[Senate Hearing 108-237]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-237
 
    HEALTHCARE ACCESS AND AFFORDABILITY: COST CONTAINMENT STRATEGIES
=======================================================================

                                HEARING

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            SPECIAL HEARING

                     JUNE 11, 2003--WASHINGTON, DC

                               __________

         Printed for the use of the Committee on Appropriations


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                                 senate
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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                MARY L. LANDRIEU, Louisiana
                    James W. Morhard, Staff Director
                 Lisa Sutherland, Deputy Staff Director
              Terrence E. Sauvain, Minority Staff Director
                                 ------                                

 Subcommittee on Departments of Labor, Health and Human Services, and 
                    Education, and Related Agencies

                 ARLEN SPECTER, Pennsylvania, Chairman
THAD COCHRAN, Mississippi            TOM HARKIN, Iowa
JUDD GREGG, New Hampshire            ERNEST F. HOLLINGS, South Carolina
LARRY CRAIG, Idaho                   DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          HARRY REID, Nevada
TED STEVENS, Alaska                  HERB KOHL, Wisconsin
MIKE DeWINE, Ohio                    PATTY MURRAY, Washington
RICHARD C. SHELBY, Alabama           MARY L. LANDRIEU, Louisiana
                           Professional Staff
                            Bettilou Taylor
                              Jim Sourwine
                              Mark Laisch
                         Sudip Shrikant Parikh
                             Candice Rogers
                        Ellen Murray (Minority)
                         Erik Fatemi (Minority)
                      Adrienne Hallett (Minority)

                         Administrative Support
                             Carole Geagley



















                            C O N T E N T S

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                                                                   Page

Opening statement of Senator Arlen Specter.......................     1
Opening statement of Senator Tom Harkin..........................     1
Statement of Karen Davis, Ph.D., president, The Commonwealth Fund     3
    Prepared statement...........................................     6
Statement of John Mentel, M.D., Chair, Department of Applied 
  Informatics, Mayo Clinic.......................................    14
    Prepared statement...........................................    16
Statement of Dave Hickman, director, Clinical Integration, Mercy 
  Medical Center.................................................    18
    Prepared statement...........................................    20
Statement of Dr. James F. Fries, director, Arthritis, Rheumatism, 
  and Aging Medical Information System, Stanford University......    23
    Prepared statement...........................................    26
Statement of Dr. Donald R. Hoover, professor, Department of 
  Statistics, Rutgers University.................................    30
    Prepared statement...........................................    33
Statement of David L. Bernd, chief executive officer, Sentara 
  Healthcare.....................................................    34
    Prepared statement...........................................    36















    HEALTHCARE ACCESS AND AFFORDABILITY: COST CONTAINMENT STRATEGIES

                              ----------                              


                        WEDNESDAY, JUNE 11, 2003

                           U.S. Senate,    
    Subcommittee on Labor, Health and Human
     Services, and Education, and Related Agencies,
                               Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:35 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Arlen Specter (chairman) 
presiding.
    Present: Senators Specter, Craig, and Harkin.

               OPENING STATEMENT OF SENATOR ARLEN SPECTER

    Senator Specter. Good morning, ladies and gentlemen. The 
Appropriations Subcommittee on Labor, Health and Human 
Services, and Education will now proceed. Today's hearing will 
focus on the high cost of health care and cost-containment 
strategies, with particular emphasis on administrative costs, 
disease management, automation, and end-of-life care.
    A recent article in Health Affairs reported that the median 
U.S. per capita healthcare spending was $4,631 in the year 
2000, compared to $1,983 for 30 industrialized member 
countries. As we are proceeding in the Senate to focus on 
Medicare reform and prescription drugs, this is an especially 
timely subject.
    My distinguished ranking member, Senator Harkin, had 
suggested that the subcommittee focus with particularity on the 
very important subject of healthcare costs and accesibility, 
and we have devoted some three hearings to the subject. And in 
accordance with longstanding practices between Senator Harkin 
and myself, going back for more than a decade as he has been 
chairman, I have been chairman, he has been ranking, I have 
been ranking, in what we call the ``seamless change of the 
gavel,'' when he has a suggestion of a particular interest and 
wants to direct the subcommittee's focus to that, there is 
always an automatic yes.
    I have other commitments this morning. I have already 
shaken hands with the distinguished panel and thanked them for 
coming, and at this point I am going to turn the hearing over 
to you, distinguished colleague.

