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


                                                        S. Hrg. 108-605



                THE BURDEN OF HEALTH SERVICES REGULATION

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

                                HEARING

                               BEFORE THE

                        JOINT ECONOMIC COMMITTEE

                     CONGRESS OF THE UNITED STATES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 13, 2004

                               __________

          Printed for the use of the Joint Economic Committee



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                        JOINT ECONOMIC COMMITTEE


    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]


SENATE                               HOUSE OF REPRESENTATIVES
Robert F. Bennett, Utah, Chairman    Jim Saxton, New Jersey, Vice 
Sam Brownback, Kansas                    Chairman
Jeff Sessions, Alabama               Paul Ryan, Wisconsin
John Sununu, New Hampshire           Jennifer Dunn, Washington
Lamar Alexander, Tennessee           Phil English, Pennsylvania
Susan Collins, Maine                 Adam H. Putnam, Florida
Jack Reed, Rhode Island              Ron Paul, Texas
Edward M. Kennedy, Massachusetts     Pete Stark, California
Paul S. Sarbanes, Maryland           Carolyn B. Maloney, New York
Jeff Bingaman, New Mexico            Melvin L. Watt, North Carolina
                                     Baron P. Hill, Indiana



        Donald B. Marron, Executive Director and Chief Economist
                Wendell Primus, Minority Staff Director


                            C O N T E N T S

                              ----------                              


                      Opening Statement of Members


Senator Robert F. Bennett, Chairman..............................     1
Representative Pete Stark........................................     2

                               Witnesses

Conover, Christopher J., Ph.D., Assistant Research Professor of 
  Public Policy Studies, Terry Sanford Institute of Public 
  Policy, Duke University, Durham, NC............................     4
Mulholland, Dan, J.D., Horty, Springer & Mattern, Pittsburgh, PA.     6
Hyman, Professor David A., M.D., J.D., University of Maryland 
  School of Law, Baltimore, MD...................................     8
Gottlich, Vicki, J.D., L.L.M., Center for Medicare Advocacy, 
  Inc., Washington, DC...........................................    10

                       Submissions for the Record

Prepared statement of Senator Robert F. Bennett, Chairman........    31
Prepared statement of Representative Pete Stark, Ranking Minority 
  Member.........................................................    32
Prepared statement of Christopher J. Conover, Ph.D., Assistant 
  Research Professor of Public Policy Studies, Terry Sanford 
  Institute of Public Policy, Duke University, Durham, NC........    33
Prepared statement of Dan Mulholland, J.D., Horty, Springer & 
  Mattern, Pittsburgh, PA........................................    59
Prepared statement of Professor David A. Hyman, M.D., J.D., 
  University of Maryland School of Law, Baltimore, MD............    70
Prepared statement of Vicki Gottlich, J.D., L.L.M., Center for 
  Medicare 
  Advocacy, Inc., Washington, DC.................................    94

                         Additional Submissions

Responses to questions submitted by Senator Bennett from:
    Dr. Conover..................................................    54
    Mr. Mulholland...............................................    67
    Dr. Hyman....................................................    89

 
                THE BURDEN OF HEALTH SERVICES REGULATION

                              ----------                              


                         THURSDAY, May 13, 2004

                            United States Congress,
                                  Joint Economic Committee,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 10:05 a.m., in 
room SD-628 of the Dirksen Senate Office Building, the 
Honorable 
Robert F. Bennett, Chairman of the Committee, presiding.
    Senators present: Senator Bennett.
    Representatives present: Representative Stark.
    Staff present: Tom Miller, Donald Marron, Colleen J. Healy, 
Mike Ashton, Nancy Marano, Wendell Primus, John McInerney, and 
Deborah Veres.

        OPENING STATEMENT OF SENATOR ROBERT F. BENNETT, 
                            CHAIRMAN

    Senator Bennett. The hearing will come to order.
    We want to welcome you all to today's hearing where we will 
explore how regulation of health care services affects their 
cost, quality and availability.
    Health care is the most intensively regulated sector of our 
economy. It's also one of the largest, accounting for more than 
15 percent of GDP. Significant attention has been paid to the 
relative costs and benefits of regulation in other industries, 
as well as for the economy as a whole. But the costs and 
benefits of health care regulation have often been overlooked. 
We need to learn more about the impact of the complex web of 
rules and regulations that govern how we spend and use more 
than $1.7 trillion annually.
    Health care is certainly a vital item in all our lives, and 
regulations can improve its quality and reduce its costs. 
However, there's a significant risk that the promised benefits 
of health service regulations will fall well short of their 
costs.
    One challenge is that some proponents of regulation are 
often not the ones who bear its ultimate burden. This 
disconnect can lead to excessive regulation. A related 
challenge is that many regulatory costs are less visible than 
spending outlays and higher taxes. As a result, the political 
calculus may tilt toward using less visible regulatory means to 
accomplish objectives that would lack sufficient support if 
they required a more transparent commitment of public funds.
    There's often another disconnect in which people do not 
appreciate how the burdens of regulation are ultimately borne. 
Many consumers believe that insurers or employers pay the extra 
costs that result from tighter regulations, required expansions 
in covered services, et cetera, when in reality, those costs 
eventually come out of their own pockets in one form or 
another.
    Today, we plan to examine whether health services 
regulations are delivering sufficient benefits to justify their 
costs. This is a new and developing area of research with 
important policy implications. Patients, consumers and 
taxpayers are the ones who bear their ultimate costs of 
unnecessary regulation. Excessive regulatory burdens can also 
harm our most vulnerable individuals, such as the uninsured and 
lower-income health care customers.
    I have some personal experience on that, as I will 
undoubtedly be moved to relate as the hearing goes forward, 
based on some members of my family who have been caught up in 
some excessive regulations.
    Now much health care regulation is premised on the judgment 
that most health care consumers don't know, don't want to know, 
and cannot know enough to make important decisions for 
themselves.
    I don't know if that's true often enough to justify the 
level of health regulations that we have, but we hope to find 
that out today because we have a panel filled with people who 
all have their own experience examining the costs and benefits 
of health services regulation and how our regulatory system 
works.
    I will introduce the panel one by one after we've heard 
from the Ranking Member, Mr. Stark.
    [The prepared statement of Senator Bennett appears in the 
Submissions for the Record on page 31.]

        OPENING STATEMENT OF REPRESENTATIVE PETE STARK, 
                    RANKING MINORITY MEMBER

    Representative Stark. Mr. Chairman, thank you. I must, as I 
don't often do, take issue with the premise of today's 
hearing--The Burden of Health Services Regulation--because it 
assumes that regulations are simply useless impediments to 
economic efficiency and prevent the lowering of health care 
costs.
    Many regulations are created or borne from the abuse of 
human beings and the degradation of their fundamental rights. 
Simply put, many regulations protect people's lives. So there 
can be no rational debate, it seems to me, about doing away 
with health care regulations writ large for the sake of 
efficiency and thrift.
    We've seen, unhappily, the prisoner abuse scandal in Iraq 
and what happens when regulations break down--in this case, 
military regulations. But the human toll that followed that 
breakdown was unacceptable.
    Countless examples of regulations that curb abuses in 
health services exist. In the good old days, hospitals 
routinely turned away poor women in labor until Congress 
intervened and enacted MCOLA, which prohibited this practice 
and guaranteed access to emergency care to all people, 
regardless of their ability to pay.
    Ms. Gottlich will give us her account of how nursing home 
regulations have reduced patient neglect and mistreatment that 
was widespread before consumer protections were put in place.
    Right now, CMS claims it's heavily regulating the Medicare 
prescription drug discount cards because there are already 
instances across the country of seniors being defrauded.
    Regulations at the FDA ensure that the drugs that are sold 
and the devices we use are safe and efficacious. Should we roll 
back those and should we let whatever that new pill is be sold 
without any regulation?
    There's a bit of concern there.
    So I'd like to challenge our witnesses to pinpoint a group 
of regulations that would save a great deal of money without 
unleashing disastrous consequences.
    We'll hear a lot about reigning in Medicare malpractice 
costs, a popular example this year--talking about untold 
savings in health care. But the Congressional Budget Office has 
found that malpractice insurance and legal fees have a 
negligible effect on overall health care costs.
    In fact, CBO estimates savings of less than one-half of 1 
percent if liability limits were enacted and the President's 
budget shows no savings from such caps.
    Now, ironically, Dr. Conover shares this vision and 
advocates regulating the malpractice tort system. So I guess 
that regulation is okay. It's just other regulations we don't 
like.
    I'm troubled that we're having this hearing focusing on 
some very complex and preliminary calculations of costs and 
benefits, where no detailed documentation supporting of various 
analyses exists.
    These studies aren't widely accepted or recognized among a 
broad range of health economists. And even more disturbing is 
that in some instances, zero benefits have been assigned to 
important sets of regulations where, clearly, the benefits are 
not zero.
    Eliminating regulations will do nothing to increase access 
and affordability of health care, as some witnesses have 
argued. There's no guarantee that money ostensibly saved from 
less regulation would be put towards covering the uninsured.
    The likely result would be that insurance companies, 
doctors, hospitals and pharmaceutical companies would merely 
pocket any savings.
    So I think that the premise of rolling back regulations is 
foolish. It won't lower costs. It won't increase access or 
affordability. And it may very well kill some innocent people, 
which is the bottom line of what we ought to be careful about 
in what we're hearing today.
    But I look forward to hearing the witnesses and being able 
to challenge these assumptions.
    [The prepared statement of Representative Stark appears in 
the Submissions for the Record on page 32.]
    Senator Bennett. Thank you very much. I think you've 
highlighted the issues in the debate and maybe that's the 
reason we're having the hearing, to find out exactly where it 
comes on.
    I don't come into it with any pre-conceptions one way the 
other, except, as I say, some anecdotal information. And each 
of us is the prisoner of his own experience. And the hearing, 
maybe, can help us break out of that particular prison.
    Professor Christopher Conover of Duke University has worked 
for several years to develop an initial set of estimates of the 
net burden of health services regulation as a whole, as well as 
that of its primary components. If there's a regulatory 
elephant in the room that's increasing the cost of care and 
reducing its quality and availability, Dr. Conover may be able 
to provide us with some initial measurement of its size and 
scope.
    Professor David Hyman of the University of Maryland has 
written extensively about health care regulation, most notably 
in the areas of managed care, emergency room treatment, and 
mandated benefits. He's also coordinated recently 2 years of 
hearings on health care competition conducted jointly by the 
Federal Trade Commission and the Department of Justice.
    Dan Mulholland is a senior partner at Horty, Springer & 
Mattern. He is one of the nation's leading health care 
attorneys and serves as chair of the credentialing and peer 
review practice group of the American Health Lawyers 
Association.
    And Vicki Gottlich, who is an attorney in Washington as 
well, she's in the Washington, DC office of the Center For 
Medicare Advocacy, where she provides legal assistance, 
research, consultation, and litigation support regarding 
Medicare and employer-sponsored health benefits.
    We appreciate all of your willingness to be here with us 
and we will hear from you in the order in which I've introduced 
you.
    So Dr. Conover, if you would go first.

