prospectively under the composite payment. It also 
found a negative correlation under the fee-for-service payment for the 
sector--beneficiaries' outcomes were poorer for facilities with higher 
than average costs. This correlation could, to some extent, be a 
reflection of unmeasured case mix complexity.
    We will also investigate how care coordination and rewarding 
improvements in quality across settings can be addressed given the 
fragmented nature of the current health care system. In fee-for-service 
Medicare, rewarding the providers in one sector when savings from their 
actions accrue in other sectors is a challenge. It is also difficult to 
provide incentives to coordinate care across settings, for example, 
through mechanisms such as disease management, when no single provider 
is responsible. Such considerations have led many private purchasers 
and plans to target their incentive initiatives at organizations--
either group practices, networks, or health plans that use some form of 
risk sharing--that they believe are more effective at improving 
quality. Finding effective approaches to these issues will be a major 
challenge for the Medicare program.

Conclusion, The Time Is Now
    The Medicare program can no longer afford for its payment systems 
to be neutral or negative to quality. Although there are risks in 
paying for quality--providers avoiding high-risk patients and 
concentrating on the measured quality elements to the exclusion of 
others--good design can ameliorate them. The risk from maintaining the 
status quo is much greater. No beneficiary should be fearful for her 
safety going into a hospital because of medical errors. No beneficiary 
should be hospitalized when it could have been avoided through better 
ambulatory care. It would be impossible to reduce medical errors or 
preventable hospitalizations to zero, but evidence suggests we are far 
from a tolerable level now and many improvements are possible and 
needed.
    In June 2003, MedPAC expressed an urgent need to improve quality in 
fee-for-service Medicare and in care furnished by private plans. In our 
March report we have recommended two sectors where the Congress can act 
now--rewarding quality care in outpatient dialysis and Medicare 
Advantage. Linking payment to quality in other sectors could encourage 
broader use of best practices and thus, improve the quality of care for 
more beneficiaries. A Medicare program that rewards quality would send 
the strong message that it cares about the value of care beneficiaries 
receive and encourages investments in improving care.

                   Table 1. Effectiveness of care: Hospital mortality decreased from 1995-2002
----------------------------------------------------------------------------------------------------------------
                                                       Risk-adjusted rate per 10,000
                                                                discharges                  Percent    Observed
             Diagnosis or procedure              ----------------------------------------   change     deaths in
                                                    1995      1998      2000      2002     1995-2002     2000
----------------------------------------------------------------------------------------------------------------
In-hospital mortality
----------------------------------------------------------------------------------------------------------------
  Pneumonia                                          1,122     1,032     1,012       949       -15.4      78,999
----------------------------------------------------------------------------------------------------------------
  AMI                                                1,670     1,477     1,414     1,309       -21.6      43,750
----------------------------------------------------------------------------------------------------------------
  Stroke                                             1,357     1,240     1,212     1,159       -14.6      39,099
----------------------------------------------------------------------------------------------------------------
  CHF                                                  689       585       541       474       -31.2      38,828
----------------------------------------------------------------------------------------------------------------
  GI hemorrhage                                        504       434       400       355       -29.5      11,155
----------------------------------------------------------------------------------------------------------------
  CABG                                                 580       522       482       427       -26.3       8,669
----------------------------------------------------------------------------------------------------------------
  Craniotomy                                         1,033       963       986       931        -9.9       3,216
----------------------------------------------------------------------------------------------------------------
  AAA repair                                         1,258     1,178     1,161     1,130       -10.2       2,632
----------------------------------------------------------------------------------------------------------------
30-day mortality
----------------------------------------------------------------------------------------------------------------
  Pneumonia                                          1,525     1,531     1,377     1,557         2.1     107,502
----------------------------------------------------------------------------------------------------------------
  CHF                                                1,063     1,006       818       907       -14.6      58,678
----------------------------------------------------------------------------------------------------------------
  Stroke                                             1,816     1,808     1,620     1,807        -0.5      52,263
----------------------------------------------------------------------------------------------------------------
  AMI                                                1,899     1,792     1,627     1,690       -11.0      50,367
----------------------------------------------------------------------------------------------------------------
  GI hemorrhage                                        757       718       590       649       -14.3      16,438
----------------------------------------------------------------------------------------------------------------
  CABG                                                 532       496       441       412       -22.5       7,932
----------------------------------------------------------------------------------------------------------------
  Craniotomy                                         1,164     1,158     1,123     1,182         1.6       3,666
----------------------------------------------------------------------------------------------------------------
  AAA repair                                         1,158     1,116     1,069     1,072        -7.4       2,423
----------------------------------------------------------------------------------------------------------------
Note: AMI (acute myocardial infarction), CHF (congestive heart failure), GI (gastrointestinal), CABG (coronary
  artery bypass graft), AAA (abdominal aortic aneurysm). Rate is for discharges eligible to be considered in the
  measure.
Source: MedPAC analysis of 100 percent of MEDPAR data using Agency for Healthcare Research and Quality
  indicators and methods.



                        Table 2. Safety of care: Adverse events affect many beneficiaries
----------------------------------------------------------------------------------------------------------------
                                                  Risk-adjusted rate per 10,000                         Observed
                                                       discharges eligible       Change in   Percent    adverse
            Patient safety indicator            -------------------------------- rate 1995-   change     events
                                                  1995    1998    2000    2002      2002    1995-2002     2000
----------------------------------------------------------------------------------------------------------------
Decubitus ulcer                                     237     273     297     319        82       34.5     128,774
----------------------------------------------------------------------------------------------------------------
Failure to rescue                                 1,772   1,683   1,652   1,511      -261      -14.7      57,491
----------------------------------------------------------------------------------------------------------------
Postoperative PE or DVT                              98     108     120     123        25       24.5      36,795
----------------------------------------------------------------------------------------------------------------
Accidental puncture/laceration                       28      31      32      36         8       30.7     134,171
----------------------------------------------------------------------------------------------------------------
Infection due to medical care                        24      27      28      30         6       28.5      24,524
----------------------------------------------------------------------------------------------------------------
Iatrogenic pneumothorax                              10      12      11      11         1        4.8      10,985
----------------------------------------------------------------------------------------------------------------
Postoperative respiratory failure                    43      66      75      87        44    99.6 \b\      8,184
----------------------------------------------------------------------------------------------------------------
Postoperative hemorrhage or hematoma                N/A      27      26      24     -3 \a\     -11.2       8,056
----------------------------------------------------------------------------------------------------------------
Postoperative sepsis                                 89     112     127     135        46       50.7       6,739
----------------------------------------------------------------------------------------------------------------
Postoperative hip fracture                           18      18      18      13        -5      -24.2       3,707
----------------------------------------------------------------------------------------------------------------
Death in low-mortality DRGs                          39      30      31      30        -9   -23.6 \c\      3,453
----------------------------------------------------------------------------------------------------------------
Postoperative wound dehiscence                       38      41      37      38         0        0.4       2,043
----------------------------------------------------------------------------------------------------------------
Postoperative physiologic and metabolic              11      12      13      14         3       31.8       1,952
 derangement
----------------------------------------------------------------------------------------------------------------
Note: PE (pulmonary embolism), DVT (deep vein thrombosis), N/A (not available), DRG (diagnosis related group).
\a\ Change from 1998-2002.
\b\ Some of this increase may be due to the introduction of a new code in 1998 for acute and respiratory
  failure.
\c\ Agency for Healthcare Research and Quality researchers identified low-mortality DRGs for all-payers, not
  Medicare beneficiaries only.
Source: MedPAC analysis of 100 percent of MEDPAR data using Agency for Healthcare Research and Quality
  indicators and methods.


    Table 3. Effectiveness and timeliness of care outside the hospital: The change in the rate of potentially
                                avoidable hospital admissions is mixed, 1995-2002
----------------------------------------------------------------------------------------------------------------
                                                           Risk-adjusted rate per 10,000
                                                                   beneficiaries            Percent    Observed
                       Conditions                        --------------------------------   change    admissions
                                                           1995    1998    2000    2002    1995-2002    in 2000
----------------------------------------------------------------------------------------------------------------
Congestive heart failure                                     241     257     244     238        -1.0     703,012
----------------------------------------------------------------------------------------------------------------
Bacterial pneumonia                                          154     182     193     192        24.1     567,995
----------------------------------------------------------------------------------------------------------------
COPD                                                         104     121     122     118        13.6     368,674
----------------------------------------------------------------------------------------------------------------
Urinary infection                                             60      64      67      66         9.4     209,550
----------------------------------------------------------------------------------------------------------------
Dehydration                                                   50      55      58      65        30.2     181,785
----------------------------------------------------------------------------------------------------------------
Diabetes long-term complication                               35      38      39      41        18.5     125,053
----------------------------------------------------------------------------------------------------------------
Adult asthma                                                  24      21      20      23        -6.3      65,680
----------------------------------------------------------------------------------------------------------------
Angina without procedure                                      50      24      19      14       -71.4      59,983
----------------------------------------------------------------------------------------------------------------
Hypertension                                                   9      10      11      13        38.3      37,334
----------------------------------------------------------------------------------------------------------------
Lower extremity amputation                                    15      16      15      14        -2.1      24,224
----------------------------------------------------------------------------------------------------------------
Diabetes short-term complication                               7       7       7       7         2.1      22,425
----------------------------------------------------------------------------------------------------------------
Diabetes uncontrolled                                         10       8       7       6       -38.1      22,416
----------------------------------------------------------------------------------------------------------------
Note: COPD (chronic obstructive pulmonary disease).
Source: MedPAC analysis of 100 percent of MEDPAR data using Agency for Healthcare Research and Quality
  indicators and methods.


                                 

    Chairman JOHNSON. Thank you very much. I am glad that you 
mentioned this problem, penalizing providers for taking higher 
costs, more complex, more difficult and more costly patients. I 
think that is something we have to be very careful about as we 
think about pay for performance. We already have that problem 
in many hospitals as we have allowed surgicenters and boutique 
hospitals to take the paying patients out from under community 
hospitals, leaving the community hospitals with the more 
complex patients and the nonpaying patients. Now, I am drawing 
a very simplistic picture. We are going to be looking at 
whether that is true or not. We do need to understand the 
problems inherent in our current system that may be 
concentrating the most difficult patients in the hospitals at 
the very time we are imposing heavier standards on them and 
going to attach payments. The other concern is that you will 
underpay those who have the biggest problem in financing the 
efforts to improve quality. So, I think on both of those 
scores, we do have to proceed carefully. I wanted to ask a 
couple of questions and then go on to the other Members and 
maybe come back.
    This issue of the health record, I mean, we have had people 
into my office--they are doing this in England. Why can't we 
position ourselves to have electronic health records at least 
for those coming into Medicare under the Welcome to Medicare 
Physical Provision in 2006? There are Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) (P.L. 104-
191) compliance systems; existing technology takes it. Can you 
work with us? Do you think that is an achievable goal, or can 
we just work as if it is an achievable goal and see how far we 
get? If we could combine the provisions in the MMA that provide 
a ``Welcome to Medicare Physical,'' that press forward on 
technology, that provide disease management and, therefore, can 
identify the early symptoms of disease management with an 
electronic health care record, we would really move the system 
forward in terms of ability to deliver quality care to people 
with multiple illnesses dramatically. So, I look at what people 
are showing me in the technology, and I say to myself, what are 
the barriers; $50 million isn't going to do it. Between your 
two resources, why can't we get there in 2 years?
    Dr. CLANCY. I think, as you know, Mrs. Johnson, Secretary 
Thompson shares your passion and asks us the same question 
about every 48 hours. He is away for a couple of days, so we 
are getting a brief break. We are focused right now--in 
addition to learning from the investments that AHRQ will be 
making in the Department as well--we are trying to look at all 
opportunities in the MMA for accelerating the adoption of 
electronic health records, and we would be pleased to work with 
you on that.
    Mr. HACKBARTH. I, personally, am a true believer in 
computerized medical records, and I base that on personal 
experience. When I was in Boston, I worked for Harvard 
Community Health Plan and then subsequently Harvard Vanguard 
Medical Associates. Harvard Community Health Plan had, I think, 
the very first ambulatory computerized medical record beginning 
in 1969. Then when I was Chief Executive Officer of Harvard 
Vanguard, we implemented the Epicare System, which is one of 
the more advanced computerized systems available. I was able to 
see, in my firsthand experience, the capability that that 
computerized technology gave us compared to other providers in 
Boston who did not have access to it.
    I believe passionately that the gains are potentially huge 
for the health care system and for our patients. Having said 
that, it is not inexpensive. You mentioned the $50 million 
allocated. That is roughly the amount that we spent for our 
600-physician group to implement the Epicare System. Once you 
count the software, all of the infrastructure, the training 
required, it is a very complicated endeavor. The reason it is 
not more widely available is that there is no return on the 
investment or at least not a readily discernible return on 
investment. If you go out and buy a new magnetic resonance 
imaging, you can see the dollars that are going to flow in. You 
can see how the machine is going to pay for itself. When you 
invest large sums in a computerized medical record system, you 
can't look at the immediate financial returns.
    Chairman JOHNSON. Let me ask you another unrelated 
question, and then we will get back to costs. My colleague, Mr. 
Stark has rightly acknowledged the reluctance of some on my 
side to regulate. There is an equal problem on his side in 
regard to the word privatization. I don't know how you can 
achieve these advances in quality without technology and the 
systems that come with it. Those systems integrate provider 
communities in a collaborative fashion. While, in this bill, I 
was very careful to learn how to pay for disease management and 
fee-for-service medicine, personally, I think there is a limit 
to how far the individual independent practitioner can go in 
meeting quality standards without being part of an integrated 
system. I want to try to get us over, through better 
understanding technology and its power and the challenge of 
quality, to get over this issue of privatization.
    It is a different way of delivering medical care, and it is 
going to require a different partnership between providers and 
between the public and private payers. To me, technology is 
absolutely essential to the next round of quality improvements. 
If we let this word privatization cut us off from the very 
systems that can deliver higher quality care to people with 
chronic illnesses, we will destroy for Medicare recipients the 
care they urgently need. I would like your input on this issue, 
on the relationship between technology systems and the word 
privatization, because we have to do something to lay it aside 
because it is a barrier now to public understanding of how we 
are trying to improve the quality of the public programs, not 
just Medicare. The Secretary did put out this initiative just a 
week ago, saying we will pay half if the States will pay the 
other half to put disease management into Medicaid. We know 
that will pay us back, and it will be budget neutral in 3 
years. I need your help on this issue. What does the word 
privatization have to do, either as a barrier or as an 
incentive, to move us toward higher quality health care?
    Dr. CLANCY. Let me start and just say that I think most 
leaders in health care and health care quality agree with you 
that IT alone won't solve the problems, but we can't solve them 
without IT for all the reasons you and Mr. Stark and others 
have very clearly articulated. The fact is that most medical 
care is delivered in a ``Marcus Welby'' world where you have 
paper charts and it is very hard to track information when 
patients go to different settings or see different doctors and 
so forth. For that reason, the Department has two sets of 
investments. One is focused on making sure that the components 
of health IT actually do improve quality and safety within 
organizations, whether that IT is hospitals, physician 
practices and so forth.
    That is going to be complemented by some support for these 
community or state information exchanges so that all components 
of the health care sector within a community can share data in 
a way that is private and confidential. We think that that is 
going to be an important payoff. Dr. Hackbarth is right. Our 
total investment here is fairly modest. As we are struggling to 
figure out how to make the most out of the opportunities in the 
current and next year's budget, we are working very hard to 
identify the right incentives that would actually begin to move 
the adoption of electronic medical records by physicians from 
its current low of somewhere in the ballpark between 10 and 15 
percent of physician practices, depending on which survey you 
read. It is a huge hurdle.
    Chairman JOHNSON. I would add that you are going to add $14 
billion as well as the $50 million, and the $14 billion is 
explicitly in the bill to try to do--a few years ago, the 
Congress and the Rural Caucus insisted upon this, arbitrarily 
increase the floor of payments for rural areas to try to get 
plans out there. In this bill, we gave you $15 billion in money 
so you can put the technology out there so that rural health 
can be linked into medical centers and others, and those 
doctors practicing out there solo can have the specialist 
consult with them and the patient on the spot and then do the 
followup. It would be a revolution in rural health care, and it 
would save rural health care by keeping doctors out there. 
There is a lot of money in this bill for technology if we can 
figure out how to use it right. It is an opportunity to insert 
not medical records, because that is a much bigger problem, but 
electronic health records into those rural areas. If you do 
that, then that fosters this linking and the ability to deliver 
far higher quality care through specialist consultation in the 
rural areas across America, and it is the only thing that will 
do it. If we let this word privatization get between us and 
these systems that have to be built to link urban and rural 
care and are going to demand expensive technology and nobody 
out there makes enough to buy it, I mean, you are not going to 
be able to do that.
    Often what has been described pejoratively as a slush fund 
in this is probably one of the most enlightened components, and 
it is imperative that we try to figure out how we can get 
health records into the system by 2006 because, at that time, 
these plans will be setting up in big regions, and we have to 
make sure they are powered by the technology that drives 
quality. I put that challenge out for all of us. I wanted to 
put it out publicly. We have absolutely got to meet this 
challenge because that will realize the tremendous vision of 
the legislation, but also will enable us to bring to fruition 
and into the practical reality of Americans throughout the 
country what the knowledge base in health care already knows. 
Let me move on to my other colleagues here. My colleague, Mr. 
Stark.
    Mr. STARK. Well, Madam Chairman, I am all for that 
technology stuff, and if I could sell you some of the stocks 
that I bought in echinacea companies and jojoba bean schemes 
which I thought was the technology of the days back, I would be 
glad to give them to you. If I could mention what I have left, 
maybe it would go up, but then maybe I would make Martha 
Stewart look like a Sunday school teacher. I have no quarrel 
with technology. Really, I am excited by it and intrigued by it 
and I am a believer. I think I am concerned and what I would 
like to direct witnesses about establishing single quality 
standards. I don't think we can do that. I get back to an old 
saw horse that we have been beating in this Committee, and that 
is basically doing some research in outcomes. While there must 
be 15 different kinds of equipment that surgeons can use to 
deal with my prostate or a woman's breast cancer, and there may 
be 80 different kinds of drugs that oncologists can use and 
protocols all over the place, patients, and I suspect 
physicians, do not have very much evidence about which ones 
work over a period of 5 and 10 years. We may know how many 
people lived through the operation in recent trials and did not 
die in the hospital or shortly after, but comparing what 
happens to you 5 and 10 years out after some of these major 
illnesses is an area of which we have precious little 
information.
    I would ask the witnesses whether, first of all, the 
physician community would be more receptive to receiving 
details on outcomes, which they could relay to the patients, 
then they would be getting a standard. I have always heard the 
doctors say, don't give us cookbook medicine. There is an art 
to practicing medicine and it takes information. So, then I 
guess, rather than just blindly saying any technology, ought we 
not to be focusing first on gathering data which won't be 
available at least for 5 or 10 years to see what happens to 
folks? I would ask both of the witnesses whether they see 
building this base that will give us outcomes and the results 
of various protocols in treating disease as important? Or would 
you rather see us start to establish quality standards, even 
though I don't know quite what they would be? A specific better 
treatment for prostate cancer. I don't think there is just one, 
but maybe the witnesses could comment on my dilemma. Dr. Clancy 
or Dr. Hackbarth?
    Dr. CLANCY. The capacity to follow what happens to patients 
who have received different interventions and to follow them 
out to some period of time, I think, is going to be a very 
important byproduct of building an information infrastructure 
very similar to what Representative Johnson has been 
describing. I think most doctors would welcome that. I do not 
think it necessarily replaces or eliminates the need for 
standards in some areas. For example, delivering preventive 
care or making sure that people with diabetes get all tests we 
know to be efficacious is still a good idea.
    Mr. STARK. What you are suggesting? If someone is diagnosed 
with diabetes, there ought to be a standard screen that they 
have to go through in terms of tests. The treatment 
alternatives would be something for which you might use for 
outcomes research.
    Dr. CLANCY. That would be one way. There are some areas 
where the evidence is very clear about what is the best path. 
There are many other areas--which is, really, again a byproduct 
of our investments in biomedical science--where we have 
different options, and that is wonderful. What would be equally 
wonderful is if doctors, patients and others could make 
informed decisions based on evidence about what happens to 
people like me confronting a similar decision, and that will 
take some time to develop.
    Mr. HACKBARTH. Due to work over the last 15, 20 years, in 
fact, the database of knowledge about what works and what 
doesn't work has grown tremendously through the work of AHRQ 
and many other organizations. We need to continue that. It is 
an ongoing process and a long-term process as you point out, 
Mr. Stark. There are things, however that we know today work. 
What concerns us is, too often, they are not done. They perhaps 
cover only a small fraction of the care delivered to Medicare 
beneficiaries. So, you know, we are nowhere near the end of 
solving this problem and saying we know exactly what works in 
every case and what you ought to do. From our perspective, for 
us in a broad way not to apply known effective treatment for 
different types of patients is a problem, and we see that 
shortcoming not in a few cases but on a large scale in the 
treatment of Medicare beneficiaries. We have to do something 
about that, and hence our recommendation that we begin moving 
toward payment associated with providing appropriate, proven 
effective care.
    Chairman JOHNSON. Thank you. We will have a chance to 
pursue that with the second panel. That is an extremely 
important question. Mr. McCrery?
    Mr. MCCRERY. Dr. Clancy, let's talk about the Hospital 
Quality Initiative for a second and the indicators. You have 10 
clinical quality indicators. Then you have another 24 
indicators that will be used for the quality incentive 
demonstration that will reward hospital performance. Those 34 
indicators address treatment methods that have been well 
established for some time now. Once hospitals begin reporting 
those indicators, won't it be important to expand the 
indicators to cover other critical treatment areas that are not 
as well established but offer maybe greater potential for 
improving quality and saving lives?
    Dr. CLANCY. Without question. I think you have hit on an 
important challenge in terms of developing indicators and 
measures of quality and performance and that it has been 
incremental. You start with a small menu and then build out 
from there. Those are the ones that are linked to hospital 
payment update in the MMA; they are the starter set. All 
partners in this initiative recognize that is a starter set. In 
addition to those within the construct of the CMS demonstration 
with the premier system, there is an additional 34 measures. 
Even those 34 measures actually cover only 5 broad areas. The 
CMS and AHRQ in conjunction with our partners throughout this 
hospital reporting initiative are about to launch a series of 
activities to try to develop what we are calling a robust 
measurement set that covers all aspects of quality of care for 
people in the hospital. We will be getting input from 
stakeholders, the public and many others. So, a series of 
townhall meetings will start in April combined with some other 
activities. That is just the beginning. All indicators are only 
useful and credible if they are based on the latest scientific 
evidence about what is the right treatment and what is the 
right thing to do. The AHRQ is committed to making sure that 
those indicators are indeed as evidence-based and up-to-date as 
possible or else they will have no meaning.
    Mr. MCCRERY. You are about to start that process of 
examining additional indicators that could be added?
    Dr. CLANCY. Yes.
    Mr. MCCRERY. In my home State of Louisiana, the American 
College of Cardiology just held their annual meeting, and they 
released data from a new private quality initiative called 
CRUSADE being conducted by Duke University. It is interesting 
because it is looking at patients who are at high risk for 
heart attack but never had a heart attack. That is one of the 
examples I think of indicators that we may want to look at to 
treat patients that have not gone into the hospital for acute 
heart attack but may be at risk and then thereby prevent that. 
The CRUSADE program is a private initiative. You talked in your 
testimony about the possibility of joining efforts between the 
private sector and your efforts. Could you expound on that a 
little bit? How will you identify--and how can something like 
CRUSADE and Duke University get entrance into your umbrella 
program?
    Dr. CLANCY. Sure. I am not sure if CRUSADE is a hospital-
based initiative or more broadly based than that. In general, 
every effort that has been made, certainly in the public sector 
and I think in the private sector, to develop indicators and 
measures, there is a very broad, public call and active seeking 
of input from organizations known to have expertise in this 
area. The example you use, the American College of Cardiology, 
I would say is one of the leading professional organizations. 
They have been leading others in terms of developing guidelines 
and measures and other strategies to improve quality of care. 
So, they will most definitely be consulted. I think the 
question we are going to confront after developing a robust 
measurement set, is what is the strategy for implementing those 
which are required, which are optional and so forth. That is 
the nature of a partnership between the public and private 
sector. I am very optimistic that this approach is the 
reasonable way to go.
    Mr. MCCRERY. You said, when commenting on the Chairman's 
question about electronic medical records, that there is no 
obvious return on investment for the industry to make that 
investment and how expensive it is going to be. Why is there a 
return on investment on those kinds of technological 
improvements in every other sector of our economy but not 
health care? I mean, if a business converts all of its records 
to computer, they don't have any immediate return on that 
investment, but they might be able to do with fewer employees, 
which saves them money over the long term. They compete on the 
basis of quality of their service or whatever. Why is it 
different in the health care field?
    Mr. HACKBARTH. Well, first of all, in actually making this 
decision personally, among the things we looked at were 
potential administrative savings, that you don't need a large 
medical records department. There are certain savings that are 
clear and obvious, but they are not enough in and of themselves 
to justify the substantial investment. We made the decision to 
go ahead and make that investment because we believed it would 
change patterns of care, would change how we treated patients, 
and over the long run that would mean better quality and even 
some saving on cost. We were different than a lot of 
organizations, though. We were fully capitated. We had a lump 
sum payment for the full range of services provided to our 
patient population. So, if we could save money through better 
ambulatory care, reduce hospital cost, we gained from that. In 
the fragmented fee-for-service delivery system, often the gains 
from improvement accrue to somebody else, and so that is one of 
the reasons why the financial return isn't as immediate or 
apparent. Now, having said that, I think that there are some 
things that we can do to change that investment calculus. One 
would be to pay for quality. If in fact, by using computerized 
medical records, we can enhance quality, measure and pay for 
it, there starts to be a more immediate direct financial return 
for the investment.
    In some instances, it may be necessary to go beyond that. 
This is actually an issue that MedPAC as a commission is taking 
up this week and will be in the future months, so here I am 
speaking for myself, as opposed to the commission as a whole, 
but, you know, it may be appropriate that we make loans 
available to institutions to make it easier to make this large 
investment. There are a number of financial options that we 
could use to change this investment calculus a little bit. I 
don't want the message that I deliver to be pessimistic about 
the potential. It is a challenge, but I think it is a challenge 
that we can overcome, and I think the gains from computerized 
medical records in clinical IT are very, very large.
    Chairman JOHNSON. Just to clarify, I hear you saying that 
it pays off if you are paying for health care. It doesn't pay 
off in the fee-for-service system where you are simply paying 
for volume of actions, whether they are good health care or 
they are not good health care. So, it does pay off in a 
capitated system. It just doesn't pay off in our current 
system. Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Madam Chairman. I begin by saying 
I have nothing but the highest respect for you, Dr. Clancy, and 
your predecessor John Eisenberger. I think you run an agency 
that requires heroes to participate in it. In listening to some 
of the questioning, it seems to me that people have questions 
about why these organizations don't function better, but it is 
always politics that gets in the way. I am going to have a 
meeting in my office today at 1:30 with Dr. Javitz, who is the 
head of Ptech for the President. We were working on the problem 
of trying to get a seamless transfer of information between the 
Veterans--or between the military, the U.S. Department of 
Defense and the U.S. Department of Veterans Affairs. We have 
mandated it in the Congress, but the thing we run up against is 
they each have their own computer system the veterans designed 
by themselves, and the military has a proprietary system, and 
somehow or other we can't seem to root out that proprietary 
system and make one system so that when somebody loses their 
leg in Iraq and they are discharged from the military, their 
records can be easily transferred from the Defense Department 
to the Department of Veterans Affairs.
    I want to ask you a couple questions, Dr. Clancy, about 
this whole process, because we have been watching the 
Department dance around about things that they do studies on 
and that are politically correct. How do you select the 
processes that you are going to look at in quality? Is it done 
for you? Is it done by you and submitted upstairs and approved, 
or is it--or do they send the list on to you and say this is 
what we want you to study? I remember the study done about back 
surgery and what happened and all the flap about that. The 
agency did a good job and then got chewed up by the political 
process afterward. So, what is the process actually by which 
you select subjects that you are going to do anything related 
to quality?
    Dr. CLANCY. We make investments in a number of areas. Where 
we make investments in data and tools such as those used in the 
MedPAC report, we are guided very much by the needs of those 
who are providing health care. We are not told from on high 
what subjects or areas to focus on. In some cases, 
investigators come to us with very creative ideas, particularly 
in the areas of how do we close the gap between evidence-based 
and actual care that is being provided. For a recent report 
that we produced, the National Health Care Quality Report, we 
actually turned to the Institute of Medicine for guidance on 
the six dimensions that Dr. Hackbarth walked through in his 
testimony, and also they helped us develop a framework for 
that. Then we worked with many, many partners across the 
Department and also with help from the private sector. So, it 
was a very open, transparent process in terms of where the 
measures came from and what the priorities were.
    Mr. MCDERMOTT. Then after the report is written, then it is 
submitted upstairs and they put their signature on it or say 
whether it is going to go out? I mean, when professionals have 
looked at an issue like the Institute of Medicine and 
yourselves, the question then is, why does some bureaucrat or 
some political appointee make the decision about whether it 
goes out? Or does that happen?
    Dr. CLANCY. No. No. No. The usual clearance process is a 
second level of review for technical issues. For the quality 
report, the vast majority of comments we got pointed out that 
tables were inadvertently mislabeled or that there had been 
some technical error, sometimes coming from the people who had 
given us the data. The clearance process is just one way to 
make sure that all the data contained in the report are 
impeccable and they challenge us to edit the document in terms 
of readability. That is really all that happened in the process 
for that report.
    Mr. MCDERMOTT. We used to have a process in the Congress 
before the Republicans took over called the Technological 
Advisory Committee. Representative Amo Houghton and others sat 
on it with me, where any Member of Congress could submit 
something that you wanted to be technologically reviewed by 
this Committee. It was a bipartisan 50-50 kind of Committee, 
basically supposed to be nonpartisan. We don't have any place 
to do that anymore, because it was considered not worthwhile. I 
wonder if I submitted a request to you to study the 
effectiveness of cardiac bypass surgery and the enormous 
amounts of money we spend on it or, for instance, the issue of 
renal dialysis--the Medicare Program has kind of a one-size-
fits-all approach in many respects, although people's kidneys 
are not one-size-fits-all, and so there needs to be some 
variation--if I were to submit a request to you, what would 
happen to that?
    Dr. CLANCY. It depends on the specific question and the 
state of the evidence and information available. In some cases, 
I might be able to tell you that we have a study ongoing or 
recently completed, and that would be great news. One of the 
mechanisms that we use a lot, we have 13 evidence-based 
practice centers across North America that do very rigorous 
reviews of existing literature, and in order to select the 
topics for that, we actually turn to people in the private and 
public sectors for nominations of topics. That is one way that 
we do that. We use that process, for example, to give CMS the 
best evidence to give to the Medicare Coverage Advisory 
Committee when they are debating whether to cover a new 
service. So, that would be another approach. In some cases, 
your question might lend itself to a question that, using one 
of our databases in-house, we could easily do an internal 
analysis. To some extent, it would depend on the question, but 
you would get a response.
    Mr. MCDERMOTT. Who would make the decision--I mean, so all 
435 Members have questions. They could submit things to you 
that they think are good or bad or are not being covered or 
whatever by Medicare, and who would make the decision about 
whether or not these were subjects worthy of research?
    Dr. CLANCY. If the question or subject required a large 
investment, we would need to be candid with you about that in 
terms of whether there were resources available to be able to 
support that. We certainly use that kind of input from a 
variety of stakeholders, including Members of the Congress, to 
feed into our priorities as we are planning our budget. Does 
that help?
    Mr. MCDERMOTT. It tells me I need a little more political 
power to get done what I want to get done. Thank you very much.
    Chairman JOHNSON. Mr. Ryan from the full Committee has 
joined us today.
    Mr. RYAN. Thank you. Thank you for allowing me to 
participate in this as well, Mrs. Chairman. I want to start by 
addressing something that Mr. Stark said earlier. He said 
people to the right of this side of the gavel don't like 
regulating. That is typically true, but in this instance it is 
not necessarily so. The concern that some of us have is if we 
put too much of a command-and-control, cookie-cutter kind of 
regulatory system on technology, then we are going to stunt 
innovation and slow down new innovations. So, how you do that 
regulating so that you can capture constant improvements in 
technology and innovation is really important. So, there is 
probably somewhere where we can agree on this. We just don't 
want to have a heavy-handed, top-down, innovation-slowing 
process.
    Mr. STARK. Will the gentleman yield?
    Mr. RYAN. Sure.
    Mr. STARK. What I look forward to in the regulatory world 
is getting it started. My feeling is nobody is going to do it 
unless somebody says this must be done by a certain date and 
everybody has got to participate, and that I think can only 
come from on top.
    Mr. RYAN. Reclaiming my time, there is a lot of variables. 
My first question to the panelists, looking into this whole 
technology issue and the fact that there seems to be a lack of 
return on equity from some of the providers to purchase these 
hardware and software systems, is there not also a little bit 
of a problem with respect to the vendors of software and 
hardware between the issue of universal connectivity and 
interoperability? In the IT field you have people who have 
proprietary systems that don't talk to each other, that want to 
sell these systems and continue to carve this market niche. 
Does that not prevent a problem from having everybody talking 
to each other? Can you elaborate on that little friction we 
have in the marketplace? What will it take from this side, from 
Congress, to get this smoothed out and make sure that the IT 
system is selling to the marketplace when we get this Return on 
Equity fixed for the providers, when we get this out there, 
that they have universally connectible, interoperable systems?
    Mr. HACKBARTH. I could easily get in way over my head in 
talking about the technical----
    Mr. RYAN. I have already gone there.
    Mr. HACKBARTH. I don't want to wade in too far, but 
certainly the ability to communicate across institutions is a 
critical problem, particularly given the nature of American 
health care, which tends to be somewhat fragmented. So, it is a 
barrier and one that needs to be overcome through standards 
about interoperability and the like.
    Mr. RYAN. You see this barrier in the marketplace today?
    Mr. HACKBARTH. Yes. It is a problem today, this ability to 
communicate. As to the solutions, that is where I am over my 
head. You know, in other industries we manage the ability to 
communicate across companies, and I can't imagine that there is 
an insuperable problem. So, yes, but we can do it. How we do it 
I will leave to somebody else.
    Mr. RYAN. You think that that is something that has to be 
done by government?
    Mr. HACKBARTH. I am not really well educated on the subject 
enough to know that. I don't think that it was necessarily done 
by government in other sectors.
    Mr. RYAN. That is correct.
    Dr. CLANCY. The development and diffusion of standards has 
been advanced over the past couple of years through the 
Consolidated Health Informatics Initiative for which HHS had 
the lead. There was an initial set adopted last year by HHS, 
the Department of Veteran Affairs, and the Department of 
Defense as a starting menu in order to have some of the 
standards that are required for interoperability. The MMA is 
forcing us to ramp up very quickly on the standards that are 
going to be needed for electronic prescribing. So, thank you. 
Some portion of our investment this year and next year is going 
to be focused on identifying additional standards that will be 
needed to enhance interoperability.
    There are a couple of these communities in the country 
right now. The two that are cited a lot are Santa Barbara, 
California, and Indianapolis, where a mechanism has been set up 
for health care organizations to share data in a confidential 
fashion, and it seems to work pretty well. We have a little bit 
to learn about the financial sustainability of such a model. I 
don't think anyone thinks the government ought to go in and pay 
and just simply run this. I think we do believe that the 
government has an important role in convening the people who 
would need to take the lead in helping communities set up that 
sort of governance, because it will yield many, many benefits 
for all people in the community in terms of improved quality 
and efficiency. I would be happy to follow up with you on that. 
I don't want to get----
    Mr. RYAN. No. I would like to come by and talk to you about 
that, if I may, because that was the goal, more than just 
cutting down on medical errors, was to get this system up in 
place through which quality and price data can go to the 
consumer. Do I have time for one more?
    Chairman JOHNSON. I think we need to move on to the other 
panel, because we are going to have some votes and we may be 
able to get through all the other panels', at least, opening 
statements.
    Mr. RYAN. Thank you very much.
    Chairman JOHNSON. Thank you very much for being here. I 
would ask that you look at my legislation in regard to 
technology, because the Administration has provided very 
aggressive leadership, but it has tended to bring together the 
people in government. They aren't necessarily the ones on the 
cutting edge. While I know you talked about cutting-edge 
people, I do think, since it is going to be a 10-, 20-year, 
ongoing project, we need to have a clear public/private group 
that works on technology standards as a regular thing and knows 
all of the Medicaid issues as well as Medicare and private 
sector. I think also in HHS we need one office who is sort of 
the lead office in all of this, because right now the authority 
and opportunity to participate and go off in different 
directions is quite disparate. I mean, this, Mr. Secretary, has 
been brought together, but that is not an adequate, in my 
estimation, way to manage what is going to be a major aspect of 
not only quality care in health care but also cost containment 
in health care. So, if you take a look at that, both of you, I 
would appreciate it. Thank you very much for your input. I 
appreciate it.
    Now we will turn to our second panel. We were supposed to 
have a vote about 11:00, so it was--glad we could get through 
this panel, but since the vote hasn't been called, it will be 
effectively a one-half hour hiatus. If we could start now with 
the second panel, that would be very useful. We will start with 
Dr. Milstein, then go to Dr. Ho, Dr. Crosson, Mr. Kahn and Ms. 
Burger. We thank you all for being here. The second panel has a 
lot of practical experience with technology and quality 
standards, and we hope to learn from you both what the private 
sector is doing and what thoughts you might have for applying 
your experience to Medicare and other public sector programs to 
enhance the quality of care available under those programs. 
Thank you for being here. Dr. Milstein, if you would--well, if 
you are not--let's see. Dr. Milstein, if you will proceed.