                OPENING STATEMENT OF SENATOR TOM HARKIN

    Senator Harkin [presiding]. Well, thank you very much, Mr. 
Chairman, and thanks for being so accommodating in having these 
three sets of hearings. This is third and final one in the 
series, in terms of what is happening, in terms of coverage, 
lack of coverage, cost of insurance. And this one, today, 
winding up talking about what is driving the costs and how we 
contain them.
    Thank you, Mr. Chairman. And I want to thank all the panel 
members for being here for this important discussion.
    Again, today we are going to focus on what drives health 
costs, how we can achieve some cost savings through creative 
and innovative efforts.
    During the last couple of months, I have held a series of 
roundtable meetings around the State of Iowa. A lot of people 
have come to these. And what I am hearing is different than 
what I have heard in the past 20 years. It is almost like a 
crescendo now of different things--bankruptcy because of 
medical bills, businesses forced to scale back their benefits.
    I can remember this businessman in Mason City, who told me 
that 10 years ago he covered all of his employees. I think he 
had 25 employees, a small business. Ten years ago, he covered 
them all, with all healthcare benefits for them and their 
families. Because of the increasing cost of health insurance, 
he had to scale back; could not cover the family, just covered 
them. Now he has to cut it back even further for higher 
premiums, higher deductibles, in order to have some basic 
coverage at all. And as he said to me, he said, ``You know, 
these aren't just my employees. These are people I go to church 
with, my kids go to school with. You know, these are my 
friends, as well as my employees.'' And he said, ``It's just 
tearing me up that we can't afford to cover them any longer.''
    School districts. I have heard from school districts, where 
the cost of their health insurance last year went up 60 percent 
in 1 year. Sixty percent in 1 year. And so they have either got 
to take that out of teacher salaries, or something, to pay for 
that.
    Healthcare providers, who are also strained, are providing 
care to the uninsured, and their reimbursement rates are low.
    So everything seems to be coming together right now. 
Health-insurance premiums seem to be out of control. Premiums 
doubled for a family of two children just in the last 4 years. 
Doubled. Last year, they rose 14.7 percent. As I said, many 
small businesses, 30 percent increases in 1 year.
    The healthcare system is being squeezed. The emergency 
rooms are getting overcrowded. Hospitals are strained from 
providing uncompensated care. Our public safety net is 
stretched to the limit. Unfortunately, uninsured individuals 
are more likely to receive too little care too late, which 
costs us more in the end.
    Again, when we look at it, we spent $1.4 trillion on 
healthcare in 2001, about 14 percent of GDP. And we are 
projected to spend over 17 percent of GDP by 2012. We spend 
nearly double per person than other industrialized nations. But 
many of them have higher life expectancies and healthier people 
than we do. So something is wrong when we are spending all this 
money than other countries and yet they have longer life 
expectancies and healthier people.
    The issue impacts every one of us, even those of us that 
have good insurance programs. I think that may be part of the 
problem. Those of us who have good insurance programs, like the 
Federal Employees Health Benefits program, we say, ``Oh, no 
problem,'' and we just keep going on. But then you start seeing 
how much it costs every year.
    I think partisan politics have got in the way of a lot of 
this, too. I say that quite frankly. But the problem is, we are 
all in this together, and somehow we have got to address it, as 
a Nation.
    Oh, these are just--this chart here--I am trying to make 
it--oh, that is just showing the percent of GDP, going from 14 
percent up to 17 percent by 2012. And 2012--well, let us see, 
that is 9 years from now, right? Let us see, 9 years ago would 
have been 1994. That does not seem that long ago.
    So it passes pretty fast.
    So I thank you all for coming. I have said enough. I am 
here to listen to you and to have a discussion with you. All of 
your statements will be made a part of the record in their 
entirety. And I would like to just go down the list here and 
recognize each of you, if you could just give us your best 
thoughts on what is driving the costs, what we ought to be 
focused on, maybe, your best suggestions. And then we will get 
into a discussion afterward on cost containment, what is 
driving the costs, and what we can do to help control some of 
those costs.
    Believe me, nothing is too far out for us to consider. Some 