STATEMENT OF CHRISTOPHER J. CONOVER, PH.D., ASSISTANT RESEARCH 
PROFESSOR OF PUBLIC POLICY STUDIES, TERRY SANFORD INSTITUTE OF 
           PUBLIC POLICY, DUKE UNIVERSITY, DURHAM, NC

    Dr. Conover. Mr. Chairman, and Members of the Committee, it 
is a great privilege to testify today.
    How much of the phenomenally high level of health costs in 
the U.S. can be attributed to health services regulation and 
how many uninsured might be covered were we to reduce this 
sizable regulatory burden? My remarks today will provide some 
tentative answers to both questions based upon the preliminary 
results of more than 2 years of research conducted in part 
under contract to the Department of Health and Human Services. 
My comments this morning are my own and not intended to 
represent the views either of the department, my university, 
Coach K or the Duke Blue Devils.
    [Laughter.]
    We used two approaches to determine the net impact of 
regulation. The first was a top-down approach that relied on 
extrapolations from other industries. If we take the percent of 
costs due to regulation in other industries such as airlines, 
telecommunications and the like, and apply these to health 
services, we find that health regulation could have imposed an 
annual cost of at least $28 billion, but it may have been as 
high as $657 billion.
    The sizable difference between our lower and upper bounds 
illustrates neatly the limitations of this approach. Moreover, 
it is easily possible that the regulatory burden in health care 
is even higher than a simple extrapolation from other 
industries would suggest. That is why it is worth investing 
effort in our second, much more fine-grained, bottoms-up 
approach.
    We examined the literature for nearly 50 different kinds of 
federal and state health services regulation, including 
regulation of health facilities, health professionals, health 
insurance, pharmaceuticals and medical devices and the medical 
tort system. These cover the gamut from mandated health 
benefits to state certificate of need requirements for 
hospitals and nursing homes.
    We systematically tallied both the benefits and costs 
associated with these regulations and found that the expected 
costs of regulation and health care amounted to $340 billion in 
2002 alone. As shown in the bottom of my first chart, our 
estimate of the benefits from this was $212 billion, leaving a 
net cost of $128 billion.
    Three areas account for the lion's share of this net 
burden. The medical tort system, including litigation costs, 
court expenses, and defense of medicine, totals $81 billion. 
FDA regulation adds another $42 billion. And health facilities 
regulation adds $29 billion.
    This suggests that the states and Federal Government both 
have important roles to play in finding ways to trim regulatory 
excess.
    If we could get the next chart.
    The $32 billion in net benefits from health insurance 
regulation arises from one simple fact. It includes $46 billion 
in savings due to ERISA. Recall that ERISA protects self-
insured plans from having to comply with state benefits 
mandates, premium taxes, and other insurance regulations. If we 
left ERISA out of our analysis, the net cost of regulation 
would rise to $174 billion, as shown in my second chart.
    It was not the purpose of our study to make recommendations 
on specific regulatory reforms to be pursued, either in medical 
torts or any other domain. Instead, we were trying to provide 
something that has never been achieved previously--a big-
picture view of the overall impact of health services 
regulation with the intent of identifying broad areas where 
regulation may be excessive, while sizable health care 
regulatory costs should be put into context.
    For example, our analysis has ignored entirely tax policy 
as it relates to health care. Yet, federal and state tax 
subsidies for employer-provided health care in 2004 will exceed 
$210 billion.
    Thus, there are areas apart from health regulation where 
Americans could get much more bang for the buck.
    More than a decade ago, some pioneers in estimating 
regulatory costs stated: We believe that improving and 
disseminating better information is likely to induce decision-
makers to scrutinize the costs and benefits of regulation more 
carefully. We hope that this increased care will lead to more 
efficient decisions. The estimates in our synthesis, as 
uncertain and incomplete as they may be, have been assembled 
with the same motivation.
    How do all these numbers relate to the uninsured?
    Our bottoms-up look found that the net cost of regulation 
imposed directly on the health industry itself is 6.4 percent, 
meaning that health expenditures and health insurance premiums 
are at least that much higher than they would be absent 
regulation.
    Based on consensus estimate about the impact of higher 
prices on how many would be likely to drop health insurance, 
this increased cost implies a 2.2 percent reduction in the 
demand for coverage. This translates into 4 million uninsured 
whose plight arguably could be attributed to excess regulatory 
costs, or roughly one in 11 of the average daily uninsured.
    In these calculations, we have simply assumed that all 
regulatory costs are spread relatively evenly across all payers 
in the system, but some forms of regulation such as state 
insurance regulation, tend to be more narrowly focused on 
individuals and small groups.
    So were we to more finely calibrate our estimates of net 
impact and look at the impact on small firms, for example, we 
would find that it would be greater than the 6.4 percent 
average effect. But, of course, there's a different way to look 
at this burden as well.
    Admittedly, our estimates are still preliminary and we are 
now engaged in a process of careful review of all of them. But 
it seems unlikely that the adjustments yet to come would alter 
this central conclusion.
    The net burden of health services regulation likely exceeds 
the $48 billion annual cost of covering all 44 million 
uninsured by a considerable margin. So a legitimate policy 
question is whether the benefits of excess regulation outweigh 
the benefits of coverage for all Americans?
    With 18,000 uninsured dying every year due to lack of 
coverage, is maintaining our current regime of excess health 
regulation worth letting that continue?
    This is a question worthy of serious consideration, 
especially during ``Cover The Uninsured Week.''
    Thank you for your time.
    [The prepared statement of Dr. Conover appears in the 
Submissions for the Record on page 33.]
    Senator Bennett. Thank you very much.
    Mr. Mulholland we'll do you next. We're not capable of 
moving around. We have to go in linear fashion up here.
    So, even though I introduced Dr. Hyman before you, let's 
just go down in the order in which you're sitting.

              STATEMENT OF DAN MULHOLLAND, J.D., 
           HORTY, SPRINGER & MATTERN, PITTSBURGH, PA

    Mr. Mulholland. Thank you, Mr. Chairman. I'm not Dr. Hyman, 
but I play him on TV.
    Senator Bennett. Yes, that's right.
    [Laughter.]
    Mr. Mulholland. Mr. Chairman, Representative Stark, thank 
you very much for the opportunity to speak to the Committee 
today.
    My name is Dan Mulholland. I'm an attorney with the law 
firm of Horty, Springer & Mattern in Pittsburgh, Pennsylvania. 
Our firm practices exclusively in the area of health care law. 
We provide legal representation as well as educational 
opportunities to hospitals, their boards, management and 
physician leadership across the country. I've been with the 
firm since 1976.
    Our firm and the nature of our practice put us in a unique 
position--to directly observe both the effects and the workings 
of the health care regulatory system in this country.
    And I'm here today to tell you that it's not pretty.
    There are a number of disturbing practical effects that 
come from over-regulation of health care. Patient care 
sometimes takes a backseat to paperwork. The ability of people 
in health care to simply make decisions based on common sense 
is often trumped by bureaucratic rules and fiat.
    But most disturbing is the fact that some of the major 
federal, as well as state, regulatory initiatives in the past 
20 years that were designed to address legitimate problems and 
to come up with workable solutions for those problems have had 
a lot of unintended negative consequences and in some cases, 
have actually worked to destroy the trust and the teamwork 
that's necessary in health care to deliver quality services to 
patients. All of us are affected by that.
    Professor Conover described the quantitative effects of 
this regulatory structure on health care. But I'd like to 
address this effect from a qualitative standpoint.
    A lot of times when hospitals and doctors are faced with 
regulations, the level of complexity has grown to the point 
where they really don't understand or fully comprehend how 
those regulations can affect them. And this has one of three 
effects.
    In most cases, hospitals, doctors, nurses, others in health 
care do the best they can to try to comply with these health 
care regulations. But because they are so complicated, because 
these regulations continue to proliferate and because sensible 
laws sometimes are implemented in a less-than-sensible fashion 
with complicated regulations, the people who are involved on 
the front lines of health care often don't know that they're 
violating a particular law until after the fact.
    This can be compounded by the fact that almost every 
decision that a hospital board makes, that a physician makes, 
that hospitals and physicians make together, can be second-
guessed at one level or another, either by a whistle-blower, by 
a plaintiff's attorney, or by a regulatory agency.
    And the way in which these laws are implemented, the way in 
which the laws are applied, is anything but even. That's caused 
a lot of people to simply adopt a cynical attitude towards 
government in general and towards the regulatory system in 
particular.
    It's caused some people to try to look for ways around the 
law and not only spend a lot of unneeded resources in terms of 
consultant and legal fees, which from my perspective, isn't 
that bad of a thing, but from the perspective of society, is 
not a good thing at all.
    It also allows unscrupulous individuals to come up with 
schemes to not only avoid the regulatory structures that apply 
to them, but actually engage in conduct that any reasonable 
person would think to be improper.
    Finally, you have a situation where a lot of people, good 
volunteers on hospital boards, non-profit community hospitals, 
physicians who have long served their communities as practicing 
clinicians, nurses, and other people involved in providing 
health care, have simply thrown up their hands and said, it's 
time for me to cash in my chips and leave.
    In the case of the volunteers, they have no chips to cash 
in. They simply get worn down by having to deal with one new 
regulatory problem after another, and the best and the 
brightest in health care, who we all rely on for our daily 
health care needs and in some cases, place our lives in their 
hands, are deserting the health care industry.
    Again, these costs cannot be quantified. But they are very 
real. We see them every day, day in and day out in our practice 
when we represent hospitals, their boards and their physician 
leadership.
    And what we would urge the Committee to consider is that 
any new regulatory initiative should be carefully vetted to 
make sure that it will not have these unintended consequences 
and would be absolutely necessary, rather than reacting to a 
particular problem that gets a lot of media attention and then 
coming up with a solution that causes more problems than it 
solves.
    I'd be happy to answer questions after the other witnesses 
have given their statements.
    Thank you very much for your time.
    [The prepared statement of Mr. Mulholland appears in the 
Submissions for the Record on page 59.]
    Senator Bennett. Thank you, sir, for your comments.
    Dr. Hyman.