    STATEMENT OF ARNOLD MILSTEIN, MEDICAL DIRECTOR, PACIFIC 
      BUSINESS GROUP ON HEALTH, SAN FRANCISCO, CALIFORNIA

    Dr. MILSTEIN. Thank you for the opportunity to speak on 
behalf of large American employers. Employers, insurers and 
Medicare Program unintentionally contribute to today's poor 
health care industry performance. We do this via incentives 
that do not reward doctors or hospitals for quality or for 
superior total cost efficiency over the longitudinal course of 
an acute or chronic illness. We pay unintended bonuses for 
preventable complications and for more reserve-intensive 
clinical practice styles that are not improving patient health 
or patient satisfaction. Robust payment incentives that reward 
doctors and hospitals for excellence in quality and in 
longitudinal efficiency can improve clinical performance. 
Accordingly, many employers support health insurers' new 
efforts to apply such incentives.
    Roughly 40 such incentive programs are currently operating. 
The largest of these is California's Integrated Healthcare 
Association initiative that is projected to pay approximately 
$100 million to medical groups with top scores in quality 
patient satisfaction and clinical information systems adoption 
during 2004. Payment incentives are not the only market levers 
for lifting clinical performance. Sunshine in the form of 
easily understood public performance comparisons has been shown 
to triple quality improvement efforts in poorly scoring 
hospitals and to raise performance scores. There are budget-
neutral opportunities for Congress to more rigorously reinforce 
private sector momentum. These include: first, encourage CMS to 
speed up and significantly expand its current efforts to make 
publicly available quantified measures of hospital and 
physician quality and to coordinate its physician and hospital 
incentives with large private sector incentive programs such as 
the Leapfrog Group.
    Second, within CMS and AHRQ efforts to compare and improve 
clinical performance, much more heavily prioritize measures of 
the cost-efficiency for doctors and hospitals over the duration 
of an episode of acute illness or a year of chronic illness. 
Given the crisis in health care affordability both in the 
private and public sectors and evidence of a roughly 40-percent 
uncaptured efficiencies in the American health care industry, 
this facet of performance measurement and incentivization 
deserves a higher priority. Third, while fully protecting 
Medicare beneficiary privacy rights under HIPAA and the Privacy 
Act, allow private sector health plans routine access to the 
beneficiary de-identified, full Medicare claims database. 
Almost no private sector purchasers or insurers have enough 
claims experience in any one location to measure precisely the 
longitudinal cost efficiency and quality of individual 
physicians and specific hospital service lines. Access to the 
full Medicare claims database would allow them to more 
precisely measure and therefore reward more robustly physicians 
and hospitals for superior quality and longitudinal efficiency.
    Rapid improvement in performance measurement would 
emancipate America's doctors and hospitals from the 
irrationality of public and private health benefit plans that 
primarily reward the cheapest unit prices and often 
unintentionally punish improvements in quality and longitudinal 
efficiency. America's current movement to use consumer-directed 
health benefit plans to incentivize Americans to select more 
efficient, higher-quality health care options can provide about 
half the horsepower we need to achieve breakthroughs in the 
affordability and quality of our health care. The rest must 
come from reformed public and private sector payment systems 
that make an irresistible business case to our health care 
industry to take up modern tools of performance management and 
drive quality and longitudinal efficiency up to the levels that 
America needs and deserves. Thank you.
    [The prepared statement of Dr. Milstein follows:]

Statement of Arnold Milstein, M.D., Medical Director, Pacific Business 
               Group on Health, San Francisco, California

    I am Dr. Arnold Milstein, a physician at Mercer Human Resource 
Consulting and Medical Director of the Pacific Business Group on Health 
(PBGH). PBGH is California's coalition of large employer health care 
purchasers and also supports the health benefits needs of more than 
9,000 small California employers.
    I have helped to develop, and currently participate in the 
governance of, three private sector programs to pay American doctors 
and/or hospitals for superior performance: the Leapfrog Group, Bridges 
to Excellence, and the Integrated Healthcare Association's (IHA) Pay-
for-Performance Program. The IHA program is projected to pay over $100 
million to better performing California physician groups in 2004. My 
comments today on health care pay-for-performance programs are not 
intended to represent these five organizations.
    A more detailed review of U.S. health care pay-for-performance 
programs will be published on the Commonwealth Foundation's website in 
April. It is based on a paper commissioned by the Foundation that I 
prepared for the Foundation's International Health Care Leadership 
Colloquium at Bagshot, England in July of 2003.

    1.  The American health care industry is severely underperforming. 
Compared to other developed countries, we spend substantially more of 
our GDP on health care. In return, we get easier access to advanced 
biomedical innovations, but poor health care industry adherence to 
evidence-based treatment guidelines, patient safety standards, and 
efficient care delivery methods. Current scientific estimates 
(specified in my testimony to the Joint Economic Committee on February 
25 and Senate HELP Committee on January 28) by Rand, the Institute of 
Medicine, and nationally respected health services researchers at 
Dartmouth, Harvard and Intermountain Health Care, give us an 
approximately 50% national score on exposing Americans to substandard 
quality of care and preventable treatment complications and a 40% 
national score on wasting their health benefits spending via services 
with undetectable health benefit and/or inefficient service delivery 
methods. Though the health care industry is making efforts to improve, 
the level of effect is not yet scaled to the magnitude of the problem.
    2.  One root cause of this unintended equilibrium is toxic payment 
incentives that do not reward doctors, hospitals, managed care 
organizations, or treatment innovators for superior quality and 
superior total cost efficiency over the longitudinal course of an acute 
or chronic illness. As Tom Scully frequently observed, it is insanity 
to pay the same price for any service without regard to differences in 
performance. Others such as Dr. Brent James at Intermountain Health 
Care have detailed how improvements in longitudinal cost-efficiency and 
quality are often penalized under today's performance-insensitive 
payment systems. Why would we expect that quality and longitudinal cost 
efficiency would flourish under such an incentive system?
    3.  Payment incentives can be effective in improving health 
industry performance. While the evidence to support this statement is 
based as much on anecdote as on scientific evidence, most private 
sector purchasers regard it as self-evident, based on all other 
American markets for products and services. I've attached a thoughtful 
recent synopsis by researchers at the Harvard School of Public Health 
of experience to date in 37 recent U.S. programs to pay doctors and/or 
hospitals for higher performance. Its most important conclusion is that 
it will be difficult to measure or maximize the effectiveness of doctor 
and hospital pay-for-performance programs, until they affect a much 
larger fraction of physician and hospital total income.
    4.  Performance-based payment incentives for doctors, hospitals, 
and managed care organizations are an increasing private sector trend. 
Few of the 36 private sector incentive programs included in the Harvard 
study existed five years ago.
    5.  Payment incentives are not the only market levers for lifting 
clinical performance. ``Sunlight'' created by the public release of 
easily understandable, credible, and comparable performance measures on 
important measures of quality such as death rates, complication rates, 
and rates of adherence to clinical guidelines, has been shown to 
motivate a 3X increase in provider improvement effort (J. Hibbard, 
Health Affairs, January 2003) and improved clinical results (E. Hannan, 
Medical Care, January 2004). Other powerful private sector market 
levers on performance include substantial loss of patient volume from 
insurance plans that exclude or reduce insurance coverage for less well 
performing physicians, hospitals, and/or treatment options.
    6.  Market based payment incentives are more effective when 
combined with other performance drivers. Among the most important are 
physician and hospital access to and training in two generic tools of 
modern performance management of complex, high risk consumer service 
industries such as commercial airlines: (1) electronic, interoperable 
information systems that allow continuous prompting of professionals 
and/or service users whenever opportunities exist to improve a plan of 
services or prevent service implementation errors; and (2) greater use 
of operations engineering expertise in managing performance over the 
entire course of a consumer's period of service need. Almost sixty 
years of post World War II progress in biomedical technology has 
transformed American health care from a relatively simple, ineffective, 
low-risk, and inexpensive service menu of services to a highly complex, 
potentially very effective, dangerous, and expensive service menu. 
However, our clinical information systems continue to depend on 
handwriting, paper documents, and highly fallible human memory; and 
advanced expertise in operations engineering is wholly absent in the 
clinical work of most hospitals and physician offices. Early 
performance exemplars such as Intermountain Health Care in Salt Lake 
City and Theta Care in Appleton, Wisconsin have shown that insertion of 
these two modern industrial tools into the DNA of American health care 
delivery can generate very large quality increases and/or efficiency 
capture. Multiple new private sector programs to incentivize physician 
and/or hospital performance breakthrough (such as the Leapfrog Group, 
the Integrated Health Care Association, and Bridges to Excellence) 
recognize the importance of these two ingredients and have directed a 
substantial fraction of their incentives at provider adoption of them, 
in addition to incentivizing high performance.
    7.  There are budget-neutral opportunities for Congress to much 
more vigorously reinforce private sector momentum to incentivize 
longitudinal cost-efficiency and quality among doctors and hospitals. 
These include:

      A.
         Encourage CMS to speed and significantly expand its current, 
laudable efforts to (1) make publicly available quantified measures of 
hospital and physician quality, clinical information system adoption, 
and clinical management capabilities (for example, achieving NCQA's 
certification in physician office systems); and (2) coordinate its 
physician and hospital incentives with large national private sector 
incentive programs such as the Leapfrog Group; and (3) prepare to 
implement promptly recommendations for CMS provider incentives, 
expected in 2005 from the Institute of Medicine.
      B.
         Reprioritize NIH spending in favor of AHRQ, especially for 
efforts to (a) test and refine comparable measures of performance of 
physicians, hospitals, and treatment options; and (b) accelerate 
physician and hospital use of clinical information systems and 
operations engineering tools to improve their performance. NIH 
biomedical research is America's health care muscle; AHRQ health 
services research is America's health care brain. We currently allocate 
NIH funds in an approximate ratio of 99% muscle to 1% brain. The result 
is an American A+ on treatment discovery and an American C- on 
efficient, high quality delivery of these treatments.
      C.
         Within CMS and AHRQ efforts to compare and improve American 
clinical performance, much more heavily prioritize measures of 
longitudinal cost-efficiency for doctors, hospitals, and treatment 
options. Given the crisis of health care affordability in both the 
private and public sectors and evidence of roughly 40% uncaptured 
efficiencies in the American health industry, this facet of performance 
measurement and incentivization deserves higher prioritization within 
CMS and AHRQ. Recently enacted Medicare demonstration projects are 
directionally favorable, but more broadly applicable near-term 
incentives for longitudinal cost-efficiency are warranted.
      D.
         While fully protecting Medicare beneficiary privacy rights 
under the Privacy Act and HIPAA, allow private sector health plans 
continuous access to the beneficiary de-identified, full Medicare 
claims database. Almost no private sector purchasers have enough claims 
experience in any one location to measure precisely the longitudinal 
cost-efficiency and quality of most individual physicians and specific 
hospital service lines, such as knee replacement surgery. Access to the 
Medicare claims database would allow them to identify more precisely 
measure and therefore reward more robustly physicians and hospitals for 
superior quality and longitudinal cost-efficiency. In addition, 
expansion of billing data required for Medicare payment would greatly 
improve the cost and precision of performance measurement. Such an 
expansion is illustrated by recent recommendations of the Quality Work 
Group of the National Committee on Vital and Health Statistics. Rapid 
improvement in performance measurement would emancipate America's 
doctors, hospitals, and treatment innovators from the tyranny and 
irrationality of public and private health benefit plans that primarily 
reward the cheapest unit prices and often unintentionally punish them 
for improvements in quality and longitudinal cost efficiency.

    America's current movement to use consumer-directed health benefit 
plans to incentivize Americans to select more efficient, higher quality 
health care options, including improved health behaviors, can provide 
half of the horsepower we need to achieve breakthroughs in the 
affordability and quality of our health care. The rest must come from 
reformed public and private sector payment systems that make an 
irresistible business case to our health care industry to take up 
modern tools of performance management and use them to continuously 
optimize quality and longitudinal cost-efficiency.

                                 

    Chairman JOHNSON. Thank you very much, Dr. Milstein. Dr. 
Ho.

STATEMENT OF SAMUEL HO, SENIOR VICE PRESIDENT AND CHIEF MEDICAL 
 OFFICER, PACIFICARE HEALTH SYSTEMS, INC., CYPRESS, CALIFORNIA

    Dr. HO. Good morning. My name is Sam Ho. I am the Chief 
Medical Officer of PacifiCare Health Systems, Inc., and I thank 
you for the opportunity to share PacifiCare's experiences and 
results on the health care quality improvement. Today I will be 
providing you an overview of the comprehensive and integrated 
strategy that PacifiCare has developed around quality 
initiatives. Some of these programs I knew. Others reflect 
years of effort. For example, since 1998, we have engaged in 
sophisticated provider profiling, as reflected in our Quality 
Index. In 2002, we began provider payment incentives, as 
exemplified by our quality incentive program. We also created 
value or tiered networks in 2002, and 7 years ago we initiated 
what I believe are noteworthy disease management programs. Most 
recently, we have implemented consumer incentive programs 
intended to reward consumers who engage in healthier behaviors. 
I will briefly touch on each of these. Taken together, we 
believe this integrated suite of programs has shown remarkable 
results in improving quality health care delivered to our 
members.
    First, the Quality Index Profile has been a powerful tool 
to help close what the Institute of Medicine has characterized 
as the quality chasm. This consumer-oriented, publicly 
disclosed report card of provider performance has been 
published semiannually since 1998. Encompassing 55 measures of 
clinical and service quality, this profile has proven to be a 
credible and relevant information tool for consumers and 
providers. Over the past 5 years, 65 percent of the Quality 
Index measures have demonstrated annual improvement in cancer 
screening rates, treatment of diabetes, coronary disease, 
congestive heart failure, asthma and acute infections as well 
as improvement in patient satisfaction and specialty referrals.
    Providers have effectively responded to the Quality Index 
by competing and moving the needle on quality. Conversely, our 
members have also emphatically responded. Over 30,000 members 
have gravitated to better performing providers each year, 
averaging over a 6-percent increase in membership to these 
providers on an annual basis. This is a statistically 
significant response. The second component of our Quality Index 
strategy is the Quality Incentive Program. Begun in 2002, this 
program has incorporated 10 measures from the Quality Index 
well as other measures of patient safety and patient 
satisfaction. After establishing an incentive pool of $14 
million and requiring performance levels by providers over the 
75th percentile for each indicator, over 140 medical groups in 
California have been rewarded with quality bonuses on a 
quarterly basis since last July. As a result, we have seen 12 
of the 16 measures demonstrating significant improvement; and 
the average relative increase exceeds 30 percent, which is a 
remarkable achievement in so short a time.
    Currently, we are expanding our 2004 initiative to include 
21 measures, increasing the thresholds to the 85th percentile 
and increasing the overall incentive pool to $21 million. We 
have demonstrated that both report cards and incentives work in 
improving quality and benefiting both patients and doctors. The 
third component in our strategy is the development of a value 
network and a value insurance product. Derived from our Quality 
Index profiles, we defined a subnetwork of providers who have 
demonstrated greater efficiency and effectiveness in managing 
health care. Employers such as Wells Fargo Bank, Lockheed 
Martin Corporation and Xerox have purchased our value health 
plan product, where costs in general are approximately 20-
percent lower and quality is approximately 20-percent higher 
than our standard plan.
    Furthermore, health care cost trends are 14-percent lower 
in the value network. Such an insurance product benefits both 
employers looking for relief from health care cost inflation as 
well as consumers who are rewarded with higher quality. 
Briefly, the fourth component of our Quality Index strategy is 
our comprehensive suite of programs geared to addressing our 
members' health and disease status. Applying evidence-based 
medicine, we have demonstrated significant improvements in many 
areas of preventive health and chronic diseases. Four such 
examples of our results include increasing appropriate 
medication use in patients with congestive heart failure by 26 
percent, thereby reducing hospitalizations by 50 percent and 
saving over $69 million cumulatively; improving the use of 
life-saving medication with patients with coronary disease to 
98 percent when recent studies show that the national average 
is 45 percent; for patients with chronic lung disease, 
improving symptoms by 29 percent and quit-smoking rates by 30 
percent; and for diabetics we have improved blood sugar and 
cholesterol control levels by 25 to 30 percent.
    The last component of our QI strategy is our newly launched 
Health Credits, which is a rewards and report card program 
customized for Members. In this program, consumers can earn 
credits by participating in any of 16 health and disease 
management programs around diabetes, for example, or heart 
disease and improving their health via better diet, exercise 
and lifestyle choices. Also available is an online health risk 
assessment to help members gauge their current health status, 
as well as to receive tips on how to improve their health. In 
summary, I feel that PacifiCare has demonstrated health care 
initiatives and report cards as well as incentives that work 
for both consumers and physicians. Again, I thank you for 
allowing me this opportunity. I would be happy to answer any 
questions.
    [The prepared statement of Dr. Ho follows:]

 Statement of Samuel Ho, M.D., Senior Vice President and Chief Medical 
     Officer, PacifiCare Health Systems, Inc., Cypress, California

    Good Morning, Chairman Johnson and members of the Subcommittee. I 
am Dr. Sam Ho, Senior Vice President and Chief Medical Officer of 
PacifiCare Health Systems, and I appreciate the opportunity to discuss 
PacifiCare's experience with health quality initiatives. PacifiCare 
Health Systems (PHS) serves more than 3 million health plan members and 
approximately 9 million specialty plan members nationwide and has 
annual revenues of nearly $11 billion. PacifiCare offers individuals, 
employers, and Medicare beneficiaries a variety of consumer-driven 
health care and life insurance products including HMO, Value HMO, PPO, 
self insured and fully insured consumer-directed health plans, EPO, and 
Medicare+Choice (now Medicare Advantage) plans. Specialty operations 
include behavioral health, dental, vision, and complete pharmacy 
benefits management.
    PacifiCare believes that a quality-driven, consumer-centric health 
plan should focus on improving and maintaining the health of its 
members in every stage of their life--whether they are sick, well, or 
in-between. We have developed a broad array of programs across the 
continuum of health care services built upon scientifically proven 
criteria and evidence-based medicine, with a focus on improving 
members' quality of life and enhancing providers' practice of evidence-
based medicine, as illustrated by the following simple diagram.

[GRAPHIC] [TIFF OMITTED] T9678A.001


NCQA (National Committee on Quality Assurance) Accreditation
    PacifiCare has a demonstrated interest and experience in improving 
the quality and affordability of care provided to our members, as 
exemplified by consistent NCQA Excellent Accreditation awards, award-
winning disease management programs and quality improvement 
initiatives, and industry-leading medical management techniques.
    Starting in 1991, PacifiCare has demonstrated effective 
programmatic structure, processes and outcomes in quality improvement, 
as reflected in continuous NCQA accreditation, at the ``Excellent'' 
level. For example, PacifiCare of California was the first statewide 
managed care organization to have earned NCQA's highest level of 
accreditation, an Excellent status. Our most recent survey results 
include four `stars' in the five categories surveyed: Access and 
Service, Qualified Providers, Staying Healthy, Getting Better, and 
Living with Illness. This recognition highlights our proven strengths 
in quality improvement, comprehensive chronic condition management and 
development of clinical practice guidelines and the extensive array of 
education materials we make available to our members.
HEDIS (Health Plan Employer Data and Information Set) Performance
    Across PacifiCare commercial health plans, HEDIS 2003 results 
improved 4.3 percent from 2002, across 14 of the 15 measures with 
stable NCQA definitions, meeting or exceeding prior year performance. 
Performance, as compared to the national 90th percentile published by 
NCQA, was noteworthy in several areas:

      All PacifiCare plans met the national 90th percentile for 
Beta Blocker Treatment Following a Heart Attack.
      Among the measures pertaining to women's health, the 
national 90th percentile was met by 75 percent of PacifiCare plans for 
cervical cancer screening.
      Among the measures pertaining to Comprehensive Diabetes 
Care, the 90th percentile was met by 63 percent of PacifiCare plans for 
HgA1c Testing, 75 percent of PacifiCare plans for Eye Exams and 
Monitoring for nephropathy and 100 percent of PacifiCare plans for LDL-
C Screening.

Health and Disease Management Programs
    Our cutting edge Health and Disease Management programs and 
services include educational and screening guidelines and programs 
available through a member's primary care physicians and health-related 
information and programs accessible on our Internet site at 
www.pacificare.com. We also have a direct mail reminder program for 
healthy members who appear to be missing recommended periodic 
preventive health screenings. PacifiCare's population-based health 
management programs include: Taking Charge of Diabetes', 
Taking Charge of Your Heart Health', Taking Charge of 
Depression', StopSmoking, Taking Charge of 
Asthma', Pregnancy to Preschool and Health AtoZ.
    We have also developed case-based disease management programs, 
addressing the most-at-risk patients with coronary artery disease, 
stroke, congestive heart failure, chronic obstructive pulmonary 
disease, end stage renal disease, cancer, orthopedics, and neonatal ICU 
care, to improve the quality of the care received by our members with 
chronic diseases.
    These programs enable PacifiCare to offer the appropriate level of 
care at the right time and place at no additional cost to its members. 
By extension, these programs help to improve or stabilize the 
healthcare cost inflation trend and reduce the demand on provider 
services by complementing other programs we offer to members. Since 
1997, PacifiCare has earned many national distinctions for its impact 
on improving clinical outcomes amongst these cohorts.
    Results from our disease management programs have been notable. For 
example, life-saving medication use, such as beta-blocker therapy for 
patients with coronary artery disease or ACE-inhibitor use for our 
patients with congestive heart failure, have increased by 20-30 percent 
and those rates are double the national average reported in FFS 
medicine. Also, case management and disease management proactively 
manage outcomes by preventing inappropriate hospitalizations from 
occurring. Rather than wait for a hospital admission to signal 
eligibility in these programs, we employ advanced analytics and 
identify patients earlier.
    Four examples of our results include:

      Increasing appropriate medication in patients with 
Congestive Heart Failure by 26 percent and thereby reducing 
hospitalizations by 50 percent and saving over $75 million 
cumulatively.
      Improving the use of life-saving medications for patients 
with coronary artery disease to 98 percent when recent studies show 
that the national average is 45 percent.
      For patients with chronic lung disease, improving 
symptoms by 29 percent and decreasing smoking rates by 30 percent.
      For diabetics, we've improved blood sugar and cholesterol 
control by 25-30 percent.

    To date, documented savings have exceeded $185 million in these 
programs. Although 90 percent of those savings are attributed to 
Medicare+Choice patients (due to the high prevalence of chronic disease 
among seniors), commercial patients have been similarly and favorably 
impacted as well.
Focused Medical Management
    PacifiCare has developed industry-leading Medical Management 
programs to ensure each member receives all the appropriate care. Our 
Medical Management programs focus on reducing variation, improving the 
quality of care provided and assuring cost effectiveness. We base 
medical decisions on scientific evidence, and all of our medical 
management services include physician leadership and input. PacifiCare 
has developed online, science-based and objective Utilization 
Management criteria as well as technology-based clinical decision 
support systems related to case/utilization/disease management. Our 
extensive suite of programs includes:

      prior authorization
      on-site concurrent review
      telephonic concurrent review
      post service review
      case management
      disease management
      advanced care management

    Disease management, demand management and case management are all 
primarily geared toward reducing preventable admissions to hospitals, 
whereas our medical management programs are primarily focused on 
assuring appropriate lengths of stay during hospital admissions. 
PacifiCare's medical management programs include: rigorous data 
analysis, identification of outlier groups of physicians and hospitals, 
collaborative physician education and assistance, expedited care 
coordination involving multi-disciplinary approaches and the 
incorporation of ``high-touch'' contact with ``high-tech'' monitoring.
    Incorporating the above components, PacifiCare introduced Care 
Coordination, a program for managing inpatient care that combines the 
skills and experience of its centralized team with the effectiveness of 
the field staff. Pacificare has taken its extensive on-site and 
telephonic medical management experience and produced a refined program 
that assures patients receive the appropriate care at the right time 
and place.
    Our care coordination model focuses resources on the 20 percent of 
hospitals in every market, which are responsible for 85 percent of the 
variant or outlier bed days. In this way, we can impact bed day 
management in a focused manner, rather than micro-management, which is 
unnecessary and inefficient.
Quality Improvement Initiatives
    PacifiCare has demonstrated successful results in improving the 
quality and affordability of care provided to our members through a 
comprehensive and integrated strategy. For example, we have engaged in 
sophisticated provider profiling leading to the development of our 
Quality Index' program in 1998; in 2002, we began provider 
payment incentives as exemplified by our Quality Incentive Program; we 
also created value, or tiered, networks in 2002; seven years ago, we 
created and implemented what I believe are noteworthy disease 
management programs; and, most recently, we have implemented consumer 
incentive programs intended to reward consumers who engage in healthier 
behaviors. Taken together, we believe this integrated suite of programs 
has shown remarkable results in improving the quality health care 
delivered to our members.
PacifiCare's Integrated Strategy

[GRAPHIC] [TIFF OMITTED] T9678A.002


    As a cornerstone, PacifiCare introduced comprehensive provider 
profiling in 1994 as an effective management tool to improve provider 
behavior and clinical results. When combined with health and disease 
management programs, focused medical and utilization management 
programs, and care management programs, these profiles have represented 
leading-edge analyses and measurements to assist contracting providers 
to better manage clinical quality, as well as healthcare costs.
    Building on provider profiling, in 1998 PacifiCare released its 
QUALITY INDEX' Profile of Physician Organizations. This 
unique report provides consumer information on provider group 
performance in selected areas of clinical and service quality and 
affordability. The QUALITY INDEX' Profile provides consumers 
with an effective tool to make informed health care decisions, 
including the quality, affordability and value of the services they 
receive from our contracted network of providers. Ongoing measures 
range from preventive health screenings and clinical treatment of 
chronic diseases to frequency of member complaints and overall 
satisfaction with the level of service. Physician groups ranking in the 
90th percentile or above in any of the measures receive a ``best 
practice'' designation, which is also included in PacifiCare's provider 
directory. This semi-annual, award-winning report has been expanded and 
enhanced since its first release, and now features the relative 
performance achieved by provider groups on 58 credible and relevant 
measures.
    Providers have responded by competing and improving average mean 
performance in 65 percent of clinical and service measures. Also, 
members have `voted with their feet' by changing to better performing 
providers, which, in turn, represents $18 million in additional annual 
capitation payments to those providers. Both results, `voting with 
their feet' and providers `moving the needle' on performance, represent 
a significant impact on the quality of health care delivered to our 
members and rewards given to our providers and these results have been 
sustained annually since 1998 and are unprecedented in the health care 
industry.

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    In 2001, PacifiCare of California introduced the first edition of 
the QUALITY INDEX' Profile for Women. This unique report is 
comprised of data specific to female patients from providers in our 
contracted network. It measures relative provider group performance on 
14 selected areas of clinical and service quality. The charts within 
the QUALITY INDEX' Profile for Women illustrate how provider 
groups address the needs of their female patients and also how 
satisfied the female patients are with the care they receive from their 
providers. In 2003, PacifiCare took a further step and published the 
QUALITY INDEX' of Hospitals, a report card on the relative 
performance of hospitals in our contracted network on 56 measures of 
risk-adjusted complication rates and mortality rates, hospital patient 
safety measures, utilization and patient satisfaction related to common 
medical, surgical, obstetrical, orthopedic and pediatric conditions.
    These profiles are shared on PacifiCare's public website, 
summarized in our Provider Directory and are mailed annually to 
commercial members through our member newsletter/magazine.
Tiering Benefits Based on Quality and Cost
    Based on the success of member migration to best performing groups, 
as well as the impact of competition on unnecessary variation in 
quality and cost outcomes amongst provider delivery systems, PacifiCare 
was the first plan in the country to develop tiered benefits based on 
the performance of providers selected. In 2002, PacifiCare initiated 
the first tiered hospital network in the country, based on underlying 
costs of hospitals within California. In 2002-2003, PacifiCare 
developed and launched the first-ever value network product (PacifiCare 
SignatureValueSM Advantage), based on the quality and costs 
of providers selected. The foundation for such product development has 
been the QUALITY INDEX' profiles. In PacifiCare's value 
health plan network, the participating medical groups have been 
selected using 17 measures of both medical group and hospital 
performance.
    In order to qualify for the value health plan network, providers 
must meet established cost and quality targets. Health care cost 
measures link physician costs, pharmacy costs, and the costs of 
hospitals to which primary admissions are directed. In 2002, quality 
measures included 10 indicators of physician group performance and 6 
measures of hospital performance. Physician performance included 5 
clinical measures (breast cancer and cervical cancer screening rates, 
childhood immunization rates, diabetic and coronary artery disease care 
metrics) and 5 service/satisfaction measures (all derived from CAHPS). 
Hospital performance was based on a subset of patient safety measures 
and 1 patient satisfaction measure based on PEP-C (hospital-derived 
CAHPS survey). In 2003, the 5 patient safety measures have been 
incorporated into 3 general indicators from PacifiCare's QUALITY 
INDEX' profile of Hospitals, which represent aggregates of 
48 measures.
    Approximately 70 percent of PacifiCare's standard HMO network 
participates in the value HMO network in the counties where this is 
offered, and PacifiCare SignatureValueSM Advantage is 
offered in conjunction with PacifiCare's standard HMO product.
    By driving market share to cost-effective providers and hospitals, 
based on differential premium contributions and/or co-pays tied to 
differential performance of providers, healthcare costs are 
approximately 20 percent lower and quality is approximately 20 percent 
higher than our standard plan. Furthermore, health care cost trends are 
14 percent lower in the value network.

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Quality Incentive Program (Paying for Performance)
    PacifiCare's Provider Quality Incentive Program (QIP) was initiated 
in 2002 aligning the identical measures used to determine value network 
eligibility with a pay-for-performance program. After the first 12 
months of the QIP program, over 140 medical groups performed at or 
above the 75 percentile level in at least one of 16 indicators, and 
were rewarded from an incentive pool of $14 million. In 12 of the 16 
measures, improvement occurred throughout the network, and averaged 
over 30 percent. In the second year of the QIP, 5 more measures have 
been added, thresholds have been raised to the 85 percentile per 
indicator, and the incentive pool has been increased to $21 million. By 
aligning our Quality Index' profile with an insurance 
product design and a quality incentive program, PacifiCare has begun to 
optimize provider, member, and purchaser behavior to focus on value-
based choices and actions.
Consumer Rewards--HealthCredits \SM\
    In 2003, PacifiCare launched it HealthCreditsSM program 
to encourage and reward consumers in practicing healthier lifestyles 
and behavior. For example, points, or credits, will be earned after 
documentation of healthier activities, such as completion of a health 
risk assessment, sustained enrollment in a disease management program, 
consistent attendance in weight management programs or consistent 
completion of on-line nutrition and exercise plans through PacifiCare's 
VirtualHealthClubSM. After an established threshold of 
credits has been reached, members are eligible for prizes and discounts 
on health promoting products.
    Additionally, employers may introduce richer benefits, such as 
reduced copays, or increased employer contribution, or perhaps 
additional personal time off/vacation days. Such an approach leverages 
the automobile or homeowners insurance model, where lower premiums are 
offered to subscribers who wear seat belts, avoid traffic violations, 
or purchase fire/security alarm systems.
Information, Integration and Innovation
    PacifiCare has developed a well-integrated strategy to exploit its 
core competency in health and disease management programs, focused 
medical management and quality improvement initiatives. Such a strategy 
includes innovative and industry-leading programs such as our QUALITY 
INDEX' Profile of Physician Organizations, of Hospitals, and 
for Women; our Value Network plan, our Quality Incentive Program and 
our HealthCreditsSM program. Such programs represent the 
leading edge in helping to close the ``quality chasm'' and help manage 
healthcare costs, largely through the activation and engagement of 
consumers through information, incentives and informed choices.
    In conclusion, I would like to thank the Members of this 
Subcommittee for their interest in health care quality innovation and 
for the opportunity to present PacifiCare's views on this important 
topic. Thank you.

                                 

    Chairman JOHNSON. Thank you very much, Dr. Ho. Dr. Crosson.