of the best ideas I have heard have sort of been on the edge, 
you know, of things that people have recommended. For example, 
I just said earlier, I think, Dave, to you, that I had had 
breakfast with someone a week or so ago who has devised a new 
system just for controlling one part of chronic care, which is 
diabetes. And the initial results were incredible, the amount 
of savings, just from management. So there are a lot of things 
like this I think we can really look at.
    So, again, I thank you all for taking time and for being 
here to discuss this. And I will just start here. I have Dr. 
Davis. I will just start, and then go this way, since that is 
the way my list is structured.
STATEMENT OF KAREN DAVIS, Ph.D., PRESIDENT, THE 
            COMMONWEALTH FUND
    Senator Harkin. Dr. Davis is president of The Commonwealth 
Fund. A native of Oklahoma, Dr. Davis received her Ph.D. in 
economics from Rice University.
    Welcome, Dr. Davis, and please proceed.
    Dr. Davis. Thank you. I would like to thank Chairman 
Specter and Senator Harkin for this opportunity to testify.
    As we know, rising healthcare costs are a major concern, 
not only to policymakers, but employers, healthcare leaders, 
and people who are insured and uninsured alike. We have a mixed 
public-private system of insurance. We have relied on managed 
care and market competition to shape our healthcare system, and 
yet we have the highest healthcare spending per capita in the 
world, as we have heard already. And during the 1990s, health 
spending in the United States rose faster than in other 
industrialized nations.
    The key to containing costs, in my view, as well as getting 
better value for what we spend, may well lie in fundamental 
changes in the supply side of the market. I think we need to 
shift our attention to reducing errors, eliminating waste and 
duplication in clinical care, modernizing and streamlining 
administration, promoting transparency and accountability for 
performance, and aligning financial incentives for physicians, 
hospitals, and other healthcare providers to reward high-
quality and efficient care.
    As you mentioned, health-insurance premiums are going up, 
on average, about 10 percent to 15 percent a year. There is a 
new study out today saying it is 15 percent in 2002, 18 percent 
for the same benefit package.
    But companies, insurance companies, are trying to recoup 
some losses they made the mid-1990s. They are building up 
reserves and profits. The underlying rate of increase in 
healthcare costs is somewhat less, but still troubling. As you 
said, the United States spent $1.4 trillion, 14 percent of GDP, 
in 2001. That was a jump from 13.3 percent the year before. In 
fact, we had per capita increases in healthcare costs of 8.7 
percent. Now, maybe that does not seem dramatic after we have 
talked about 60 percent increases of premiums or 15, 18 percent 
increases in premiums, but it is considerably faster than 
inflation in the economy, as a whole. There is also some 
evidence that the rise in healthcare costs are going up, 
slowing down a little. But even that that, they are projected 
to go up 7 percent a year per capita for the rest of this 
decade. So I do think it is an important problem. I am pleased 
you are having hearings to better understand.
    If you break it down by service, prescription drugs are 
still going up faster than any other service. Now, it seems to 
have reached its peak at about 15\1/2\ percent in 2001, so it 
is coming down a little bit, but it is still faster than 
anything else. But I think the wave of the future is reflected 
in the acceleration in hospital spending. So while it is not 
the number-one, it is accounting for half of the increase in 
overall healthcare costs.
    Now, use of healthcare services was pretty flat. In fact, 
it even went down a little bit in the mid-1990s. But it is now 
going up. Particularly, there is a major growth in hospital 
outpatient services, there is more emergency room use, and we 
also know there are more prescription drugs and there are more 
physician services being provided.
    But I would call your attention particularly to the rapid 
increase in specialized procedures under Medicare. That is 
consultation, ambulatory surgery, brain MRIs, pacemaker 
insertions, heart echography, whatever you want to look at. You 
are seeing major increases. For example, brain MRIs went up 
over 15 percent in 1 year. And I think it raises the question 
whether, when we squeeze the fees of physicians--under 
Medicare, under managed care--and real incomes of physicians 
declined from 1995 to 1999, they are now recouping some of that 
lost income by working more hours, seeing more patients, 
providing more services. Specialists, on average, in 1999 made 
$219,000--some more, some less, but, on average, about 