STATEMENT OF DAVID A. HYMAN, M.D., J.D., UNIVERSITY OF MARYLAND 
                  SCHOOL OF LAW, BALTIMORE, MD

    Dr. Hyman. Mr. Chairman, and Representative Stark, thank 
you for inviting me to testify before you today.
    The last time I testified before the Senate was just over 
10 years ago in front of the Senate Finance Committee, when 
Daniel Patrick Moynihan was presiding.
    It took me 10 years to recover. I'm hoping it won't be as 
long between my next appearance.
    [Laughter.]
    I'm currently a Professor at the University of Maryland 
School of Law. I'm also currently serving as special counsel to 
the Federal Trade Commission. I'm here only in my academic 
capacity. None of my remarks, whether written or oral, should 
be imputed to the commission or any of the individual 
commissioners. Much of what I'm going to say today is drawn 
from a series of articles I've written over the last decade on 
the regulation of health care.
    Generally speaking, although I have submitted extensive 
written testimony, my remarks are drawn from regulatory theory 
and things that I've written about mandates, including the 
Patient Bill of Rights.
    First, I want to commend the Committee for considering 
these issues. The impact of regulation of health care is a 
matter of vital importance because it affects the cost, quality 
and availability of medical services. Regulation has both 
benefits and costs. And we're focusing today on costs, but it's 
important to appreciate that benefits matter as well. You can't 
have a system to deliver services that doesn't have regulation 
constraining and addressing misconduct by a whole range of 
participants.
    For obvious reasons, we tend to focus on the benefits of 
regulation. But regulation has costs as well and you have to 
carefully factor in those costs when deciding whether you're 
making things better or making things worse.
    Excess regulation, as the two previous speakers have noted, 
makes health care more expensive and at the margins, makes 
health care coverage unaffordable, leading to an increase in 
the uninsured.
    It's economically inefficient to adopt regulations whose 
costs exceed their benefits. And it's a difficult challenge to 
quantify both sides of the equation, but there is plenty of 
evidence to suggest that we routinely do exactly that in health 
care.
    Such regulation is often popular. But that doesn't change 
the fact that it wastes our scarce resources and worsens the 
straits of the poorest and least powerful among us--those who 
the regulations are often sold as protecting.
    The problem has been studied at considerable length by lots 
of scholars. Just to briefly summarize some of the 
difficulties, when you're enacting legislation, it's difficult 
to have both the time and the training to weigh the conflicting 
evidence on costs and benefits. Evidence on cost is often 
unavailable. Estimates are subject to considerable uncertainty. 
The timeframe for regulating is days, weeks and months. The 
timeframe for studying the problem as academics need to arrive 
at a broad-based assessment of costs and benefits, is more on 
the order of months, years, and so on. When one enacts 
regulation, it's important to recognize that it comes on top of 
a whole series of prior attempts to regulate the field. And 
every time you go back, you look at the lowest-hanging fruit 
and try and address that problem. And obviously, at some point, 
all the low-hanging fruit is gone and you have to climb higher 
in the tree. To strain the metaphor unnecessarily, the risks of 
falling out of the tree start to go up the higher you have to 
climb.
    There's also a real problem with the drafting of 
legislation because providers have their own interests at heart 
and lobby heavily for solutions that reflect their interests 
rather than those of beneficiaries or the general public. When 
you couple all of those things with the emotional overlay of 
health care issues, the off-budget feature of lots of the 
regulations and the extensive scope of pre-existing regulation, 
it shouldn't come as a big surprise that health care is 
particularly prone to regulatory over-reach.
    The consequences for the nation's health are quite 
significant. Higher prices make it more difficult for Americans 
to obtain health insurance and needed care. Lots of small 
employers don't offer health insurance at all. When employers 
do offer health insurance, price increases that can result from 
regulation such as mandates result in limitations on coverage, 
employees refusing to sign up, and employers dropping coverage. 
There are a range of estimates of the elasticity of health 
insurance purchasing decisions, but I don't think anybody 
believes that increasing prices above their current level is 
going to result in more people purchasing insurance. And there 
are a number of studies--there are volumes of studies 
establishing the adverse consequences that result from not 
having health insurance.
    Stated more broadly, non-costworthy regulation is likely to 
have a systemic adverse effect on the quality of care actually 
provided to the population as a whole. A policy of quality 
above all else can price the standard of care beyond the budget 
of many Americans. And we should not place the poor and less 
fortunate in a position of choosing between nothing but the 
best and nothing when it comes to health care coverage. But 
excessive regulation will do exactly that.
    This concludes my prepared remarks.
    [The prepared statement of Dr. Hyman appears in the 
Submissions for the Record on page 70.]
    Senator Bennett. Thank you very much.
    Ms. Gottlich.