STATEMENT OF FRANCIS J. CROSSON, EXECUTIVE DIRECTOR, PERMANENTE 
                FOUNDATION, OAKLAND, CALIFORNIA

    Dr. CROSSON. Madam Chairman, Members of the Subcommittee, 
my name is Dr. Francis J. Crosson. I am the Executive Director 
of the Permanente Federation, a national organization of 
Permanente medical groups. Thank you very much for inviting me 
to testify on this vitally important topic. I would ask that my 
written testimony be included in the record. Today, I am 
speaking on behalf of Kaiser Permanente. I want to share some 
observations about the key reasons for our six decades of 
success in delivering high-quality, cost-effective health care. 
We hope that these observations might help point the way to 
better, more efficient health care for all Americans. First, at 
Kaiser Permanente integration is more than a promise. It is a 
reality. Our delivery system is based on physicians organized 
into large multispecialty group practices. The group practice 
culture stresses a coordinated team approach to the delivery of 
care. Also, integrated care is greatly facilitated, because 
physicians in group practice share a unified medical record for 
every patient, a powerful engine of quality and safety.
    Second, the multispecialty group practice model enables us 
to integrate the entire continuum of care. As our members move 
from one stage of life to another, their needs change. We meet 
these needs best through a single system that delivers care 
through primary care physicians, specialists in hospitals, home 
health programs, health education programs, pharmacies and 
clinical laboratories. Finally, at Kaiser Permanente, the 
entire organization is aligned in the pursuit of improved 
quality. In addition, to clinical integration, the delivery 
system operates in a close partnership with the insurance 
operations, especially those that affect care delivery such as 
benefit design and the uses of capital. Why does all this 
integration and collaboration matter to health care consumers 
or purchasers? Let me cite just three examples.
    The multispecialty group model is uncommonly capable of 
coordinating care for patients with multiple chronic 
conditions, an already large population that is growing rapidly 
with the aging of America. For example, one in four Kaiser 
Permanente members with diabetes also suffers from coronary 
artery disease or heart failure. Because we can coordinate care 
across specialties in a single setting, we can meet virtually 
all of our patients' needs in a tightly coordinated way. Our 
success at doing so is evident in our chronic disease 
prevention and management quality measures as rated by the 
National Committee for Quality Assurance and others. 
Integration from patient education to early intervention to 
critical care is evident in the way we address the problem of 
heart disease. In our Northern California region, thanks to 
more than a decade-long program to implement systematic, 
evidence-based programs of chronic condition management, heart 
disease is no longer the leading cause of death for that 
region's 3.5 million members, although it remains so for the 
non Kaiser Permanente population.
    Finally, our integrated delivery model is an ideal 
environment for reaping the extraordinary benefits of clinical 
IT. We are convinced that IT is the key to dramatic 
improvements in patient safety, health outcomes and health care 
resource utilization. This is why we are investing more than $3 
billion over the next few years to implement a state-of-the-art 
clinical information system everywhere that our patients are 
treated throughout our program. So, how can the Federal 
Government help transfer the lessons we have learned at Kaiser 
Permanente about improving care to other delivery systems and 
providers?
    First, the Federal Government can play a key leadership 
role in promoting the development of more sophisticated, 
evidence-based quality measures, widely adopted measures 
against which plans and providers can be held accountable. Such 
accountability, we believe, promotes integration. Second, the 
Federal Government can further promote a quality-driven health 
care market by using and encouraging other public and private 
purchasers to employ financial incentives related to 
performance on the same measures. Third, widespread use of 
state-of-the-art IT is vital to the kind of transformation of 
the health care delivery system envisioned by the Institute of 
Medicine in its 2001 report, Crossing the Quality Chasm. Both 
public and private purchasers need to support that 
transformation through provider and delivery system incentives. 
Finally, recognizing the importance of expanding the science 
base of medicine, last year's MMA included a provision to 
authorize the AHRQ to initiate a research agenda to compare the 
relative effectiveness of prescription drugs and other 
interventions designed to treat the same condition, a valuable 
step toward better quality in efficiency. I want to urge the 
Congress this year to make at least $75 million in fiscal year 
2005 available for that effort. Thank you for the opportunity 
to address you.
    [The prepared statement of Dr. Crosson follows:]

 Statement of Francis J. Crosson, M.D., Executive Director, Permanente 
                    Foundation, Oakland, California

    Madame Chairwoman, Representative Stark, members of the 
Subcommittee, I am honored to be here today to testify before you on 
health care quality, an issue that is sure to grow in significance as 
the nation grapples with the challenges of the uninsured, the growth of 
health care costs, and delivery system reform. My name is Dr. Francis 
J. Crosson. I am the Executive Director of the Permanente Federation, 
the national organization of the Permanente Medical Groups. Today, I am 
speaking on behalf of Kaiser Permanente, one of the nation's leading 
health plans and its largest private-sector health care delivery 
system. Kaiser Permanente provides health care coverage and medical 
care to more than 8.3 million members in nine states and the District 
of Columbia. The Permanente Medical Groups include more than 12,000 
physicians, who are supported by approximately 125,000 professional and 
administrative employees.
    In my remarks today, I want to share some information and 
observations about what we at Kaiser Permanente believe are the key 
challenges to improving American health care. I will also discuss how 
Kaiser Permanente is responding to these challenges through our 
integrated, team-based care delivery model, innovative care processes, 
state-of-the-art information technology, evidence-based provision of 
pharmaceuticals, and an overarching focus on preventive care and the 
achievement of health, in addition to the improvement in quality of 
life for those with chronic conditions. I will conclude my remarks with 
some suggestions for ways in which we believe health care 
policymakers--not only the government but the large purchasers of 
health care, as well--could contribute to the goal of creating a 
stronger, more effective and more efficient health care delivery system 
for all Americans.
    The Institute of Medicine's (IOM) 2001 report, Crossing the Quality 
Chasm, provides a very useful review of many of the shortfalls of the 
American health care delivery system. As the ``Chasm'' report states, 
``If we want safer, higher-quality care, we will need to have 
redesigned systems of care, including the use of information technology 
to support clinical and administrative processes. . . . The current 
care systems cannot do the job. Trying harder will not work. Changing 
systems of care will.''
    Improved systems of care, strengthened by the power of information 
technology: That, in a nutshell, is the IOM's prescription for crossing 
the great ``quality chasm'' that persists in American health care.
    Across America, there are a number of models of systematic health 
care delivery systems, based on multispecialty group practice, that are 
producing encouraging results and warrant close attention. For more 
than half a century, Kaiser Permanente has systematically promoted the 
dynamic integration of patients, physicians and other clinicians across 
the entire delivery system, along with a commitment to evidence-based 
medicine. Today, I am pleased to tell you, we are leveraging the power 
of that integration by investing more than two billion dollars in a 
state-of-the-art clinical and administrative information system. Within 
three to four years, virtually all of our 8.3 million members, and all 
of our physicians and ancillary staff--nurses, lab technicians, 
pharmacists, radiologists, care managers and others--will have access 
to a comprehensive electronic medical record system with powerful 
decision support capabilities.

A New Care Paradigm
    But new systems of care, even those leveraged by powerful IT 
systems, will not be enough to keep pace with the changing, 
accelerating demands of today's and tomorrow's health care consumers. 
To meet those demands--especially the needs of an aging population 
beset with multiple chronic conditions--a new paradigm of care is 
required. Tomorrow's systems of care must be held accountable, through 
widely endorsed standards of quality and efficiency, not only for the 
``sick care'' they provide--the treatment of heart attacks, strokes, 
fractures, infections and other acute, episodic events--but even more 
importantly for the way in which such systems are focused on the cost-
efficient promotion of overall health and quality of life. There is now 
compelling scientific evidence that, through concerted, systematic 
action, chronic conditions such as diabetes and heart disease need not 
result in an inevitable progression to debility and death. In the 
health care system of the future, even the very near future, the valid 
metric of accountability must be expressed not merely in units of 
health care provided, but most importantly in terms of the overall 
dimensions of health.
    Kaiser Permanente has made significant strides toward the 
realization of the kind of IT-enhanced, integrated care system 
envisioned by the IOM. In addition, because of our more than half a 
century of experience with population-based care, we have continually 
sought ways to move the focus of care from the downstream demands of 
acute, invasive--and increasingly costly--episodic care to the rich, 
upstream potential of prevention, care management, and strategies to 
maintain the health and quality of life of our members. I would like to 
share with you some examples of Kaiser Permanente's innovative 
approaches to improving quality and the results we have achieved. 
Today, I will focus on the areas of chronic care management, the use of 
clinical information systems, pharmaceutical use management, and elder 
care. In addition, I would like to offer some observations about how 
our integrated system of care has enabled us to achieve dramatic 
strides in these areas.

Chronic Care Management: The Challenge of Our Era
    As you know, chronic and complex conditions are now the leading 
cause of disability, acute illness, and death. As the IOM has noted, 
they affect nearly 1 in 2 Americans, and they consume the lion's share 
of all health care expenditures (Hoffman et al., 1996; The Robert Wood 
Johnson Foundation, 1996). Among Kaiser Permanente's non-Medicare 
members in our Northern California region, individuals with chronic 
conditions account for two-thirds of all costs, and the share is 
significantly higher for our Medicare members. For Kaiser Permanente, 
as for almost any other health care organization offering comprehensive 
benefits, the ability to deliver high-quality care efficiently to this 
population is an imperative.
    To meet that imperative, in 1997 we created the Kaiser Permanente 
Care Management Institute, a program-wide resource that works with 
regional experts to identify, disseminate and support the adoption of 
evidence-based best practices. Tools provided to physicians and members 
include evidence-based care guidelines, medication protocols, 
participation in interdisciplinary care teams that identify ways to 
manage patients who have more than one chronic condition, and ``beyond 
the exam room'' support for members to make and sustain lifestyle 
changes that can reduce their burden of illness, such as smoking 
cessation, weight management, increased physical activity, and dietary 
counseling.
    Comprehensive, team-based programs are being developed for the 20 
most common, high-impact conditions identified as priorities by the 
IOM. By facilitating the development and diffusion of this knowledge 
base throughout our organization, we have moved the average performance 
of all eight KP regions on many key metrics of quality to a level that 
significantly exceeds what had been the peak performance level of the 
very best KP region just three to six years ago. Each year brings 
further advances at the leading edge of performance. For example:

      Coronary artery disease (CAD)--Unlike the rest of the 
United States, heart disease is no longer the leading cause of death 
for members in Kaiser Permanente's Northern California region. Focused 
efforts in managing heart disease over more than a decade have reduced 
mortality from heart disease for these 3.5 million Americans by 30 
percent, so that it is now the second leading cause of death, behind 
cancer.
      Diabetes--Control of blood sugar in members with diabetes 
has increased steadily since 1996. Between 1996 and 2002, 37,000 more 
members with diabetes achieved a good level of control. This will 
translate into significantly fewer complications. For example, if these 
same 37,000 members maintain a good blood glucose (sugar) level over 
the next 10 years, at least 875 of them would greatly reduce their risk 
of blindness. The rates of stroke and of amputations would also 
decrease.
      Heart failure hospitalizations--The rate for heart 
failure hospitalization declined by 18 percent between 1998 and 2002, 
to 2.3 per 1,000 KP members.
      Asthma--Since 1997, rates of hospitalization and 
emergency room visits for asthma have fallen 21.1 and 48.8 percent 
respectively.

    The IOM has set the goal--research and pilot studies will help lead 
the way--but true success for Americans needs to be defined as getting 
the whole population across the quality chasm through organized, 
efficient systems of care. There is growing evidence that broad 
systematic pursuit of such performance improvements results in enhanced 
value (quality as a function of cost) to whole populations of consumers 
and health care purchasers:

      While the cost of caring for a KP member with heart 
failure is on average four times as much as caring for a similar member 
without heart failure, pursuit of improved care management 
significantly improves overall quality for all members in this 
population. At the same time, this relative marginal cost for the 
entire population of KP members with heart failure has remained steady 
or gone down slightly.
      Similarly, the relative cost of caring for all members 
with diabetes, coronary artery disease, depression, and asthma, 
compared with caring for similar members without these conditions, has 
remained steady or declined as substantial improvements in quality 
measures and health outcomes have been achieved.
Information Technology: The Electronic Medical Record and More
    We are convinced that the achievements we have already realized in 
chronic care management will be significantly accelerated by the 
ongoing implementation of what we call KP HealthConnect, a large, 
integrated suite of clinical and administrative information systems 
that is being deployed across all KP regions. KP HealthConnect (like 
similar IT systems at other organizations) is the vital lynchpin of 
care improvement efforts in virtually all areas of sub-optimal quality: 
underuse, overuse, and misuse. A few examples:

      Reducing underuse: Whenever diabetes patients come to our 
pharmacies for supplies in our Colorado region, where an automated 
clinical information system has been deployed for more than five years, 
KP pharmacists are able to review an electronic diabetes flow sheet 
that indicates which patients are due for required lab tests and then 
order them electronically at the same time the supplies are dispensed.
      Reducing Overuse: Evidence indicates that when care 
guidelines are embedded in automated systems, patients spend less time 
on ventilators and are discharged sooner from ICUs. In ambulatory 
settings, the use of antibiotics for patients with viral upper 
respiratory infections has significantly declined in our Colorado 
region, and unnecessary imaging procedures have been reduced in our 
Northwest region, which piloted an early version of KP HealthConnect.
      Reducing misuse: Data from our Northwest region shows 
virtual elimination of preventable drug/drug interactions and a 
significant decline in adverse drug reactions by using automated drug 
order entry in our clinical information system.

    Perhaps the greatest power of KP HealthConnect, or any such system, 
is its ability to help move the primary locus of care beyond the 
confines of the exam room or hospital and into members' homes and 
workplaces. The average KP member may spend only 1-2 hours each year in 
KP facilities (a few office visits and no hospitalizations). The 
remainder of the time, they oversee their own care or receive care from 
family members and friends. A clinical information system with web-
based access enables them to ``visit,'' or interact with, the KP health 
care system whenever they want and for whatever length of time is 
required.

Ubiquitous Care Via Web-Accessed Electronic Medical Records
    In short, web-accessed clinical information systems will touch 
patients wherever they are, whenever they need it, enabling far greater 
patient engagement in their own health care. It will not only link 
patients to their health records and their care teams, but it will 
enable care teams to work more efficiently and productively, even 
remotely. Importantly, it will link all health care practitioners and 
patients to the continuously expanding body of medical knowledge, and 
help process that knowledge into clinician- and patient-usable 
information at the point of care, promoting greater patient involvement 
and shared decisionmaking. Finally, it will continuously monitor the 
efficiency and outcomes of care processes, target interventions to 
improve processes where necessary, and measure outcomes again following 
the interventions--the real-time transfer of research into practice.
    This broad array of performance improvement activities requires 
much more than a simple electronic medical chart. KP HealthConnect also 
enables ambulatory and inpatient scheduling, registration, admission, 
discharge, transfer systems, and billing and claims management. It 
greatly enhances inpatient pharmacy management, and it includes 
specialized modules for emergency department and operating room 
management and documentation. With a web-based ``front end,'' it can be 
used by any physician with Internet access and appropriate 
authorizations anywhere in the world. All personal health records will 
be fully protected in our secure network and fully compliant with all 
HIPAA regulations. A web-based front end for members, tailored to their 
specific needs based on their age, sex, and medical problems, enables 
them to review their own medical records, see their laboratory and x-
ray results (once reviewed by their physician), make appointments, see 
a list of their current and past medications, refill their 
prescriptions, review all instructions given to them by their 
physician, make notes in their medical record, and communicate via 
secure email with members of their health care team. All of these 
systems are available 24 hours a day, 7 days a week, and they are 
available in multiple locations simultaneously.
    When fully deployed, a KP member will be able to seek care in any 
region and know that all of their medical information is available to 
the practitioner they are seeing. In addition to member's health 
information, practitioners will be provided a wide variety of decision 
support tools at every moment they are caring for our members. This 
will include automatic prevention alerts and reminders, health and 
wellness reminders, automatic alerts related to all allergies, 
including drug allergies, and notification about drug interactions--all 
initiated as prescribing occurs. Evidence-based guidance for care 
related to common and serious conditions, including chronic conditions, 
will be instantly available.
    Clinical information systems such as KP HealthConnect represent the 
launching pad from which health care will be propelled across the 
quality chasm and into a healthier future. I am proud that my own 
organization is a leader among those multispecialty group practiced-
based organizations that are in the vanguard of this endeavor, but it 
is vitally important that the rest of American health care following 
this lead.

Putting Data in the Driver's Seat for Pharmacy Services
    Quality problems related to overuse, underuse and misuse are 
nowhere more challenging than in the area of prescription drug 
utilization, where clinicians must contend with a constantly expanding 
armamentarium of new pharmaceuticals. New drugs account for billions of 
dollars in added costs to total health care spending every year, and 
while some represent valuable, less invasive alternatives to existing 
products or procedures, many others offer only marginally enhanced 
benefit, if at all.
    Integrated health care systems, enhanced by clinical information 
systems, can serve as a powerful antidote to the costly problems of 
drug overuse, underuse and misuse. In Kaiser Permanente, the linkage of 
prescription data with diagnosis and encounter data has enabled our 
Pharmacy Outcomes Research Group to continually evaluate pharmaceutical 
manufacturers' claims regarding the efficacy and cost-effectiveness of 
pharmaceuticals.

Example: Beta Agonist Inhalers
    A good example of our use of computerized data to improve outcomes 
for our patients and control overall health care spending is a program 
that evaluates asthma patients and compares their use of beta agonist 
inhalers that provide quick relief but no real improvement in the 
underlying disease as opposed to inhaled corticosteroids that improve 
the patient's health by addressing the cause of the symptoms. 
Physicians are able to monitor the pattern of use for each patient, and 
they can address misunderstandings and other potential adherence issues 
with patients who do not appear to be following the prescribed regimen. 
In addition to improving our members' health, these interventions can 
save money by eliminating the need to change a patient to a more 
expensive agent when the reason for treatment failure is non-compliance 
rather than ineffectiveness of the medication.
    Available information technologies can be particularly useful in 
assuring that pharmaceuticals are prescribed in the highest quality and 
most cost-effective manner in the first instance. A wide variety of 
prescription drug therapies are available for many chronic medical 
conditions. Information systems have the ability to translate the best 
available medical evidence into support tools for physicians faced with 
making complex prescribing decisions for patients with differing health 
needs. If best practices based on both the individual patient and drug 
characteristics can be identified, information technology accessing all 
available clinical data can provide the physician with the relevant and 
timely data needed to make a quality decision. Systems have already 
been developed in the group practice environment to provide this 
information in the physician's office at the time of the patient 
encounter to make it easier for physicians to do the right thing at the 
right time when prescribing drugs.

Example: Cox-2 Inhibitors
    An excellent example of this is the development of a scoring tool 
to assist physicians in targeting the use of the Cox-2 inhibitor drugs 
in the class of nonsteroidal anti-inflammatory drugs (``NSAIDs'') used 
for treatment of osteoarthritis. Many excellent NSAIDs have long been 
on the market and are now generically available. Medicines in the newer 
Cox-2 inhibitor group of NSAIDs are now widely prescribed. Medical 
evidence indicates that these drugs, which are no more effective than 
older NSAIDs at relieving pain and inflammation, have a somewhat lower 
incidence of gastrointestinal side-effects, and as a result reduce the 
likelihood of severe gastrointestinal bleeding in patients who are at 
high-risk of such bleeding. But only about 3-4 percent of NSAID users 
are at high risk of this bleeding, while nationally, outside of KP, 
Cox-2 inhibitors are currently prescribed more than 50 percent of the 
time for new NSAID users. There is virtually no advantage in using 
these drugs outside of the high-risk population.
    Researchers at Stanford University, collaborating with Kaiser 
Permanente physicians, developed a scoring tool to identify high-risk 
patients prospectively, based on a series of research-defined and 
validated risk factors, to assure that these patients are treated with 
Cox-2s or other lower-risk alternatives, and to promote the use of 
traditional anti-inflammatory agents in patients for whom Cox-2s 
provide no advantage. Initially established as a manual questionnaire, 
Kaiser Permanente's pharmacy operations team in California developed 
information systems to automatically query Kaiser Permanente's 
enrollment systems, laboratory systems, pharmacy systems and hospital 
systems to automatically score all California KP patients for 
gastrointestinal risk each night. A score, based on up-to-date data, is 
provided to physicians at the time of seeing a patient to support 
appropriate prescribing, if an NSAID is called for during the patient's 
visit. This has resulted in a Cox-2 prescribing rate within KP of 
approximately 6 percent, very close to the expected target for optimal 
prescribing, assuring both the patients at high-risk and those at 
lower-than-high risk for gastrointestinal bleeding are appropriately 
treated.
    Even this single example has major implications for the health care 
system. Cox-2 inhibitors are prescribed nationally 10 times more often 
than is medically necessary, at a per-prescription cost 10 times that 
of the available generic alternatives. Cox-2 inhibitors alone consume 
more than $5 billion annually across the United States. More 
appropriate prescribing in this single class could reduce unnecessary 
U.S. drug spending by more than $4 billion annually--money that could 
be better used for other health care purposes.

Caring for Our Senior Members
    Almost 900,000 of Kaiser Permanente's members are 65 years of age 
or older, and 70,000 KP members are over 85. Most are Medicare 
beneficiaries who have been with Kaiser Permanente for decades. We know 
these numbers will increase dramatically in the years ahead, both for 
Kaiser Permanente and across the entire landscape of American health 
care. How are we to deal with what we know will be monumental 
challenges in the care of the elderly, especially those with multiple 
chronic conditions?
    Again, we believe that integrated systems of care, enhanced by 
information technology, will provide a critically important part of the 
answer.
    The challenges in care for the aging already are enormous. There 
are well documented quality problems in the care for the common age-
related conditions that greatly affect older adults' independence and 
quality of life--conditions such as falls, Alzheimer's disease and 
other dementias, incontinence, and depression. As anyone responsible 
for a seriously ill, older relative knows, there are failures in 
continuity of care when older adults move from one site of care to 
another, such as from hospital to home or skilled nursing care 
facility.
    To assess the extent of the problem, RAND's ACOVE project 
(Assessing Care of Vulnerable Elders), using evidence in the literature 
and the consensus of nationally recognized experts, developed minimal 
standards or quality indicators for the care of those older adults who 
are at a four-fold risk of death or functional decline within two 
years. Thirty percent of elders are in this ``at risk'' category.
    ACOVE also developed quality indicators for the care of 22 
conditions at a system level, not individual patient level. The 
conditions included the care of diseases like diabetes, heart failure 
and high blood pressure, but also age-related or geriatric problems 
such as falling, incontinence, dementia, continuity of care, hospital 
care, chronic pain and end-of-life care. The quality measures covered 
four aspects of care--prevention, diagnosis, treatment and followup.
    As part of the study, the medical records of over 400 vulnerable 
older adults were reviewed to evaluate the quality of care they 
received. The findings are startling. Only 52 percent of the time did 
vulnerable elders receive recommended care for common medical 
conditions like diabetes mellitus, high blood pressure, and heart 
failure. They received recommended care for the age-related conditions 
such as dementia, falling and incontinence only 31 percent of the time.
    Kaiser Permanente firmly believes that our integrated program and 
our systematic approach to care is an exemplary model for the provision 
of quality care to older adults. We are currently investing significant 
resources to build and test even better ways to care for these members.

Kaiser Permanente's Aging Network
    The cornerstone of our elder care program is the Kaiser Permanente 
Aging Network (KPAN). It is made up of physicians, nurses, outside 
business people and many others, including community-based 
organizations and academic geriatric experts. This group is charged 
with recommending strategies and developing specific tactics to improve 
the quality of care to our older members. KPAN works in close 
cooperation with Kaiser Permanente's Care Management Institute (CMI) 
(see above), which has established the elderly as a priority 
population. CMI develops guidelines and identifies model approaches to 
improving care. CMI's Elder Care work includes population screening and 
appropriate follow up, chronic care, dementia care, care for people 
with advanced illnesses, care in nursing homes, reducing the use of 
medications considered high risk in older adults, care at transitions 
and care at the end of life.
    Following are just a few examples of accomplishments in this area:

      Dementia is a condition that afflicts one in ten people 
over 65 and nearly half of people over 85. There are quality deficits 
in the early detection and diagnosis of dementia as well as in the 
education, support and followup care that is required once the 
diagnosis is made. Kaiser Permanente has collaborated with local 
Alzheimer's Association chapters to develop model approaches and 
systems of care to ensure that our members with dementia and their 
families reliably are linked with community resources. The 
collaboration is the result of both Kaiser Permanente and the 
Alzheimer's Association recognizing that most people with Alzheimer's 
and other dementias are not receiving appropriate care, from proper 
diagnosis and treatment to information about their condition and 
referrals to vital community services. New programs are growing 
throughout Kaiser Permanente to make the entire care process for people 
with dementia reliable and not subject to chance. A study among 
Alzheimer's disease patients in our Ohio region found that if patients 
were reliably referred to the Alzheimer's Association there was higher 
family satisfaction and less use of emergency and hospital services. 
The Alzheimer's Association has hailed Kaiser Permanente's work and 
programs as ``a 21st century model for the nation's health care 
system.''
      Kaiser Permanente's Care Management Institute has 
identified as a priority the reduction in the use of medications that 
present high risk to older adults because of the presence of multiple 
medical conditions, slower metabolism, and greater sensitivity to side 
effects. Examples are medications that can cause confusion, falls, 
gastric hemorrhage and very low blood sugar. Some of these medications 
are categorized as being acceptable for short-term use but others are 
in an ``always avoid'' category. Targeted educational efforts have been 
instituted. Reminders are electronically generated and placed on 
medical records to prompt physicians to consider discontinuing risky 
medication. There has been progress throughout the program in reducing 
these medications. The most dramatic results have been in the Northwest 
Region where an electronic medical record has been is use for years. 
There, the use of ``always avoid'' medications is the lowest within 
Kaiser Permanente and improvement continues. Computers immediately 
prompt physicians and suggest safer alternatives if a risky medication 
is being ordered. This means that fewer older adult members are being 
exposed to risky medications.

    In conclusion, I must again quote from the IOM's outstanding 2001 
report, Crossing the Quality Chasm: ``What is perhaps most disturbing 
(in the present health care environment) is the absence of real 
progress toward restructuring health care systems to address both 
quality and cost concerns, or toward applying advances in information 
technology to improve administrative and clinical processes.'' Kaiser 
Permanente could not agree more: Restructuring health care delivery 
into genuine systems of care, and supercharging those systems through 
the widespread use of information technology, is the right prescription 
for getting America across the quality chasm. It is the route that 
Kaiser Permanente has pursued, and we strongly encourage all others to 
join in leading the way to IOM's vision of a safer, more timely, more 
effective, more efficient, more equitable, and more patient-centered 
health care system for all Americans.

Recommendations
    To promote the ideal health care delivery system envisioned in the 
IOM's ``Crossing the Quality Chasm'' report, all health care 
stakeholders--physicians, health plans, consumer groups, purchasers, 
and government agencies--need to become engaged in a broad array of 
quality and efficiency improvement efforts. In the interests of both 
brevity and focused impact, I will limit our recommendations for 
federal government leadership to four key areas:

      Federal agencies can play a key leadership role in 
promoting and facilitating the development of a set of widely endorsed, 
evidence-based health care quality standards and measures against which 
plans and providers can be held accountable by their payors and 
consumers.
      The Centers for Medicare and Medicaid Services could help 
promote the creation of a quality-driven health care market among both 
public and private purchasers by developing a financial incentive 
system tied to the kind of widely endorsed, evidence-based quality 
standards and measures suggested above. CMS could take a very valuable 
leadership role in bringing about financing reforms that finally link 
pay to performance.
      Information technology is a vital key to the kind of 
transformation of the health care delivery system promoted by the IOM. 
Both public and private purchasers need to support that transformation 
by creating incentives for providers and delivery systems to purchase 
and deploy clinical and administrative information systems. In 
addition, a vitally important role exists for the federal government to 
promote and facilitate the interoperability of information systems so 
that, in the not-too-distant future, the entire American health care 
system can communicate and share information through a common language.
      Evidence-based medicine is only as good as the science on 
which it is based. When deciding how best to treat a particular 
patient, physicians frequently have two or more options from which to 
chose. All too often, strong empirical evidence does not exist to help 
the physician make the right choice for the individual patient they are 
treating at that moment. Last year's Medicare Modernization Act 
included a provision to authorize the Agency for Health Care Research 
and Quality to undertake a research agenda designed to compare the 
relative effectiveness of different interventions designed to treat the 
same condition. This year, it is vital that the Congress make at least 
$75 million in FY 2005 available for this effort. Additionally, given 
the increasing importance of prescription drugs in treating patients 
and their rapidly rising costs, comparative effectiveness research on 
prescription drugs should be the first priority.

                                 

    Chairman JOHNSON. Thank you very much, Dr. Crosson. Mr. 
Kahn.

  STATEMENT OF CHARLES N. KAHN, III, PRESIDENT, FEDERATION OF 
                       AMERICAN HOSPITALS

    Mr. KAHN. Thank you, Madam Chairman. It is my pleasure to 
testify today on behalf of the Federation of American 
Hospitals. Hospitals should act effectively, assertively and 
continuously to improve performance. One of the keys to 
improving performance is developing objective and comparable 
measurement of care and reporting that measurement. With 
reporting, clinicians and hospitals can improve services and 
patients can obtain information for making better informed 
medical decisions. Many third-party payers, employers, 
government entities and accrediting agencies have been 
developing quality measurements of hospital performance. The 
movement is both understandable and positive. However, the 
varied approaches taken by these groups are likely to produce 
mixed results and possibly even conflicting findings. 
Additionally, the potential new ask-fors for hospitals are 
myriad and will create new costs and unpredictable demands on 
an already pressed hospital system.
    To assure success of these new efforts for measurement in 
reporting, the Federation took the lead with the American 
Hospital Association and the Association of American Medical 
Colleges to forge the Quality Initiative--a Public Resource on 
Hospital Performance. The CMS, AHRQ, Joint Commission on 
Accreditation of Healthcare Organizations, the AFL-CIO and the 
AARP joined us in initiating this program. The purpose of our 
collaborative voluntary effort is to establish a shared 
strategy for hospital quality measurement and public 
accountability. Together, the initial partners as well as other 
groups who have joined later are building a national uniform 
framework that provides valid and useful performance data. This 
framework will give us a dynamic process for continuously 
refining and adding data for collection and dissemination. It 
will contribute to improving hospital care and will provide the 
public with meaningful information for medical decisionmaking.
    Beginning in May of 2003, we asked all hospitals in the 
country to submit data to CMS that will be used to compare 
performance on treatment for cardiac conditions and pneumonia. 
As of last month, almost 3,000 of the Nation's hospitals have 
pledged to participate in the Quality Initiative. This 
represents about 70 percent of all eligible hospitals and more 
than three-quarters of all admissions to hospitals with a 
hundred beds or more. Currently, about 1,400 hospitals have 
posted on the CMS website at least 1 of the 10 measures, and 
almost 500 hospitals have reported all 10 quality measures. We 
expect later this year that there will be a significant 
increase in the number of hospitals reporting with the added 
incentive of receiving full market basket payment offered in 
the MMA for hospitals that report the current 10 measures.
    These 10 measures are just the first step in building a 
national, standardized hospital quality measures database. Over 
the next year, our partnership will ask hospitals to submit 
additional performance measures. From there, based on meetings 
with key stakeholders and meetings across the country, CMS will 
identify other hospital performance measures that are feasible 
for hospitals to collect and report. I am pleased to report 
that virtually all of the Federation's acute care hospital 
members participate in the Quality Initiative. Even before the 
enactment of the MMA, our largest members had a 100 percent 
participation. We are proud of the Federation's role in 
advancing this ground-breaking initiative.
    The Quality Initiative recognizes the patient's perception 
of their treatment is as important as the quality of the care 
they receive directly. The Quality Initiative will encourage 
hospitals to participate in the CMS patient experience survey 
that now is underdeveloped with AHRQ. We are all working 
together with the backing of consumers as well as providers to 
produce the best research tools to give the public objective 
and comparable information on the patient experience in 
hospitals. Obviously, hospitals are taking the initiative in 
other areas to improve performance. For example, one of our 
large systems is at the forefront of adopting bar coding and 
computerized physician order entry, both for administering and 
ordering drugs, but the successes and pitfalls of their 
experience illustrate opportunities and challenges of the 
critical path toward significantly improving the quality and 
safety of hospital care. First, with the impetus of the new 
Food and Drug Administration regulations and adoption of proven 
technology, this large system is adapting bar coding for all 
its hospitals. So, from the pharmacy to the bedside, the 
likelihood of error in dispensing of drugs is lowered 
significantly. Bar coding can be a success with the tools now 
available to hospitals.
    Despite the strong case for computerized physician order 
entry, here the obstacles are undeniable and illustrative. 
There is no readily usable off-the-shelf technology. This is a 
problem that will resolve itself over time. However, there are 
also daunting IT questions. Computer physician order entry, to 
work as it should, depends on a medical record that is largely 
electronic. That is not a reality today. Finally, there is the 
issue of physician participation. Even if a hospital can solve 
all the technical and IT concerns, the initial ventures with 
computer physician order entry have generally met with 
insufficient physician cooperation. Hospitals have much control 
over the resources and technology so important to quality care, 
but the most important factor in improving patient care is a 
successful partnership between hospitals and medical staffs. To 
make the reporting initiative as well as our other efforts best 
serve the patients, hospitals and physicians must work 
together. Thank you.
    [The prepared statement of Mr. Kahn follows:]

 Statement of Charles N. Kahn, III, President, Federation of American 
                               Hospitals

    On behalf of the Federation of American Hospitals (FAH), I am 
pleased to offer our views on new frontiers in health care quality. FAH 
is the national representative of investor-owned or managed community 
hospitals and health systems throughout the United States. Our members 
include general community hospitals and teaching hospitals in urban and 
rural America.
    It is the mission of FAH member companies to provide high quality 
care to the patients we serve. It is the responsibility of hospitals to 
provide high quality care and safe environments, and we believe that 
informed consumers will make better personal health care choices. 
Today's hearing provides a good opportunity for us to describe what 
hospitals are doing to enhance the quality of medical care and to 
better inform American consumers of their health care choices.

Background

    FAH has taken an active role in advancing policy initiatives to 
improve the safety and quality of hospital care in this country, and to 
promote the availability of patient information in a hospital setting. 
Our Board of Directors has adopted policies regarding principles for 
patient safety reporting systems; methods for reducing medication 
errors; requirements for creating effective quality measures; and most 
recently, the reporting of such measures to the public.
    We are entering an important period in the evolution of quality 
performance measurement, improvement and reporting. There is a growing 
commitment to evidence-based care by clinicians. There is growing 
energy and momentum surrounding health care consumerism fueled by an 
increase in cost sharing and new insurance coverage alternatives like 
health savings accounts, and the Internet has made it possible to 
disseminate information about medical care services broadly for the 
first time.
    By all accounts, the American public wants and needs more 
information about medical care. A public opinion survey conducted for 
FAH last fall found significant support for a website that evaluates 
hospitals about the treatment of certain diseases and new procedures. 
Almost half of survey respondents--48 percent--said that this 
information either could be the most significant factor, or an 
important factor, in helping them decide which hospital to choose for 
care.