$220,000. Primary care physicians, your first, front line of 
care, was $138,000. So there, there is a lot squeeze.
    But I think we have to be concerned about this growth in 
procedures. We do not know whether we are now providing some 
necessary care that people were not getting before, or whether 
we have moved into unnecessary care. We actually do not have a 
scientific basis for deciding what is the appropriate amount of 
care.
    I would also mention administrative expenses. 
Administrative expenses are going up 11 percent a year. That is 
high. We currently spend $111 billion on administrative costs; 
and that, too, will double, by 2012, to $223 billion, just on 
administrative costs, alone.
    Now, if you will compare private insurance with public 
program, private insurance administrative costs, as a percent 
of outlays, are about two-and-a-half times higher than we run 
in the public program, so it is particularly a problem in 
private insurance. Every company is marketing, paying sales 
commissions, but they also have people moving on and off the 
coverage, changing plans, changing providers. It is 
administrative costs. Now, I am just talking about 
administrative costs to the insurers. I am not really talking 
about all the administrative costs to the hospitals and the 
physicians of all of those different rules, all of those 
different claims forms.
    But if we look at overall spending in public programs, 
versus private programs, you look at Medicare. It has slowed 
down with all of the changes that the Congress has made. And in 
fact, Medicare, over the last 30 years, has gone up less 
quickly than private insurance outlays per enrollee. And if you 
just----
    Senator Harkin. For what period of time? Over the last----
    Dr. Davis. 30 years.
    Senator Harkin. 30 years.
    Dr. Davis. Right.
    Senator Harkin. Well----
    Dr. Davis. There was a recent study by Marilyn Moon in 
Health Affairs that just documented that trend. At the back of 
my testimony, I have got some charts that give you the actual 
figures and display that.
    But if you just take 2003, the Federal Employees Health 
Benefit premiums are going up 15 percent per participant. 
Medicare is going up 4 percent. So that difference you see, 
just between FEHB and Medicare, illustrates kind of what is 
going on between private insurance and Medicare.
    You mentioned that the United States is spending $4,631 a 
person. That is 69 percent more than Germany, 83 percent more 
than Canada. It is 134 percent more than the average 
industrialized Nation. What is troubling to me is it is even 
going up a little bit faster than other countries. Canada had a 
1.8 percent real increase in the 1990s. We had 3.2 percent. We 
also have people paying more out of pocket, and we have more 
private insurance. Out of pocket, people paid $700 per person 
in the United States, and that is twice the average for other 
industrialized countries. So it is not as if we are not already 
having patients pay a lot.
    The truth of the matter is, Americans get less care than 
other countries. Now, we think other countries are rationing 
care. But Americans get fewer days of hospital care per capita, 
and they have about the same physician visit rates, maybe a 
little bit less. Why are we higher then? Why do we spend more 
if we go to the hospital less and go to the doctor about the 
same? First of all, our administrative costs are higher, but we 
are also paying higher prices. You know, we may be paying 
twice, for a given drug, what somebody is paying in Australia. 
There was one study that said there are certain physician fees 
in the United States that are three times as high as they are 
in Canada.
    But the other issue is that we perform more complex 
specialized procedures. We do four-and-a-half times as many 
coronary angiographies, we have more MRIs per capita. So it is 
that specialized care that accounts, in part, for our higher 
costs.
    Now, we, at The Commonwealth Fund, support a survey every 
year of people in Canada, the U.K., Australia, New Zealand, and 
the United States And what we are finding, this last survey, in 
2002, sicker adults are reporting more medical errors in the 
United States than these other countries. They go to more 
doctors, take more medications, and more things go wrong. So 
this complicated, complex system of care can sometimes be bad 
for patients.
    We are also seeing a lot of inefficiency. People in the 
United States are more likely to report repeating the same 
tests because different doctors ordered it. We just do not have 
the systems of coordinating that care and getting rid of that 
duplication and inefficiency.
    That is why I stress we need to be a high-performance 
health system. We need high quality, safe, efficient, and 
accessible care.