STATEMENT OF VICKI GOTTLICH, J.D., L.L.M., CENTER FOR MEDICARE 
                 ADVOCACY, INC., WASHINGTON, DC

    Ms. Gottlich. Good morning. I'm Vicki Gottlich, an attorney 
with the Center for Medicare Advocacy. I'm presenting the 
testimony along with my colleague, Toby Edelman, who got the 
better end of the deal and is giving a speech in Florida this 
morning to nursing home ombudsmen.
    [Laughter.]
    We thank you for the invitation to testify before the 
Committee on behalf of health care consumers and their 
advocates.
    From our perspective, representing the rights and interests 
of older people and people with disabilities for more than 25 
years, we do not think that health care regulations are the 
cause of high health care costs. And we do not think that 
reducing regulations will, per se, reduce savings.
    Without laws and regulations mandating specific conduct, 
health care providers may not provide adequate care or a safe 
environment. Laws and regulations are frequently enacted to 
correct problems and bad outcomes that have already occurred 
after they have occurred. And when fully and effectively 
implemented, laws and regulations can both improve care and 
reduce costs.
    We use examples related to nursing home residents in our 
testimony today because, by definition, nursing home residents 
are among the most vulnerable populations and the benefits to 
them from standards and regulations are well documented.
    Recent experiences with fires in nursing homes show that, 
too often, facilities will not provide a safe environment for 
residents if the rules allow them to do otherwise.
    While sprinklers are recognized as the best mechanism to 
avoid deaths from fire, the rules grandfather in older 
facilities and allow them to use less effective measures with 
predictable results.
    Last September, a fire broke out in a Tennessee facility. 
Eight residents were killed in the fire. More died later. And 
80 residents were sent to the hospital. After the fire, the 
nursing home corporation committed itself to installing 
sprinklers in 16 of its facilities that did not have any, at an 
estimated cost of $10 million, approximately $625,000 per 
facility. The state began considering legislation to require 
sprinklers and the National Fire Protection Association called 
for all nursing homes nationwide to be equipped with 
sprinklers. Regulations followed disaster. They tried to 
correct problems that have already happened.
    For this nursing home corporation, the costs of installing 
the sprinklers after the fact were much greater than the costs 
would have been had they installed sprinklers originally.
    There have been lots of hearings in the Senate about the 
cost of poor care. Nearly 13 years ago, the Subcommittee on 
Aging of the then-Labor and Human Resources Committee, issued a 
report describing the high cost of poor care in nursing homes. 
Avoidable incontinence, avoidable pressure sores, and avoidable 
restraints were all found to cost the health care system 
billions of dollars, as it tried to undo avoidable damage to 
residents.
    The Nursing Home Reform Law of 1987 and its implementing 
rules are a prime example of laws that improve the quality of 
care for residents in important respects, while being cost-
effective in savings billions of dollars. When the reform law 
was enacted, nursing practice and the nursing home industry 
generally believed that restraints would protect residents from 
injuries and falls. As a result, in the late 1980s, an 
estimated 41 percent of all residents were physically 
restrained. The law and its regulations changed that paradigm.
    In 2003, 8.79 percent of residents were physically 
restrained, a dramatic reduction in a relatively few years. The 
Institute of Medicine report on long-term care quality in 2001 
called the reduction in restraints the greatest improvement in 
nursing home care and credited what were then HCFA's 
regulations in oversight.
    Being restraint-free is clearly better for residents, both 
physically and psychologically, and cheaper for government 
payers as well. The other example involves the minimum data set 
which was developed by HCFA through an intensive public process 
that involved all sectors of long-term care.
    An evaluation in 1996 found that the MDS resulted in more 
positive outcomes. More residents had hearing aids and were 
involved in activities and fewer negative outcomes. Fewer 
residents had catheters. Hospitalizations were reduced by 26 
percent, reflecting an annual estimated savings to the Medicare 
program of $2 billion in hospital costs in 1992 alone.
    As we describe in our written testimony, clinical staff and 
administrators continue to resist using the MDS, even as they 
acknowledge that it gave them better information about 
residents and helped them to provide better care.
    Unfortunately, as we describe in our testimony, and as the 
GAO and IOM have documented, the government is often too timid 
in exercising its rule-making authority and overly deferential 
to health care providers.
    However, strong Congressional oversight and the Clinton 
Administration's nursing home initiative in 1998, helped 
redirect CMS's--what was then HCFA's--approach, making the 
enforcement system more consistent with federal law and more 
likely to achieve its goal of assuring prompt correction of 
deficiencies and sustained compliance by facilities.
    Nevertheless, many beneficiaries have been hurt by what the 
GAO described as the lax and overly tolerant enforcement system 
that the federal agency at first created in deference to the 
nursing home industry.
    I know I'm over time, but I'd like to end with one current 
example of the misunderstanding about the burden of 
regulations.
    Currently, CMS in January implemented a new fast-track 
appeals process for HMO appeals when care is terminated from 
home health agencies and other agencies.
    The home health agencies complain that the notice 
requirements in this new process are overly burdensome because 
they have to give notice two days in advance before home health 
services are terminated. The real issue in this situation is 
not the notices, but the HMOs themselves are only approving one 
or two home health visits at a time, rather than the 60-day 
care plan required in the traditional Medicare program. As a 
result, the home health agencies are having to give a notice at 
every single visit.
    What we've really discovered in this instance, and the home 
health agencies agree, is that the Medicare beneficiaries are 
not getting the home health services to which they're entitled.
    We also know, based on a lot of litigation that we've done, 
when individuals don't get notice of their appeal rights, they 
don't appeal and they don't get care to which they're entitled.
    We further know that when our clients don't get the home 
health care services to which they're entitled, their 
conditions deteriorate, they often get placed in nursing homes, 
and we have unfortunately seen too many of our clients die in 
this situation.
    From our perspective, the regulations that are issued 
really are issued to protect the beneficiaries. The regulatory 
process, as found through what happened in the nursing home 
reform law, reflects the practices of the industry itself. And 
when regulations reflect the best practices of the industry, 
they are not burdensome. They are instead implementing good 
quality of care.
    Thank you for holding the hearing and thank you for 
inviting me to testify.
    [The prepared statement of Ms. Gottlich appears in the 
Submissions for the Record on page 94.]
    Senator Bennett. Thank you very much. I appreciate your 
comments. And you do give me the opening to talk about the 
anecdote that I hope is not controlling my approach here, but 
that I think is perhaps instructive, and it occurred in a 
nursing home.
    I have a daughter of whom I'm very proud--I'm proud of all 
of my children. But this one in particular that I'm talking 
about got her master's degree in speech therapy from George 
Washington University, and her first job was in a nursing home.
    You have to know this daughter to understand that she is 
not very patient. She gets quite passionate about things. She 
had been there, I think, about a week before we got a phone 
call late one night and she said, ``Dad, you're a Senator. 
You've got to fix Medicare. Medicare is a disaster.'' I said, 
``Now calm down, Heather. Tell me about it.''
    This was the example that occurred to her. She was called 
in--here's a woman in a nursing home who is having swallowing 
problems. The doctor said, get the speech therapist. She's the 
expert in these kinds of things.
    And so, Heather shows up all excited. Examines the woman, 
makes a diagnosis--this is what you need to do. And says that 
she needs this kind of treatment.
    The woman's family says, ``Not on your life. You're not 
touching our grandmother until we find out whether or not this 
is covered by Medicare, because we won't pay for it. If it's 
covered by Medicare, you can go ahead and do the treatment. But 
if it's not, we won't pay for it.''
    Well, Heather says, ``Fine.'' And she naively says, ``Is 
this covered by Medicare?'' I think it was 3 days later, the 
woman in the nursing home whose assignment it is to cull 
through the Medicare regulations to determine what is covered 
and what is not, came up with an answer.
    And back to my daughter, she says, ``Dad, do you know who 
the highest-paid person in this nursing home is? It's the woman 
who handles the Medicare regulations. That skill is in such 
small supply that we pay her more than we pay the administrator 
of the hospital or any of the doctors or any of the nurses, and 
she controls the nursing home. Because until she says yes or 
no, nothing can happen.''
    And unfortunately, for an impressionable, idealistic young 
woman fresh out of college, she had some patients die as she 
was waiting to get the word from this woman who handled the 
Medicare regulations as to whether or not she could, in fact, 
provide the treatment.
    She said, ``I can't tell any of my coworkers here at the 
nursing home that my father is a Senator because they're all so 
mad about Medicare and how it gets in the way of our providing 
treatment with the labyrinthine regulations.''
    And then came the final one, which I probably shouldn't say 
in public, but will anyway, removing any names.
    A doctor said to her, ``Heather, go ahead and do it. I will 
prescribe a procedure that is covered by Medicare so that we 
can be paid. And just don't tell anybody that you're not 
performing that procedure. You are, in fact, performing the 
procedure that the patient needs.'' Highly illegal, and the 
potential for abuse is enormous.
    I resonate with what Mr. Mulholland said when he said these 
impenetrable regulations run the risk--and indeed, if I heard 
you correctly, produce the result of disrespect and disregard 
for the law as people on the firing line see them getting in 
the way of providing treatment.
    Now with all due respect to Dr. Conover, whose research I 
think is tremendously valuable, I'm with Mr. Stark on this 
issue. I'm less concerned with the dollars than I am with the 
treatment.
    I'm less concerned with an economic analysis that says it 
costs us this many dollars and yes, we could use those dollars 
elsewhere and so on.
    If the case can be made, however, that you're getting 
better treatment and it's impossible to put a dollar value on 
what that treatment might be, I'm willing to accept higher 
costs.
    But the driving experience here is that the regulations 
produced worse care. And I think I heard Mr. Mulholland say the 
same kind of thing from his experience as a lawyer handling 
cases connected with this, that the regulatory burden, costs 
aside--and really, Dr. Conover, I'm not trying to put down your 
research because I think it's very valuable and I appreciate 
your sharing it with us. But costs aside, there is a care 
problem here.
    I accept your analysis of the restraints and obviously, the 
sprinkler thing--that's easy. That's very clear. Anybody can 
say, putting sprinklers in outmoded facilities is the right 
thing to do. And a mandate that that be done clearly makes some 
sense.
    Ms. Gottlich. Senator, can I----
    Senator Bennett. Yes. The experience at least in this one 
nursing home, if my daughter is telling me accurately, 
everybody in the nursing home, except perhaps the woman in the 
corner office who is making the decisions as to who can do 
what, is thoroughly frustrated in their ability to provide care 
by the complexity of the regulations.
    Now, yes, I'd like to have your response.
    Ms. Gottlich. Actually, I have had similar experiences in a 
variety of different payment systems. So what I wanted to share 
with you was a situation in a self-insured plan where an 
individual was trying to get coverage for a child who had been 
severely injured in a car accident and needed continued 
therapy.
    He couldn't get the information from his self-insured plan, 
which is not subject to regulation. And it took so long. And it 
was clear that if the child didn't get the therapy, his 
condition was going to deteriorate. So what the family ended up 
doing was applying for Medicaid for that child.
    I was really troubled by that situation because the care 
decision affected, quite frankly, not only the child, but it 
affected me because the child suddenly became somebody on 
Medicaid.
    I think a lot of these issues are not necessarily 
determined based on regulations, but they're cost mechanisms 
because the way our health care system is devised, it's better 
for the health payer, regardless if it's Medicare, Medicaid, or 
private ERISA plan, if they don't pay for health care.
    I think a lot of the regulations are designed to actually 
limit rather than provide the care that the doctor in your 
daughter's situation felt was medically necessary.
    I think that it's a bad situation. There are lots of issues 
going on with Medicare in terms of some of the complexity.
    But I think that it happens in other payment systems as 
well.
    Senator Bennett. I don't dispute that for a minute, that 
Medicare is not by any means the only culprit.
    Mr. Stark, I think as we've done in the past, you take your 
question period here, and then the six of us will simply have a 
roundtable and go back and forth.
    Representative Stark. I apologize to the witnesses. Pollen 
seems to be not well-regulated and my ears are stuffed up as a 
result. So I don't know whether I'm shouting or whispering and 
I apologize for that.
    Let me ask a couple of questions. First of all, the 
principal regulations--somebody did a chart between federal and 
state.
    If you take Medicare off the table, you haven't got much 