A Myriad of Hospital Quality Information Exists Today

    From our point of view there are two primary objectives for the 
collection of information about on hospital quality measures. First, 
and foremost, such information can serve as a critical tool for 
clinicians and hospitals to learn about their performance so that 
improvements in care can be made. And second, such information can 
enable consumers to make better health care decisions.
    Despite the best of intentions, the myriad of hospital quality 
performance reporting efforts that exist today are working at cross-
purposes regarding these two objectives. These varied approaches are 
producing incomplete, poorly analyzed, conflicting and even misleading 
information for clinicians, hospitals and consumers alike. They also 
are creating expensive, burdensome and unpredictable requirements on 
hospitals.
    Individual states, insurers and other payers, the business 
community, consumer organizations, commercial enterprises, the Joint 
Commission on Accreditation of Health Care Organizations (JCAHO), and 
the National Quality Forum (NQF) all are advocating hospital reporting 
initiatives. However, many of these parties are proceeding on separate 
tracks. Clearly, we need a more rational and coordinated approach.
    As an example, state programs in New York, Pennsylvania and 
California focus performance measurement on coronary artery bypass 
graft (CABG) surgery mortality rates. Maryland, Rhode Island, 
Connecticut, and Texas have implemented state-wide hospital quality 
reporting programs that measure performance on a number of medical 
conditions.
    There are several private sector initiatives. For the last three 
years, The Leapfrog Group, representing several of the nation's largest 
employers, has advocated that employees consider hospital performance 
by using three safety indicators before selecting their choice for 
care. A fourth ``leap''--a composite index of 27 individual safety 
measures endorsed by NQF--will be added later this year.
    Health plan initiatives include PacifiCare, a managed care plan 
that began publishing reports on individual hospital performance across 
56 quality measures, for 200 California hospitals. Commercial 
initiatives include J.D. Power and Associates and Health Grades, Inc. 
which have joined forces to develop a tool to measure and publicly 
recognize superior quality hospitals based on service and clinical 
excellence.
    All of these efforts are attempting to empower consumers with 
information to make them better decisionmakers about their care. 
However, the proliferation of sources of information, and the uneven 
nature of that information, raises many questions as to whether or how 
this consumerism model actually will work in practice.
    Clearly, hospitals and physicians must have valid and standardized 
information about their performance to allow them to assess areas where 
improvement is needed and compare their efforts to other hospitals. 
From today's myriad of hospital quality initiatives, there is no 
standardized information collected across all hospitals that can be 
used to compare and improve care.
    We also do not know how consumers will use information about 
hospital performance in their decisionmaking since patients generally 
choose hospitals based on where their physicians have admitting 
privileges and where the hospital is located. None of the current 
hospital reporting programs has addressed whether, or how, information 
about hospital performance relates to physician-patient decisionmaking.
    To begin a process to address these concerns, in 2003, FAH, along 
with the American Hospital Association and the Association of American 
Medical Colleges launched ``The Quality Initiative--A Public Resource 
on Hospital Performance.'' Working in conjunction with several public 
and private sector organizations, our purpose is to forge a shared 
national strategy for hospital quality measurement and public 
accountability. Together, we want to build a national uniform 
framework, available to hospitals, physicians, public and private 
payers and the public that provides valid and useful performance data, 
contributes to improving hospital care, and that provides the public 
with meaningful information for making medical decisions.
    In addition to the hospital groups, the initiating partners in the 
collaborative effort include the Centers for Medicare & Medicaid 
Services (CMS), the Agency for Healthcare Research and Quality (AHRQ), 
JCAHO, NQF, the AFL-CIO and AARP.
    Beginning in May 2003, every hospital in the country was asked to 
submit data to CMS that would compare their performance related to the 
treatment of cardiac illness and pneumonia. Ten specific measures were 
selected because they are supported by evidence showing their 
effectiveness, because many hospitals already collecting these data, 
and because these measures were agreed upon universally by medical 
experts, including the National Quality Forum.
    As of last month, almost 3,000 of the nation's hospitals had 
pledged to participate in The Quality Initiative. This represents about 
70 percent of all eligible hospitals in the country and more than 
three-fourths of all admissions to hospitals with 100 beds or more. 
Currently, about 1,400 hospitals have posted on the CMS website data 
about at least one of the 10 measures, including almost 500 hospitals 
reporting all 10 quality measures. We expect that later this year that 
there will be a significant increase in the number of hospitals 
reporting with the added incentive of receiving full market basket 
payment offered in the Medicare Modernization Act for hospitals 
reporting the current measures.
    These ten measures, however, are just the first step in building a 
national, standardized hospital quality measures database. Over the 
next year, our partnership will ask hospitals to submit additional 
performance measures related to cardiac illness and pneumonia. After 
that, hospitals will be asked to submit data assessing their 
performance on surgical infection prevention. From there, based on 
meetings with key stakeholders and experts across the country, CMS will 
identify additional high priority, evidence-based hospital performance 
measures that are feasible for hospitals to collect and report.
    I am pleased to report that virtually all of FAH members' acute 
care hospitals participate in The Quality Initiative. Even before the 
enactment of the Medicare Modernization Act that includes the added 
payment incentive, our largest members had 100 percent of their 
hospitals participating in the program. We are proud of the 
Federation's role in advancing this groundbreaking initiative.
    With the implementation of The Quality Initiative, we can begin to 
answer several questions, which, until now, have been academic. These 
questions include:

    1.  Will hospitals act on their reported results and implement 
changes to improve their performance? We certainly believe they will, 
that is why we have been proponents of this effort.
    2.  What will we learn about the role of physicians as the critical 
link between patients and hospitals? Hospitals and physicians must work 
collaboratively to improve quality; the medical staff and individual 
physicians will need to take leadership in the change. Furthermore, 
will the availability of comparable data on performance move 
physicians? This is the key to the success of the quality performance 
reporting program.
    3.  Is the information on hospital performance that is meaningful 
to clinicians also meaningful to consumers? And how will that 
information best be used in the critical physician-patient relationship 
where consumer choice is so integrally related to care and 
decisionmaking?
    4.  Can a national infrastructure be created and maintained that 
identifies valid, evidence-based and standardized measures applicable 
to all hospitals?
    5.  Finally, once we identify the best indicators of performance, 
how can the information be used in payment systems to reward those 
hospitals that excel?

    In addition to these ``macro'' questions, there also are a number 
of infrastructure issues that hospitals can address to improve their 
performance related to quality and patient safety.

Information Technology

    Bar-coding medications--as promulgated in final regulations by the 
Food and Drug Administration last month--will go a long way toward 
reducing medication errors, especially because unit dose packages are 
included. Our largest member, HCA, Inc., has fully implemented bar-
coded medications in 82 hospitals and is planning to have bar-coding in 
place in 186 hospitals by the end of the year. This relatively simple, 
low-cost technology has been extremely effective in virtually 
eliminating medication administration errors.
    On the other hand, while computerized physician order entry (CPOE) 
holds great promise in reducing medication errors and improving patient 
care--especially when integrated with other clinical data bases--a 
range of issues challenge broad implementation at this time. Off-the-
shelf software for CPOE just now is being developed, and presents 
significant cost and training requirements.
    However, the ultimate key to successful CPOE implementation depends 
on physician cooperation, engagement and compliance. Physician 
engagement and compliance has been difficult for two reasons--many 
doctors do not want to use new technology, and secondly, the technology 
actually can be slower to use than old-fashioned pen and paper, taking 
more of their time, not less. Because of these difficulties, HCA, Inc. 
is choosing a deliberate and cautious approach in implementing CPOE, 
beginning with three hospitals and a small number of physicians in 
each. Their goal is to pilot test CPOE in 10 hospitals by the end of 
2005.
    Finally, for hospitals to implement widespread quality reporting, 
it will become essential to be able to extract data from electronic 
medical records, rather than from paper. The increasing burden on 
clinical staff time to collect and report data will not be sustainable 
otherwise. We are encouraged by the Administration's National Health 
Information Infrastructure initiative and are pleased to participate in 
this groundbreaking effort. In addition, FAH is working with eHealth 
Initiative, a collaborative effort which has brought together 
hospitals, clinicians, employers, health plans, public health agencies, 
and healthcare information technology suppliers to work with the public 
sector to address barriers related to using information technology to 
improve the quality, safety and efficiency of healthcare.

Definition of a ``Good'' Quality Measure

    Another challenge to building a national framework is defining what 
constitutes a ``good'' quality performance measure. We believe that a 
``good'' measure must be based on widely accepted evidence that the 
practice improves performance, that it is feasible to collect without 
inhibiting hospitals ability to fulfill their primary mission of 
providing patient care, and that it is meaningful to users--clinicians, 
payers and consumers. Finally, a ``good'' measure must be one that all 
hospitals can implement so that it can be adopted universally.
    When evaluated against these criteria, many worthy ideas are just 
that--they do not yet and may never rise to the level of becoming 
standards for all hospitals. Examples of such efforts include the use 
of hospital intensivists and specific nurse staffing ratios. Neither is 
based on adequate or definitive evidence, nor would it be feasible for 
all hospitals to implement them.

Measuring Patient Experience of Care While Hospitalized

    Although not a measure of the quality of clinical care per se, 
patient satisfaction or experience while hospitalized is viewed by many 
as an aspect of hospital quality. Therefore, conceptually, FAH supports 
the inclusion of such information in The Quality Initiative.
    However, several issues need to be resolved before FAH can support 
the survey and its administration as currently proposed. The survey 
tool must be designed to provide consumers with useful information that 
has a demonstrated link to quality. Equally important, the survey 
should not repeat or duplicate current hospital survey efforts. 
Hospitals simply cannot afford to take on the additional cost of a 
redundant survey that does not lead to quality improvement in a 
hospital, especially given all the competing demands for the collection 
and reporting of other quality information. We are working with CMS and 
AHRQ to produce a process that is workable and practicable for 
hospitals.

A Coordinated and Cooperative Framework

    As I indicated earlier, many different types of organizations, both 
public and private, have begun hospital quality reporting initiatives. 
We strongly believe that these fragmented and disjointed efforts must 
be united under a common and standardized infrastructure so that 
consumers have access to common information that applies to all 
hospitals.
    Achieving this level of cooperation across so many players will not 
be easy. However, we believe that the greater good warrants that 
leaders of all stakeholder organizations support a single common 
approach. The three hospital associations, AHA, FAH and AAMC--along 
with CMS, AHRQ, JCAHO, and NQF--are working together to begin this 
process. FAH seeks to continue this collective effort, and we encourage 
others to join and strengthen our initiative, rather than begin or 
continue their own.

Conclusions

      Quality Initiative Will Provide Answers

    The hospital Quality Initiative will give policy makers the 
opportunity to observe and evaluate a number of important questions, 
including whether such information will result in improved performance 
by hospitals, and what information about quality is actually useful to 
medical professionals and consumers. FAH supports this initiative and 
is working hard to make it successful.

      Build a Common National Framework

    However, to achieve widespread hospital participation, there must 
be a coordinated and unified approach at the national level. All 
stakeholder organizations must support the use of the same measures or 
there will be mass confusion by the public, and an unreasonable burden 
placed on hospitals.

      Engage Physicians in Measuring Hospital Performance

    Hospitals and physicians need to work together to improve patient 
care. Improving hospital performance, whether through improved clinical 
care or the use of new technology, is dependent upon physician 
cooperation and support.

      Continue to Research Linking Payment and Performance

    It is good to provide incentives to participate in hospital 
reporting, but the reporting initiative is only one step toward 
improving performance. More testing and information is needed before an 
equitable, effective and efficient reimbursement system can be built. 
The first step is to determine if we are measuring quality correctly. 
After that, testing and demonstrations, such as the CMS demonstration 
project with Premier hospitals, are important and necessary second 
steps.
    I hope our comments have been useful to your deliberations today. 
Thank you for the opportunity to share our views. I am happy to answer 
any questions that you might have.

                                 

    Chairman JOHNSON. Thank you very much, Mr. Kahn. Ms. 
Burger.

 STATEMENT OF SARAH G. BURGER, CONSULTANT, NATIONAL CITIZENS' 
               COALITION FOR NURSING HOME REFORM

    Ms. BURGER. Thank you. The National Citizens' Coalition for 
Nursing Home Reform (NCCNHR), is a 27-year-old consumer 
organization whose mission is to improve the quality of care 
and life for nursing home residents. The Administration on 
Aging-funded National Long-Term Care Ombudsman Research Center, 
which supports 53 State ombudsmen and 1,000 paid local 
ombudsmen and 8,400 volunteers working to resolve resident 
complaints--is also at NCCNHR. Throughout its history, NCCNHR 
has had an active commitment to identifying and disseminating 
excellent care practices; and NCCNHR thanks the Subcommittee 
Chairman for this opportunity to present this part of our work. 
Every year a large part of our annual meeting is devoted to 
exposing long-term care ombudsmen, citizen advocates, residents 
and families to exemplary care practices that are replicable in 
their own communities across the Nation. One such opportunity 
presented itself in 1995 when we invited four providers who had 
previously not known each other to present their visionary 
ideas together on one panel. That event was the catalyst for 
the formation of the Pioneer Network of innovative practice 
providers in 1997.
    Nursing home residents and their families know good care 
when they receive it. Nursing homes have followed a hospital 
care model. Imagine at 80 or 85 years of age adjusting to a 
hospital-like institution's scheduling for the rest of your 
life, sometimes 1 to 5 years, even having someone else decide 
when you will go to the bathroom. This toxic approach to care, 
physically and mentally, destroys both residents and staff. The 
Pioneer Network's new vision of nursing homes is that this is 
not a hospital but your home. The long nursing home corridors 
are divided into small neighborhoods or households. Staff are 
no longer organized hierarchically by departments but divided 
into interdisciplinary teams in the households. Staff do not 
rotate among units but remain permanently with the household, 
developing strong relationships with the residents and their 
families. Staff don't perform a list of tasks on people--
bathing, eating, toileting, moving--but use residents' lifelong 
routines to guide care. A late riser gets to sleep in. Can you 
imagine trying to arouse a demented late rouser at 6:00 a.m.? 
It will take two people to do that wrenching work, which can be 
done easily by one aide using the resident's lifelong time of 
awakening in late morning. Food is not served hospital style on 
a tray but family style, and it is available whenever a 
resident wants it. How would you know if you were in this kind 
of a home? There is no urine smell, because people are toileted 
regularly. Residents don't cry out, because their needs are 
met--food, water, exercising, toileting, bathing and pain 
control. You see the same staff every day and know them. 
Administrators and directors of nursing have been there a long 
time. They know every resident and every staff member.
    You and your family are welcomed as part of the household. 
Spontaneity drives activities, and people are engaged. Good 
care is good business. For instance: toileting people according 
to their own individual needs saves money on diapers. One home 
saved enough to pay for another nursing assistant around the 
clock. Physical and chemical restraint use and antidepressant 
use diminishes. Nursing staff turnover (45 percent nationwide), 
and a very expensive item, in the nursing homes decreases. The 
cost of replacing a single certified nursing assistant is about 
$4,000. Supplemental food costs plummet. Food waste is minimal. 
Census remains full. Pioneer Network practices are the vision 
for residents Congress had in mind when it passed the Nursing 
Home Reform Act 1987 requiring facilities to provide nursing 
care and service to meet each resident's mental, physical and 
well-being. The CMS is so struck by this commonsense approach 
that they held a web cast on Pioneer Network practices on 
September 27, 2002; and I think there is another one coming up, 
by the way, this month at the end of March. This is a true 
partnership. Thank you.
    Chairman JOHNSON. Thank you very much to the whole panel.
    [The prepared statement of Ms. Burger follows:]

Statement of Sarah G. Burger, Consultant, National Citizens' Coalition 
                        for Nursing Home Reform

    The National Citizens' Coalition for Nursing Home Reform (NCCNHR) 
is a twenty-seven year old consumer organization, founded by Elma 
Holder, whose mission is to improve the quality of care and life for 
nursing home residents. The Administration on Aging-funded National 
Long-Term Care Ombudsman Resource Center--which supports the 53 state 
ombudsmen, 1,000 paid local ombudsmen, and 8,400 volunteers working to 
resolve resident complaints--is also at NCCNHR.
    Throughout its history, NCCNHR has had an active commitment to 
identifying and disseminating excellent care practices. NCCNHR thanks 
the Ways and Means Subcommittee Chairman, Congresswoman Nancy L. 
Johnson, and Members of the Subcommittee for the opportunity to 
spotlight this most rewarding part of NCCNHR's work.
    Every year a large part of NCCNHR's annual meeting is devoted to 
exposing long-term care ombudsmen, citizen advocates, residents, and 
families to exemplary care practices that are replicable in their own 
communities across the nation. One such opportunity presented itself in 
1995, when we invited four providers who had not previously known each 
other to present their visionary ideas together on one panel. That 
event was the catalyst for the formation of the Pioneer Network of 
innovative providers in 1997. The keys to the success of this story 
are: vision, stakeholder coalitions respectful of one another, 
including government, and commitment to change over time.
    Nursing home residents and their families know good care when they 
receive it. Nursing homes follow a hospital care model, yet in 1999 
about 75 percent of the residents lived in a nursing home from one to 
five years. Imagine at 80-85 years of age adjusting to a hospital-like 
institution's schedule for the rest of your life--even having someone 
else decide when you will go to the bathroom. This toxic approach to 
care and to life physically and mentally destroys both residents and 
the staff who care for them.
    The Pioneer Network's new vision of nursing homes is that this is 
not a hospital but your home.

      The long nursing home corridors are divided into small 
``households.''
      Staff are no longer organized hierarchically by 
departments, but divided into interdisciplinary teams in the 
households. Human resources are close to the residents.
      Staff are no longer rotated among units, but remain 
permanently with the household, so they develop good relationships with 
residents and families.
      Staff don't perform a list of tasks on people (bathing, 
eating, toileting, movement) but follow residents' lifelong routines in 
providing care. A later riser gets to sleep in, for example. Can you 
imagine trying to arouse a demented late-riser at six a.m.? It will 
take two people to do the work, which can be done by one later in the 
morning. The first experience is wrenching for all, the other is 
satisfying for both resident and staff.
      Staff don't make decisions for residents. Residents make 
their own decisions.
      Food is not served hospital-style on a tray, but family 
style, and it is available whenever a resident wants it.

    How would you know if you are in this kind of home?

      There is no urine smell because people are toileted 
regularly.
      Residents don't cry out because their basic needs--food 
water, exercise, toileting, bathing, pain control--are met.
      You see the same staff every day and know them. 
Administrators and Directors of Nursing have been there a long time. 
They know every staff member and resident.
      You and your family are welcomed as part of the 
household. Householders are out in the community.
      Spontaneity drives activities and people are engaged.

    Good care is good business. For instance:

      Toileting people according to their individual needs 
saves money on diapers. One home saved enough to pay for another 
nursing assistant around the clock.
      Physical and chemical restraint use diminishes.
      There is a decrease in the use of antidepressants.
      Staff turnover, which is about 45 percent nationwide, 
decreases. This is a tremendous savings when you consider that the cost 
of replacing a single certified nursing assistant is around $4,000.
      Supplemental food costs plummet. Food waste is minimal.
      Census remains full, increasing reimbursement.

    Pioneer Network practices are the vision for residents Congress had 
when it passed the Nursing Home Reform Act of 1987 requiring facilities 
to provide care and services to preserve each residents' highest 
practicable mental, physical, and psychosocial well-being. The Centers 
for Medicare and Medicaid Services (CMS) is so struck with the common 
sense of this approach that it held a Webcast on Pioneer Network 
practices on September 27th of 2002. This is a true partnership.
    Thank you Chairman Johnson and Members of the Subcommittee on 
Health for inviting NCCNHR to present the consumer view of good nursing 
home care and how to achieve it.

                                 

    Chairman JOHNSON. Ms. Burger, I will be interested to hear 
after that meeting if you all could begin focusing on how the 
current survey and certification system is a barrier to the 
development of the kind of care you espouse and what are the 
new ways, reflecting what we have heard from the other 
programists in other areas, that we could use to set a 
different survey and certification process in place to 
encourage the quality of care that you clearly are committed to 
and are succeeding in delivering. It has always distressed me 
that the government is only interested in sometimes very minor 
ways in which a nursing home doesn't do precisely what we think 
they should do. I had one--a nursing home cited because a stack 
of things on the top shelf was 2 inches closer to the ceiling 
than it should have been. We are talking 8 to 10 inches rather 
than 10 to 12, really absurd. Yet never--our law never allowing 
citing for achievement. I think we couldn't be getting where we 
are in other areas if the systems that we have been talking 
about today didn't also reward positive achievement as opposed 
to simply faulting either major or minor defects. So, I look 
forward to working with you on that.
    Ms. BURGER. Thank you very much.
    Chairman JOHNSON. Dr. Ho, in your testimony, you cited that 
in your plan you were able to reduce costs by 20 percent. 
Health care costs are approximately 20-percent lower and 
quality is approximately 20-percent higher and that, 
furthermore, health care cost trends are 14-percent lower in 
the value network. That is extremely significant, particularly 
in today's arena. I know you all have these figures. I just 
happened to pull them out more specifically from Dr. Ho's 
testimony. You also do a lot of work with Medicare patients, so 
I wonder if you have been able to achieve any of those kinds of 
statistics in your Medicare networks.
    Then you also make this comment on now page 4 that these 
programs enable PacifiCare to offer the appropriate level of 
care at the right--sorry, wrong paragraph--that their 
achievement rates--this is in terms of ace inhibitor--will 
double the national average reported in fee-for-service 
medicine. Why are we having so much more trouble implementing 
quality standards? Are we, across the board, all of you, are we 
having more trouble implementing these new standards in sort of 
the fee-for-service setting than we are in the systems setting? 
Are we--for those of you who offer both, are we able to either 
improve quality and reduce costs in each setting equally, or do 
we need to know that one system is better than the other or 
they could both be handled equally?
    Dr. Ho. Then anyone who wants to comment on that larger 
issue of to what extent does the system of delivery determine 
the outcome when in Medicare we do have two systems of 
delivery, fee-for-service and systems. Dr. Ho.
    Dr. HO. Thank you. There are some similarities. For 
example, in the disease management programs that I summarized, 
we have comparable results for both the Medicare population and 
the Medicare Advantage plan that we offer as well as in the 
commercial plan that we offer. So, there is no discrepancy 
whatsoever in the disease management program nor in the results 
that we have been able to achieve with our Medicare Advantage 
beneficiaries as with our commercial or active--commercial or 
health plan beneficiaries. On the other hand, there have been 
quite a few challenges in implementing the full integrated 
strategy that I summarized for the Medicare beneficiaries. A 
lot of them have been challenges related to regulatory 
barriers. I will give you an example. In 1997, we went to CMS 
to request disclosure of our public report card, the Quality 
Index which was released in 1998. We never got that approval 
until 2002. So, Medicare beneficiaries have not been able to 
access or have accessible disclosure or provider performance, 
which, as I have summarized, has shown to be so effective in 
moving the needle in quality as well as helping members vote 
with their feet.
    The value network has not been able to get the type of 
discussion around innovation nor the rewards for health plans 
like PacifiCare that have been willing to innovate and kind of 
push the edge of the envelope a little bit further from the 
regulators, either by reducing the barriers to innovate or the 
hassle factor, if you will, or actually increasing financial or 
nonfinancial incentives in terms of preferential marketing or 
collaboration on communication pieces to members and so forth. 
So, I would have to say that our overall quality improvement 
strategy has been suboptimized with the Medicare Advantage, 
with the notable exception of our disease management programs 
which have been actually implemented to the Medicare 
beneficiaries as well.
    Chairman JOHNSON. Thank you very much. Dr. Crosson.
    Dr. CROSSON. Thank you, Madam Chairman. I can't speak for 
the disaggregated fee-for-service world. I have spent 27 years 
now as a physician in Kaiser Permanente, and I can speak for 
that. I think it is absolutely correct that the structure of 
group practice, particularly prepaid group practice, as well as 
the culture that evolves among physicians makes it easier to 
take knowledge science constructed into guidelines or organized 
care processes and see that it is implemented. In fact, that is 
what we do; and some of the information I presented was a 
consequence of that. Furthermore, I think this issue is going 
to become more important rather than less important in the 
future because Medicare is becoming more complex, not less 
complex, and it requires more coordination among doctors and 
among other care givers than it did a generation ago, for sure. 
Finally, I think it is going to become more important because I 
believe, as I said earlier, that the ability to use clinical IT 
is going to occur fastest and most effectively in organized 
systems of care, and that technology offers such a gigantic 
leap for health care delivery that it strongly influences me 
and has influenced our organization to make that investment. 
Thank you.
    Chairman JOHNSON. Mr. Kahn.
    Mr. KAHN. Yes, Mrs. Johnson. I believe that most hospitals 
want to participate in the Quality Initiative and would like to 
move as quickly as possible to more measures of their 
performance. One of the key issues here, though, is the 
technology. Every time a new measure is applied, that is more 
paper that has to be filtered through to produce the results so 
you can find out what is happening at the hospital. If we had 
the IT--if we had the medical record and it was a matter of 
just pushing a couple of buttons, it would make a big 
difference in terms of accumulating the information so we can 
understand much of what goes on in a hospital today. Let me 
also say, though, that if we look at Medicare, there are 
opportunities within Medicare for moving to more organized care 
and integrated care through managed care if Medicare Advantage 
takes off. Let me say, on the private sector side, I think the 
opposite could take place. We actually I think on the private 
sector side are finding more of a preference by consumers for 
preferred provider organization, for quasi fee-for-service 
products, and in some ways that actually may be the future 
there. So, I think we are going to have to find other means 
other than necessarily through the payment system to encourage 
the development of a kind of--at least record integration for 
patients, because I am not sure we are going to have for many 
patients ever the kind of organized system that would bring 
about integration like you can do in a Kaiser Permanente 
environment.
    Chairman JOHNSON. Mr. McCrery.
    Mr. MCCRERY. Dr. Crosson, what was the figure you used that 
described the level of your coming investment in technology 
improvements?
    Dr. CROSSON. Yes, Congressman McCrery, it was $3 billion.
    Mr. MCCRERY. $3 billion--with a ``b''?
    Dr. CROSSON. Yes, sir.
    Mr. MCCRERY. Well, that is very impressive. Are you a 
competitor of PacifiCare?
    Dr. CROSSON. Our organization and PacifiCare are both 
present predominantly in the State of California.
    Mr. MCCRERY. So, that would be a yes?
    Dr. CROSSON. That would be a yes.
    Mr. MCCRERY. Well, it was interesting, because it was kind 
of like dueling plans there, the juxtaposition of Dr. Ho and 
Dr. Crosson. Dr. Ho's testimony was certainly impressive. So 
was yours. So, I could almost hear the advertisements and 
reading the pamphlets that you must be distributing about your 
quality improvements. That is very interesting and obviously 
very good, but it kind of goes against what I took from the 
first panel which was that this is impossible to expect the 
private sector to do, to accomplish. I know that is not what 
they meant to convey, but somebody listening might have gotten 
that impression. It seems to me that you all at least are 
moving right ahead with quality improvements through technology 
improvements. You are making the investigation, and obviously 
you are paying for it or you expect to be able to pay for it 
through your operations--through income from your operations, 
right?
    Dr. CROSSON. Yes, Congressman. I might on that note 
underscore what Mr. Hackbarth said because his experience at 
Harvard Community Health Plan was similar to ours, and that is 
because we are a prospectively paid organization. The business 
case, if you will, affects the way you look at it. The business 
case for this investment is much more robust than I think it is 
in the fee-for-service model because, as Mr. Hackbarth noted, 
to the extent we can use the systems effectively to not only 
improve quality but to manage costs, then we can reap those 
savings and then reinvest them in the system and that is not a 
characteristic of the dynamic that exists when the payment is 
based on fee-for-service payment.
    Mr. MCCRERY. I understand that and we don't need to get 
into all of this, but it really concerns me that we are talking 
about the government basically underwriting these kinds of 
investments for fee-for-service delivery or disaggregated 
health care delivery as opposed to the kind of services that 
you all have and that Harvard plan has. It gets to the basic 
question of choice for consumers but also I think to the basic 
question of choosing to pay, and I am not sure that we can 
continue to underwrite at the government level everything that 
everybody wants and expect to have a good result in the end. 
So, I am not sure, Madam Chairman, if we ought not take from 
this a lesson. You know, depending on what the consumer wants, 
maybe they are going to have to choose a plan that is capitated 
or it is a managed care plan in order to get the kind of 
quality in terms of the technological improvements. If they 
want to stay in fee-for-service and they want that kind of 
improvement, they may have to pay for it. Yes, Mr. Kahn, I see 
you are anxiously awaiting.
    Mr. KAHN. I think on the noncapitated side, and today 
really most providers are on the noncapitated side in terms of 
the way they receive their payments from, I think over time 
this problem will carry itself. I mean, obviously over time IT 
becomes less expensive. Over time there will be more products 
to buy off the shelf that hospitals can purchase to serve all 
these functions. I think, though, if we are pushed on the 
measurement and quality side, we can only meet so many 
expectations there, and I think if people are patient I would 
argue the private sector will solve the problem generally, but 
it is going to take a great deal of time and more than I think 
some policymakers may be willing to allow.
    Mr. MCCRERY. If policymakers insist on certain benchmarks, 
certain measurements, we may have to pay for them in the short 
run?
    Mr. KAHN. In the short run, unfunded mandates are unfunded 
mandates.
    Chairman JOHNSON. Thank you very much. Yes, Dr. Ho.
    Dr. HO. I would like to mention one thing that hasn't been 
raised this morning. The technology actually as a solution or 
an enabler to improve clinical decision support has been 
available for 10 to 15 years and who pays is obviously always a 
salient question, but I think there is a culture, a culture in 
the fee-for-service practitioner world that has to be raised as 
well, a culture that has historically not been in favor of 
accountability, but more in favor of autonomy and not 
necessarily in favor of a consumer-directed health delivery 
system versus a practitioner-directed delivery system. I think 
the issue here is--and we at PacifiCare firmly believe in 
technology and electronic health records. In fact, we spend 
millions of dollars in trying to pursue those objectives, but 
it is still difficult. It is a difficult sell when you have an 
intransigent practitioner community that is resistant to 
automation, resistant to accountability, resistant to outcomes 
and disclosing outcomes.
    One comment, the RAND study that has been shown before that 
beta blocker use by people who have had a heart attack 
nationally is 45 percent. It is not because doctors don't know 
what to do. They are very familiar with the guidelines and some 
of them even have reminder systems. There has not been either 
an incentive program or a report card program to disclose what 
the results are or there is not a disincentive or a program 
that would maybe reduce their pay if they didn't do the right 
thing the first time. So, I think, not to belabor the topic, 
but I think it is a very complex subject. It is not just a 
matter of funding nor a matter of technology, it is really a 
matter of reeducating an entire practitioner community.
    Chairman JOHNSON. Thank you for your comments. Did you want 
to comment, Dr. Milstein?
    Dr. MILSTEIN. I think the perspective on the employer side 
is to keep incentives focused on performance with perhaps the 
single exception of adoption of information systems. I think 
the predominant purchaser sector view would be not necessarily 
to handout grants, government grants for IT, but to make the 
provider payments sensitive to the performance levels of 
doctors and hospitals, including adoption of information 
systems, longitudinal cost efficiency, and quality of care.
    Chairman JOHNSON. I know some of the experiments in the 
private sector that look at pay for performance have been 
sensitive to the cost of technology and have encouraged the 
meeting of standards that you already know about, like beta 
blockers that you could do within your existing structure and 
use that as a way of earning higher payments so you can buy the 
technology. We will be having a hearing on paying for 
performance and specific systems that have worked, and I invite 
all of you to follow up with any specific, outside of the 
general payment structure of Medicare, but specific barriers. 
It is ridiculous that you wanted to reveal publicly quality 
information in 1998 and it took you 4 years for the right to do 
so for your own consumers.
    So, we need to be more conscious of the specific barriers 
that exist in Medicare now to the development of higher-quality 
health care, and we need to hear that both from systems people 
and from fee-for-service providers as well. Then we will be 
looking at pay systems and a number of other aspects, the 
problems we face. I certainly appreciate your testifying and 
your leadership in challenging the traditional health care 
delivery system to meet the future. It is not without 
significance that No Child Left Behind is also about 
accountability. It is about a system that works very, very well 
for a lot of people and is not working very well for others. 
So, I think there is a different culture, as you mentioned, Dr. 
Ho. I think there is a greater interest in accountability 
because technology can help us with that now, but there is also 
a greater interest in the individual consumer and their 
individual needs, whether it is the child in the school or the 
patient in the health system, and if we can use technology to 
achieve both greater accountability and more patient-centered 
care, then we will improve American health care in the next 
decade and reach a high of both cost effectiveness and quality. 
Thank you very much for your participation today.
    [Whereupon, at 12:05 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

           Statement of American Academy of Family Physicians

Background
    This statement is submitted for the record to the Ways and Means 
Health Subcommittee hearing entitled, ``New Frontiers in Quality 
Initiatives'' on behalf of the American Academy of Family Physicians 
representing more than 93,700 members throughout the United States.
    This testimony includes an overview of the ongoing quality 
initiatives that the Academy has undertaken. In addition, it introduces 
as a necessary feature of Medicare quality improvement, a method of 
supporting the primary care infrastructure required to care for the 80 
percent of Medicare beneficiaries with chronic conditions. Family 
physicians are integral to Medicare quality improvement efforts since 
the majority of Medicare beneficiaries who identify a physician as 
their usual source of care report that they have chosen a family 
physician.
    Quality improvement efforts and medical errors research reveal the 
importance of navigating complex interactions across multiple care 
settings. Again, family physicians logically perform the role of 
integrating care for Medicare beneficiaries since they function as 
patients' usual, ongoing source of health care. Unless financing 
mechanisms specifically support the role of primary care in integrating 
care for beneficiaries with chronic diseases, patients' experiences in 
the current fragmented healthcare system are likely to grow worse. This 
is particularly true for the two-thirds of Medicare beneficiaries with 
multiple chronic conditions.

Chronic Care in the Medicare Population
    The incidence and prevalence of chronic disease among Medicare 
beneficiaries, as well as the multiple challenges of treating and 
managing these diseases and the cost associated with doing so, are well 
documented. Medicare funds are increasingly directed toward 
beneficiaries with chronic illness. The Robert Wood Johnson 
Foundation's initiative entitled, Partnership for Solutions, estimates 
that about two-thirds of Medicare dollars go to participants with 5 or 
more longstanding conditions. This is a startling figure for a program 
that not only costs taxpayers billions of dollars, but also fosters 
fragmented care. Additional information from Partnership for Solutions 
reveals that 66 percent of Americans over the age of 65 currently have 
at least one chronic condition, and the majority go on to be afflicted 
with a number of illnesses. Data from the Medicare Standard Analytic 
File (1999) shows that beneficiaries without chronic conditions saw an 
average of 1.3 physicians in 1999. Beneficiaries with a single chronic 
illness saw an average of 3.5 physicians while those with two saw an 
average of 4.5 physicians. Seniors with six chronic conditions saw an 
average of 9.2 physicians in 1999. These figures argue for a single 
primary care physician who can provide cost-effective, integrated care 
for Medicare beneficiaries who have chosen to have a ``personal 
physician'' oversee their care.