                           prepared statement

    My suggestions are, first of all, public reporting of cost 
and quality data--on physicians, on hospitals, nursing homes, 
other healthcare providers' health plans. We need broad-scale 
demonstrations. We need to invest in information technology. We 
need quality standards. We need to pay for higher quality. And 
we need to invest in research to learn what works. I think 
these steps would go a long way toward ensuring that the United 
States is a high-performing health system worthy of the 21st 
century.
    Thank you.
    [The statement follows:]
                 Prepared Statement of Dr. Karen Davis
    Thank you, Mr. Chairman, for this invitation to testify today on a 
problem of concern to policymakers, employers, health care leaders, and 
insured and uninsured Americans alike: rising health care costs. The 
search for effective cost-containment strategies hinges on 
understanding recent trends in health care costs. Insight is also 
provided by contrasting the experience of the United States with that 
of other countries. The U.S. system, with its part-public, part-private 
system of insurance, managed care, and market competition, is a 
departure from the stronger government role favored by other 
industrialized nations in both financing health care and shaping the 
health care delivery system. Nevertheless, many of the pressures that 
increase health care outlays affect all nations--from population aging, 
to shortages of nurses and other skilled personnel, to advances in 
modern medicine.
    What we all want from our health care system is not necessarily 
cheaper care, but assurances that resources are being invested wisely 
to buy higher-quality, more patient-responsive care that achieves 
better outcomes. We should aspire to a high-performance health system--
one that is high-quality, efficient, and accessible to all Americans.
    In the past, we have focused primarily on the demand side of the 
market. The key to containing costs, however--and to obtaining greater 
value for what we spend--may well lie in fundamental changes in the 
supply side of the market. In other industries, the path to lower costs 
lies in greater production efficiency, and financial rewards accrue to 
those firms that succeed in producing a high-quality product more 
efficiently. But in health care we rarely reward or insist on either 
greater efficiency or higher quality. In the future, we should shift 
our attention to reducing errors, eliminating waste and duplication in 
clinical care, modernizing and streamlining administration, promoting 
transparency and accountability for performance, and aligning financial 
incentives for physicians, hospitals, and other health care providers 
to reward high-quality and efficient care.
                 trends in national health expenditures
    Rising health insurance premiums have drawn the nation's attention 
to the problem of rising health care costs. After years of relatively 
modest increases in employer health insurance premiums, Medicare, and 
Medicaid, double-digits have returned to health care. States are 
feeling the fiscal squeeze from the economic slowdown and the sudden 
surge in Medicaid and public employee health benefit expenses. The 
California CalPERS public employees health benefits program, for 
example, recently experienced a 26 percent premium increase.\1\ In 
2003, premiums in the Federal Employee Health Benefits Program are up 
15 percent. \2\ Some employers are responding to sharp increases in 
premiums by shifting a portion of the costs to employees; others have 
stopped paying for health insurance altogether.\3\
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    \1\ CalPERS, Facts at a Glance: Health. California Public Employees 
Retirement System, May 2003.
    \2\ Mark Merlis, The Federal Employees Health Benefits Program: 
Program Design, Recent Performance, and Implications for Medicare 
Reform. Henry J. Kaiser Family Foundation, May 30, 2003.
    \3\ Edwards, et al. The Erosion of Employer-Based Health Coverage 
and the Threat to Worker's Health Care. The Commonwealth Fund, August 
2002; Kaiser Family Foundation and Health Research and Educational 
Trust, Employer Health Benefits 2002 Annual Survey. Kaiser Family 
Foundation, Menlo Park, CA and Health Research and Educational Trust, 
Chicago, IL 2002.
---------------------------------------------------------------------------
    Why does the health care system appear to be so costly and why do 
costs appear to be growing so fast? Like most things in life, the 
answer is not all that simple. Many factors affect spending and 
contribute to its growth--insurance underwriting cycles, the price of 
services, use of services, new technologies, the administrative costs 
of a fragmented system. Moreover, the relative importance of these 
factors changes over time.
    It is important, though, to distinguish between increases in health 
insurance premiums and the underlying increase in the cost of providing 
health care. Premiums are often affected by what is known as the 
``insurance underwriting cycle.'' Benefit payments and premiums do not 