beef with the Federal Government other than HCFA, right?
    We don't regulate torts. We regulate pharmaceuticals. I 
would love to have you there when we argue with my constituents 
who want to bring their pharmaceuticals in from Canada.
    Would any of you object to allowing that without 
regulation? It would save a lot of money. Does anybody find 
that a regulation that we ought to keep?
    Ms. Gottlich. Well, of course, you know that we would 
support the importation of drugs from Canada.
    Representative Stark. I wonder if the other three witnesses 
would, too.
    Mr. Mulholland. Representative Stark, I think you can argue 
on both sides of that.
    But I think your observation earlier was correct that, in 
large part, the regulatory problems that have been caused as a 
result of federal regulations are ultimately tied to the 
Medicare program, which again gets tied to the costs.
    Representative Stark. Okay.
    Mr. Mulholland. And that creates----
    Representative Stark. But Conover here is talking about 
$600 billion or some figure. We only spend approximately $300 
billion on Medicare. How are you going to save--if you take 
that off the table and you guys are in the wrong forum? You 
ought to go back to the states--Maryland or North Carolina.
    [Laughter.]
    States are the ones who--they regulate doctors. They 
regulate lawyers, right?
    Should we do away with the bar exam?
    Mr. Mulholland. I've already passed, so it wouldn't matter 
to me.
    Representative Stark. That's right.
    [Laughter.]
    Then NOLO would take over the legal profession.
    At some point, we spend your money, the taxpayers' money. 
We have some obligation to make sure that it's spent fairly.
    Now the Defense Department doesn't care. They'll give 
Boeing whatever they need, as long as they get kickbacks. But 
that's not what we try to do in Medicare. We spend--we have, 
admittedly, 14 percent of Medicare money is spent incorrectly. 
About half of that is fraud and about half of that is just 
mistakes.
    I'll bet you that Blue Cross doesn't do any better. Because 
as a matter of fact, it's Blue Cross who administers Medicare 
under contract, so I suspect for the private market--and then 
if you walk around and you're under 65, like the witnesses are, 
you can do anything you want.
    The doctors can treat you. The doctors aren't under any--
there are the privacy regulations, but, again, that has nothing 
to do with Medicare. That has to do with the whole general 
issue of privacy in this country. And there are people who are 
concerned about that and civil libertarians are concerned--I 
hope. Scalia and Thomas and Ashcroft, the great civil 
libertarians of all time. But you're beating a dead horse here.
    You want to go home. Talk to your state legislators about 
this.
    California, we've already passed tort reform. So don't talk 
to us. Let the rest of the states pass it if they think it's 
the right thing to do. Has Maryland got tort reform?
    Dr. Hyman. That would be for me. Yes. And my friends who 
are plaintiffs' lawyers complain bitterly about it.
    Representative Stark. Yes, but they have it, right? So you 
don't care whether we have federal or not. Correct?
    Dr. Hyman. I actually was talking earlier about insurance 
mandates, which are both federal and state level.
    Representative Stark. Where?
    Dr. Hyman. It's also important----
    Representative Stark. Whoa.
    Dr. Hyman. The Pregnancy Discrimination Act of 1976, the 
Newborns and Mothers Protection Act. I can list a number of the 
mental health parity requirements that are found in HPPA. There 
are federal mandates. The disproportionate percentages are at 
the state level.
    Representative Stark. But you like ERISA.
    Dr. Hyman. I think ERISA serves its function quite 
effectively. Actually, when I started, I said that----
    Representative Stark. I get the sense that you guys are 
picking and choosing here the regulations that----
    Dr. Conover. But the reason that ERISA saves money is 
because it exempts plans from----
    Representative Stark. But it's a regulation, though, isn't 
it? It's a regulation that keeps lawyers like these other 
guys----
    Dr. Conover. It's a very funny regulation in that regard.
    Representative Stark. Wait a minute. It's a regulation, 
right?
    Dr. Conover. It's a regulation that exempts----
    Representative Stark. You like it, don't you?
    Dr. Conover [continuing]. Exempts plans from a lot of other 
regulation, yes.
    Dr. Hyman. Representative Stark, I don't think--I didn't 
hear anyone at the panel to say that all regulations are bad.
    I thought the point of the testimony was that regulations 
can be good, except to the extent that their costs exceed their 
benefits.
    Representative Stark. But Dr. Conover over here doesn't 
have any benefit in any of his analysis, right? You've got zip 
for benefits.
    Dr. Conover. No, that's not right at all.
    Representative Stark. Wait a minute. You told me--you don't 
show any benefits in your analysis.
    Dr. Conover. If you look at that chart, you can see we're 
showing $207 billion worth of benefits.
    Representative Stark. In nursing homes, it's zero. Right?
    Dr. Conover. In that particular one, we didn't find 
literature that showed----
    Representative Stark. You've got to find literature.
    Dr. Conover. That showed a cost.
    Representative Stark. You can talk to lawyers here and 
they'll tell you that there's some kind of a system for 
determining the value of life. I don't know how you guys figure 
that, but I'm sure that you'll find some literature that will 
tell you that life has some value. Do you believe that?
    Dr. Conover. I do believe that life has some value, yes. 
Absolutely.
    Representative Stark. Okay. Can you quantify it?
    Dr. Conover. Well, in our estimates, we were using a value 
of life of $4.4 million.
    Representative Stark. Okay. And you can't find any cost 
benefit in regulating nursing homes?
    Dr. Conover. In the evidence that we went through, we did 
not.
    Representative Stark. Ever been in a nursing home?
    Dr. Conover. Well, yes. I've visited people in a nursing 
home.
    Representative Stark. Ever had a relative in one?
    Dr. Conover. My granny was in one for a while.
    Representative Stark. As I say, I find this highly 
selective. You think that reimportation shouldn't be regulated, 
right? Or not. I'm not getting an answer.
    Mr. Mulholland. I really haven't formed an opinion on that, 
Representative Stark. But I think your point about Medicare 
being responsible for a lot of the regulations to some extent 
underscores what Professor Conover was talking about because 
Medicare is the largest payer by far in the country for health 
care----
    Representative Stark. Whoa, whoa, whoa. We paid $300 
billion out of about $1.4 trillion spent on health care 
services in this country. Now, c'mon. Do your math. If you've 
got your shoes and socks off, you can do that math.
    Mr. Mulholland. I'm not saying it's the majority of 
payment, but it's the largest payer. There's no other payer 
that's as big as Medicare in terms of being a single source of 
payment.
    Representative Stark. Okay.
    Mr. Mulholland. If Professor Conover's figures are right, 
$128 billion net cost of regulations, that would mean that 
Medicare is bearing approximately a third of that based on the 
numbers that you had just given, Representative, which mean 
that the regulatory system, the Federal Government has imposed 
on the system, on the health care system, actually is costing 
the Federal Government more money.
    So it becomes a self-fulfilling prophecy. More payment, 
more regulation, more cost.
    Representative Stark. That's the wackiest thing I've ever 
heard, I'll tell you.
    Okay, guys. As I say, libertarianism is alive and well in 
the world. And the Cato Institute and the American Enterprise 
and the Club For Growth, God help us if they were ever to 
provide medical care to our indigent.
    Mr. Chairman, they're all yours.
    [Laughter.]
    Senator Bennett. Well, let me make the same point that I 
think was trying to be made.
    I certainly do not believe that all regulations should be 
repealed. Nor do I believe that the regulatory scheme, the 
careful regulatory scheme is not absolutely essential.
    I think everybody will agree that we have a responsibility 
at both federal and state level to provide a sensible scheme of 
regulation. Having conceded that, I would trust that you would 
concede that such a scheme of regulation should be reviewed 
from time to time to see if there are some regulations that 
don't make sense, that do in fact end up costing the system 
more than the benefits, and, in the exchange that Ms. Gottlich 
and I had, actually reduce the level of the quality of care, 
that the regulations get in the way of providing intelligent 
care.
    I'm satisfied that Medicare has reached that point, that it 
has become so labyrinthine to try to find your way through the 
Medicare regulations and come up with an understanding of what 
Medicare really does require and does not require, has reached 
the point where it's appropriate for the Federal Government, 
particularly those of us who pass the laws, to say it's time to 
take a long, hard look at this. It's getting in the way of 
providing quality care.
    But I will certainly join with you that regulation is 
essential. And I don't think there's anybody on the panel that 
would disagree with that.
    Representative Stark. Let me----
    Senator Bennett. Yes.
    Representative Stark. My name was taken in vain in some of 
this testimony, but it was taken in vain long before that by 
whichever administration was in when we wrote what are called, 
obscenely, I think, the Stark Laws.
    It's important--I think Dr. Hyman raised the issue of the 
Stark Laws, right?
    Mr. Mulholland. I believe I did.
    Representative Stark. You did. Okay. The Stark Laws were 
written at the behest of a Republican administration, okay, 
initially over my objection. I said, what the hell. These guys 
ought to be able to go make money any way they can. Well, they 
finally showed me, some place in Florida and the AMA finally 
came around, that there was very excessive utilization because 
of kickbacks, basically.
    But the initial law--and I'm not a lawyer, but I have to 
paraphrase it, about a paragraph. And it says, and correct me 
if I'm wrong, Mr. Mulholland, but the original federal law 
said, whomsoever will taketh or receiveth or generate a 
kickback, a spiff, a commission, in cash or in kind for 
referring a service to another under Medicare or Medicaid, will 
do 5 years or $50,000. That was it. That's all it was.
    I was told that the prosecutors wanted a clear line to 
prove intent. What did I know? I'm just a politician. I don't 
know law. I am not a lawyer. But I said, all right. We'll have 
a line. And we wrote the bill and then the regulations came. 
And you know what? Those regulations just became a set of 
instructions for you, Mr. Mulholland, to draw loopholes, to 
say, now to my clients, aha, here are the clear lines. And you 
can get around them by this and this and this.
    So when they came back, we had to have Stark 2. The more 
the lawyers dreamed up loopholes, the more we had to have 
regulations to close the loopholes.
    I would go back to the original bill. That's just one 
paragraph, if I had my way, and then you'd have to tell all 
these docs, you'd better be careful, doc, because they could 
come after you for criminal activity. But I don't know. And 
being able to say I don't know to the doc would probably have 
as good an effect as this big stack of regulations.
    So I'll make a deal with you. Let's go back to that 
original. But then let's put a few docs--you've got some guys 
who are good criminal guys in your law firm? Let's put one or 
two in jail for doing what we probably both agree is wrong, and 
you wouldn't need all the regulations.
    But it's just like the tax law. We write laws to close the 
loopholes that you guys get paid big money to get them through. 
So the lawyers, Mr. Chairman, share equally in this blame for 
regulation. Right?
    Mr. Mulholland. Representative Stark, I'm prepared to shake 
on that deal right now.
    [Laughter.]
    Representative Stark. Okay.
    Mr. Mulholland. And that was exactly the point I was trying 
to make in my written remarks. That original law, the anti-
kickback law, is still on the books and the reasoning behind 
the first ``Stark Law'' is let's make it a little bit simpler, 
draw a little bright line.
    I don't quibble at all with that. But it's the complexity 
of the regulations. Once you start thinking, well, what about 
this, what about that--you've gotten to the point now where 
hospitals are worried that if they serve a meal that costs 
$25.25 to their doctors, that a whistle-blower can come after 
both of them and recover literally millions of dollars in false 
claims actions.
    So there is some question about proportionality. But I'd 
love to have that.
    Representative Stark. We got our limit up to $50 in 
Congress. So you could buy us a meal. I think $50 is the limit.
    Mr. Mulholland. We once had----
    Senator Bennett. It's $50 in the Senate. I don't know what 
it is in the House.
    [Laughter.]
    Mr. Mulholland. We once had the Chief Counsel for the 
Office of Inspector General visiting the health lawyers in 
Pittsburgh and we wanted to give him something. But he said, 
I'm subject to this, too.
    So we got him a $100,000 Bar and said, here, take this home 
to your kids. But that's the level of complexity that's 
happened. When an otherwise legitimate statute has grown out of 
control, it's metastasized--and you're right. It's almost not 
sporting to blame lawyers. Lawyers are responsible for some of 
this, too.
    On the other hand, this has served like a millstone around 
doctors and hospitals.
    Actually, we represent a lot of people in this. We give a 
lot of educational programs. In fact, we're giving a series of 
audio conferences on the new Stark regulations. You'd be more 
than welcome to join if you want to be a guest star on it, 
Representative.
    But this is something that----
    Representative Stark. It's out of control. It's like a 
virus.
    Mr. Mulholland. My partner and I were giving a little talk 
on this about two weeks ago and we started explaining it. And 
we suddenly had a very frightening revelation.
    We understood those regulations. And we thought about 
seeking some mental health counseling as a result.
    [Laughter.]
    So if there's anything you can do to simplify the 
regulations or get back to the basics, I think that would be 
welcomed with open arms because then, only the truly 
unscrupulous would have something to worry about.
    Now the people who want to follow the law are burdened down 