The Link Between Systems Change and Quality Improvement
    The Institute of Medicine (IOM) report, Crossing the Quality Chasm, 
has documented the performance gap between high quality health care and 
what is actually delivered in our current fragmented and costly system. 
The report is clear: ``The current care systems cannot do the job. 
Trying harder will not work. Changing systems of care will.'' The 
report urges health payers, including Medicare, to create an 
infrastructure for evidence-based medicine; facilitate the use of 
information technology; and align payment incentives around six 
priorities for care (i.e., safe, effective, patient-centered, timely, 
efficient, and equitable care). The current system of fragmented, 
costly and often substandard care is unacceptable for Medicare 
beneficiaries and financially unsustainable for the Medicare program.
    America's family physicians are taking bold steps to change this 
inadequate system of care. These include major Academy initiatives to:

      improve chronic illness care within offices of family 
physicians by building on the Chronic Care Model that Edward Wagner, 
M.D. has developed,
      reinvent and redesign family physician practices to 
implement the IOM report, Crossing the Quality Chasm, which set out six 
aims and 10 simple rules for the 21st century health care system and to 
ensure that every American has a personal physician (Future of Family 
Medicine initiative),
      accelerate family physicians' adoption and utilization of 
electronic health records (EHRs) and other information technologies in 
the Partners for Patients initiative, and
      promote standards that improve the quality of care and 
patient safety, such as the Continuity of Care Record, a portable 
electronic format record of clinically relevant health care data.

    Family physicians are trained to manage multiple chronic diseases 
using evidence-based guidelines, patient management tools and 
information technologies while engaging other specialists and community 
resources as appropriate. However, the current financing mechanism that 
supports office-based ambulatory care, including Medicare Part B, is 
outdated and does not foster optimal care for seniors beset by multiple 
chronic diseases. The current visit-based reimbursement system has 
compromised the ability of primary care physicians to serve in the role 
that they are trained and prepared to deliver. Rather than rewarding 
care that is more cost-effective, it rewards physicians for ordering 
tests and performing procedures. Family physicians are not currently 
reimbursed for the considerable time that they spend with patients in 
coordinating care and in behavioral counseling to improve patient self-
care. There is no direct compensation to physicians nor any systemic 
incentive for assuring care is organized correctly and integrated in a 
way that makes sense to patients.
    The IOM report, Crossing the Quality Chasm, stresses the need to 
realign incentives in health care delivery to the promotion of these 
functions. Providing a funding mechanism that encourages primary care 
physicians to build ongoing medical relationships with their patients 
also allows them to promote behavioral changes (i.e., eating right, 
exercising, quitting smoking and initiating other self-management 
behaviors). In this way, the earliest and best chronic care is based on 
sound behavior and lifestyle changes that primary care physicians can 
encourage.
    Effective chronic care management involves:

      developing a partnership with each patient;
      developing a care plan;
      coordinating disparate systems to integrate their care; 
and
      providing patient education resources and delivery 
systems.

    Performing these functions requires additional time and resources 
not currently recognized in the existing office-based reimbursement 
system. However, organizing care in this manner has proven worthwhile. 
For instance, thirty-nine studies have validated the Chronic Care Model 
developed by Ed Wagner, M.D., Director of Improving Chronic Illness 
Care (ICIC) at the MacColl Institute for Healthcare Innovation. 
Implementation of this model reduces unnecessary subspecialty 
referrals, contains costs, reduces duplicative care, improves patient 
satisfaction and results in better health outcomes. The six components 
of this model are:

      training patients in self-management;
      providing clinical decision support;
      redesigning the office-based medical practice;
      disseminating information technology systems;
      developing integrated systems of care; and
      linking physicians to community resources.

    In fact, Bodenheimer et al. found that 18 of 27 studies concerning 
just three chronic conditions (congestive heart failure, asthma, and 
diabetes) demonstrated reduced costs or lower use of health care 
services when this Chronic Care Model was fully implemented, almost 
exclusively in primary care settings.
    The AAFP is recommending the use of a chronic care management fee 
for primary care physicians that would support the implementation of 
this Chronic Care Model within the Medicare program.

Chronic Care Management Fee
    The Academy recognizes the significance of Chairman Johnson's 
efforts to improve chronic care management through the development of 
the Section 721 chronic disease management pilot program. The Academy 
appreciates the Chairman's inclusion of primary care physicians as 
eligible providers under Section 721.
    Sections 649 and 721 of the Medicare Prescription Drug Improvement 
and Modernization Act are designed to develop and test innovative and 
transformative models for chronic disease management. Section 721 is 
designed to test systems of care that improve health outcomes for 
Medicare beneficiaries with chronic illnesses. The more limited Section 
649 provides the opportunity for CMS to work with physicians more 
directly through state-based Quality Improvement Organizations (QIO). 
The Doctors' Office Quality-Information Technology (DOQ-IT) project is 
an example of such collaboration.
    The AAFP is working with CMS officials to ensure that 
implementation of the pilot project under Section 721 proactively 
enrolls primary care physicians and provides appropriate financial 
support to the creation of an integrated system of care based on the 
Chronic Care Model. In fact, the attendant benefits of the Chronic Care 
Model cannot be delivered without the inclusion of physician practices. 
The system of care that Section 721 seeks to create must establish 
primary care physician offices as the basis for creating systems of 
care for Medicare beneficiaries with chronic conditions.
    The Academy supports a per-beneficiary chronic care management fee 
that is paid directly to the physician in addition to fee-for-service 
payments. This fee would be paid to whichever patient-selected 
physician, who is willing to perform the performing the following 
activities or functions as well as provide technology support:

      tracking and monitoring all aspects of patients' care;
      acting as a referral agent;
      coordinating clinical reports from others involved in 
patients' care;
      maintaining an electronic health record;
      providing greater time in the office visit as needed; and
      having appropriate staff and administrative abilities.

    The implementation of a chronic care management fee, added to the 
regular Medicare fee-for-service reimbursement, would encourage the 
acquisition of medical information technology since the cost of this 
technology is the single biggest barrier to its implementation. This 
new reimbursement stream would also ensure that beneficiaries received 
coordinated, evidence-based medical care while the Medicare program 
would reap the resulting cost savings.

Conclusion
    The Institute of Medicine has identified the improvements in a 
patient's health associated with a ``usual source of care,'' also 
described as ``a medical home.'' Care management models using this 
concept as a way to ensure the six quality characteristics have been 
successfully employed. For example, Medicaid primary care case 
management programs that pay primary care physician practices a monthly 
fee for care coordination responsibilities are meeting with success. 
Testing a similar model adapted to the needs of Medicare patients who 
characteristically possess several chronic conditions is a timely and 
appropriate innovation within the existing Medicare pilot and 
demonstration projects.

                                 
 Statement of American Association of Homes and Services for the Aging

    The American Association of Homes and Services for the Aging 
(AAHSA) appreciates the opportunity to submit this statement for the 
record of the Subcommittee's hearing on quality initiatives in health 
care. AAHSA represents more than 5,600 mission-driven, not-for-profit 
members providing affordable senior housing, assisted living, nursing 
home care, continuing care retirement communities, and community 
services. Every day, our members serve more than two million older 
persons across the country. AAHSA is committed to advancing the vision 
of healthy, affordable, and ethical aging services for America.
    For the past forty-two years, AAHSA has been an advocate for 
elderly nursing home residents and has striven in the public policy 
arena to create a long-term care delivery system that assures the 
provision of quality care to every individual our members serve in a 
manner and environment that enhances his or her quality of life. 
Although we have been closely involved in the development of Federal 
nursing home quality standards, we recognize that continued efforts are 
needed to ensure ongoing quality improvement. Long-term care providers 
themselves must do much of the work, but we believe that there are also 
opportunities for public policy changes to encourage continued 
improvement in the quality of care in our nation's nursing homes.

Quality First
    AAHSA, partnering with the American Health Care Association and the 
Alliance for Quality Nursing Home Care, has embarked on a multi-year 
plan to ensure true excellence in aging services, going beyond simple 
compliance with government quality initiatives and taking the 
responsibility for raising the bar in our field. So far, close to 2,000 
AAHSA members have signed a covenant that we view as a pact between 
providers, consumers, and government, and the number of AAHSA members 
who have signed is growing steadily. All of AAHSA's thirty-seven state 
affiliates have endorsed the covenant as well.
    Covenant signors commit themselves to a process that is based on 
seven core principles: continuous quality improvement, public 
disclosure and accountability, consumer and family rights, workforce 
excellence, community involvement, ethical practices, and financial 
integrity. The goals for Quality First are continued improvements in 
compliance with regulatory requirements, progress in promoting fiscal 
integrity, prevention of abuse and neglect, demonstrable improvements 
in clinical outcomes, high scores on consumer satisfaction surveys, and 
higher employee retention rates and reduction in turnover.
    To accomplish these goals, AAHSA is developing tools for members 
that give them the information they need on best practices in our 
field, how to evaluate their current strengths and weaknesses, and how 
to orient all of their operations toward quality care. We are 
emphasizing research into best practices, education and shared 
knowledge among our members, leading-edge care and services, codes of 
ethics, and fiscal and social accountability. We are committing 
ourselves to providing full and accessible information to consumers on 
facilities' services, policies, amenities, and rates. To address 
staffing issues, covenant signers promise to invest in staff training, 
competitive wages and benefits, and a supportive work environment for 
both paid caregivers and volunteers. Quality First emphasizes ongoing 
assessments of facilities' policies and practices to ensure a 
continuous process of quality improvement.
    To measure and report on the success of this initiative, AAHSA and 
its partners have engaged the National Quality Forum to appoint a 
national commission made up of academic experts and leaders from the 
private sector who have no financial interest in or direct ties to our 
field. These impartial community representatives will keep nursing 
homes accountable for living up to the commitments we have made under 
the Quality First Covenant and will provide a credible resource for 
consumers, government, and other stakeholders.

Institute for the Future of Aging Services
    Key to any improvement in the quality of nursing home care will be 
staff recruitment, training and retention. A number of well-documented 
challenges face health care and aging services providers across the 
spectrum of care, including the shrinkage of the working-age population 
in relation to the aging population, broader career opportunities for 
women who traditionally worked as caregivers, less attractive wages and 
benefits in the care giving field, and so on.
    The Institute for the Future of Aging Services (IFAS), housed 
within AAHSA and under the leadership of Dr. Robyn Stone, is 
implementing several initiatives directed at finding creative solutions 
to these staffing challenges, including the following:

      Better Jobs/Better Care (BJBC), a four-year research and 
demonstration program to achieve changes in long-term care policy and 
practice that help to reduce high vacancy and turnover rates among 
direct care staff across the spectrum of long-term care settings and 
contribute to improved workforce quality. Working in partnership with 
the Paraprofessional Healthcare Institute and with funding from the 
Robert Wood Johnson Foundation and Atlantic Philanthropies, BJBC has 
made grants for both demonstration projects and applied research and 
evaluation. Funding is going to teams of long-term care providers, 
workers, and consumers to work with state and local officials in 
developing and implementing changes in policy and provider practices to 
support recruitment and retention of a quality workforce. Other grants 
have also been awarded to study Federal and state policy changes, 
workplace management and culture, job preparation and training for 
long-term care workers, and innovative approaches to recruiting 
qualified workers.
      Practice Profile Database

         The Institute for the Future of Aging Services and the 
Paraprofessional Healthcare Institute also have teamed up in putting 
on-line a database of successful direct-care worker recruitment, 
training and retention programs that aging services organizations can 
use to improve staffing. The database, at www.futureofaging.org, 
provides information on a variety of topics, including recruitment, 
career advancement, and training for both entry-level workers and 
management. Projects selected for the database were required to provide 
quantitative or qualitative evidence of results in the areas of staff 
satisfaction, successful completion of training programs, and employee-
resident relations. Listings in the database include complete 
information on how the project was implemented and contact information 
for further discussion. This database provides proven, real-life 
solutions to staffing issues that confront all long-term care 
providers.

      Wellspring Model Refinement, Replication, and 
Sustainability

         Almost ten years ago, a group of eleven AAHSA members in 
Wisconsin decided to pool their resources to accomplish two objectives: 
to improve clinical care for residents and to create a better working 
environment by giving employees needed skills, a voice in how their 
work should be accomplished, and the ability to work as a team toward 
common goals. The Wellspring alliance included clinical education by a 
geriatric nurse practitioner, shared staff training and data on 
resident outcomes, and culture change that empowered front-line workers 
to develop and implement care practices that they determined would be 
beneficial for residents.
         A fifteen-month study and evaluation by IFAS and a team of 
leading academicians in the field of long-term care concluded that the 
Wellspring alliance had achieved its goals and had pioneered changes 
that could have broad implications for improving the quality of nursing 
home care. Positive outcomes noted in the evaluation included greatly 
reduced staff turnover, improved performance on Federal surveys, 
increased staff initiative to assess and act on care problems, better 
quality of life for residents, and improved relationships between staff 
and residents.
         With a followup grant from the Commonwealth Fund, IFAS staff 
and a business consultant developed a business case statement for 
Wellspring to use with CEOs, upper management and boards of 
organizations interested in adopting this quality/culture change model. 
The team also developed a business plan for a new Wellspring Institute 
that would move beyond the ``home-grown'' organization that had been 
managing model replication and that could help bring the program to a 
greater scale. A full-time executive director of the new institute was 
recently hired (formerly the staff person from the California QIO who 
was responsible for implementing the Nursing Home Quality Initiative). 
Besides alliances in Wisconsin and Illinois, the Wellspring Institute 
just began a replication in Maryland and is exploring other alliances 
in North and South Carolina and California.

      Real-time Care Plans for Nursing Home Quality Improvement

         IFAS is partnering as a subcontractor to the Institute for 
Clinical Outcomes Research on a study to design, support, and 
facilitate change that is likely to lead to documented improvements in 
health care quality and ensure that these improvements become part of 
the ongoing practice of health care providers and clinicians.
         Working with nursing homes and state Quality Improvement 
Organizations (QIOs), this project will design, implement, and evaluate 
a process using automated standardized documentation forms and an IT 
tool to implement best practices. This project will make better use of 
staff time and improve resident outcomes by: focusing staff time on 
specific interventions associated with improved outcomes; incorporating 
evidence-based protocols developed through extensive research on 
pressure ulcer prevention (comprehensive database of 2,500 residents); 
ensuring protocol adherence by providing automated standardized tools 
for documenting and reporting information related to prevention of 
pressure ulcers; eliminating extra paper documentation and redundant 
data entry; facilitating clinical process redesign; and minimizing 
labor-intensive manual data abstraction process for MDS and quality 
indicators.
      Measuring Long-Term Care Work: A Guide to Selected 
Instruments to Examine Direct Care Worker Experiences and Outcomes

         IFAS has developed a guide to help LTC organizations improve 
their use of measurement tools to understand direct care workforce 
problems and to inform their solutions. The issues addressed by the 
instruments include: retention, turnover, vacancies, staff empowerment, 
job design, job satisfaction, organizational commitment, worker-
supervisor relationships and workload. These tools are designed to help 
providers measure the quality of the job and the workplace for staff--
an important and essential dimension of quality outcomes.

Policy Recommendations

Survey Improvement
    Through the nursing home survey and enforcement process mandated by 
the Omnibus Budget Reconciliation Act of 1987 (OBRA), the federal 
government has sought to ensure that nursing homes meet minimal 
standards of quality. As noted previously, AAHSA was closely involved 
in the development of the OBRA standards, and we believe that the 
quality of care in nursing homes today generally is far above the level 
that prevailed prior to OBRA.
    However, there continue to be serious issues with inconsistency in 
survey results and the imposition of remedies. We believe that 
improvements to the present system need to be considered objectively 
and with an unbiased view toward better ensuring quality care. OBRA was 
enacted sixteen years ago, and the system that it implemented was based 
on research that now is over twenty years old. Best practices in our 
field have advanced enormously since that time, and yet those in our 
field who want to provide innovative, high-quality care are sometimes 
hamstrung by a highly prescriptive Federal regulatory system that in 
many respects is out-of-date.
    A number of states, including Minnesota, Washington and Wisconsin, 
have worked hard and thoughtfully to develop alternative approaches for 
measuring and ensuring quality nursing home care. They have sought 
waivers from CMS to use these alternatives in place of the OBRA-
mandated system. Realistically, given the resources that states must 
now commit to the current survey system, they cannot carry out parallel 
survey processes. CMS has not granted any waiver requests from states, 
and may be precluded from doing so by the OBRA statute. We would 
recommend that Congress authorize a limited number of waivers under 
close supervision by CMS to give states greater flexibility to develop 
and explore innovative approaches to ensuring quality care. Ultimately, 
these state experiments could well lead to improvements in the present 
Federal survey system that would better ensure quality care nationwide.

Payment amd Quality
    AAHSA firmly believes that a two-way commitment is essential to 
foster improvement in the quality of care and services provided in 
nursing homes. As the dominant payers for nursing home care, the 
Federal and state governments have an obligation to ensure that 
payments for nursing home care are adequate to allow for the provision 
of high quality clinical care in an atmosphere that also ensures 
quality of life for residents.
    Nursing home providers, in turn, have an obligation to serve as 
responsible stewards of public funds by ensuring that they are 
delivering the high quality of care and services that Federal and state 
governments purchase for their residents through the Medicare and 
Medicaid programs. This is possible only by dedicating sufficient 
resources to the costs of direct care services.
    AAHSA welcomes the growing focus of this Administration, Congress, 
and other interested parties on the question of how payment policies 
can be re-designed to foster and support the provision of the highest 
possible quality in health care. We were pleased with the 
recommendations of the Medicare Payment Advisory Commission (MedPAC) in 
their June 2003 report calling for demonstrations of ``provider payment 
differentials and revised payment structures to improve quality.'' As 
MedPAC points out, ``In the Medicare program, the payment system is 
largely neutral or negative towards quality. All providers meeting 
basic requirements are paid the same regardless of the quality of 
service provided. At times, providers are paid even more when quality 
is worse, such as when complications occur as the result of error.'' 
This is equally true of some state Medicaid payment systems, though a 
number have successfully implemented strategies to foster greater 
accountability and quality.
    AAHSA is eager to work closely with the Administration and Congress 
to design and test alternative approaches to payment for long-term care 
services that will not be blind to quality.

Building on State Experience; Implementing a Demonstration
    We offer two approaches to re-orient payment for nursing home 
services to promote high quality care:
    One way of linking payment and quality involves applying lessons 
learned in successful state Medicaid programs. Payment systems need to 
balance a set of competing objectives: quality, reasonable cost 
containment, and administrative feasibility. A number of states--
including Iowa, Indiana, Ohio, and Pennsylvania--have ``modified 
pricing'' systems that create this balance and provide accountability 
for public payments by splitting payments into at least two components. 
Prospective payments for direct care (e.g., nurse staffing) are 
directly tied to spending on direct care (up to appropriate limits); 
profit potential on this direct care component is minimized. This 
linkage ensures that dollars added to the system achieve the desired 
objective--sufficient staffing to deliver high quality services and 
meet residents' needs. Incentives to reduce spendingare focused on 
other aspects of nursing home costs such as administration. By 
contrast, the Medicare system and some state Medicaid systems create 
strong incentives for homes to reduce spending on both direct and 
indirect care by providing profit opportunities on the total payment 
amount. AAHSA suggests that Medicare consider adapting some successful 
strategies such as modified pricing systems used in state Medicaid 
payment systems to better link payment and quality.
    Second, AAHSA recommends that the federal government implement a 
demonstration program, with a strong evaluation component, to explore 
ways to successfully link the quality of care and services provided 
with payments for nursing home care, beyond ensuring that sufficient 
resources are allocated to direct care services. The demonstration 
should develop and test a method for paying bonuses to facilities that 
achieve excellent ratings in performance of a set of appropriate 
quality markers--similar to the current Medicare demonstration on 
hospital payments.
    A critical first step in implementing such a demonstration for 
nursing facilities would be the development of a set of quality markers 
that capture desired processes of care that should be fostered, e.g., 
implementation of standardized pressure ulcer risk assessment protocols 
to identify high risk residents, use of pressure-reducing devices and 
strategies for residents at high risk of developing pressure ulcers, 
consistent screening and monitoring of all residents for pain, etc.
    Current measures used in long-term care focus on resident-level 
outcomes, e.g., prevalence of pressure ulcers, prevalence of pain, 
decline in ability to perform Activities of Daily Living, etc. The 
outcomes measured are often the result of a vast set of complex 
interactions between intrinsic resident-specific factors (e.g., major 
medical conditions, co-morbidities, resident preferences and choices, 
etc.) and the care provided by the nursing home and other providers. 
The difficulties inherent in teasing apart the relative influence on 
outcomes of intrinsic versus extrinsic factors have led to a greater 
focus on process measures in other health care settings such as 
hospitals and managed care plans.
    Definition of valid process markers, based on research to identify 
clinically appropriate, evidence-based care for specific types of 
residents, will allow public and private payers to create incentives 
that encourage the adoption and consistent use of evidence-based care 
processes. This can be expected, in turn, to lead to improved outcomes. 
Focusing on measurement of appropriate processes, however, rather than 
outcomes, eliminates the need for complex, controversial risk-
adjustment formulas to attempt to account for the various intrinsic 
factors that play a significant part in influencing resident outcomes. 
Process measurement also allows for capturing the implementation of 
appropriate preventive health services that should be offered to 
nursing home residents, such as immunizations to prevent influenza and 
pneumonia.
    In addition to incorporating markers of quality care processes, it 
is equally important for such a demonstration to expand the definition 
of nursing home quality beyond the clinical domain addressed in 
currently available measure sets. It is critical that a system designed 
to link payment with quality also includes valid, reliable markers of 
resident quality of life, as well as resident and staff satisfaction. 
Nursing homes are far more than settings where clinical care is 
provided--for long-term residents, these facilities are in fact, their 
homes. To accurately capture key elements of quality that are important 
to nursing home residents, our systems for measuring quality must 
evolve to be more holistic.
    Finally, AASHA believes that this demonstration should also involve 
implementing and testing innovative technologies for information 
management that improve accuracy while reducing the paper work burden 
on staff. Better information systems and technology will be an 
important part of tracking the type of quality markers we envision 
without new and excessive paperwork. In addition, advances in 
technology, including information technology, are critical to enhancing 
the quality of aging services for the future.
    AAHSA strongly encourages the Administration and Congress to embark 
upon this path of greater accountability for public funds directed to 
the provision of services for America's frail elderly and looks forward 
to participating in the process of designing a system that will benefit 
nursing home residents across the nation.

Conclusion
    Achieving the vision of the highest possible quality long-term care 
for all Americans will require all of us--Members of Congress, long-
term care providers, consumers, workers, families, and other 
stakeholders--to work together on innovative solutions to the 
challenges we all face in making sure that our residents receive the 
care and services they need.

                                 
               Statement of American College of Surgeons

    The American College of Surgeons (ACS) commends House Ways and 
Means Health Subcommittee Chair Nancy Johnson for convening today's 
hearing on health quality initiatives. Improving the quality of 
surgical care is a founding principle of ACS and we are pleased to 
submit this statement for the record on behalf of our 66,000 Fellows.

History of Surgical Quality Improvement Initiatives

    ACS was formed in 1913 to improve the quality of care of the 
surgical patient by setting high standards for surgical education and 
practice. Since then, the College has developed a number of innovative 
programs and initiatives to achieve this goal.
    In 1922, the College established the multi-disciplinary Commission 
on Cancer (CoC) to set standards for quality cancer care delivered in 
hospital settings. Today, its membership is comprised of more than 100 
individuals representing 39 national professional organizations. Among 
other initiatives, the CoC establishes standards for 1,438 Commission-
accredited cancer programs; provides clinical oversight for standard-
setting activities and the development and dissemination of patient 
care guidelines; and coordinates national site-specific studies of 
pattern of care and outcomes through the annual collection, analysis, 
and dissemination of data for all cancer sites.
    In addition to our cancer initiatives, the College is working to 
develop a program that accurately measures quality for most major 
operations. Through a grant funded by the Agency for Healthcare 
Research and Quality (AHRQ) in 2002, the College was able to further 
validate the Department of Veterans Affairs (VA) National Surgical 
Quality Improvement Program (NSQIP) in 14 private sector hospitals. The 
NSQIP program allows surgeons to compare their observed versus expected 
outcomes experience with national averages and comparable hospitals. 
The College now plans to expand the NSQIP program into over 100 
additional private sector hospitals.
    With regard to surgical education, the College administers the 
Surgical Education and Self-Assessment Program (SESAP) to help surgeons 
stay abreast of current practice standards. Based on the opinions of 
expert surgeons and the published literature, SESAP reproduces the 
diagnostic and treatment challenges faced in the practice of surgery 
and provides immediate feedback for self-improvement.
    Recognizing that much of surgical practice has not been evidence 
based--especially during the introduction of new surgical technology--
the College initiated a program to develop and implement clinical 
trials in 1994. The first trials, designed to assess watchful waiting, 
open operation, and laparoscopic hernia repairs, were funded by AHRQ 
and the VA Cooperative Studies Program. Subsequently, the American 
College of Surgeons Oncology Group was established with funding from 
the National Cancer Institute to evaluate the surgical management of 
patients with malignant solid tumors. The purpose of the clinical 
trials program is to test the safety and efficacy of new surgical 
procedures before they are widely disseminated into practice, develop 
educational programs that help surgeons safely introduce new technology 
into their practices, and critically evaluate current practices.
    The College also maintains several other resources that surgeons 
utilize in their practices. ACS pioneered the development of a systems 
approach for trauma; and its Advanced Trauma Life Support program is 
now the worldwide standard for training providers who first attend to 
injured patients. The College has also established a National Trauma 
Data Bank, which is used to inform the medical community, the public, 
and decision makers about a wide variety of issues that characterize 
the current state of care for injured persons. The information 
contained in the data bank has implications in many areas including 
epidemiology, injury control, research, education, acute care, and 
resource allocation.
    In short, for the last 91 years, through the programs and 
initiatives outlined above and other efforts, the College has 
consistently worked to improve the quality of surgical care.

MedPAC's March 2004 Report
    In its March 2004 Report to Congress, MedPAC examines the issue of 
improving the quality of care for Medicare beneficiaries and concludes 
that the Medicare payment system should incorporate incentives for 
improving quality. We would like to commend the Commission for its 
focus on quality improvement. Surgery has never lost sight of its 
fundamental responsibility to be the patient's quality care advocate 
and provider. Towards this end, we strongly agree with the Commission 
that surgeons must consistently measure, analyze, and improve the 
quality of care they provide to patients. However, the College is 
concerned about several of the specific measures and techniques used to 
assess quality in the March 2004 Report.
    Using administrative data, the Commission measured the 
effectiveness of care for eight procedures based on mortality rates 
both in the hospital and 30 days after admission. Three of the 
procedures assess surgical care: CABG; Craniotomy; and AAA repair. In 
addition, the report references evidence suggesting that facilities 
with higher volume have lower rates of mortality for similar 
populations.
    Although convenient and fairly inexpensive to collect, 
administrative data alone cannot be used to assess surgical outcomes. 
More specifically, age, sex, and all patient refine diagnosis related 
groups (APR-DRGs) are not adequate risk-adjustment measures. For 
example, recent research has identified the following characteristics 
as some of the most powerful predictors of surgical outcomes: American 
Society of Anesthesiologists (ASA) class, preoperative functional 
status (fully independent, partially dependent, full dependent), 
whether or not the operation was done as an emergency, and DNR 
status.\1\ Unfortunately, none of these characteristics has a 
corresponding ICD-9-CM code and therefore is not included in the 
billing record. We believe surgical outcomes data must be gathered by a 
highly-trained clinical nurse from medical records and a 30-day patient 
followup survey. While it is currently more expensive to collect such 
non-administrative data, emerging medical technology systems will 
clearly help alleviate many of the additional financial and 
administrative burdens.
---------------------------------------------------------------------------
    \1\ Best, WR et al, ``Identifying Patient Preoperative Risk Factors 
and Postoperative Adverse Events in Administrative Databases: Results 
from the Department of Veterans Affairs National Surgical Quality 
Improvement Program,'' Journal of the American College of Surgeons, 
Vol. 194, No. 3, 2002, Pg. 257-266.
---------------------------------------------------------------------------
    We are also concerned by the report's reference to evidence that 
facilities with higher volume have lower rates of mortality for similar 
populations. We do not believe that surgical volume alone provides an 
accurate measure of surgical quality. In fact, we would like to draw 
your attention to a study published in the Annals of Surgery that 
analyzed the relationship of surgical volume to outcomes in eight 
common operations. The study found no statistically significant 
associations between procedure or specialty volume and 30-day mortality 
rate.\2\ In addition, it is important to keep in mind that the volume 
numbers linked to many of the most technically demanding surgical 
procedures--for which the relationship between volume and quality are 
perhaps strongest--are really very small and easily skewed by just a 
few poor outcomes that may be unrelated to the quality of the care 
provided.
---------------------------------------------------------------------------
    \2\ Khuri, SF et al, ``Relation of Surgical Volume to Outcome in 
Eight Common Operations,'' Annals of Surgery, Vol. 230, No. 3, 1999, 
Pg. 414-432.
---------------------------------------------------------------------------
    We are hopeful that the Commission and Congress will consider using 
a different model to measure the quality of surgical care: the NSQIP 
effort mentioned earlier. NSQIP is the first national, validated, 
outcome-based, risk-adjusted, and peer-controlled program for the 
measurement and enhancement of the quality of surgical care. Developed 
12 years ago by the Veterans Administration (VA), NSQIP compares the 
performance of all VA hospitals providing surgical services. The 
results of these comparisons are provided to each hospital and are used 
to identify areas of poor performance and excess adverse events.
    Since NSQIP was implemented, the VA has seen a 28 percent reduction 
in 30-day postoperative mortality and a 43 percent reduction in 30-day 
postoperative morbidity.
    The College also has serious concerns about using administrative 
data to measure patient safety. Many of the selected adverse events can 
be caused by pre-existing conditions that are not identified in the 
hospital billing record. For example, seniors commonly experience 
postoperative physiologic derangement after surgery. This condition is 
often unrelated to poor surgical care, but rather results from the 
senior being confused or disoriented because they are in an unfamiliar 
setting. Heavy drinkers also experience postoperative physiologic 
conditions, yet rarely is their drinking history noted in the 
administrative comorbidity data.
    In its landmark 1999 report, ``To Error is Human: Building a Safer 
Health System,'' the Institutes of Medicine (IOM) identifies another 
example of how adverse events identified through administrative data 
cannot measure performance. The report states, ``. . . if a patient has 
surgery and dies from pneumonia he or she got postoperatively, it is an 
adverse event. If analysis of the case reveals that the patient got 
pneumonia because of poor hand washing or instrument cleaning 
techniques by staff, the adverse event was preventable (attributable to 
an error of execution). But the analysis may conclude that no error 
occurred and the patient would be presumed to have had a difficult 
surgery and recovery (not a preventable adverse event).'' \3\ 
Administrative data alone cannot measure performance. A detailed 
analysis must also be conducted to identify the true cause of the 
problem.
---------------------------------------------------------------------------
    \3\ Committee on the Quality of Health Care in America, Institute 
of Medicine, 1999, To Error is Human: Building a Safer Health System, 
Washington, DC, National Academy Press, Pg. 6.
---------------------------------------------------------------------------
    In the conclusion of the March 2004 Report's chapter on quality, 
MedPAC acknowledges that ``more and better data on quality to be used 
in pay-for-performance programs is needed.'' The College is committed 
to working with the Commission and Congress to resolve the concerns 
addressed above and identifying accurate and effective ways to improve 
the quality of surgical care for Medicare beneficiaries.

Conclusion
    Surgeons have a unique responsibility to improve the quality of 
surgical care for their patients. Since many procedures are performed 
on an emergent or urgent basis, there is often no time to provide 
patients with comparative information that they can actually use to 
make their own assessments and perhaps choose alternatives. Instead, 
they count on their surgeons to help them make informed decisions based 
on their own unique circumstances. Consequently, an even greater burden 
is placed on our profession to not only define and measure quality, but 
to develop the systems and practices that can actually elevate the 
quality of care generally.
    We applaud Subcommittee Chair Johnson, Ranking Member Stark, and 
the rest of the House Ways and Means Health Subcommittee for their 
commitment to improving the quality of our nation's health care system. 
We look forward to working together with you to ensure all Americans 
have access to high-quality surgical care.
    The American College of Surgeons is a scientific and educational 
organization of surgeons that was founded in 1913 to raise the 
standards of surgical practice and to improve the care of the surgical 
patient. The college is dedicated to the ethical and competent practice 
of surgery. Its achievements have significantly influenced the course 
of scientific surgery in American and have established it as an 
important advocate for all patients. The College has more than 66,000 
members and is the largest organization of surgeons in the world.

                                 
             Statement of America's Health Insurance Plans

INTRODUCTION
    America's Health Insurance Plans (AHIP) is the national 
organization which represents companies providing health benefits to 
over 200 million Americans. AHIP member companies contract with large 
and small employers, state and local governments, as well as with 
public programs, including Medicare, Medicaid, the Federal Employee 
Health Benefits Program (FEHBP), the State Children's Health Insurance 
Program (SCHIP) and the military's TRICARE program.
    AHIP commends the U.S. House of Representatives Ways and Means 
Subcommittee on Health for convening this important hearing to explore 
measures to improve health care quality. As demonstrated by two 
statements recently approved by AHIP's Board of Directors--A Commitment 
to Improve Health Care Quality, Access and Affordability (March 2004) 
and Improving Health Care Quality Through Transparency (February 
2003)--we strongly share the Subcommittee's goals of promoting high-
quality care for all Americans and helping to ensure that consumers 
have the information they need to make informed health care decisions.