always move at the same rates. If insurers underestimate what will 
happen to health care costs and price their premiums too low, it can 
take several years for insurers to catch up and recoup losses. In 
addition, in times of tight competitive markets, insurers try to retain 
or gain market share and keep premiums as low as possible, even taking 
losses in the short run. As insurance companies consolidate and 
competition weakens or reserves become too low, premiums are raised and 
grow faster than payments for benefits.
    That is what we have been seeing over the past few years. In 2001, 
insurance companies raised premiums 10.5 percent, which for the third 
straight year was faster than the growth in benefits.\4\ In 2002, large 
employers reported a rise in premiums of 12.5 percent.\5\ Insurance 
companies have been building reserves and recouping from their losses 
in the mid 1990s, when stiff competition among plans led to revenue 
shortfalls.\6\ However, they have probably caught up by now, profits 
have risen, and premiums may again grow more in line with benefit 
spending.\7\
---------------------------------------------------------------------------
    \4\ Stephen Heffler et al., ``Health Spending Projections for 2002-
2012,'' Health Affairs (Web Exclusive February 7, 2003.)
    \5\ Bradley C. Strunk et al., ``Tracking Health Care Costs: Growth 
Accelerates Again in 2001,'' Health Affairs (Web Exclusive September 
25, 2002.)
    \6\ Cara S. Lesser and Paul B. Ginsburg, Health Care Cost and 
Access Problems Intensify. Center for Studying Health System Change, 
Issue Brief, No. 63, May 2003.
    \7\ Heffler et al.
---------------------------------------------------------------------------
    The more important question is what is happening to expenditures 
for health care overall. In 2001, the nation spent more than $1.4 
trillion for health care, or 14.1 percent of the gross domestic product 
(GDP). This was a major jump from 13.3 percent of GDP in 2000, due to 
accelerating health care costs as well as relatively weak nominal GDP 
growth.\8\ By 2012, health spending is projected to more than double.
---------------------------------------------------------------------------
    \8\ Katharine Levit et al., ``Trends in U.S. Health Care Spending, 
2001,'' Health Affairs, (January/February 2003).
---------------------------------------------------------------------------
    Recent concern about rising health care costs, however, is partly a 
reflection of their departure from the relatively low growth we 
experienced in the mid- to late-1990s. From 1993 to 1999, spending rose 
an average of just 5.4 percent per year.\9\ The 8.7 percent growth in 
2001 is still well below average increases in each of the three decades 
before 1990, and there are some early signs that things are beginning 
to slow down again somewhat.\10\ Nevertheless, with health care 
representing a growing share of GDP, and with increasing numbers of 
uninsured Americans, we need to understand better what our money is 
buying.
---------------------------------------------------------------------------
    \9\ Levit et al.
    \10\ Heffler et al.
---------------------------------------------------------------------------
    One of the most significant contributors to recent spending growth 
is health care price inflation. At a time when overall inflation is 
growing at just 2 percent a year, hospital prices have risen 3.2 
percent and drug prices have gone up 4.5 percent.\11\ When personal 
health care spending is adjusted for price inflation, the overall 
picture changes dramatically. Real spending on health care increased by 
6.2 percent in 2001, closer to the high rates of 5.5 to 7.7 percent 
typical of the 1970s and 1980s. What is behind these trends? And how 
realistic are the projections that costs will moderate to about 4 
percent real growth by the turn of this decade?
---------------------------------------------------------------------------
    \11\ Levit et al.
---------------------------------------------------------------------------
    The first insight is gained by looking at trends in different 
health care services. Because of increasing prices, new drugs coming on 
the market, and more prescriptions being written, spending on 
prescription drugs is growing faster than all other services. Increased 
spending on prescription drugs accounted for about one-third of overall 
spending growth in 1999, and about one-fourth of spending growth in 
2002.\12\ Growth in prescription drugs spending, however, seems to have 
reached a peak of 15.7 percent in 2001, and every indication is that it 
is now slowing. Over the next five years, growth is projected to 
increase at 11.2 percent--still a major expense, but not the powerful 
cost-driver it was in the past few years.\13\
---------------------------------------------------------------------------
    \12\ Bradley Strunk and Paul Ginsburg, ``Tracking Health Care 
Costs: Trends Stabilize but Remain High in 2002.'' Health Affairs (Web 
Exclusive, June 11, 2003.)
    \13\ Heffler et al.