with worries about compliance, and there are still crooks who 
are bilking the Medicare system for billions.
    Representative Stark. At least what I see is that there are 
areas in which those of us who are powerless need some 
protection, which laws can turn out to be regulations, the 
complexity of which will drive you nuts.
    I concur in that. I am subject to it, as the Chairman is. 
Apply for a building permit in Maryland, just once, I urge you. 
I'm now in my third year of the same permit. So I'm 
sympathetic.
    And then I realize that I'm probably the person who caused 
those problems, or my colleagues, in the first place. But it is 
frustrating.
    Senator Bennett. We'll be glad to blame you specifically.
    [Laughter.]
    Representative Stark. I can't quite accept the 
quantification as a way to say, we're going to pay for--I would 
agree with you that we should review our regulations. Our 
oversight functions should be more thorough. We should listen 
to Mr. Mulholland and get the advice of experts, who agree with 
us.
    It's a problem that ought to be resolved. How do we do it? 
I'm with you. But the idea that a regulation, as a systemic 
problem in the world, if it's any different with medical care 
than it with pharmaceuticals or flying an airplane and running 
an airline, or running a bank.
    These are there and generally not--because the Chairman and 
I sit back here and say, what kind of a regulation could we 
dream up today to make Dr. Conover's research exciting and make 
Dr. Hyman's life awful.
    We don't do that. We hear from people that had something 
bad happen to them. And we say, well--and then we find out that 
maybe more bad things are happening to people and we, somehow 
in our enthusiasm, try to put a stop to it.
    Does that often become burdensome? Yes. Does it save lives? 
Many times.
    So I don't know how we can get to a happy medium.
    Senator Bennett. Well, I do think it's useful for us to 
have some kind of economic analysis of cost. I agree that the 
cost should not be the controlling factor in the decision we 
make.
    But it's one thing for Ms. Gottlich and me to exchange 
anecdotes--and I can prove that Medicare, Medicare regulations 
and their complexity, has caused delivery of health care 
problems in a particular nursing home, and arguably, 
contributed to some deaths. But I have no idea in the universe 
how expensive that is.
    I can intuit that there's an expense connected with it, but 
I can't come up with anything.
    So in defense of Dr. Conover, I think these kinds of 
studies are helpful and useful because they give us a guideline 
as to how big the problem is.
    I don't think we're ever going to get to the point where 
all of the regulations are understandable or all of the 
regulations are easily enforced. Human nature is such that you 
don't get there.
    But I think that we ought to recognize that there is a lot 
of money tied up in this and therefore, a lot of opportunity 
to, Ms. Gottlich, improve care and improve safety, and Dr. 
Conover, save some money at the same time. And that strikes me 
as a win/win.
    Dr. Conover. Right. I wanted to talk about the 48-hour 
maternity stay mandate because that's a good example of 
regulation that came about because of a concern about a 
problem. And we crafted a solution and it imposes a cost on the 
system.
    And yet, when you look at the clinical evidence about 
whether that saves lives, there really isn't any. So it's an 
example where there was this impulse to put regulation on the 
books, and we didn't have any evidence about--there was just a 
supposition that, well, gee, if women get discharged too 
quickly, that's going to be a problem for quality.
    And so, we put this regulation on the books and, 
retrospectively, we've now done the clinical studies to look at 
whether it made a difference or not. In terms of outcomes, it 
appears not to have. But once it's on the books, it's sort of 
there forever.
    So we're continuing to incur the annual cost of that. But 
we're really not getting a health benefit that would be 
commensurate with that cost. And that's problematic. And that's 
an example of how regulation sort of accretes onto the system.
    Ms. Gottlich. But I'd like to address that, as the only 
person in this discussion to whom that applies.
    There's a quality of life issue. From personal experience, 
having gone through this twice, there are definitely people who 
want to go home immediately and there are definitely people for 
whom 48 hours is not going to save their lives. But it means 
that they're going to be better able to cope.
    And so, the other things that we have to look at are post-
partum depression, how they're able to deal with their kids, 
what systems do they have in place.
    So it's more than the really adverse outcomes. Benefits 
sometimes are just not measurable.
    What does it mean for a nursing home resident to be able to 
have her breakfast at 9:00, as opposed to 6:00 in the morning? 
That's certainly a burden on a nursing home that improves the 
quality of life of the resident. I could tell you my extra day 
in the hospital after my second child was born really did a lot 
for my second child and me because I didn't have to deal with 
my first child. That's an anecdote.
    Representative Stark. My most recent two children were 
twins who were born within the past 3 years. And I want to tell 
you, I wanted to stay the extra day at the hospital with my 
wife and the twins, regardless of what she might have wanted.
    [Laughter.]
    May I?
    Senator Bennett. Yes. For the record, our last children 
were twins as well. And when the nurse asked my wife, ``Do you 
have any more children at home?'', and she said, ``there are 
four.'' ``Oh, you poor thing. You poor thing,'' the nurse kept 
repeating over and over again.
    But that's just one of the things that bonds us--you have 
twins and so do I. Go ahead.
    Representative Stark. Dr. Conover, I gather you feel that 
the zero benefit for nursing homes may change.
    Dr. Conover. They may change, right. That's why we're going 
through all of these, yes.
    Representative Stark. In the acute care area, you have a 
zero benefit for--is that just for the accreditation?
    Dr. Conover. For hospital accreditation and licensure.
    Representative Stark. Now I'll let you and Dr. Hyman get 
into this. I'll just start an argument and stand back and watch 
you guys.
    [Laughter.]
    Representative Stark. I would say that, and this is an area 
of pure economics, that in some states--the best state in the 
country, I might add, is the State of Maryland in terms of 
regulating hospitals.
    They have one of the best hospitals in the world. They come 
in by law at 10 percent below the national average for Medicare 
rates. They've never had a hospital go broke because they won't 
let them.
    But we've recently come up with this issue of, if you don't 
control the market, are you apt to cause the demise of a 
hospital? And is that something to be regulated?
    In this case, I don't have an opinion. But in every state 
except the State of Maryland, we're seeing boutique hospitals 
appear in an effort for doctors to make some extra money 
because they participate through a loophole in the Stark Law, 
in the profits of those boutique hospitals.
    And again, I don't get morally indignant about that, but 
it's tending to cause some real problems with community or 
broader acute care hospitals, who find profit centers being 
taken away by the cardiologists or the eye surgeons or 
whatever, and leaving our community hospitals with just the 
expensive stuff that doesn't have much profit.
    That's not an area really that I see us regulating unless 
the hospital industry decides that maybe there's a reason like 
accreditation to decide whether we need hospitals on an 
economic basis.
    Now do you think that's something that the state should get 
into or not?
    I don't know as we will--I don't want to unless the 
hospital association comes almost unanimously and says, look, 
this ought to be controlled or you're going to cannibalize the 
structure under which hospitals have grown over the last 50 
years in this country.
    And if we suddenly take that apart, we may have some fiscal 
problems that we'll get called on to solve. Is that an area 
that we should regulate?
    Dr. Conover. Well, when you talk about accreditation, I 
think of that as quality regulation. And I guess I'm not aware 
that the specialty hospitals are creating----
    Representative Stark. Well, there's also the certificate of 
need.
    Dr. Conover. The certificate of need.
    Representative Stark. Which is accreditation.
    Dr. Conover. Okay. But certificate of need is something 
that I've studied a fair amount. And when you look at the 
evidence about certificate of need, we generally find that it 
doesn't do what it was intended to do, which is to save costs. 
And almost half the states have gotten rid of certificate of 
need because of that.
    Representative Stark. Yes.
    Dr. Conover. But the states that continue with certificate 
of need defend it on either access or quality grounds.
    And on the access issue, I think any community would have 
to ask the question, if you basically reduce competition, and 
we know that if you reduce competition, you're going to end up 
with higher prices in an area----
    Representative Stark. What about accreditation just then on 
federal standards? Don't you think that there is a benefit to 
having some minimal standards under which you, say, put a stamp 
of approval on this thing and say, this qualifies as a 
hospital?
    In other words, you and I could go out and buy a Motel 6, 
paint a red cross on the side and say, ha, we've got a 
hospital, and up our rates from $39 a night to $500 a night.
    Dr. Conover. Well, accreditation historically has been a 
state responsibility.
    Representative Stark. Yes.
    Dr. Conover. I'm not sure I would be in a position to argue 
why the Federal Government could do that better than state 
governments could.
    Representative Stark. Well, the only reason we do--I don't 
know if we do it better--is that Medicare pays hospitals in all 
50 states.
    So that if we are going to say, you meet our standard for 
collecting from Uncle Sam, you've got to meet these standards. 
And there's no reason that we should go easy on California and 
be tough--Maryland gets a waiver because they're good guys.
    So that's the reason, possibly we should leave it to the 
states. We leave it to the states with regard to doctors.
    Dr. Conover. Right.
    Senator Bennett. Is ``good guys'' a term of legal art?
    Representative Stark. Yes.
    [Laughter.]
    Senator Bennett. Yes. Okay.
    Dr. Conover. So what you're describing is the very reason 
that Medicare gets involved in all of this. And that's why I 
wasn't sure I understood----
    Representative Stark. Well, I'm just saying, is there a 
cost--you say there's zero benefit to it. And I've got to think 
there's some benefit, whether it's a state regulation that 
gives them the seal of approval or federal.
    Dr. Conover. The issue is what would happen otherwise 
absent regulation. Would a hospital go into business and 
provide shoddy care and start killing people?
    Representative Stark. Try Tenet. Try Tenet in Redwood, 
California, where they killed 167 people through outrageous 
cardiological practices that were giving people heart 
transplants when they were healthy. And hopefully, some of the 
Tenet officials go to jail because of this.
    Yes. The answer is, yes, indeed, there are scalawags in any 
area. There are even some of our colleagues who have gone to 
jail on occasion.
    But what I'm suggesting is that, yes. It's worse in the 
nursing homes where we can have 6-packs and mom and pop can 
decide to take six people in like Jim Jones did in Guyana. Yes, 
there are people who will prey on those who are susceptible.
    Dr. Conover. Regulation is a continuum. There's zero 
regulation and then there's what we've got now. I'm not arguing 
to go back to zero, okay?
    Representative Stark. Okay.
    Dr. Conover. What I'm saying is, let's look at the areas 
where it looks like regulations' costs are disproportionate to 
any benefits and dial back to that level.
    Representative Stark. No quarrel.
    Dr. Conover. In most domains, it doesn't mean it's going to 
be zero regulation. But I think we've heard lots of testimony 
today about the extent to which regulation has gone beyond the 
point of being--where the benefits are now less than the costs 
that are being imposed on the system. We need to look at that.
    Representative Stark. What about, Dr. Hyman--do you like 
Maryland's hospital system, the all-payer system?
    Dr. Hyman. No.
    Representative Stark. You don't?
    Dr. Hyman. No.
    Representative Stark. Why? The hospitals do.
    Dr. Hyman. Well, it's not an accident that the hospitals 
do, which is alone a reason to be skeptical about it as a 
taxpayer.
    Representative Stark. They fought it when it went in.
    Dr. Hyman. I know. But then it turned out, like lots of 
these things, to reward them. It's not an accident, as you 
observe, that there's only one state left in the union that has 
rate-setting. And that's because the history of rate-setting, 
like the history of certificate of need, does not bear close 
examination.
    It does--rate-setting, like certificate of need, can be 
used to maintain safety-net institutions. Sometimes those 
institutions should be maintained. Often direct, overt 
subsidies are a better way of doing that than embedding it in 
the price and pretending that there isn't a cost associated 
with it.
    But sometimes hospitals shouldn't be kept open. And the 
rate-setting system, which takes as its mandate--keep every 
hospital open forever--doesn't discipline that process.
    Representative Stark. I think that's unfair with Maryland.
    What they have done is to--yes, they do set rates. But so 
does everybody. I don't know that there's a hospital around 
that gets the sticker price, unless you just walk in with cash.
    Blue Cross sets rates. Aetna sets rates. Medicaid sets 
rates in various states. That's not uncommon.
    It's just that the net effect in Maryland was to set the 
rates on a hospital-specific basis. They recognized, for 
example, that Johns Hopkins, as a teaching institution, perhaps 
had a need for a different rate structure than a smaller rural 
hospital.
    But that smaller rural hospital also had some needs because 
of a lower population and having fewer services. But what they 
cut out was the discounting and the uncompensated care. So 
that, basically, every patient who came through the door paid 
the rate, the same rate, including Medicare and Medicaid.
    So the issue of not wanting to take Medicaid patients 