DEFINING THE SCOPE OF THE QUALITY CHALLENGE
    Health policy experts have written compellingly about the 
disturbing gap between what science suggests and what practitioners 
actually do as well as the need to engage and empower consumers with 
information about their health care. The landmark 2001 Institute of 
Medicine (IOM) report, Crossing the Quality Chasm, found that many 
patients consistently fail to receive high-quality health care, and 
wide variations in practice--even in clinical situations where there is 
data on what works and what does not--suggest that relevant and 
meaningful information fails to reach many clinicians and patients. The 
IOM study called for a renewed national commitment to build an 
information infrastructure to support health care delivery, public 
accountability, research and education. Further, the study recommended 
that the health care system be transparent, making information publicly 
available so that patients and families can make informed health care 
decisions.
    Recent major studies support the IOM's conclusions that evidence-
based medicine \1\ is not consistently being practiced, including 
continuing research by Dr. John Wennberg and others at Dartmouth \2\ 
and a 2003 RAND study finding that patients receive only 55% of 
treatments that have been determined to be the ``best practices'' for 
addressing their medical conditions.\3\
---------------------------------------------------------------------------
    \1\ Evidence-based medicine is the daily practice of medicine based 
on the highest level of available evidence determined through 
scientific study.
    \2\ E. Fisher, D. Wennberg, T. Stukel, D. Gottlieb, F.L. Lucas, E. 
Pinder, ``The Implications of Regional Variations in Medicare Spending. 
Part 2: Health Outcomes and Satisfaction with Care,'' Annals of 
Internal Medicine, February 18, 2003. J.E. Wennberg and M.M. Cooper, 
The Dartmouth Atlas of Health Care in the United States, 1999.
    \3\ E. McGlynn, S. Asch, J. Adams, J. Keesey, J. Hicks, A. 
DeCristofaro and E. Kerr, ``The Quality of Health Care Delivered to 
Adults in the United States,'' NEJM, June 26, 2003.
---------------------------------------------------------------------------
    As this documented overuse, underuse and misuse of services 
continues, the health care system is also plagued with an unacceptably 
high number of preventable medical errors each year. The highly 
publicized Institute of Medicine report, To Err is Human, found that 
between 44,000-98,000 Americans die each year as a result of 
preventable medical errors.\4\
---------------------------------------------------------------------------
    \4\ To Err is Human, Institute of Medicine, 1999.
---------------------------------------------------------------------------
    Clearly, the consistent adoption of what we know works (and 
elimination of what we know does not work) in everyday medical practice 
and a reduction in preventable medical errors would improve health 
outcomes and, ultimately, the health of Americans. What may not be as 
obvious is that both also would result in significant efficiencies to 
the entire health care system:

      Thirty percent of all direct health care outlays are the 
result of poor quality; this translates into $420 billion spent each 
year. Indirect costs of poor quality (e.g., reduced productivity due to 
absenteeism) include an additional $105-$210 billion.\5\
---------------------------------------------------------------------------
    \5\ Reducing the Costs of Poor-Quality Health Care, Midwest 
Business Group on Health in collaboration with the Juran Institute, 
Inc. and The Severyn Group, Inc., 2003.
---------------------------------------------------------------------------
      Total health costs due to preventable adverse events 
(medical errors resulting in injury) are estimated to be more than 
$8.5-$14.5 billion.\6\
---------------------------------------------------------------------------
    \6\ To Err is Human, Institute of Medicine, 1999.

    All of these findings emphasize the need for health plans and 
insurers, employers, physicians, hospitals and policymakers to work 
together to build momentum for system-wide change. To most effectively 
improve quality, the IOM calls for the transformation of our system 
across the entire health care industry, and not individual segments. 
Thus, all stakeholders play a role in ensuring that physicians, 
hospitals and other health professionals have useful information about 
the latest scientific evidence and about their performance, and that 
consumers have meaningful quality information to make informed 
decisions.

ONGOING HEALTH PLAN AND INSURER INITIATIVES TO PROMOTE A SAFER AND MORE 
        EFFECTIVE HEALTH CARE SYSTEM
    By promoting evidence-based medicine, increasing transparency, and 
reducing preventable medical errors, health plans and insurers actively 
engage providers and consumers to improve health outcomes and overall 
health status. Specific strategies that our member companies use 
include:

      Report cards on health plan and insurer performance;
      Investing in information technology, particularly in the 
area of pharmacy management; and
      Incentives to reward quality.

Report Cards on Health Plan and Insurer Performance

    Collecting and disclosing information is an important first step to 
quality improvement. Performance benchmarks are also needed for 
stakeholders to determine the extent to which providers are delivering 
treatments that have proven to be effective. This information allows 
consumers and employers to select the highest quality physicians, 
hospitals, medical groups and other health professionals.
    For nearly ten years, health plans and insurers have been 
collecting and reporting on more than 50 measures of quality and 
performance using the Health Plan Employer Data and Information Set 
(HEDIS)'. In 2003, 513 commercial, Medicaid, and Medicare 
health plans and insurers nationwide covering 72 million people 
collected HEDIS data that was independently audited to assure validity. 
Performance on these benchmarks is broadly and publicly disclosed by 
the National Committee for Quality Assurance (NCQA) in its annual 
report, data base and website, as well as by Federal, state and local 
government agencies and other regional collaboratives.
    Performance is also made transparent through health plan-specific 
report cards that are readily available on their respective websites. 
These report cards assist employers and consumers to make choices among 
various health care products, among various types of health plans and 
insurers, and among doctors, hospitals and other health professionals 
who deliver medical care. Examples include:

      AvMed Health Plan publishes results from NCQA's HEDIS 
measures on its website so that members can compare their commercial 
health plan's value to other health plans. Reports from HEDIS 2000 
through 2003 are available on the website. The AvMed HEDIS 2003 report 
is divided into six sections, featuring multiple measures: (1) 
effectiveness of care (e.g., immunization rates); (2) health plan 
stability (e.g., physician turnover); (3) access/availability (e.g., 
children's access to primary care physicians); (4) satisfaction with 
the experience of care (e.g., overall satisfaction with plan); (5) use 
of services (e.g., number of well child visits in the first 15 months 
of life); and (6) plan description (e.g., member enrollment numbers).
      CIGNA HealthCare recognizes participating physicians and 
hospitals who have met certain quality criteria in its online Provider 
Excellence Recognition Directory. Physicians are recognized for being 
certified by the National Committee for Quality Assurance for providing 
high quality diabetes or heart/stroke care. Hospitals are highlighted 
for meeting the Leapfrog Group's three patient safety standards (e.g., 
Computer Physician Order Entry systems, Intensive Care Unit Physician 
Staffing, and Evidence-based Hospital Referrals).
      Since 1998, PacifiCare Health Systems has produced 
publicly disclosed medical group-specific report cards on approximately 
fifty-five measures that focus on clinical quality (e.g., cervical 
cancer screening), service quality (e.g., claims complaints), 
affordability (e.g., member cost for hospital and pharmacy services), 
and administrative accuracy (e.g., quality of the claims and encounter 
data submitted by the medical groups). Additional report cards focus on 
hospitals and women's health.

Investing in Information Technology, Particularly in the Area of 
        Pharmacy
Management

    A growing body of evidence indicates that investing in information 
technology improves both patient safety and quality of patient care.\7\ 
According to a California Health Care Foundation survey of small 
physician practices on the benefits of an electronic medical record 
(EMR), almost all physician practices reported increased quality of 
patient care due to better data legibility, accessibility and 
organization, as well as prescription ordering, and prevention and 
disease management care decision support. One physician responded that:
---------------------------------------------------------------------------
    \7\ Investing in electronic medical records also often results in 
financial benefits partially due to decreased staff (e.g., 
transcriptionist, medical records, data entry, billing and 
receptionist) costs. A couple of physicians in one small practice 
reaped gains of more than $20,000 per year by implementing the EMR. 
Electronic Medical Records: Lessons from Small Physician Practices, 
California Health Care Foundation, Prepared by University of 
California, San Francisco, October 2003.

    ``The biggest benefit [of an EMR] is to patient care. Patient care 
charts are legible and drug interactions can be seen. One of the 
biggest problems is that patients are on multiple medications and go to 
multiple specialists and pharmacies, so nobody knows who's taking what. 
Now, every time they come in, they get a print-out of all their 
medicines and they're told `take this to all your different 
specialists. . . .' So all the specialists know exactly what the 
---------------------------------------------------------------------------
patient is taking.''

    Recognizing its value in improving quality and patient safety, our 
member companies have implemented various information technology 
systems and e-health initiatives. These initiatives provide patients 
and physicians with online access to extensive information about 
prescription drugs, including their appropriate uses, potential side 
effects and adverse interactions. They also improve administrative 
processes and communications between patients and physicians, such as 
online enrollment, online physician selection, and online patient care 
advice. Examples include:

      Blue Cross Blue Shield of Massachusetts and Tufts Health 
Plan are working together to facilitate prescription drug ordering by 
physicians. Initially, the two health plans conducted separate 
demonstration projects providing 200 physicians with handheld e-
prescribing tools. Results from the demonstrations showed impressive 
improvements in quality, patient safety (through the reduction of 
preventable medical errors), and cost efficiencies. Currently, the two 
health plans, located in one service area, are collectively 
contributing $3 million for more widespread rollout, providing over 
3,400 physicians with handheld e-prescribing tools by the end of 2003.
      In 2003, Horizon Blue Cross Blue Shield of New Jersey 
launched a pilot program to allow patients to visit their physicians 
on-line. The goal of the program is to assist members to better manage 
their health through the convenience of the Internet. The pilot, 
involving 2,500 members and two participating physician groups, enables 
members to schedule appointments, request specialist referrals, obtain 
their medical histories, refill prescriptions and receive routine lab 
results.
      On its health plan member website, Humana, Inc. offers a 
comprehensive pharmacy section that offers access to information 
related to: (1) members' pharmacy benefit packages; (2) cost 
differences among drugs, alternatives to specific drugs by therapeutic 
class, and potential drug interactions; (3) a prescription drug 
library, with reference information about medications; (4) 
participating pharmacies; and (5) personalized prescription drug claims 
history (including ability to track deductibles and maximum benefits). 
In another section on the members' homepage, members can access a 
``natural'' health encyclopedia, with detailed information about herbs 
and natural supplements and other health information about disease 
conditions from Healthwise Knowledgebase. During 2003, there were more 
than 3 million visits to Humana's ePharmacy website.
      United Healthcare offers an interactive website for 
health plan members to: (1) order prescription drugs and over-the-
counter medications online; (2) ask a pharmacist questions about 
medications; (3) identify adverse drug interactions; (4) access 
clinical and other information about specified health conditions; and 
(5) set up a ``my health'' account, which tracks medical and medication 
history and provides tools to promote wellness, prevention, and 
prescription drug compliance.
      In January 2004, WellPoint announced a new $40 million 
initiative that will provide either a ``Prescription Improvement 
Package'' or a ``Paperwork Reduction Package'' to 19,000 physicians in 
California, Georgia, Missouri and Wisconsin. The ``Prescription 
Improvement Package'' features wireless handheld Personal Digital 
Assistants (PDAs) that allow physicians to check prescription drug 
coverage and formulary inclusion, screen for adverse drug interactions, 
write prescriptions electronically, and have them automatically faxed 
directly to the pharmacy. Alternatively, physicians may choose a 
``Paperwork Reduction Package,'' which includes computer systems that 
will help facilitate real-time on-line communication between the 
physician's office and WellPoint or other health insurers to verify 
enrollee eligibility and streamline claims processing and 
reimbursement.

Incentives to Reward Quality

    In general, payment systems have traditionally not paid for higher 
quality (e.g., improved clinical outcomes and patient satisfaction), or 
improvements in processes and structures, such as developing integrated 
information systems. Instead, traditional payments to providers have 
historically been based on the volume and technical complexity of 
services.
    Responding to these concerns, the Institute of Medicine urged 
health care stakeholders to re-align payment incentives with the 
delivery of safe and effective, high-quality care. Our member companies 
have been at the forefront of this movement and are developing 
innovative paying for quality programs for physicians, medical groups 
and hospitals, and incentives for consumers who select high quality 
providers. These programs include:

      In January 2004, Aetna launched a network of specialist 
physicians developed based on quality and efficiency indicators. The 
new AexcelSM network was created by identifying medical 
specialties associated with a large portion of health care spending and 
features specialists who demonstrate effectiveness against certain 
clinical measures (such as hospital readmission rates over a 30-day 
period, and reduced rates of unexpected complications by hospitalized 
patients), volume of Aetna members' cases, and efficient use of health 
care resources. Physicians in six medical specialties--cardiology, 
cardiothoracic surgery, gastroenterology, general surgery, obstetrics/
gynecology, and orthopedics--who have met the established measures have 
been designated to participate initially in the network option. Aexcel 
benefits consumers through lower copayments for seeking services from 
more efficient providers and providers benefit through increasing the 
volume of patients to their practice. The Aexcel network is currently 
available in the three markets of Dallas/Fort Worth, North Florida and 
Seattle/Western Washington and will be expanded to additional service 
areas and specialties throughout the next two years.
      Anthem Blue Cross and Blue Shield is one of the first 
health benefits companies to collaborate with hospitals on an extensive 
hospital quality program that includes increased reimbursement based in 
part on quality measures. The program has been successful in improving 
the quality of care and outcomes at participating hospitals for all 
patients, not just Anthem members.

    Anthem's Hospital Quality Program began in Ohio in 1992 with the 
quality reimbursement component added in 2002. The Hospital Quality 
Program evaluates quality of care provided in its network hospitals 
based on quality indicators, such as care provided for coronary 
services, obstetrics, breast cancer, asthma, joint replacement surgery, 
emergency departments, patient safety and accreditation status. Since 
its inception, this program has made statistically significant 
improvements in the care delivered to Anthem members in areas such as 
neonatal mortality rates, the use of beta blockers after heart attacks, 
and patient safety. Hospitals convene and share best practices. This 
Midwest program has been extended across all Anthem regions. These 
programs incorporate a payment system to recognize and reward 
physicians and hospitals for improved health care quality, patient 
safety and clinical results, such as reduced infections or medical 
errors. The programs measure a broad set of metrics that are based on 
best practices and developed in collaboration with participating 
hospitals and specialty medical societies.

      Empire Blue Cross Blue Shield is working with several of 
its large employer customers--IBM, PepsiCo, Xerox, and Verizon--to 
provide bonuses to hospitals that implement two of the Leapfrog Group 
standards: Computer Physician Order Entry (CPOE) and Intensive Care 
Unit (ICU) staffing. As of December 31, 2002, 53 hospitals in the 
plan's service area had completed the voluntary Leapfrog Group hospital 
survey and self-certified the status of CPOE and ICU staffing at their 
facilities. Bonuses were paid under the program to 29 hospitals during 
2002.
      Harvard Pilgrim Health Care has a Provider Network 
Quality Incentive Program which includes support for medical directors 
and clinical practices, a Quality Grant Program and an Honor Roll 
program that publicly recognizes outstanding physicians. Another 
component of the Provider Network Incentive Program is a Rewards for 
Excellence program that recognizes and rewards the exemplary 
performance that local quality efforts achieve. Harvard Pilgrim has 
identified a subset of key HEDIS performance measures where effective 
clinical interventions have been identified and/or where current levels 
of performance--nationally, regionally, and within Harvard Pilgrim--are 
less than clinically optimal. Harvard Pilgrim offers its providers 
financial rewards for achieving excellent levels of performance in the 
defined target areas. In 2003, Harvard Pilgrim rewarded 55 out of 66 
eligible practices.
      In California, the Integrated Healthcare Association, 
including health plans and insurers, physician groups, and health care 
systems, is implementing a state-wide Pay for Performance initiative. 
Participating health plans/insurers include Aetna, Blue Cross of 
California, Blue Shield of California, CIGNA HealthCare of California, 
Inc., Health Net, and PacifiCare Health Systems. A common set of 
performance measures will evaluate physician groups in six clinical 
areas, patient satisfaction, and information technology investment 
(e.g., electronic medical records or computerized physician order entry 
of medications) and financial incentives will subsequently be awarded 
based on the physician groups' performance. A public scorecard will be 
available in September 2004 and initial payouts are expected in June 
2005.

CONCLUSION
    We agree with the Committee that there are opportunities to achieve 
the goal of a safer and more effective health care system. We believe 
that all stakeholders, including payers, providers, consumers, and 
employers, should play a role in making health care information 
publicly available so that consumers can make more informed health care 
decisions and choices.
    Health plans and insurers have led the way in:

      Measuring the performance of health care providers and 
health care organizations in providing safe and effective care;
      Promoting transparency and public disclosure of health 
system performance in meeting quality goals;
      Working with health care practitioners and other 
stakeholders in the health care system to improve health care quality 
and reduce preventable medical errors through the use of information 
technology and system changes; and
      Promoting the incorporation of evidence-based medicine 
into everyday medical practice by aligning payment incentives with 
quality.

    We urge Congress to advance the national effort to improve health 
care quality by considering proven private sector initiatives, 
including the alignment of incentives with quality, as models for the 
broader health care system.

                                 
   Statement of David G. Schulke, American Health Quality Association

    The American Health Quality Association (AHQA) represents 
independent private organizations--known as Quality Improvement 
Organizations (QIOs)--that hold contracts with the Centers for Medicare 
& Medicaid Services (CMS) to improve the quality of health care for 
Medicare beneficiaries in all 50 states and the U.S. territories.
    AHQA is pleased that the Ways and Means Subcommittee on Health is 
conducting a hearing to examine Federal and private sector initiatives 
to improve health care quality. While recent reports published by the 
Agency for Healthcare Research and Quality (AHRQ) and the Medicare 
Payment Advisory Commission (MedPAC) show that the quality of care 
provided to Medicare beneficiaries is improving for a number of 
important quality measures, it also shows a clear gap between the care 
beneficiaries need and what they actually receive. To close this gap, 
it is imperative to develop, test and implement initiatives that will 
accelerate the pace of quality improvement.

WHY THE QIO APPROACH WORKS
    The Medicare QIO program represents the largest coordinated Federal 
effort dedicated to improving the quality of health care for Americans. 
QIOs are local organizations, employing local professionals, with a 
national mandate to improve systems of care. As such, QIOs are 
catalysts for change trusted by both beneficiaries and providers. QIOs 
educate beneficiaries about preventive care and encourage hospitals and 
doctors to adopt and build ``best practices'' into daily routines for 
treating seniors with common and serious medical conditions.
    Medical professionals work voluntarily and often enthusiastically 
with QIOs because QIO projects reduce duplication of effort for doctors 
participating in multiple hospitals and health plans. These projects 
also reduce the burden on hospitals that participate in multiple health 
plans, by bringing the parties together to work on the same urgent 
clinical priorities, using the same measures, the same abstraction 
tools, the same key messages. Even the best consultants working for 
individual hospitals cannot have this effect--and many providers cannot 
afford costly consultants. In short, QIOs accelerate diffusion of 
evidence-based medicine to all providers--small, large, urban and 
rural--in all health care settings.
    The QIOs are helping to close the gap in quality of care by 
continuing to work on the health care quality improvement aims set 
forth by the Institute of Medicine in its landmark 2001 report 
``Crossing the Quality Chasm,''--that care is safe, timely, effective, 
efficient, equitable, and patient-centered. Today, QIOs are working to:

      Improve patient safety and reduce common and dangerous 
errors of omission.
      Ensure that appropriate care is delivered in a timely 
manner.
      Ensure care is provided in accordance with professional 
standards of care.
      Ensure preventive care is delivered to avoid unnecessary 
costs to the health care system.
      Eliminate health care disparities among minority 
populations.
      Help consumers use available quality information to make 
health care decisions and resolve beneficiary complaints about the 
clinical quality of care they receive.

NURSING HOMES
    As part of the CMS National Nursing Home Quality Initiative (NHQI), 
QIOs have been assisting long-term care facilities on a national basis 
since 2002. The effort has involved helping consumers understand and 
use publicly reported quality data for making better health care 
choices, providing informational material and workshops for facilities, 
as well as offering intensive technical assistance to a smaller group 
of nursing homes in each state--with a specific focus on nursing home 
quality measures (addressing pain, pressure sores, delirium, and 
others) approved by the National Quality Forum.
    Historically, most nursing homes have focused on compliance with 
regulations and quality assurance. But the impetus of public reporting 
of quality data and the availability of QIOs for technical assistance 
has resulted in more and more nursing homes developing a quality 
improvement approach to improving resident outcomes and quality of 
life. Across the country, nursing homes are voluntarily connecting with 
QIOs that are training nursing home managers to implement quality 
improvement systems in a culture where front line staff not only 
participate in quality improvement projects, but also are empowered to 
continually identify and solve problems.
    While the initiative has been in place for just a year and a half, 
nursing homes and their QIO partners already boast unprecedented 
nationwide improvement on selected quality measures (see nursing home 
success stories at www.ahqa.org). In January, CMS reported that since 
the NHQI began in 2002:

      Approximately 2,500 nursing homes are actively pursuing 
quality improvement efforts with the help of their state QIO, and 
nearly all (99.5%) of the nation's 17,000 nursing homes have been 
contacted by their local QIO to participate in quality improvement 
efforts.
      Residents with chronic pain dropped by more than 30% 
(from 10.7% to 7.3%) and improvement has been achieved in every state.
      Residents who were physically restrained declined by 15% 
(from 9.7% to 8.2%) nationally and improvement has been achieved in 92% 
of states.
      Short stay residents who experienced pain decreased 
nationally by 11% in one year (from 25.4% to 22.6%).

    In fact, every QIO is surpassing its required targets for quality 
improvement in the nursing home setting as measured by the publicly 
reported quality indicators. But performance on some measures has not 
improved as rapidly as others. So QIOs are working with nursing homes--
and continuing to engage other stakeholders such as state survey 
agencies, long-term care ombudsmen, and hospital discharge planners--on 
new and innovative ways to drive performance and build on early 
successes.

HOME HEALTH
    QIOs also are playing a pivotal role in a Federal initiative to 
help home health agencies improve the quality of their care and assist 
beneficiaries in understanding how publicly reported quality data can 
be used to select a home health agency provider. QIOs are training 
agency caregivers to evaluate their own performance using standardized 
Medicare quality measures; select treatment processes for improvement; 
create and implement step-by-step plans to improve care; and integrate 
continuous quality improvement into ongoing staff training.
    QIOs are training home health agencies in an evidence-based 
process--called Outcomes-Based Quality Improvement (OBQI). OBQI 
involves collection, analysis, and feedback of data on quality of care 
and patient progress that is of practical value to clinicians. The data 
documents how well agencies are helping patients improve grooming, 
bathing, dressing, meal preparation, and other activities. OBQI 
provides home health agencies with methods for interpreting patient 
data, targeting care processes for improvement, restructuring care, and 
monitoring how change in care impacts patient recovery and quality of 
life.
    The Delmarva Foundation, the QIO for Maryland and the District of 
Columbia, trained all QIOs in the OBQI method prior to the launch of 
the initiative, and those QIOs in turn trained the home health agencies 
in their states that volunteered to participate. As of this week, 5,275 
agencies, or three-quarters (76%) of all Medicare-certified Home Health 
Agencies, have been trained by QIOs. Nearly two-thirds (63%) of all 
Medicare-certified HHAs have submitted quality improvement plans of 
action based on their OBQI training and self-assessment, and more than 
half (55%) of all HHAs have signed up to share quality improvement 
information with other agencies via the website OBQI.org, where they 
can also receive refresher trainings from QIOs. These Home Health 
Agencies continue to demonstrate a persistent dedication to working 
with QIOs on improving their residents' clinical outcomes and quality 
of life (see home health success stories at http://www.ahqa.org/pub/
media/159_766_4627.CFM).

HOSPITALS AND PHYSICIAN OFFICES
    QIOs work with hospitals and physician offices to improve clinical 
care for heart attack, congestive heart failure, pneumonia and post-
surgical infections in the inpatient setting, as well as diabetes, 
breast cancer and influenza and pneumonia in the outpatient setting. 
QIOs work in these settings to assess the use of accepted best 
practices, analyze systems for providing care and assist with 
implementation of quality improvement interventions. As outlined in a 
January 15, 2003 JAMA article by Jencks, et al, the QIOs, working with 
the medical community, reduced the overall gap in quality by about 13% 
between 1998-2001. For example, for the median state, prescription of 
the correct antibiotic for pneumonia patients went from 79% (a quality 
gap of 21%) in 1998-1999 to 85% (a quality gap of 15%) in 2000-2001. 
This 6-point absolute improvement represents a 32% closing of the 
quality gap, expressed in the study as ``relative improvement.'' Areas 
showing strong gains nationally in relative improvement also included 
administration of aspirin for heart attack with 24 hours (15% relative 
improvement), beta-blockers at discharge for heart attack patients (28% 
relative improvement), avoidance of nifedipine for acute stroke 
patients (77% relative improvement), annual hemoglobin test for 
diabetes (29% relative improvement), and bi-annual lipid test for 
diabetes (38% relative improvement). QIOs are refining their methods in 
areas where improvement was less significant. (Please see hospital 
success stories at http://www.ahqa.org/pub/media/159_766_4627.CFM.)

REDUCING DISPARITIES/IMPROVING RURAL CARE
    As part of their contracts with CMS, each QIO conducts a quality 
improvement project in their state to improve care for rural 
beneficiaries or address racial and ethnic disparities in care between 
minority populations and the general Medicare populations.
    QIOs have partnered with local coalitions addressing disparities, 
particularly faith-based organizations, to reach out to African 
Americans, Hispanics, and other minority beneficiaries to assist them 
in getting evidence-based health care. In addition, QIOs work with 
health care providers and practitioners on ways to recognize and 
eliminate racial and ethnic disparities that may exist in their 
treatment of patients. The establishment of systematic, reliable 
methods of routinely delivering evidence-based care to every patient 
can eliminate much of the under treatment that otherwise afflicts 
vulnerable populations.
    About 20 QIOs are currently working with critical access hospitals, 
health centers, and clinics to improve care delivered to rural 
beneficiaries. However, the demand for QIO assistance in rural areas 
far exceeds available funding. AHQA supports statements by MedPAC and 
others recommending that the HHS Secretary increase and dedicate 
funding for QIO work in rural areas, so the rural population can 
receive more attention without undermining work that focuses on high-
volume providers in order to achieve the greatest benefit for Medicare 
beneficiaries.

CASE-BASED QUALITY IMPROVEMENT
    Case-based quality improvement helps QIOs improve patient safety, 
protect beneficiaries and identify opportunities to improve systemic 
quality of care. Investigating beneficiary complaints, ensuring proper 
coding, adjudicating certain beneficiary appeals and reviewing EMTALA 
cases are all examples of how QIOs protect both beneficiaries and 
taxpayers by ensuring that quality care is delivered appropriately, and 
that the Medicare trust fund does not pay for unnecessary care.

PUBLIC REPORTING
    Public reporting of health care quality data can help many 
consumers make more informed health care choices. Equally important is 
the effect of public reporting on providers--making apparent clinical 
areas where the quality of their care can be improved, and motivating 
them to seek out assistance to do so. While participation in QIO 
quality improvement activities is voluntary, the volume of providers 
seeking assistance has been tremendous, and appears to have been 
increased by public reporting.
    Beginning in 2002, CMS launched new national quality initiatives in 
nursing homes, home health agencies and hospitals. Consumers can turn 
to their local QIOs in those initiatives for help in understanding the 
publicly reported quality measures and how they can be used to make 
better health care decisions. QIOs are also assisting hospitals, 
nursing homes and home health agencies to ensure the accuracy of the 
information they collect.
    Public reporting of hospital quality data depends on capturing 
large amounts of comparable data, requiring a set of uniform quality 
measures and a data collection tool that permits easy reporting of a 
standard set of quality data. The QIO program funded the creation of a 
sophisticated set of evidence-based clinical quality process measures, 
now widely used in both public and private sectors, which provides an 
ongoing assessment of the quality of fee for service health care under 
Medicare. In addition, all QIOs have been offering technical assistance 
to hospitals to facilitate their use of a free, CMS-developed data 
collection tool, and to help providers submit quality data to a 
centralized data warehouse.

PAY FOR PERFORMANCE
    The concept of payment-for-performance holds real potential for 
spurring improvement and should be examined carefully. CMS should 
continue to test ways to provide differential payments to providers and 
practitioners that provide high quality care. QIOs are available to 
assist hospitals in the Premier Hospital Quality Incentive 
Demonstration with data submission and quality improvement. CMS is also 
using QIOs through the Doctors Office Quality--Information Technology 
project (DOQ-IT) to implement the care management performance 
demonstration required by the Medicare Modernization Act. In this 
capacity, QIOs will work with physicians to implement technology to 
improve care for chronically ill beneficiaries, provide technical 
assistance with quality improvement interventions and care process 
redesign, and measure provider performance on quality measures that 
could lead to increased payment.
    Some QIOs are also working with private sector innovators to 
examine options for differential payment. One key challenge of such 
programs is that no payer, public or private, should offer additional 
payments for performance that has not been verified by an independent 
organization such as a QIO. The Virginia Health Quality Center (VHQC), 
which serves as the Medicare QIO for the Commonwealth of Virginia, is 
participating in a private pay-for-performance initiative sponsored by 
Anthem Blue Cross and Blue Shield of Virginia (Anthem). VHQC is 
facilitating the initiative as a Patient Safety Organization, 
designated under Virginia state law. The QIO receives quality and 
safety measures submitted by hospitals, and validates them against 
confidential medical records, so that Anthem can be assured of paying 
only for verified quality improvement. The Anthem-VHQC partnership is a 
model for national payment incentives program that we urge Congress to 
emulate in the context of the Medicare program.

PATIENT SAFETY
    The IOM's 1999 report To Err is Human publicized previous research 
finding as many 98,000 deaths annually are attributable to health care 
errors in the inpatient setting alone. Clinical quality improvement 
efforts by QIOs are reducing errors of commission and errors of 
omission in a wide variety of settings. MedPAC notes in their March 
2004 report to Congress that Medicare QIO program measures show 
improvement in the areas of timeliness and effectiveness of care, two 
key dimensions of quality identified by the IOM in its work on patient 
safety and quality.
    The current work of the QIOs to reduce the frequency of surgical 
site infections will soon be expanded in the Surgical Complication 
Improvement Project (SCIP), a vital initiative to improve patient 
safety while reducing costs. States are also increasingly turning to 
QIOs in their patient safety efforts, and some QIOs are serving as 
Patient Safety Organizations, in addition to their work for Medicare to 
improve health care quality.

HEALTH CARE INFORMATION TECHNOLOGY
    More than a decade ago the IOM presciently recommended that 
electronic health records become the standard for patient care. The 
widespread adoption of electronic health records and other technologies 
holds great potential for transforming the health care system by 
accelerating the pace of quality improvement, reducing and preventing 
errors, increasing efficiency, and promoting development of systems of 
patient-centered care.
    While the potential for health information technology to improve 
quality is great, a number of challenges remain. Barriers to the 
automation of clinical information include the lack of national 
standards for interoperability, privacy, security, and confidentiality 
of information, and little to no means to finance investments in new 
technology, particularly for rural providers. However, many experts 
agree that the most challenging barrier to the widespread adoption of 
electronic health records and other IT tools is managerial in nature, 
demanding redesigned clinical processes and workflow in office 
practices and hospitals. QIOs are building the expertise required to 
effectively educate and assist practitioners and providers in adopting 
information technology in clinical practice.

NEW OPPORTUNITIES FOR QUALITY IMPROVEMENT
    The MMA has created major new opportunities for quality 
improvement, expanding the work of the QIOs to Medicare Advantage plans 
under Part C and outpatient prescription drugs under Part D. QIOs will 
offer quality improvement assistance to providers, practitioners, MA 
plans and prescription drug plans with regard to medication therapy. 
The QIOs are in a unique position to integrate inpatient and outpatient 
claims and medical record data with prescription drug data to provide a 
more complete view of patient care. This will be a powerful tool for 
efforts to support the safe and effective use of prescription drugs in 
the health care of Medicare beneficiaries.

CONCLUSION
    AHQA supports full consideration by Congress and the administration 
of innovations to accelerate the pace of quality improvement. We 
believe it will take a coordinated effort on the part of government and 
the private sector to close the significant quality gaps that exist in 
American health care. There are clear indications that the QIO program 
is helping private plans and providers employ standardized quality 
measures, report them publicly, and work together to eliminate those 
gaps. Without QIO assistance, the pace of progress would slow down, as 
every plan and provider would be obliged to rediscover proven 
techniques already implemented by others.
    In the year 2002, Medicare spent just $6.33 per beneficiary to fund 
the quality improvement activities of the QIOs. While these funds are 
being put to effective use, the resources are extremely low in relation 
to the scope and size of the problem. The QIO program is an investment 
in a coordinated national effort to improve health care. AHQA urges 
Congress and the administration to ensure that the investment is 
adequate to meet the goals the program is striving to achieve.

                                 
               Statement of American Hospital Association
Hospitals: Committed to Quality Improvement and Patient Safety

    On behalf of our nearly 5,000 member hospitals, health systems, 
networks and other providers of care, the American Hospital Association 
(AHA) is pleased to share its views on the future of health care 
quality improvement. Hospital care is the single largest component of 
health care in the United States. In the year 2001 alone, hospitals 
cared for 612 million outpatients, treated 109 million in emergencies, 
performed 27 million surgeries and delivered more than 4 million 
babies. Caring for millions of ill and injured patients is an 
extraordinary responsibility, and it is a responsibility that hospitals 
take very seriously. Hospitals believe that every patient who enters 
their doors deserves the guarantee of safe, high-quality care. As such, 
quality and patient safety are the cornerstones of every hospital's 
mission, and caregivers continually strive to improve safety and 
outcomes.
    Despite hospitals' efforts to ensure safe, high quality care, 
mistakes do occur, and there is both overuse and under use of some 
diagnostic and treatment procedures, as described in the Institute of 
Medicine's (IOM) landmark 1999 report, ``To Err is Human: Building a 
Safer Health System,'' and its second report, ``Crossing the Quality 
Chasm.'' Though the exact consequences of missteps in care are 
sometimes unknown, any preventable harm to patients is unacceptable and 
underscores the need for a comprehensive, unified approach to quality 
improvement.

The Quality Initiative: A Unified Approach to Quality Reporting
    Since the IOM released its 1999 report on errors in America's 
health care system, public demand for more and better information about 
hospitals' safety and performance has been overwhelming. In recent 
years, there has been a proliferation of quality measurement 
activities: Organizations such as the Joint Commission on Accreditation 
of Healthcare Organizations (JCAHO), states, hospitals, researchers, 
insurers and other payers, the business community, consumer 
organizations, commercial enterprises that compile and sell ``report 
cards,'' and the media all offer the public different concepts of 
quality and relevant data.
    According to a 2000 Rand Health report, ``Dying to Know: Public 
Release of Information about Quality of Health Care,'' the California 
Office of Statewide Health Planning and Development in 1994 identified 
more than 40 report cards using a total of 118 different measures of 
quality, and the number of organizations trying to collect and use 
quality data has grown exponentially since then. Not only does the 
information differ from rating system to rating system, it is collected 
using different methodologies, and the validity and reliability of the 
data are highly variable. Providers are confused by the disparate 
ratings and rankings, and the potential for confusing the public with 
conflicting and sometimes misleading information is even greater.
    On December 12, 2002, leaders of the AHA, Association of American 
Medical Colleges (AAMC) and Federation of American Hospitals (FAH) 
announced hospitals' effort to create a more unified approach to 
collecting and sharing hospital performance data with the public. The 
initiative was developed with the full support of Federal agencies, 
consumer and employer organizations and accrediting bodies alike, 
including the Department of Health and Human Services (HHS) and its 
Centers for Medicare & Medicaid Services (CMS) and Agency for 
Healthcare Research and Quality (AHRQ), the Joint Commission on 
Accreditation of Healthcare Organizations (JCAHO), the National Quality 
Forum (NQF), the AARP and the AFL-CIO.
    The national, hospital-led initiative aims to:

      Provide the public with meaningful, relevant and easily 
understood information about hospital quality;
      Bolster hospital and physician efforts to improve care; 
and
      Standardize data collection priorities and streamline 
duplicative and burdensome hospital reporting requirements.