---------------------------------------------------------------------------
    Perhaps more ominous is that hospital spending, after being 
virtually flat in the 1994 to 1997 period, increased 8.7 percent in 
2001.\14\ Hospital care represents one-third of personal health care 
spending and contributed about half of the total increase in 2001 
spending. Most of that increase occurred in the outpatient 
department.\15\ Hospitals are labor-intensive institutions. In tight 
labor markets, hiring and retaining nurses and other skilled personnel 
in short supply puts upward pressure on wages. Once the economy 
recovers, upward pressure on wages could cause an even greater 
resurgence in hospital costs. Managed care may have succeeded in 
reducing hospital admissions and shortening lengths of hospital stays 
in the mid-1990s, but those were one-time savings. Without a new 
strategy for reducing use of this costly service, the aging population 
and new technological advances are likely to stimulate greater 
utilization.
---------------------------------------------------------------------------
    \14\ Strunk et al.
    \15\ Strunk et al.
---------------------------------------------------------------------------
                     utilization of health services
    After a number of years of stability, growth in the use of health 
services is on the rise again. We are seeing greater use of the 
outpatient department, more use of the emergency room, more physician 
visits, more specialized physician procedures, and more prescriptions 
written. Use of emergency rooms may be related to the rise in the 
numbers of uninsured.\16\
---------------------------------------------------------------------------
    \16\ Schur, C., P. Mohr, and L. Zhao, Emergency Department Use in 
Maryland: A Profile of Use, Visits, and Ambulance Diversion, Report to 
the Maryland Health Care Commission, Project HOPE: Bethesda, Md., 
February 2003.
---------------------------------------------------------------------------
    Use of hospital services experienced absolute declines from 1994 to 
1996, presumably as a result of managed care practices. By 2001, 
however, the quantity of hospital services increased 8.0 percent and is 
abating only somewhat to an annual rate of 6.8 percent in the first 
half of 2002.
    Some have suggested that the increasing volume of physician and 
hospital services is a response to the loosening of managed care.\17\ 
Certainly, the public responded negatively to managed care's 
constraints on use of specialists and to ``drive-through'' births, and 
managed care enrollment has shifted from more tightly managed health 
maintenance organizations to more loosely managed preferred provider 
organizations.\18\
---------------------------------------------------------------------------
    \17\ Cara Lesser and Paul B. Ginsburg. Health Care Cost and Access 
Problems Intense: Initial Findings from HSC's Recent Site Visits. 
Center for Studying Health System Change, May 2003.
    \18\ Kaiser Family Foundation and Health Research and Educational 
Trust, Employer Health Benefits 2002 Annual Survey. Kaiser Family 
Foundation, Menlo Park, CA and Health Research and Educational Trust, 
Chicago, IL 2002.
---------------------------------------------------------------------------
    The other possible explanation, however, is that physicians and 
other health care providers are reacting to the reduced prices for 
their services achieved by managed care, as well as by public programs 
such as Medicare and Medicaid, by increasing the volume of services 
provided.\19\ This so-called target-income hypothesis suggests that 
physicians respond to reduced fees by working longer hours, seeing more 
patients, having patients come back more frequently, and performing 
more billable procedures.
---------------------------------------------------------------------------
    \19\ SM Codespote et al., ``Estimated Volume and Intensity Response 
to a Price Change for Physician's Services.'' Office of the Actuary, 
Health Care Financing Administration, August 13, 1998.
---------------------------------------------------------------------------
    Average physician net income in 1999 for primary care physicians 
was $138,000, down 6.4 percent from 1995 after adjusting for 
inflation.\20\ Specialist physician incomes, on average, were $219,000 
in 1999, down 4 percent from 1995. By contrast, professional and 
technical workers in the economy as a whole experienced a 3.5 percent 
increase in income over this four-year period. It is reasonable to 
hypothesize that after taking such a hit as a result of contraction in 
fees, physicians began to respond in the 1999-2002 period by increasing 
the volume of services provided.
---------------------------------------------------------------------------
    \20\ Marie C. Reed and Paul B. Ginsburg, Behind the Times: 
Physician Income, 1995-99. Center for Studying Health System Change, 
Data Bulletin 24, March 2003.
---------------------------------------------------------------------------
    Some support for physicians' target-income behavior is suggested by 