because they pay less, in California, was off the table. And 
then if a hospital was going broke, rather than just keep it 
alive, they might have paid a neighboring hospital a little 
extra to take that hospital under its wing and provide the 
services.
    As an observer from far away, I've always felt that the 
Maryland system was one that states should look at because, in 
terms of price and quality, it's come out with a pretty good 
mix.
    Dr. Hyman. Again, I think this is one of these things that, 
if you have perfect information and good incentives, rate-
setting, if it were done by angels, it would probably work 
well. It's not.
    And again, it's no accident that a whole series of states 
experimented with rate-setting and then, with the exception of 
Maryland, everyone else has walked away from it.
    Like certificate of need, there are problems with 
information and incentives that mean, in the real world, it 
doesn't work as expected to in the journals written by 
academics.
    Representative Stark. Would you suggest that we shouldn't 
rate-set in Medicare?
    Dr. Hyman. Well, let me just be clear. There's a difference 
between rate-setting and payers saying, here's what we'll pay 
and vendors saying, here's what we'll take.
    Rate-setting is everybody pays sticker price and nobody can 
discount. And it has a series of distributional consequences.
    The question that you should ask yourself is, if it's good 
for hospitals, why shouldn't it be good for Wal-Mart and 
hardware stores and everything else? The state ought to say, 
the right number----
    Representative Stark. There's a very good reason, Doctor.
    Dr. Hyman. Well----
    Representative Stark. You and I--I'd challenge the panel to 
take the test. The Chairman's taken it with me and we've both 
failed.
    We don't know what it is we're purchasing as consumers. We 
can't spell it. We hurt. Often we're not in a mental state, 
because of pain, to make a reasonable decision.
    We take the advice of a professional. And we take that 
advise--we swallow the bait whole.
    Now with the Internet, we may get a little bit more 
information. But, basically, it isn't like shopping for a 
digital camera where we can't go to Consumer Reports. You can 
go to U.S. News & World Report and figure it's a good hospital.
    But I've often challenged my witnesses to say that I have 
this special arrangement with Georgetown Hospital because I'm 
such a good guy, they love me. And I can arrange for all four 
of you this afternoon--I'll give you my business card and I'll 
write your name on the back and you can go over and get a 
proctoscopic examination or a pap smear at half price if you go 
there today between 2:00 and 3:00.
    Now I've never had anyone take me up on that. This isn't 
what we buy. It isn't like going to Wal-Mart and shopping. 
That's a long argument with the people who say, let the 
market--let people decide how to buy medical care. They can't. 
It's not like buying a Chevrolet or a Ford.
    Dr. Hyman. Representative Stark, if you view the problem as 
an informational deficit, then the sensible strategy is to try 
and get more information out and have people be more effective 
agents for patients.
    But rate-setting is not going to be the strategy you're 
going to employ to address that problem.
    I certainly agree with you. Lots of patients have 
difficulty knowing what's going on. Although, people who have 
chronic illnesses, not surprisingly, are much better at this 
than patients with an acute attack of something that happens 
once and never again.
    But regardless of your views on how severe or minimal that 
problem is, you wouldn't use rate-setting to fix that problem. 
It doesn't synchronize with the problem that I think you've 
accurately identified.
    Mr. Mulholland. If I could just turn to two things that you 
talked about.
    That's an example of regulations that are fairly benign. 
They're not as complex as a lot of state hospital licensing 
regulation.
    For the most part, they make sense. They say that you have 
to have a board, you have to have a medical staff, and you have 
to have nurses--common sense. The problem there is how they're 
enforced. And again, it's because various regulations have 
accreted over the years that drive the enforcers in a manner 
that they have no control over.
    I'll give you an example.
    Most complaints about violations of conditions of 
participation fall in one of two areas for hospitals. One is 
restraints and I think that some of the more forward-thinking 
restraint regulation reforms that Ms. Gottlich talked about are 
good. People shouldn't be tied up in strait-jackets.
    But sometimes people need to be restrained for their own 
good. There can be a difference of opinion. Somebody complains 
to the government. That's all well and good. That's everybody's 
right.
    At that point, they respond to what could be a fairly 
easily resolvable situation--talking to the doctor, the nurses, 
the patient, family--and turn it into a huge federal case 
because they're required to do a complete resurvey of the 
hospital--not just with restraints, not with respect to this 
issue, but with respect to everything.
    Not only that, the government is then required by their own 
regulations to put a notice in the paper that unless the 
hospital corrects everything within 60 or 90 days, that they're 
going to be excluded from the Medicare program.
    That happened once in New Orleans a couple of years ago 
where a very well respected institution was being subjected to 
an investigation. This notice got out. And senior citizens went 
berserk. They were very frightened that their hospital was not 
going to be open for them. And it's still taken well over a 
year to settle down the public relations nightmare that that 
hospital faced. But more importantly, the kind of consternation 
it forced on all of those senior citizens.
    So even common sense regulations can be applied in a way 
that create a lot of unintended results and a lot of negative 
results.
    Also, once that happens, the hospital is then going to be 
resurveyed by the joint commission, the private accreditation 
body that Medicare relies on----
    Representative Stark. Questionable----
    Mr. Mulholland. One could raise questions about any of 
these agencies. But that's the second one.
    Then the office of inspector general will come in and see 
what the joint commission did to make sure that it's fulfilling 
its deem status responsibility.
    So what would be a relatively easy to resolve situation 
results in three separate major investigations that completely 
ties up the nursing administration.
    Using an anecdote, Senator, similar to yours, my cousin 
runs a nursing home in New Jersey. She right now, because of 
all the assessment requirements that came with the prospective 
payment system for skilled nursing care, has a situation where 
if someone is in the nursing home for 6 months, they're going 
to get at least eight separate, federally-mandated assessments.
    Now the concept of looking at a patient's needs again makes 
sense. But these are multi-page forms that are very 
complicated, take a lot of time to resolve. And she has to pull 
her best nurses off of clinical duties to do this.
    Her nurse administrators do nothing but handle paperwork. 
And that's one of the things contributing to the nursing 
shortage.
    The other thing you mentioned, Representative Stark, was 
specialty hospitals.
    There was the moratorium imposed last year which was an 
amendment to one of the exceptions in the so-called ``Stark 
Law.'' CMS is studying this issue.
    But one of the problems hospitals have is that they're 
dealing with this in a competitive marketplace with one hand 
tied behind their back. One of the things that the doctor-
owners who are threatening the viability of a lot of community 
hospitals by pulling out well-paying cases into these specialty 
hospitals, and then dumping, if you will, Medicaid and indigent 
patients on the hospital, one of the things that they're 
concerned about is, well, maybe the hospitals say, we don't 
want you around here at all any more.
    It would be like me going to my law firm and saying, hey 
guys, I want an office. I want secretarial help. I want a 
computer. But I'm going to be working for the law firm down the 
street, and there's nothing you can do about it because if you 
did, that would be called economic credentialing.
    So I think that the market could deal with that problem 
just as effectively, if not more so, than regulation if 
hospitals and doctors were able to compete on an even playing 
field, and the hospital saying to the doctor, you have a 
conflict of interest. Now you have to leave.
    Representative Stark. Several hospitals have, haven't they?
    Mr. Mulholland. They have done so and several courts have 
upheld it.
    But there is this strange case in Little Rock, Arkansas 
about 2 months ago where the court said that if a patient wants 
to be treated by any particular doctor in any hospital, 
regardless of the circumstances, the hospital has to let the 
doctor in.
    And that would apply theoretically even if the doctor was 
proven to be incompetent or disruptive.
    I think that, to the extent that Congress can resist the 
impulse that now is being applied to several state legislators, 
to outlaw this so-called economic credentialing, which is 
nothing more than protecting physicians who have these 
ownership interests, I think that would be a big plus as well. 
Simply letting the market operate in some areas can provide 
more efficient solutions. Certainly not in every solution.
    And I'm not suggesting that all regulations should be 
destroyed. But Congress and state legislators need to consider 
carefully the unintended consequences of addressing one problem 
and creating five more.
    And they also need to see how the enforcement agencies 
apply the laws that might make sense, but in a way that 
wouldn't make sense.
    Representative Stark. Let me follow--may I?
    Senator Bennett. Sure.
    Representative Stark. There is a question about JCAHO and 
their ability to regulate, particularly because they're paid by 
the guys they regulate, which may create some odd incentives.
    I am a strong believer in regulating by the spirit of the 
law rather than by the letter of the law.
    But I believe that when you regulate with the spirit of the 
law, you need some well-trained, highly-qualified regulators.
    The reason that you go by the letter of the law is you've 
got guys who really may not understand all the details of how 
to operate a nursing home or whether a lawyer has been 
unethical or not. So they just go down a checklist. That's 
easier than the person who has to reason it through and then 
say, well, maybe we should have done it a little bit this way 
and not so much that way, which takes some reasoning ability.
    Savings and Loans in California are regulated by the letter 
of the law and it may have led to our disaster some years ago.
    National banks, however, are pretty much by the spirit of 
the law. Bank regulators who come in have wide latitude to make 
changes in the bank, suggest that board members are changed, 
get rid of executives. And their enforcement is just to stay 
there until the bank goes along.
    And I find it better and we've had a better record in 
regulating. I would like to see that type of regulation in the 
hospital area. I would like to see people come in and rather 
than having to go through each medical record, fly speck at a 
time, be able to look at the hospital administrator and say, 
look, you're 3 weeks or you're 3 months behind in getting these 
forms filled out, without even talking about how well they're 
filled out, and say, I'm going to come back in two weeks and if 
they're not done, you're not going to take any more patients 
for a while.
    But I'd feel more comfortable with that type of situation. 
That's hard to legislate, Mr. Mulholland.
    Mr. Mulholland. Absolutely.
    Representative Stark. To legislate kindness and sympathy 
and all those things, it's difficult to get into words.
    Mr. Mulholland. But the more you micro-manage through 
regulations that proscribe every single thing, the more you 
invite exactly what you're trying to avoid.
    Representative Stark. We don't. With the exception of the 
Internal Revenue Code, which I spend a lot of time with, our 
laws are generally quite general.
    It is the regulation process and the ability for people to 
review those and complain, and the bureaucracy, for better or 
for worse, that leads to this.
    Now it's our job to change it, perhaps, and review it. But 
as all of you who have either studied or been involved with it, 
these regulations don't come out of what we see on the floor.
    Thank you.
    Senator Bennett. Yes. The time is going by. When the 
Ranking Member said, no quarrel, I was ready to end the hearing 
instantly because we very seldom come to that point.
    But I think, Mr. Stark, you've put your finger on the 
issue. I don't know how this shows up in the record, but we 
pass laws like this [indicating].
    They go to the regulators, who write regulations like this 
[indicating bigger].
    And then, all too often, the people in the field administer 
them like this [indicating bigger still], as if they have all 
the power in the world and things happen that Congress does not 
intend.
    But we come back again to the item that is intriguing me in 
this whole thing.
    If the total burden in dollars that comes as a result of 
this excessive regulation, and we will stipulate it is not our 
fault--we've managed to do that. If the total burden that is 
put on the system of this regulation absorbs something like the 
dollars that Dr. Conover has laid out, those are dollars that 
could in fact be going to the less visible victims, the ones 
who do not get into the nursing home because they do not have 
any kind of insurance.
    Well, okay, they get in there if it's Medicare if they're 
old enough.
    But if they have other kinds of problems, they don't get 
what they need because the system is paying too much for this 
over-regulation.
    I will stipulate, Dr. Conover, that your numbers are wrong. 
But I don't know whether they're wrong on the high side or the 
low side. And I think you provided a service to us by 
indicating that whatever they are, they're significant in size.
    And this is something that all of us ought to be concerned 
about and see if we can find some remedy for.
    With that, let me thank you all for your participation. We 
appreciate the effort that went into your preparing your 
testimony.
    If you have written testimony, it will of course be 
included in the record in full.
    The hearing is adjourned.
    [Whereupon, at 11:40 a.m., the hearing was adjourned.]