    This landmark public-private partnership marks an important first 
step in developing predictable, useful and understandable quality 
information about hospital patient care and outcomes. The initiative 
begins by asking hospitals to voluntarily report performance data on 10 
measures of care for three conditions:

Heart Attack
                    Aspirin at arrival
                    Aspirin at discharge
                    Beta blocker at arrival
                    Beta blocker at discharge
                    ACE inhibitor for left ventricular systolic 
dysfunction (LVSD)
Heart Failure
                    Left ventricular function assessment
                    ACE inhibitor for LVSD
Pneumonia
                    Initial antibiotic timing (within four 
hours)
                    Pneumococcal vaccination
                    Oxygenation assessment

    These measures were carefully selected based on their scientific 
validity and near universal acceptance. JCAHO and CMS use these 
measures, and the National Quality Forum endorsed them as part of their 
core set for hospitals.
    Hospitals swiftly embraced The Quality Initiative, seizing the 
opportunity to demonstrate their commitment to openness and 
accountability. More than 500 hospitals agreed to take part in the 
initiative within the first month, and that number had more than 
tripled to 1,700 within less than six months. Today, more than 3,300 of 
the nation's approximately 4,200 acute care hospitals have pledged to 
take part in the effort. Though the Medicare Modernization Act--which 
requires hospitals paid under the inpatient prospective payment system 
to report these measures in order to receive a full Medicare inpatient 
market basket update--provides an added incentive for hospitals to take 
part in the initiative, hospital participation was increasing steadily 
before its enactment.

            Hospital Participation in The Quality Initiative

[GRAPHIC] [TIFF OMITTED] T9678A.005


    Since October of 2003, hospitals' performance on the initiative's 
10 measures has been displayed on a public CMS Web site, 
www.cms.hhs.gov/quality/hospital. Though intended primarily as a ``test 
site,'' valuable primarily for researchers and clinicians, the launch 
of the site marked the first step toward creating a comprehensive, 
user-friendly consumer site. By February, more than 1,400 hospitals had 
allowed their data to be shared, and that number is expected to jump to 
2,000 hospitals when the site is updated in May. Our partners in the 
Quality Initiative have been impressed by hospitals' willingness to 
step forward and share this data.
    From the beginning, we've noted that the 10 measures of care with 
which we began were just a starting point. Creating a truly meaningful 
resource on hospital quality, one that will arm consumers with 
information they need to make the most appropriate decisions about 
their care, and clinicians with a tool for continued quality 
improvement, requires data on a broad range of hospital services. As 
promised, partners in the initiative recently agreed on 12 new measures 
of care, including new measures of the steps taken to prevent surgical 
infections, which hospitals will be asked to share starting early next 
year. The Hospital CAHPS survey developed by CMS and AHRQ, which will 
allow a comparison across hospitals of patients' perceptions of the 
care they received, also will become a key component of the Quality 
Initiative next year following further testing of the survey tool and 
its administration instructions. In addition, we are eager to begin to 
develop measures for hospitals for which the current measures do not 
apply, including small, rural hospitals, children's hospitals and 
psychiatric hospitals.

Moving Forward: Challenges in Sharing Quality Information with the 
        Public

    1. Making Information Useful

    Despite the wealth of information available to the public on 
hospital quality, research suggests that few are using the information 
to make decisions about their care. A survey of nearly 500 patients who 
had undergone coronary artery bypass graft (CABG) surgery at one of the 
four hospitals rated in Pennsylvania's Consumer Guide, found that only 
12 percent were aware of a report card on cardiac surgery mortality 
before undergoing surgery, and fewer than 1 percent knew the correct 
rating of their surgeon or provider and reported that it had a moderate 
to major impact on their selection. A 2000 Kaiser Family Foundation/
AHRQ survey of 2,000 adults similarly found that only 4 percent had 
used information comparing the quality of hospitals to make a decision 
about their care. While 63 percent of respondents said their family and 
friends would have ``a lot'' of influence on their choice of a 
hospital, few said the same of same of newspapers and magazines (12%) 
or government agencies (15%). In fact, 62 percent said they would 
choose a hospital that their family and friends had used for many years 
without problems over a hospital that is rated higher.
    Though it is still important to share hospital performance 
information with the public, these findings suggest that clinical 
measures will be of more value to clinicians than to consumers. 
Therefore, clinical measures chosen for public reporting must be 
actionable, credible, science-based measures that will help clinicians 
assess and improve the quality of care they are providing.

    2. Measuring the Right Elements

    Measures must be selected carefully to ensure they paint an 
accurate picture of hospital quality. For instance, some organizations, 
like the Leapfrog Group, have sought to use volume as a proxy for 
quality; yet, a study published in a recent issue of Journal of the 
American Medical Association concludes that volume is an unreliable 
indicator of a provider's quality of care. The authors of the study 
analyzed outcomes for very low birth-weight infants at more than 300 
hospitals with neonatal intensive care units and found that the annual 
number of very low birth-weight babies admitted to a hospital is not an 
accurate predictor of the hospital's outcomes. Data collected by the 
Veterans Administration as part of the National Surgical Quality 
Improvement Project have also shown that volume is not a reliable proxy 
for quality for surgical patients. Moreover, hospital volume is not an 
``actionable'' item that caregivers can change to improve care.
    We also must ensure that the measures used are true indicators of 
the care provided--and not of other factors. For instance, mortality 
rates, if not properly adjusted for the health status of the patients, 
say more about the severity of patients' conditions than they do about 
the quality of care provided, and can have harmful unintended 
consequences. The 1996 study by Eric Schneider, M.D. and Arnold 
Epstein, M.D., ``Influence of Cardiac-Surgery Performance Reports on 
Referral Practices and Access to Care--A Survey of Cardiovascular 
Specialists,'' suggests that using mortality rates as a performance 
indicator deters physicians from operating on risky or especially ill 
patients. The physicians surveyed in the study overwhelmingly indicated 
that risk adjustment was inadequate.

    3. Adapting to Advances in Care

    Though providers and consumers share the goal of standardizing care 
so that patients receive the recommended care regardless of the 
setting, mandating or regulating the use of clinical standards may 
impede caregivers' ability to respond to advances in science. Standards 
of care change over time, and caregivers need the flexibility to adapt 
to those changes.
    For instance, hormone replacement therapy (HRT) was, for decades, 
the standard treatment for alleviating menopausal symptoms. In recent 
years, HRT even was thought to reduce the risk of cardiovascular 
disease and to help prevent memory loss and Alzheimer's disease. In 
July of 2002, however, researchers from the National Institute of 
Health's Women's Health Initiative announced that they were pulling the 
plug on a study of HRT, three years before its scheduled completion, 
after having discovered a link between the therapy and an increased 
risk for heart disease, breast cancer and stroke. The researchers 
concluded that the long-term risks of the therapy could outweigh its 
benefits. If providers were being measured on how often they put women 
on hormone replacement therapy, the measure would no longer be a good 
indicator of whether clinicians were treating patients in accordance 
with medical science.
    Even when a standard of care is proven safe and effective, there 
may be equally acceptable alternatives, as evidenced by a recent study 
led by researchers at Brigham and Women's Hospital, Duke University and 
the University of Glasgow. Though ACE inhibitors have been a standard 
of care since 1992, when they were shown to reduce one-year mortality 
rates in heart attack patients by 19 percent, the researchers found 
that a new medication, the angiotensin-receptor blocker valsartan, is 
just as clinically effective as an ACE inhibitor in improving outcomes 
for heart attack patients. While it is important to promote the use of 
clinical standards so that patients receive the best possible care 
regardless of the provider, this discovery demonstrates that clinicians 
often have several options to consider when caring for patients.

The Road Ahead: The Role of the Federal Government in Fostering Quality 
        Improvement
    We applaud Congress for recognizing the important role it can play 
in fostering continued health care quality improvement. The federal 
government is the largest single purchaser of health care in the United 
States, and as such, can be a powerful agent in spurring progress. As 
we move forward with a national, unified quality improvement agenda, 
continued collaboration between the public and private sectors will be 
critical. However, it is sometimes difficult for Federal agencies to 
fully partner as part of a collaborative effort. Therefore, Congress 
might want to consider analyzing whether or not CMS should have 
expanded authority to work collaboratively with other organizations. 
Also critical is continued support for the quality improvement 
activities of AHRQ. Their research is essential to creating the 
evidence-based clinical measures and the information technology 
standards that will ensure patients receive the safest, most 
appropriate care--no matter where they live or which hospital they 
choose. Finally, because hospitals experience many competing resource 
demands, it is difficult for many hospitals to find the capital to 
invest in some of the new information technologies that will help to 
improve quality and patient safety. Congress also may want to consider 
grants and other funding mechanisms to promote the faster adoption of 
IT.
    Again, hospitals thank you for taking an active interest in 
promoting their patients' quality of care. Our shared commitment to 
quality improvement will ensure that Americans enjoy the promise of 
safer, more effective care in the years to come.

                                 
   Statement of Alliance for Quality Nursing Home Care, and American 
                        Health Care Association

    The American Health Care Association (AHCA) and the Alliance for 
Quality Nursing Home Care appreciate the opportunity to provide the 
House Ways and Means Subcommittee on Health with perspective on the 
progress we are making in regard to improving the quality of long term 
care we provide to more than 1.5 million elderly and disabled Americans 
annually.
    We thank Chairman Johnson for calling this important hearing, and 
for providing stakeholders a valuable opportunity to discuss our 
ongoing commitment to quality long term care services. It is especially 
essential that we foster an environment in which the federal government 
and the profession can continue to work successfully together.
    The process of health care delivery is dynamic and achieving 
progressively higher levels of care quality and customer satisfaction 
is an ongoing effort--as is the progressive effort to measure, assess, 
evaluate and report quality care itself.
    The long term care profession is demonstrating its dedication to 
quality and performance excellence by joining together to create 
Quality First, the first-ever, nationwide, publicly articulated pledge 
to voluntarily establish and meet quality improvement targets. Through 
this initiative and other programs, we as a profession have partnered 
with the federal government and consumer advocates, among other 
stakeholders, to work in tandem to ensure the delivery of quality care 
in our nation's nursing homes, assisted living residences and homes for 
persons with mental retardation and developmental disabilities. The 
broad collaboration has fostered successful practices of the delivery 
and measurement of quality in long term care, which is focused on those 
we serve each day--the patients, residents and their families in long 
term care facilities nationwide.
    Quality improvement is an internal process that is complex. Survey 
compliance rates are one of several measures that are used to assess 
the provision of quality in long term. Additional measures that 
benchmark the delivery of quality include Centers for Medicare and 
Medicaid Services' (CMS) quality measures, resident, family and staff 
satisfaction, employee retention, and financial stability. Quality 
First provides the tools to more accurately measure quality based on 
the full spectrum of care and outcomes, rather than isolated incidents.
    Today's emphasis on evaluating and reporting results benefits 
patients, policymakers, caregivers and consumers alike. Just as 
competition spurs choice, productivity and product innovation in the 
economic marketplace, the increasing competition that stems from public 
disclosure of quality information is producing similar benefits in the 
health care marketplace.
    The many innovations and improvements in healthcare quality 
measurement we've seen in just the past two decades have been 
extraordinary, and we fully expect and hope that more reliable systems 
to measure quality will emerge. We are excited about the pace of change 
in long term, and we look forward to working collaboratively with all 
stakeholders to determine, on an ongoing basis, which measures best 
predict quality, and how we can use those measures to keep improving 
patient care.
    In evaluating the initiatives and progress the entire health care 
provider community is making on the quality front, Mr. Chairman, it is 
notable and significant that America's long term care profession came 
to the forefront first. As home health care and hospitals are just now 
becoming involved in government quality improvement initiatives, we 
maintain the positive involvement and results experienced by long term 
care providers and patients have served as a useful, positive and 
instructive guide for the entire health care system.
    In prefacing our comments and evaluation of government and 
profession-wide quality initiatives, we cannot stress enough the 
important linkage between the financial stability of the long term care 
sector and the extent to which care quality improvements have moved 
forward and will continue moving forward.
    Our responsibility to maintain and sustain quality improvements is 
straightforward and obvious; it is also obvious and necessary that the 
federal government must to do its part to help bring about a more 
stable and viable financing environment for Medicare and Medicaid.
    In this context, it is noteworthy that the Medicare Payment 
Advisory Committee's (MedPAC) March 2004 report to Congress 
specifically noted that:

    ``Many efforts are currently underway to improve quality in Skilled 
Nursing facilities (SNF's) and nursing homes, but these efforts are 
grafted onto a payment system that is largely neutral or even negative 
with respect to quality.''

    As the first panel of today's hearing will discuss government 
quality initiatives, we will outline our participation in the Nursing 
Home Quality Initiative (NHQI). For the second panel, we will discuss 
the progress of the long term care profession's successful and 
innovative Quality First initiative.

The NHQI: More Accountability, Increased Disclosure, More Competition
    The NHQI, like our profession's Quality First initiative, has 
helped place us on the course necessary to ensure care quality improves 
and evolves in a manner that best serves patient needs.
    Its focus on resident centered care, care outcomes, increased 
public disclosure, better collaboration and increased accountability 
and dissemination of best practices models of care delivery is making a 
positive, measurable difference in the lives of our patients.
    Implemented nationally in 2002, the long term care profession 
endorsed CMS' NHQI from its inception, and the profession has been 
intimately involved with the initiative's implementation. NHQI, in 
conjunction with the long term care profession, is working successfully 
to:

      Improve regulation and enforcement efforts to assure 
nursing homes' compliance with rules regarding patient health, safety 
and quality of care;
      Improve consumers' access to nursing home quality 
information via internet and other public media;
      Encourage nursing homes to seek help from the Medicare 
quality improvement organizations (QIOs) to improve performance; and
      Encourage more communication among Federal and state 
agencies, QIOs, independent health quality organizations, consumer 
advocates and nursing home providers regarding ways to improve nursing 
home quality.

    According to the CMS, the NHQI efforts have resulted in 
approximately 2,500 nursing homes nationwide pursuing quality 
improvements with assistance from their QIOs, nearly all nursing homes 
contacting their QIOs about the NHQI, and more than 60 percent of 
nursing homes attending QIO-sponsored workshops.
    CMS has found notable improvements since the inception of NHQI, 
including, among others, ``decreasing reports of pain among long and 
short stay patients and decreasing use of physical restraints.''
    CMS has also taken recent steps to improve its quality measures and 
is now using an updated set of measures endorsed by the National 
Quality Forum (NQF)--the non-profit consensus-building organization.
    CMS, stakeholders, members of congress, researchers and consumers 
recognize the value of quality assessment and improvement methods and 
their effectiveness in measuring, promoting and rewarding quality 
outcomes in nursing facilities.
    The increasing complexity of the long term care environment in 
recent years and the growing demands and expectations on the regulatory 
process offer both an opportunity and a need to creatively incorporate 
methods into the equation of providing and regulating long term care.
    Patient, family and staff satisfaction should, officially, we 
believe, be a key measurement of quality. We recommend that Congress 
allow CMS to use measures in addition to the survey process to assess 
patient outcomes and their satisfaction. CMS will then have the 
requisite legal latitude and authority to develop better measures of 
quality of care in skilled nursing facilities so the process can begin 
to design appropriate payment incentives.

Quality First: A Proactive, Profession-Wide Partnership to Advance 
        Quality Care
    The long term care profession is also taking the lead in the area 
of improving care quality, public trust and customer satisfaction, and 
we are doing this on a voluntary basis. In July of 2002, AHCA, the 
Alliance for Quality Nursing Home Care and American Association of 
Homes and Services for the Aging (AAHSA) joined together to establish 
Quality First--a proactive, profession-wide partnership to advance the 
quality of care and services for seniors and persons with disabilities.
    We are proud of the fact long term care providers are leading the 
way in taking steps to improve quality through increasing 
accountability and disclosure--a voluntary initiative no other health 
care provider group has taken.
    Our Quality First Covenant, as it is known, is based upon seven 
principles that cultivate and nourish an environment of continuous 
quality improvement, openness and leadership.
    These principles include: Continuous quality assurance and quality 
improvement, public disclosure and accountability, patient/resident and 
family rights, workforce excellence, public input and community 
involvement, ethical practices, and financial stewardship.
    Quality First supports and builds upon CMS's Nursing Home Quality 
Initiative--and is based on the concept that reliably measuring nursing 
home quality and making the results available to the public is in the 
best interest of consumer and caregiver alike.
    Within Quality First there are six expected outcomes for assessing 
quality, and, by 2006, we are working to achieve the following 
benchmarks:

      Continued improvement in compliance with Federal 
regulations;
      Demonstrable progress in promoting financial integrity 
and preventing occurrences of fraud;
      Demonstrable progress in the quality of clinical outcomes 
and prevention of confirmed abuse and neglect;
      Measurable improvements in all CMS Quality Improvement 
measures;
      High rates on consumer satisfaction surveys that will 
indicate improved consumer satisfaction with services; and,
      Demonstrable improvement in employee retention and 
turnover rates.

    Since Quality First was announced, a growing number of providers 
nationwide have joined this effort as we move forward toward the goal 
of establishing an independent National Commission--overseen by the 
National Quality Forum--to objectively advise and monitor performance 
and the need for improvement.
    The National Commission will be a private sector, non-partisan 
panel composed of nationally respected health care and quality 
improvement experts, consumer representatives, former government 
officials, and business leaders.
    As part of its work, the Commission will independently evaluate the 
current state of long term care performance, identify key factors 
influencing the ability of providers to achieve meaningful quality 
improvement, and make recommendations on national initiatives that will 
lead to sustainable quality improvement.
    Mr. Chairman, we look forward to sharing and elaborating upon the 
findings and opinions of the Commission as they are announced. It is 
our assumption and expectation there will be contentious issues raised 
by the Commission from time to time, but, consistent with the intent of 
Quality First, we believe all long term care stakeholders are best 
served by maintaining an open, collaborative dialogue in a manner that 
best lends itself to problem-solving and, ultimately, improved patient 
care across the board.
    We would like to thank the Committee again for providing us the 
opportunity to share our views about how we can continue to work 
together to improve the quality of long term care for our nation's 
frail, elderly and disabled--and do so in a manner that helps us best 
measure both progress as well as shortcomings.
    AHCA and the Alliance are enormously pleased there has never been a 
broader recognition of the importance of quality, nor a broader 
commitment to ensure quality improvements are sustained.
    We are committed to continuing to achieve demonstrable, measurable 
quality improvements on every front so our nation is prepared to 
provide quality care for seniors today, and for the 77 million baby 
boomers who will inevitably require quality long term care services in 
the decades ahead.

                                 
    Statement of Sandra C. Canally, Compliance Team, Inc., Ambler, 
                              Pennsylvania

    Chairman Johnson and distinguished Committee Members:
    Thank you for your thoughtful consideration in creating this 
opportunity for those of us who could not attend your March 18th 
hearing. I believe that your recommendations regarding the future 
course of healthcare quality initiatives is a most serious matter that 
will have a far reaching impact on our national interests. Thus, I am 
compelled to respond to your call for contributions to the discussion 
by informing the Committee of my company's efforts to change the status 
quo in the critically important realm of healthcare accreditation.
    During my formative years in healthcare some forty years ago, I 
came to believe that all patients deserve exemplary care no matter what 
their social status happened to be at the time care is delivered. Years 
later when I began my professional career as a Nurse Oncologist and 
National Cancer Institute Instructor, my heroes were those providers 
who put the interests of their patients first above all else.
    Ten years ago I formed The Compliance Team, Incorporated for the 
purpose of exploring new approaches to healthcare quality evaluation. 
As a matter of professional survival, I became expert in government 
mandates dealing with healthcare delivery regulations as well as the 
myriad requirements of private healthcare accreditation plans put 
forward by such entities as the NCQA, JCAHO, URAC and others.
    During The Compliance Team's first years in business, we conducted 
National Committee on Quality Assurance-driven credentialing 
inspections of more than 4,000 physician practices, and nearly 40,000 
medical record reviews for various managed care interests based in the 
middle Atlantic states. In addition, I personally took on a managed 
care assignment to develop their Medicaid patient quality protocols.
    Since I was intimately familiar with the JCAHO accreditation 
process as the result of my experiences with a national orthopedic 
rehabilitation equipment company some years before, a substantial part 
of the Compliance Team's business in the early years was devoted to 
healthcare accreditation consulting for home health durable medical 
equipment companies going through JCAHO accreditation.
    Long before the Medicare Modernization Act mandated that home 
health and durable medical equipment providers go through an 
accreditation process in order to participate in Medicare programs, I 
decided that the arcane world of accreditation had become far too 
complex and much too costly (when consulting fees et al were factored 
in) for the average small business that represents your typical home 
medical equipment operation.
    A close reading of the Institute of Medicine's much heralded Report 
to Congress ``To Err is Human'' lends credence to the assertion that 
overly complex accreditation requirements may be a root cause of many 
medical staff errors. In 1999, the CMS Report to Congress on the quest 
by the JCAHO for deemed status to review Skilled Nursing Facilities was 
even more direct. The CMS Report concluded that because JCAHO's process 
of accreditation was needlessly complex and confusing, ``patients would 
be placed at serious risk'' if it were granted deemed status. Indeed, 
my earlier findings had been validated. What had started out in 1953 as 
a sensible effort to standardize surgical theater procedures had 
morphed into a confusing milieu of minutia filled directives that 
tended to distract healthcare providers rather than lead them towards 
better patient care.
    Beginning in 1996, a full two-years before the aforementioned 
Reports to Congress came to the public's attention, I set out to 
develop a new type of accreditation process through which healthcare 
organizations could validate their quality claims while putting the 
best interests of their patients above those of the accrediting body.
    In fall 1998, the Compliance Team's Exemplary ProviderTM 
Award programs were launched. Each Award (so far there are 12 in all) 
is a service and/or product-line specific measured continuous quality 
improvement program that is driven by a dramatically simplified set of 
Quality Standards and Evidence of Compliance.
    March 1999 marked a milestone for private accreditation 
competition. The Compliance Team received its first formal recognition 
as a Home Health DME accrediting body by North Carolina Blue Cross/Blue 
Shield. Shortly thereafter, Medicare's National Supplier Clearinghouse 
recommended our programs to providers seeking to avoid fraud and abuse 
sanctions. (To this day, we remain the only accrediting body to 
incorporate Corporate Compliance measures into our programs.)
    March 16th, 2004 marked another hallmark in the Compliance Team's 
quest for national recognition. I was invited to join JCAHO, ACHC 
(Accreditation Commission for Healthcare) and CHAP (Community Health 
Accreditation Plan) at the Accreditation Summit which convened in Las 
Vegas, Nevada at the Medtrade Spring medical equipment exposition. It 
was the first time that the durable medical equipment industry 
sponsored such an event. Approximately 150 providers had an opportunity 
to hear the four DME accrediting bodies give comparative details about 
our programs.
    The key point I would like to make about the Summit is most germane 
to the deliberations of your Subcommittee. With the coming of mandatory 
accreditation, ad hoc private healthcare quality initiatives such as 
the Compliance Team's Exemplary Provider Award programs represent a 
clear departure from the status quo. The failures of accreditation 
plans in the past have contributed to a growing cynicism among 
healthcare providers. Many believe that our government today doesn't 
really care that patients have become America's most ``at risk'' 
consumers.
    In the few short years that the Compliance Team's programs have 
become known to our old school competitors (our quality standards can 
be obtained FREE of charge), they each in turn have adopted many of the 
features that we first introduced in 1998; a clear sign that we are 
winning converts in the marketplace of ideas.
    Although we take some comfort in knowing that our peers at JCAHO, 
ACHC and CHAP grasp the merits of our ideas, their market dominance 
constantly reminds us of the perils we face. (Since we are in essence 
social entrepreneurs, we chose to give away our intellectual property 
as an altruistic gesture in the hope that we will win even greater 
public and industry support in the future).
    Although we are a small fledgling enterprise that lacks the deep 
pockets of our competitors, we have deep beliefs; a belief that every 
patient deserves exemplary care; the belief that healthcare delivery 
excellence does not have to be costly or difficult; and the belief that 
all providers should excel in the three areas that matter most to 
patients--Safety, Honesty and CaringTM.
    Madam Chairman and distinguished Committee Members, the following 
pages contain an outline of our paradigm shifting programs. More 
details and instructions on how to obtain a PDF copy of our quality 
standards can be found on our web site--www.exemplaryprovider.com.
    In closing, I make reference to the Committee's March 11th Advisory 
regarding one of the principle focuses of the March 18th hearing. The 
Compliance Team's programs represent a challenge to the status quo that 
brings real competition and comparative information to the 
accreditation marketplace which leads me to ask for the Committee's 
support in recommending that the Exemplary Provider Award programs be 
included among the accreditation plans approved by the Department of 
Health and Human Services and CMS when mandatory accreditation is fully 
implemented. Thank you again for this opportunity to address the 
Committee.

                                 
Statement of Eric D. Peterson, Duke University, Division of Cardiology, 
                  and CRUSADE, Durham, North Carolina

    Chairman Johnson and Members of the Subcommittee, I appreciate the 
opportunity to submit written testimony for the March 18, 2004 hearing 
``New Frontiers in Quality Initiatives.'' I applaud your efforts and 
those of your colleagues to improve the quality of health care in 
America. The Hospital Quality Initiative provisions you included in the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA) are critical first steps toward achieving measurable improvements 
in patient outcomes. I am pleased that as a focus of this hearing you 
are considering quality initiatives that are ongoing in the private 
sector that have a direct relationship to what you would like to 
accomplish in the Medicare program.
    As a practicing cardiologist, as a researcher, and as an active 
participant and contributor in the health quality community, I am 
involved in a number of activities to improve outcomes in heart care. 
These private-sector efforts involve hundreds of hospitals and hundreds 
of thousands of patients. These programs are achieving considerable 
success in improving hospital practices across the country. The 
indicators Medicare is encouraging hospitals to report (which will 
become the basis rewarding performance) are focused on the acute 
myocardial infarction (AMI), coronary artery bypass graft (CABG), and 
heart failure populations--those who are having the most serious 
conditions--a full-blown heart attack or surgical intervention. The 
private sector quality initiatives cover a broader spectrum of heart 
patients and a wider range of treatments.
    Today, I would like to tell you about one of these programs that is 
improving outcomes for a group of patients that is different from the 
population that is the focus of Medicare's Hospital Quality Initiative. 
My purpose in doing so is to make two points: First, it is important 
that the CMS Hospital Quality Initiative build on and coordinate with 
existing private-sector efforts on which hospitals are already 
expending considerable resources. Working together, we can all be much 
more effective. Second, we would like to work with CMS in broadening 
its indicator program over time. There is a danger in focusing hospital 
attention on the things we can most easily measure and causing them to 
shortchange Medicare populations that may be at greater risk and could 
benefit more from optimal treatment.
    The program I want to discuss is called CRUSADE--``Can Rapid risk 
stratification of Unstable angina patients Suppress ADverse outcomes 
with Early Implementation of the American College of Cardiology/
American Heart Association (ACC/AHA) treatment guidelines.''
    Acute coronary syndromes (ACS) include acute ST-segment elevation 
myocardial infarction (MI), non-ST-segment elevation MI (NSTEMI), and 
unstable angina and are a major cause of morbidity and mortality 
worldwide. CRUSADE is a national quality improvement initiative 
designed to improve the care of high-risk patients with unstable angina 
and non-ST-segment elevation acute coronary syndromes (NSTE ACS)--the 
patients are what you might call the ``early heart attack'' patients. 
There are approximately 1.4 million patients presenting at the 
hospitals every year with these serious heart conditions--so it is a 
larger population than the 600,000 a year AMI population, with a higher 
mortality than the AMI population. Nevertheless, it is a population 
that is currently not tracked and monitored by federal government 
quality indicator and quality measurement programs.
    CRUSADE aims to improve patient outcomes for the NSTEMI ACS 
population by collecting data regarding practice patterns in the U.S. 
and using those data to target educational interventions designed to 
improve adherence to the ACC/AHA practice guidelines.
    CRUSADE is a unique collaboration between many academic 
institutions from around the country and private industry. The program 
is run and owned by the Duke Clinical Research Institute, with an 
executive committee that is comprised of leading cardiologists and 
emergency physicians from around the country. It has private sector 
funding, including grants from several pharmaceutical and biotechnology 
companies.
    Since the CRUSADE program began in 2001, more than 90,000 
retrospectively collected data collection forms have been submitted 
from over 430 hospitals across the country. The data that CRUSADE has 
compiled has been astonishing. For example, recent CRUSADE analyses 
show that:

      Adherence to ACC/AHA Guidelines varies markedly among 
U.S. hospitals. Hospitals with the highest adherence rates (top 
quartile of centers using evidence-based treatments) have 40% lower 
mortality rates than those hospitals with the lowest adherence rates 
(bottom quartile). Thus, better care truly translates to better patient 
outcomes. (Peterson ED, Roe MT, Lytle BL, Newby LK, Fraulo ES, Gibler 
WB, Ohman EM. The association between care and outcomes in patients 
with acute coronary syndrome: national results from CRUSADE. J Am Coll 
Cardiol 2004;43(5):406A)
      We also found that hospitals whose care improves over 
time as part of participating in the CRUSADE initiative see significant 
reductions in in-hospital mortality at their centers. In contrast, 
those who did not improve care patterns did not experience any change 
in patient outcomes. This provides further evidence that quality 
improvement efforts translate into meaningful benefits for patients. 
(Peterson--personal communication)
      One hospital that participates in the CRUSADE program 
found that after modifying treatment protocols to more closely adhere 
to the ACC/AHA guidelines, FY 2000 to FY 2002, in-hospital mortality of 
ACS patients dropped from 4.8% to 1.9%, and length of stay dropped from 
5.9 days to 4.6 days. The average cost per case dropped form $11,777 to 
$10,623, an average savings of $1,154 per ACS patient. (Jackson S, 
Sistrunk H, Staman. Improved patient care and reduced costs: results of 
Baptist Health Systems' acute coronary syndromes project. J Cardio 
Management 2003;14:17-20)
      Despite having higher-risk characteristics at 
presentation and greater in-hospital risk, women with NSTE ACS are 
consistently treated less aggressively than men. (Blomkalns AL, Newby 
LK, Chen A, Peterson ED, Trynosky K, Diercks D, Boden WE, Roe MT, Ohman 
EM, Gibler WB, Hochman JS. Sex disparities in the treatment of non-ST-
segment elevation acute coronary syndromes. J Am Coll Cardiol 
2004;43(5):304A)
      African American patients with NSTE ACS are significantly 
less likely than whites to receive medical and invasive therapy. (Sonel 
AF, Good CB, Mulgand J, Roe MT, Gibler WB, Smith SC Jr, Cohen MG, 
Zalenski R, Pollack CV Jr, Ohman EM, Peterson ED. Racial variations in 
treatment and outcomes of African-American and white patients with non-
ST-elevation acute coronary syndromes: insights from CRUSADE. J Am Coll 
Cardiol 2004;43(5):414A)
      Medicaid patients younger than 65 admitted with NSTE ACS 
are less likely to receive evidence-based therapies and interventions 
and have significantly higher in-hospital mortality rates than those 
with other forms of insurance. (Calvin JE, Roe MT, Chen A, Brogan GX 
Jr, DeLong ER, Gibler WB, Ohman EM, Fintel D, Smith SC Jr, Peterson ED. 
Higher mortality and less evidence-based therapies among Medicaid-
insured patients with high-risk acute coronary syndromes (ACS): results 
from CRUSADE. J Am Coll Cardiol 2004;43(5):413A)

    CRUSADE has shown us that there is a large population of ACS 
patients being under-treated today, compared to the care recommended by 
evidence-based clinical practice guidelines published by the American 
College of Cardiology and the American Heart Association, and this is 
largely a Medicare population. CRUSADE has also shown us that there are 
prominent gender, race, and socioeconomic disparities in the quality of 
care provided to patients with ACS and that adherence to evidence-based 
clinical process indicators are strongly associated with reduced 
mortality in this population, as in the ACS population.
    At this point, Medicare is not measuring the quality of care 
provided to the ACS population and the Medicare Quality Improvement 
Organizations (QIOs) are not deployed to help hospitals improve the 
quality of care they provide to this patient population. I believe that 
the Centers for Medicare and Medicaid Services, the Agency for 
Healthcare Research and Quality, and other government agencies and 
programs could help address this population. I would offer three 
recommendations to address this problem:

      CMS should evaluate the ACS indicators being used in the 
CRUSADE study for inclusion in its heart disease (AMI) quality 
indicator set, even if only for use in the Quality Improvement 
Organization program (not necessarily for public reporting).
      CMS should fund a QIO to conduct either a national or a 
significant pilot breakthrough collaborative with some or all of the 
400+ CRUSADE hospitals.
      QIOs should have the ability to distribute information 
that does not directly pertain to the Medicare's hospital quality 
indicators.

    In summary, government programs currently do not track the ACS 
population, and the CRUSADE program is generating valuable data and 
making a difference at hospitals around the country. I urge you and 
your committee to further explore private-sector quality initiatives 
such as CRUSADE and look to find ways for such programs to collaborate 
with government quality programs. I believe we have an ethical 
professional duty to address this problem if we can.
    I would be happy to answer any questions or work with you and your 
colleagues on this very important issue. Thank you again for the 
opportunity to provide this testimony.

                                 

           Medical Technology and Practice Patterns Institute, Inc.
                                           Bethesda, Maryland 20814
                                                     March 30, 2004

Congresswoman Nancy L. Johnson
Chairman
Subcommittee on Health of the Committee on Ways and Means
U.S. House of Representatives
Washington, D.C.

Dear Congresswoman Johnson:

    I am writing to suggest that implementation of MMA include a 
provision that relevant physiological information be included in future 
Medicare claims for prescription drugs. Such a requirement will 
enhancing the informational content of the health care system and its 
treatment outcomes of Medicare beneficiaries.
    As an example of the usefulness of such information, we are 
studying--hematocrit values contained in Medicare administrative 
databases for purposes of epoetin billing--to enhance understanding of 
therapy, outcomes, and cost-effectiveness associated with an expensive 
drug. Unlike controlled clinical trials, our observational analysis of 
administrative data must grapple with the confounding effects of 
unobserved events. If done well, analysis of such information can 
provide important insight into the `real-world' risks and benefits of 
new interventions.
    Our work was recently presented at The American Society of 
Nephrology's (ASN), 36th Annual Meeting & Scientific Exposition 
conference November 2003, San Diego. The poster (attached) contained a 
review of our current research on epoetin alfa dosing levels and 
patient survival. This information has also been submitted to the 
Centers for Medicare & Medicaid Services in response to their request 
(attached) for `scientific evidence related to EPO (Epoetin) dosing and 
hematocrit/hemoglobin levels that will assist us in the development of 
a clinically and scientifically robust policy that will ensure 
appropriate administration of EPO in ESRD patients.'

            Sincerely,
                                                   Dennis J. Cotter
                                                          President
                               ----------

                         Centers for Medicare and Medicaid Services
                           Office of Clinical Standards and Quality
                                          Baltimore, Maryland 21244
                                                 September 22, 2003

To Those Interested in Medicare Coverage of Erythropoietin:

    Medicare coverage for erythropoietin (EPO) is consistent with the 
Kidney Dialysis Outcome Quality Initiative (K-DOQI) guidelines and the 
Food and Drug Administration (FDA) approved indications. K-DOQI 
recommends management of anemia within a target hematocrit range of 33 
to 36 percent. FDA has approved EPO to treat patients with anemia when 
it is used to raise the blood hematocrit to a target range of 30 to 36 
percent (or the blood hemoglobin to a range of 10 to 12 grams per 
deciliter). Neither entity recommends the use of EPO for raising 
hematocrit levels above 36 percent.
    Medicare pays over a billion dollars annually for EPO administered 
to end stage renal disease (ESRD) patients, with aggregate payments for 
the drug doubling between 1998 (550 million) and 2001 (1.1 billion). 
The law provides a payment formula of $10 per 1000 units of EPO 
administered to ESRD patients. There is concern that this payment 
formula may result in some patients receiving more EPO than is required 
to maintain their hematocrit level within the target range. If so, 
Medicare spending on EPO may be higher than necessary without resulting 
in optimal patient benefit.
    In an effort to reduce potential EPO over-utilization, CMS issued a 
policy in 1997 instructing Medicare contractors to monitor the 
hematocrit levels of ESRD patients. This policy provided for pre-
payment review of EPO claims and denial of claims when the 90-day 
average hematocrit level exceeded 36.5 percent. Through discussions 
with clinicians and industry representatives, we learned that normal 
fluctuations in hematocrit levels make it extremely difficult to 
maintain patients at the upper end of the target range without 
exceeding the upper boundary of the range.
    Over the past three years, CMS has issued temporary instructions to 
implement a revised policy that allows more flexibility at the upper 
boundary of the hematocrit range. The current instructions prohibit 
Medicare contractors from performing pre-payment review of EPO claims. 
Contractors are instead instructed to perform post-payment review using 
a 90-day average hematocrit level of 37.5 percent to trigger further 
medical review. It has come to our attention that this policy may be 
difficult to implement because of the administrative burden of 
continually averaging hematocrit levels. CMS has also been asked to 
provide more precise definitions for several critical terms in the 
existing Program Memorandum AB-02-100. In addition, we have been asked 
to revise the point at which facilities may initiate EPO therapy.
    For these reasons, CMS will undertake a thorough review of our 
current policy on EPO utilization in ESRD. We have established a 
schedule for this re-evaluation (see table below). In the meantime, we 
have reissued the temporary policy in Program Memorandum AB-03-138. We 
invite interested parties to send us scientific evidence related to EPO 
dosing and hematocrit/hemoglobin levels that will assist us in the 
development of a clinically and scientifically robust policy that will 
ensure appropriate administration of EPO in ESRD patients.


----------------------------------------------------------------------------------------------------------------
                          Time Period                                                Activity
----------------------------------------------------------------------------------------------------------------
Letter Issuance Date--November 30, 2003                              The public is invited to submit scientific
                                                                 evidence related to EPO dosing and hematocrit/
                                                                 hemoglobin levels. Parties submitting data are
                                                                   invited to also schedule meetings to present
                                                                  data and provide verbal explanations of their
                                                                                    analysis if they so desire.
----------------------------------------------------------------------------------------------------------------
December 1, 2003-February 1, 2004                                 CMS staff will analyze data submitted. We may
                                                                   supplement the submittals with data from the
                                                                     USRDS or CMS data sources such as national
                                                                 claims history files, performance measurements,
                                                                                                    REBUS, etc.
----------------------------------------------------------------------------------------------------------------
March 1, 2004                                                    CMS will circulate a draft policy for comment.
----------------------------------------------------------------------------------------------------------------
May 1, 2004                                                          CMS will issue a final revised policy or a
                                                                   memorandum announcing the decision regarding
                                                                  national monitoring of EPO for ESRD patients.
----------------------------------------------------------------------------------------------------------------


    We encourage all interested experts and stakeholders to participate 
in this public process by submitting scientific evidence related to EPO 
dosing, hematocrit levels and ESRD patient outcomes. Interested parties 
can submit information to Steve Phurrough, MD, MPA, Director, Coverage 
and Analysis Group, Centers for Medicare and Medicaid Services, Mail 
Stop C1-09-06, 7500 Security Boulevard, Baltimore, Maryland 21244-1850. 
If you have questions or wish to schedule an appointment to discuss 
your submittal, please contact Jackie Sheridan-Moore at 410-786-4635 or 
by email at [email protected].

            Sincerely,
                                                      Sean R. Tunis
                                              Chief Medical Officer

                                 
Statement of Eve Becker-Doyle, National Athletic Trainers' Association, 
                             Dallas, Texas

    As executive director of the 30,000-member National Athletic 
Trainers' Association (NATA),\1\ I am sharing the NATA's thoughts on 
improving quality of care in America's health care systems, with a 
specific emphasis on therapy services. The NATA maintains that a wide 
range of health care professionals are well qualified to provide 
outpatient therapy services. The Social Security Act currently 
recognizes only physical therapists and PT assistants, occupational 
therapists and OT assistants, and speech and language pathologists as 
qualified to provide outpatient therapy services--but athletic trainers 
are equally as qualified, educated and capable of providing quality 
outpatient therapy services.\2\ We believe all allied health care 
professionals qualified to provide outpatient therapy services should 
be permitted to provide and receive reimbursement for therapy services.
---------------------------------------------------------------------------
    \1\ See Exhibit A for required supplemental statement supplying 
NATA's contact information.
    \2\ Social Security Act, Title XVIII, Section 1861(p); 42 USC s. 
1359x(p).
---------------------------------------------------------------------------
    Because of its rapid growth, both in terms of aggregate dollars and 
as a share of the U.S. budget, the Medicare program has been a major 
focus of deficit reduction legislation considered by Congress in recent 
years.\3\ At the same time, concerns about quality of care are also at 
the top of the agenda. Balancing cost reductions with improving quality 
of care is a daunting task. Although the perfect balance is difficult, 
if not impossible, to obtain, measures can be taken to improve this 
balance. One such measure to achieve improved quality of care is to 
offer financial incentives to health care providers. While this may be 
effective in achieving higher quality of care, it does not address, and 
even has a negative impact on, the rising cost of health care with 
which the government, private insurers, and all Americans struggle.
---------------------------------------------------------------------------
    \3\ U.S. House of Representatives, Ways and Means Committee, 2004 
Green Book, D-2 (Feb. 11, 2004).
---------------------------------------------------------------------------
    Competition promotes both cost-containment and achieves high 
quality of care for Americans. Restricting reimbursement for health 
care services to a small, incomplete list of qualified providers is 
unreasonable, arbitrary and anti-competitive. It improperly provides 
those groups exclusive rights to Medicare reimbursement. Moreover, it 
unreasonably restrains trade and prevents patients from receiving the 
highest quality of care available in a truly competitive market. While 
regulating health care providers is an essential aspect of ensuring 
quality of care, excluding those health care providers who are amply 
qualified tends to have the reverse effect on the quality of care 
provided.
    The provision of therapy services is an excellent example of the 
impact competition could have on a segment of the health care market. 
As mentioned above, Medicare currently only reimburses physical 
therapists and PT assistants, occupational therapists and OT 
assistants, and speech and language pathologists for the provision of 
outpatient therapy services. Having no competition for employment or 
referrals provides little incentive for professionals to strive to 
provide above-average quality health care services that still adhere to 
Medicare rehabilitation rules. If, however, athletic trainers were 
integrated into the Medicare reimbursement system for outpatient 
therapy services, all health care professionals would have to strive to 
provide a superior quality of care in order to remain competitive in 
the health care market.
    Certified athletic trainers (ATCs) are fully qualified to provide 
outpatient therapy services.\4\ ATCs have national academic and 
certification standards. ATCs are highly skilled allied medical 
professionals who specialize in the prevention, assessment, treatment 
and rehabilitation of injuries and illnesses that occur to both the 
physically active and athletes. All ATCs have a bachelor's degree, and 
more than 70 percent have a master's degree. Medically-related 
continuing education is required to maintain certification.
---------------------------------------------------------------------------
    \4\ See Exhibit B.
---------------------------------------------------------------------------
    ATCs work in a wide array of settings, including physicians' 
offices, clinics, hospitals, corporate health programs, secondary 
schools, colleges and universities, and professional athletics. 
Practicing ATCs satisfy stringent educational and experiential 
requirements, and are required to pass a day-long, three-part 
competency examination administered by the NATA Board of Certification 
(NATABOC). The NATABOC is reviewed and re-accredited every five years 
by the National Commission for Certifying Agencies.
    Furthermore, most ATCs practice under the direction of licensed 
physicians. The Commission on Accreditation of Allied Health Education 
Programs (CAAHEP), which certifies programs representing 21 allied 
health education professions, accredits programs for athletic training 
based on input and approval of the American Academy of Family 
Physicians, the American Academy of Pediatrics, the American Orthopedic 
Society for Sports Medicine, and the NATA. CAAHEP provides that ``the 
athletic trainer, with the consultation and supervision of attending 
and/or consulting physicians, is an integral part of the health care 
system associated with physical activity and sports.''
    To facilitate competition in the health care market, and therefore 
enhance the overall quality of care provided, all health care 
professionals must be permitted to provide and receive reimbursement 
for the provision of health care services for which they are qualified. 
The NATA requests that you will consider the following in your analysis 
of the health care industry's quality of care initiatives:

      The U.S. is experiencing an increasing shortage of 
credentialed allied and other health care professionals, particularly 
in rural and outlying areas. If patients are not permitted to utilize a 
variety of qualified health care professionals, it is likely the 
patient will suffer delays in health care, greater cost and a lack of 
local and immediate treatment.
      Patients who would be referred outside of the physician's 
office would incur delays of access. In the case of rural Medicare 
patients, this could not only involve delays but, as mentioned above, 
cost the patient in time and travel expense. Most importantly, delays 
would hinder the patient's recovery and/or increase recovery time, 
which would ultimately add to the medical expenditures of Medicare. In 
the worst cases, lack of immediate therapy could result in nursing home 
admittance and long-term care.
      Curtailing to whom the physician can delegate outpatient 
therapy services will result in physicians performing more of these 
routine treatments themselves. Increasing the workload of physicians 
diminishes the physician's ability to provide the best possible patient 
care in the least amount of time.

    Thank you for the opportunity to submit our comments. We look 
forward to hearing the Subcommittee on Health's conclusions regarding 
quality of care initiatives, a tremendously vital issue to all 
Americans.
                               ----------
                               EXHIBIT B
 The FACTS About Certified Athletic Trainers and The National Athletic 
                         Trainers' Association

    This document corrects misinformation frequently cited about 
Certified Athletic Trainers (ATCs). It is provided to state and Federal 
legislators and regulators, compliance specialists, third-party payers, 
physician office and group practice managers, hospital and clinic 
administrators, school boards and district administrators, post-
secondary health care educators and others interested in the facts 
about the athletic training profession in the 21st century. Readers 
should note that the treatment of an adolescent or adult person does 
not change simply because the injury or treatment location changes. 
Whether the person is on a soccer field or manufacturing floor, the 
treatment protocols and methods for injuries and illnesses remain the 
same.

1. FACT: All athletic trainers have a bachelor's degree from an 
accredited college or university. Athletic trainers are equivalent mid-
level professionals to other therapists, including physical, 
occupational, speech, language and similar specialties.

    ALL certified or licensed athletic trainers must have a bachelor's 
degree from an accredited college or university. Degrees are in 
accredited athletic training programs and include established academic 
curricula. Prior to obtaining a bachelor's degree in athletic training, 
athletic trainers gained bachelor's degrees in pre-medical sciences, 
kinesiology, exercise physiology, biology, exercise science and 
physical education. Academic programs are approved and certified by the 
Commission on Accreditation of Allied Health Education Programs (CAAHP) 
and the Joint Review Commission of Athletic Training.

2. FACT: This is the Athletic Training Program content for a bachelor's 
degree, which has been in place since the 1980s.

            Risk Management and Injury Prevention
            Pathology of Injury and Illness
            Assessment and Evaluation
            Acute Care of Injury and Illness
            Pharmacology
            Therapeutic Modalities
            Therapeutic Exercise
            General Medical Conditions and Disabilities
            Nutritional Aspects of Injury and Illness
            Psychosocial Intervention and Referral
            Health Care Administration
            Professional Development and Responsibilities 
        (added in mid-1990s)
            Note that these academic subjects are not setting- 
        or practitioner-specialized. Nor is course content specific to 
        athletes.

3. FACT: 70% of athletic trainers have a master's or doctorate degree.

    ATCs are highly educated. Seventy (70) percent of certified 
athletic trainers (ATCs) hold a master's degree or higher. This is 
equal in education to physical therapists, occupational therapists, 
registered nurses, speech therapists and many other mid-level health 
care practitioners. The ATC's educational and clinical skills greatly 
exceed those of paraprofessionals like physical therapy assistants or 
medical aids/assistants.

4. FACT: Athletic trainers know and practice the medical arts at the 
highest professional standards.

    Athletic trainers meet the qualifications and standards of any 
group--including Medicare and Medicaid--necessary to render skilled 
services and gain reimbursement for services rendered. A four-year 
undergraduate and/or two-year graduate academic major in the field are 
qualifications needed to render skilled services. Athletic trainers 
specialize in injury and illness prevention, assessment, treatment and 
rehabilitation for all physically active people, including the general 
public.

5. FACT: An independent board nationally certifies athletic trainers.

    The independent Board of Certification Inc. (BOC) nationally 
certifies athletic trainers. Athletic trainers must pass a three-part 
written and practical examination and hold a bachelor's degree to 
become an Athletic Trainer, Certified (ATC). To retain certification, 
ATCs must obtain 80 hours of medically related continuing education 
credits every three years and adhere to a code of ethics. The BOC is 
accredited by the National Commission for Certifying Agencies.

6. FACT: ATCs are recognized by the American Medical Association as 
allied health care professionals.

    ATCs are highly skilled, multi-skilled allied health care 
professionals, and have been part of the American Medical Association's 
Health Professions Career and Education Directory for more than a 
decade. Additionally, American Academy of Family Physicians, the 
American Academy of Pediatrics and the American Orthopaedic Society for 
Sports Medicine are all strong clinical and academic supporters of 
certified athletic trainers.

7. FACT: 40 percent of NATA's certified athletic trainer members work 
outside of school athletic settings, and provide services to physically 
active people of all ages, including athletes.

    ATCs work in physician offices as physician extenders. They also 
work in rural and urban hospitals, hospital emergency rooms, urgent and 
ambulatory care centers, military hospitals, physical therapy clinics, 
high schools, colleges/universities, commercial employers, professional 
sports teams and performance arts companies. ATCs are multi-skilled 
health care workers who, like others in the medical community with 
science-based degrees, are in great demand because of the continued and 
increasing shortage of registered nurses and other health care workers. 
The skills of ATCs have been sought and valued by sports medicine 
specialists and other physicians for more than 50 years. As the U.S. 
begins its fight against the obesity epidemic, it is important that 
people have access to health care professionals who can support 
lifelong physical activity for all ages.

8. FACT: Athletic trainers have designated CPT/UB codes.

    The American Medical Association (AMA) granted Current Procedural 
Terminology (CPT) codes for athletic training evaluation and re-
evaluation (97005, 97006) in 2000. The codes were effective in 2002. In 
addition, the American Hospital Association established Uniform Billing 
(UB) codes for athletic training in 1999, effective 2000.

9. FACT: CPT and UB codes are not provider specific.

    The AMA states that the term ``provider,'' as found in the Physical 
Medicine section of the CPT code, is a general term used to define the 
individual performing the service described by the code. According to 
the AMA, the term therapist is not intended to denote any specific 
practice or specialty field. Physical therapists and/or any other type 
of therapist are not the exclusive provider of physical therapy 
examinations, evaluations and interventions.

10. FACT: ATCs improve patient outcomes.

    Results from a nationwide Medical Outcomes Survey conducted 1996-
1998 demonstrate that care provided by ATCs effects a significant 
change in all outcomes variables measured, with the greatest change in 
functional outcomes and physical outcomes. The investigation indicates 
that care provided by ATCs generates a change in health-related quality 
of life patient outcomes. (ref: Albohm MJ, Wilkerson GB. An outcomes 
assessment of care provided by certified athletic trainers. J Rehabil 
Outcomes Meas. 1999; 3(3):51-56.)

11. FACT: ATCs provide the same or better outcomes in clinical settings 
as other providers, including physical therapists.

    Results of a comparative analysis of care provided by certified 
athletic trainers and physical therapists in a clinical setting 
indicated that ATCs provide the same levels of outcomes, value and 
patient satisfaction as physical therapists in a clinical setting. 
(ref: Reimbursement of Athletic Training by Albohm, MJ; Campbel, Konin, 
pp. 25)

12. FACT: ATCs demonstrate high patient satisfaction ratings.

    Patient satisfaction ratings are more than 96 percent when 
treatment is provided by ATCs.

13. FACT: ATCs frequently work in rural, frontier and medically 
underserved areas and with physically active people of all ages.

    ATCs are accustomed to working in urgent care environments that 
have challenging, sometimes-adverse work and environmental conditions. 
The athletic training tradition and hands-on clinical and academic 
education combine to create a health care professional that is flexible 
and inventive--ideal managers of patient care and health care delivery.

14. FACT: ATCs specialize in patient education to prevent injuries and 
reduce rehabilitative and other health care costs.

    Recent studies, reports, outcomes measures surveys, total joint 
replacement studies and many other case studies demonstrate how the 
services of ATCs save money for the employers and improve quality of 
life for the patient. For each $1 invested in preventive care, 
employers gained up to a $7 return on investment, according to one NATA 
survey. The use of certified athletic trainers supports a market-driven 
health care economy that increases competition in order to reduce 
patient and disease costs. The patient's standard of care is not 
sacrificed by using ATCs. Instead, care is enhanced because of the 
ATCs' broad medical knowledge and capabilities.

15. FACT: Regulated and licensed health care workers.

    While practice act oversight varies by state, the athletic training 
professional practices under state statute recognizing them as a health 
care professional similar to physicians, physician assistants, nurse 
practitioners, registered nurses, physical therapists, occupational 
therapists and similar mid-level professionals practice. Athletic 
training licensure/regulation exists in 43 states, with aggressive 
efforts underway to pursue licensure in the remaining states. Athletic 
trainers work under the direction of physicians.

16. FACT: The National Athletic Trainers' Association represents 30,000 
members.

    The National Athletic Trainers' Association (NATA), founded in 
1950, represents more than 30,000 members of the international 
profession. Of the total membership, 24,000 are ATCs, which represents 
more than 90 percent of ATCs practicing in the United States.

                                 
        Statement of Pharmaceutical Care Management Association

I. INTRODUCTION
    PCMA is the national association representing America's 
pharmaceutical benefit managers (PBMs). PCMA represents both 
independent, stand-alone PBMs and health plans' PBM subsidiaries. 
Together, PCMA member companies administer prescription drug plans that 
provide access to safe, effective, and affordable prescription drugs 
for more than 200 million Americans in private and public health care 
programs. PCMA appreciates the opportunity to submit testimony to the 
House Ways and Means Health Subcommittee regarding ``New Frontiers on 
Quality Initiatives.'' We applaud Chairwoman Johnson for her leadership 
on this important issue.
    PCMA believes that PBMs' quality initiatives have demonstrated real 
value for consumers resulting in better health and lower costs through 
therapeutic compliance and disease management programs. We now 
anticipate the same benefits for the Medicare population with the 
recent enactment of the Medicare Modernization Act. By availing itself 
of the very best that the private sector has to offer beneficiaries, 
the MMA has expanded choices and benefits for seniors in a way that 
maximizes private sector competition.

II. OVERVIEW OF PBMs
    PBMs are the cornerstone for any system seeking to manage a 
prescription drug benefit. Prescription drugs must be an integrated 
component to health delivery because of the value which they offer 
consumers. This is particularly true for those living with chronic 
conditions who, through prescription drugs, can now manage life-
threatening illnesses.
    Today, PBMs' clients are major purchasers of health care. They 
include employers, unions, Federal and state governments, and health 
plans which rely on us to manage their drug benefits. Our ability to 
drive down prescription drug costs while increasing patient safety 
through disease and therapeutic management services is well 
documented--18-47% according to the General Accounting Office.\1\
---------------------------------------------------------------------------
    \1\ ``Federal Employees Health Benefits: Effects of Using Pharmacy 
Benefit Managers on Health Plans, Enrollees, & Pharmacies,'' GAO, 
January 2003.
---------------------------------------------------------------------------
    PBMs have evolved over the years to not only administer drug 
benefits, but to offer home delivery pharmacy services, provide real-
time electronic claims adjudication, negotiate deep discounts from 
prescription drug manufacturers and pharmacies, and now even offer 
clinically-based services. These include drug utilization review; 
disease management techniques; consumer, pharmacy and physician 
education services; and compliance programs that not only reduce costs 
but add tremendous quality to drug management.
    The PBM marketplace today is highly competitive, with PBMs existing 
in a number of forms which offer public and private purchasers a wide 
variety of choices to meet the needs of their plan members. A PBM may 
offer multiple variations of models from the more basic plan to the 
most comprehensive plan relying on multi-tiered co-payments, 
formularies developed with physicians and pharmacists, pharmacy 
networks, home-delivery pharmacy, and other similar tools that make 
drugs more affordable and accessible.
    Home Delivery Service. Home delivery or mail-service pharmacy 
allows for even more convenient access to even deeper discounts through 
an automated system (as much as 53% for generic medications according 
to GAO).\2\ PBM-owned home delivery pharmacies predominantly fill 
prescriptions for maintenance medications for individuals managing 
complex or chronic illnesses. Consumers save money through reduced co-
payments and the highly efficient method for managing prescriptions and 
refills through the automated system.
---------------------------------------------------------------------------
    \2\ Ibid.
---------------------------------------------------------------------------
    Although automated, mail-service pharmacies provide services to on-
staff pharmacists available to counsel consumers and consult with 
physicians on appropriate drug therapies. Counseling is done primarily 
through a toll-free telephone and most mail-service pharmacies have 
counseling by pharmacists available 24 hours a day/seven days a week. 
The process offers convenience to consumers, particularly seniors and 
the disabled, who may have transportation or other constraints that 
make going to a retail pharmacy difficult. The mail-service pharmacy 
option is also particularly helpful in serving residents of rural areas 
who would otherwise have to travel long distances to the nearest retail 
pharmacy. In addition, some consumers may prefer telephone consultation 
in order to afford them more privacy than consultations available in 
public at retail pharmacies would.
    According to a survey of nearly 14,000 mail-service pharmacy users, 
customer satisfaction was as high as 98%.

[GRAPHIC] [TIFF OMITTED] T9678A.006


    Rebates and Discounts. Individual PBMs use a variety of strategies 
to provide their clients with value. For instance, some PBMs focus on 
securing retailer discounts, some focus on pharmaceutical manufacturer 
discounts for volume purchases, and others on obtaining discounts for 
key generic drugs. As a result of the confidential nature of their 
contracts and the diversity of their discounting strategies, PBMs are 
not certain of the competition's position which motivates PBMs to 
continually improve its products, services, and contracts out of fear 
that a competitor may have improved its services and deepened its 
discounts.
    PBMs currently require drug manufacturers to bid confidentially for 
preferred drug status through a blind bidding process which has 
tremendous pro-competitive implications. Risk adverse manufacturers 
raise rebates in order to prevent being underbid and losing market 
share. These motivating factors generate higher rebates which translate 
into lower consumer prices. In addition, blind bidding prevents 
collusive pricing among manufacturers--or price fixing. Implementation 
of the MMA must recognize this or risk higher drug prices and less 
competition.
    While public disclosure of drug prices for consumer shopping is 
important, it is imperative that this not include confidential 
contracting information on rebates and discounts which would eviscerate 
competition. This includes the protection from public disclosure of 
financial arrangements between PBMs and prescription drug manufacturers 
or labelers, as well as other information that may be broad enough to 
require PBMs to publicly disclosure their negotiated prices with 
manufacturers and their negotiated reimbursement rates with individual 
retail pharmacies. We recognize that the federal government is a 
sophisticated market player and that it has the authority to 
appropriately monitor our contracts and prices to prevent any type of 
``bait and switch.'' Clients must keep this information confidential, 
as well, to prevent broader disclosure of highly significant, 
competitive information that will inevitably lead to loss of control 
over the data. Without assurances of confidentiality, competitors could 
obtain detailed pricing information and, ultimately, set prices.

III. QUALITY ACTIVITIES
    Claims Data Technology. PBMs offer sophisticated data management 
and information systems, processing 98% of claims electronically. We 
adjudicate claims on a real-time basis and determine eligibility, and 
the amount of co-payment to collect. Real-time claims administration 
activities work in tandem with our ability to increase patient safety.
    Patient Safety. While maintaining privacy and confidentiality, PBMs 
work with physicians and pharmacists to monitor what drugs enrollees 
are getting from the pharmacy, and provide real-time information at the 
point of sale to the pharmacist on potential drug-drug interactions, 
dosage issues, or other safety concerns before a patient receives a 
drug. The pharmacist may also act to resolve the issue by contacting 
the prescribing physician at that time.
    Prescription Drug History. PBMs are often the only repository of a 
patient's total prescription drug history because we hold information 
in one centralized electronic file. This is especially important when 
enrollees are prescribed medications by more than one physician or when 
enrollees use more than one retail pharmacy to purchase their 
prescriptions.
    Inappropriate Use and Fraud Detection. Centralizing patient drug 
history information also serves to help identify fraud or inappropriate 
prescribing practices. If a patient is using multiple physicians to get 
multiple prescriptions of an inappropriately used medication, PBMs are 
well-suited to identify that pattern.
    Disease and Therapeutic Drug Management. It is well documented that 
chronic patients must stay in compliance with drug regimes to stay 
healthy. The Institute of Medicine states that 18,000 Americans die 
each year from heart attacks because they did not receive preventive 
medications.\3\ Disease management programs typically target common 
chronic diseases such as asthma, diabetes, depression, hypertension, 
heart failure, and certain other cardiovascular conditions in hopes of 
preventing hospitalization and death.
---------------------------------------------------------------------------
    \3\ Chassin, 1997; Institute of Medicine, 2003.
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    PBM disease management programs employ a team of clinicians to 
identify appropriate individuals for intervention, educate the 
participants about their disease, and provide them with self-management 
tools. This is particularly important since those with chronic 
conditions often do not refill their medications. PBMs will collaborate 
with the treating physician providing them with treatment guidelines 
developed from medical literature, patient profiles, and patient 
management tools. It its worth noting that all treatment and 
prescribing decisions rest with the treating physician and PBMs offer 
assistance where needed. For some participants, the PBM will arrange 
for nurse outreach and case management intervention programs.
    Therapeutic Compliance. Through the above-referenced disease 
management programs, PBMs can increase patient compliance by 
coordinating and monitoring patient care with specific drug therapies. 
Clinical outcomes are then tracked and additional information may be 
given to participants to help them continue to manage their condition. 
These strategies have been proven effective--in fact, according to a 
recent study in the Archives of Internal Medicine, therapeutic drug 
management served to increase the rate of achieving therapeutic goals 
for patients from 74 to 89 percent.\4\
---------------------------------------------------------------------------
    \4\ Brian J. Isetts, PhD, BCPS; Lawrence M. Brown, PharmD; Stephen 
W. Schondelmeyer, PharmD, PhD; Lois A. Lenarz, MD. ``Quality Assessment 
of a Collaborative Approach for Decreasing Drug-Related Morbidity and 
Achieving Therapeutic Goals.'' Arch. Of Intern Med. 2003;163;1813-1820.
---------------------------------------------------------------------------
    Electronic Prescribing. Adverse drug events have been cited as a 
contributing factor to the rising incidence of medical errors in the 
health care system. However, electronic prescribing by physicians holds 
the promise of decreasing drug related medical errors through the 
application of enhanced technology. PBMs are health care leaders in 
electronic prescribing. We use technology to improve the prescribing 
process for both physicians and their patients. Advantages of e-
prescribing include reduced dispensing errors due to illegible 
handwriting, real-time physician access to benefits, eligibility and 
formulary information, notification to pharmacists of possible adverse 
drug interactions, and the availability of medication history 
information for use by physicians and pharmacists in their care 
decisions. Sending prescriptions electronically saves significant time 
for the patient in filling their medication and enhances efficiency in 
the prescribing process by reducing administrative burdens.
    E-prescribing, once implemented for use in Medicare, will be a 
significant tool in reducing costs to the program through increased use 
of the most clinically effective and least costly medications, 
including greater use of generics. Congress included an important first 
step toward e-prescribing in the new MMA. With the appropriate efforts 
dedicated to standards development, this can truly prove a pivotal 
policy to reduce medical errors, increase administrative efficiency and 
save costs for the program.

IV. CONCLUSION
    PBMs bring tremendous value, in addition to cost containment, to 
the delivery of prescription drugs through our leadership in the use of 
advanced technology and information systems. The MMA is a historic 
opportunity to expand that value to the Medicare population through 
PBMs. PCMA believes that our participation in Medicare will only serve 
to improve and strengthen the program in the years ahead.

                                 
             Statement of Richard A. Norling, Premier, Inc.

    I would like to thank the Chairwoman and distinguished Members of 
the House Ways and Means Subcommittee on Health for taking the time to 
hold a hearing (March 18, 2004) on an issue so critical to the health 
of our communities as quality of care improvement. As an alliance of 
leading not-for-profit hospitals and health systems across the country, 
Premier exists to facilitate hospitals' delivery of the highest quality 
healthcare services.
    In July 2003, Premier and the Centers for Medicare and Medicaid 
Services (CMS) launched the Hospital Quality Incentive Demonstration 
Project, a three-year program designed to demonstrate that economic 
incentives are, indeed, effective at improving the quality of inpatient 
care. In the course of this joint demonstration, CMS will measure and 
pay incentives, in the form of enhanced Medicare payments, for high-
quality inpatient care delivery among hospitals participating in 
Premier's PerspectiveTM quality measurement system. To be 
sure, the incentives achievable by these hospitals are based entirely 
on clinical performance.
    Significantly, Premier is providing data collection and analysis 
services in support of a new and innovative Medicare demonstration 
project that is testing the impact of incentive payments on quality of 
care improvement. A total of 278 participating hospitals began 
submitting data in October 2003. For each of the next three years, the 
top-performing hospitals in each of five clinical areas (acute 
myocardial infarction (AMI); coronary artery bypass graft (CABG); heart 
failure; community-acquired pneumonia; and hip and knee replacement) 
will receive additional payments from the Medicare program. (In order 
to participate in the project, however, hospitals must be able to 
submit quality data corresponding to all five clinical areas.)
    As Dr. Carolyn Clancy, director of HHS' Agency for Healthcare 
Research and Quality (AHRQ), noted in her testimony before the 
Subcommittee, demo-participating hospitals that perform in the top 10 
percent (decile) for a given diagnosis or clinical area--CABG, for 
instance--will see a two-percent increase (i.e., bonus payment) in 
their Medicare base rate for the measured condition. Hospitals 
performing in the second decile will be paid a one-percent bonus. 
Scores will be calculated at least semi-annually, and bonus payments 
will be made annually in a lump sum. In the third year, participating 
hospitals that fail to improve their performance in a specific clinical 
area beyond a minimum threshold established in the first year of the 
project will be subject to a payment reduction of one- or two percent. 
Thus, hospitals will be duly motivated to not only improve, but 
maintain the gains throughout the course of the project.
    The 34 indicators utilized in the Hospital Quality Incentive 
Demonstration Project are widely accepted throughout the industry as 
important to quality of care. They stem from quality care research 
conducted by the National Quality Forum (NQF), the Joint Commission on 
the Accreditation of Healthcare Organizations (JCAHO), the Centers for 
Medicare and Medicaid Services' (CMS) 7th Scope of Work initiative, the 
Leapfrog Group, the Agency for Health Research and Quality (AHRQ) and 
others. These are both process indicators--measuring such things as 
timely administration of medication--and outcome indicators--measuring 
mortality rate and the like. Significantly, case volume is not one of 
the indicators.
    As Premier, providers on the frontlines, and countless authorities 
in the quality care arena have long hypothesized, we are already 
seeing, through our initial data collection and analyses, indications 
that high quality and volume are certainly not mutually exclusive. A 
forthcoming study using the Premier PerspectiveTM database 
demonstrates that the incidence of adverse events, as defined by 
patient safety indicators developed by the Agency for Healthcare 
Research and Quality (AHRQ), did not, in fact, decrease as hospital 
volume increased. Further, no meaningful difference between low-volume 
and high-volume facility quality of care could be identified in the 
clinical area of coronary artery bypass graft (CABG) surgery. (Kathryn 
Leonhardt, MD, MPH; Stephen Grossbart, Ph.D.: ``Metrics and 
Measurements in Patient Safety,'' scheduled for presentation at the 
sixth annual NPSF Patient Safety Congress, May 4, 2004.)
    Medicare Payment Advisory Committee (MedPAC) Chairman Glenn 
Hackbarth testified in a similar vein before the Subcommittee during 
the March 18 hearing:

          Simply providing more care does not necessarily lead to 
        improving quality. The amount of care Medicare beneficiaries 
        receive varies widely across the nation. Yet, as noted in our 
        June 2003 report to the Congress, higher use of care does not 
        appear to lead to higher quality care; in fact, it appears that 
        states with the highest use tend to have lower quality than 
        states with the lowest use. . . . Other researchers have found 
        similar phenomena in smaller geographic areas--that is, areas 
        with the highest service use tend to have lower, not higher 
        quality.

    In closing, I'd like to reference an open letter published in the 
November/December edition of the Health Affairs policy journal in which 
several leading and veteran authorities on the quality care landscape 
argued that government, private payers, and other stakeholders must 
``support and continue efforts to provide economic incentives for high 
quality care.'' The authors concur that ``payment for performance 
should become a top national priority, and [that] Medicare payments 
should lead in this effort, with an immediate priority for hospital 
care.'' In that vein, they recognize and applaud CMS for having 
``launched a breakthrough demonstration project . . . to pay quality-
improvement incentive bonuses for Medicare patients at participating 
institutions.'' The CMS-Premier demonstration, the authors conclude, 
shows that we have ``adequate tools to accelerate the pace of change.''
    As President and CEO of Premier, in which the majority of 
demonstration hospitals are allied, I can assure you that this project 
will make a significant contribution to that effort. Thank you, most 
sincerely, for your time and consideration.

                                  
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