                       Submissions for the Record

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

       Prepared Statement of Senator Robert F. Bennett, Chairman

    Good morning and welcome to today's hearing where we will explore 
how regulation of health care services affects their cost, quality, and 
availability.
    Health care is the most intensively regulated sector of our 
economy. It is also one of the largest, accounting for more than 15% of 
GDP. Significant attention has been paid to the relative costs and 
benefits of regulation in other industries, as well as for the economy 
as a whole, but the costs and benefits of health care regulation have 
often been overlooked. We need to learn more about the impact of the 
complex web of rules and regulations that govern how we spend and use 
more than $1.7 trillion annually.
    Health care is certainly a vital item in all our lives, and some 
regulations can improve its quality and even reduce its cost. However, 
there is a significant risk that the promised benefits of health 
services regulations will fall well short of their costs.
    One challenge is that proponents of regulation are often not the 
ones who bear its ultimate burden. This disconnect can lead to 
excessive regulation. A related challenge is that many regulatory costs 
are less visible than spending outlays and higher taxes. As a result, 
the political calculus may tilt toward using less visible regulatory 
means to accomplish objectives that would lack sufficient support if 
they required more transparent commitments of public funds.
    There is often another disconnect in which people do not appreciate 
how the burdens of regulation are ultimately borne. Many consumers 
believe that insurers or employers pay the extra costs that result from 
tighter regulations, required expansions in covered services, etc., 
when in reality those costs eventually come out of their own pockets in 
one form or another.
    Today, we plan to examine whether health services regulations are 
delivering sufficient benefits to justify their costs. This is a new 
and developing area of research, with important policy implications. 
Patients, consumers, and taxpayers are the ones who bear their ultimate 
costs of unnecessary regulation. Excessive regulatory burdens can also 
harm our most vulnerable individuals, such as the uninsured and lower-
income health care consumers.
    Much health regulation is premised on the judgment that most health 
care consumers don't know, don't want to know, and cannot know enough 
to make important decisions for themselves. I don't know if that's true 
often enough to justify the level of health regulation we have, but we 
hope to find that out today.
    Today we have a panel filled with people who all have their own 
experience examining the costs and benefits of health services 
regulation, and how our regulatory system works.
    Professor Christopher Conover of Duke University has worked for 
several years to develop an initial set of estimates of the net burden 
of health services regulation as a whole, as well as that of its 
primary components. If there's a regulatory elephant in the room that 
is increasing the cost of care and reducing its quality and 
availability, he may be able to provide us with some initial 
measurements of its size and scope.
    Professor David Hyman of the University of Maryland has written 
extensively about health care regulation, most notably in the areas of 
managed care, emergency room treatment, and mandated benefits. He also 
recently coordinated 2 years of hearings on health care competition, 
conducted jointly by the Federal Trade Commission and the Department of 
Justice.
    Dan Mulholland is a senior partner in Horty, Springer & Mattern. He 
is one of the nation's leading health care attorneys and serves as 
Chair of the Credentialing and Peer Review Practice Group of the 
American Health Lawyers Association.
    We'll also hear from Vicki Gottlich, an attorney in the Washington, 
DC office of the Center for Medicare Advocacy, Inc. where she provides 
legal assistance, research, consultation, and litigation support 
regarding Medicare and employer-sponsored health benefits.
    We welcome you here today and look forward to your testimony.

                               __________
           Prepared Statement of Representative Pete Stark, 
                        Ranking Minority Member

    Thank you, Chairman Bennett. I have to take issue with the premise 
of today's hearing--``The Burden of Health Services Regulation''--
because it implicitly assumes that regulations are simply useless 
impediments to economic efficiency and lowering health care costs.
    In fact, many health care regulations are borne of the abuse of 
human beings and the degradation of their fundamental rights. Simply 
put, these regulations protect people's lives. So there can be no 
rational debate about doing away with health care regulations writ 
large for the sake of efficiency and thrift.
    We've seen with the prisoner abuse scandal in Iraq that when 
regulations break down--in this case military regulations--the human 
toll that follows is simply unacceptable.
    Countless examples of regulations that curb abuses in health 
services exist. Hospitals routinely turned away poor women in labor 
until Congress intervened and enacted the Emergency Medical Treatment 
and Active Labor Act (EMTALA) which prohibited this practice and 
guaranteed access to emergency care to all people, regardless of their 
ability to pay. Ms. Gottlich will give us her account of how nursing 
home regulations have reduced patient neglect and mistreatment that was 
widespread before consumer protections were put in place.
    Right now, the Centers for Medicare and Medicaid Services claims it 
is heavily regulating the Medicare prescription drug discount cards, 
because there are already instances across the country of seniors being 
defrauded. The Bush Administration has admitted that they have to keep 
a close eye on the private companies that are providing drug cards, in 
order to prevent seniors from being fleeced. Not withstanding these 
regulations, I still doubt that these cards will be able to provide 
much value to the elderly--but these concerns stem from loopholes in 
the underlying statute.
    Regulations at the Food and Drug Administration ensure that the 
drugs we are sold and devices we use are safe and efficacious. Do we 
want to roll back those protections? I support re-importation from 
selected countries as a method to lower prescription drug costs and 
think we can do so in a manner that preserves important safety 
measures, but in this case many on the other side of the aisle oppose 
doing so precisely because they claim it might undermine our regulatory 
structure.
    I think our witnesses will be hard pressed to pinpoint a group of 
regulations that would save a great deal of money without unleashing 
disastrous consequences. Reining in medical malpractice costs is the 
popular example of untold savings in health care, but the Congressional 
Budget Office has found that malpractice insurance and legal fees have 
only a negligible effect on overall health care costs. In fact, C$O 
estimated savings of less than one-half of 1 percent if strict 
liability limits were enacted, and the President's budget shows no 
savings from such caps.
    Ironically, Dr. Conover shares this vision and also advocates 
regulating the malpractice tort system by limiting damages patients and 
consumers can collect from providers and companies--so apparently 
regulation isn't all bad.
    I am also troubled that we are having this hearing focusing on some 
very complex and preliminary calculations of the costs and benefits of 
health services regulations. There is no detailed documentation 
supporting the analysis by Dr. Conover. The study is not widely 
recognized or accepted among a broad range of health economists. But 
even more disturbing is that in some instances zero benefits have been 
assigned to important set of regulations where clearly the benefits are 
not zero.
    Let's be clear. Eliminating regulations will do nothing to increase 
access and affordability to health care, as some of our witnesses have 
argued. There is no guarantee that money ``saved'' from less regulation 
would be put toward covering the uninsured. Indeed, the likely result 
would be insurance companies, hospitals, doctors, and pharmaceutical 
companies pocketing the savings.
    Rolling back regulations is foolish because it won't lower costs, 
and it won't increase access or affordability to health care. More 
importantly, it's just too dangerous to our health.

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