recent data on changes in use of physician services by Medicare 
beneficiaries. These trends are not influenced by managed care, which 
has achieved only low penetration in this group of insured. Last year, 
the number of physician visits to Medicare beneficiaries rose 4.3 
percent, nearly twice as fast as in the previous year. Some lab tests 
grew 22 percent; brain MRIs grew 15 percent; heart echography grew 11 
percent; and disturbing to see, emergency room visits were up 6.5 
percent. Ambulatory surgical procedures also increased significantly 
from 1997 and 2001.
    Why the increase? It is hard to believe that Medicare beneficiaries 
suddenly demanded 15 percent more brain MRIs in 2001 than in 2000. More 
plausibly, Medicare payment rates are still sufficiently attractive to 
induce physicians who provide orthopedic, cardiac, opthamology, and X-
ray and laboratory procedures to work longer hours and see more 
patients--all with a view to offsetting the earlier period of fee 
contraction.
    We do not know if these are unnecessary services or if they are now 
filling an unmet need, or some of both. Physicians also may be 
providing more and newer technologies--technologies that may be 
improving life expectancy or quality of life. The fact is that we do 
not employ a scientific basis in this country for determining the 
clinical criteria for reimbursable services. The recent decision by the 
Centers for Medicare and Medicaid Services (CMS) to institute 
guidelines for coverage of implantable cardiac defibrillators is a 
beginning step, but it applies to a newly emerging technology, not to 
existing benefits.\21\
---------------------------------------------------------------------------
    \21\ Melody Petersen, ``U.S. to Back Heart Device in More Cases: 
Medicare Move is Less Than Industry Wanted,'' New York Times, June 7, 
2003, p. C1.
---------------------------------------------------------------------------
    Utilization in the health care system has often been driven by 
technological advances. New drugs, for example, make it possible to 
control high cholesterol and other chronic conditions. New advances in 
cardiac care reduce mortality and yield health and economic gains for 
society.\22\ Clearly, there are many people who would benefit from 
better access to life-saving drugs, screening tests, and surgical 
procedures. An informed response to the renewed surge in health care 
utilization will require far more sophisticated analysis than has yet 
been undertaken.
---------------------------------------------------------------------------
    \22\ David M. Cutler and Mark McClellan, ``Is Technological Change 
in Medicine Worth It?'' Health Affairs (September/October 2001): 11-29.
---------------------------------------------------------------------------
    Use of prescription drugs has also been on the increase. From 1997 
to 2000, nearly one-third of the increase in per-person prescription 
drug spending came from an increase in the number of prescriptions. 
More people are taking cholesterol lowering drugs, an aging population 
is taking more drugs to combat chronic illness, and more people may be 
taking drugs that are not indicated, or are even contraindicated, given 
their array of health problems.\23\
---------------------------------------------------------------------------
    \23\ Chunliu Zhan, et al., ``Potentially Inappropriate Medication 
Use in the Community-Dwelling Elderly: Findings From the 1996 Medical 
Expenditure Panel Survey'' Journal of the American Medical Association, 
2001, 286: 2823-2829.
---------------------------------------------------------------------------
                          administrative costs
    Finally, more attention needs to be given to the rapid increase in 
administrative costs, up 11.2 percent in 2001. The fragmentation of the 
U.S. health insurance system--with people moving in and out of coverage 
and in and out of plans, and changing their usual source of care 
frequently--all contribute to high administrative costs for insurers 
and for health care providers.\24\ In 2002, the U.S. health system 
spent $112 billion on administrative expenses, and expenses are 
expected to hit $223 billion in 2012.
---------------------------------------------------------------------------
    \24\ Karen Davis, ``Time For Change: The Hidden Costs of a 
Fragmented Health Insurance System.'' Invited Testimony, Senate Special 
Committee on Aging, March 10, 2003.
---------------------------------------------------------------------------
    Private insurance is the dominant mode of health coverage for the 
working-age population, while public programs cover elderly and 
disabled individuals as well as certain low-income populations, 
especially children and pregnant women. Administrative costs for 
private insurance include marketing, sales commissions, profits and 
reserves, as well as the cost of enrolling individuals and paying 
claims. Government programs, by contrast, do not incur marketing and 
sales expenses and do not require premiums high enough to generate 
profits and reserves. Medicare enrollment is stable, typically 
beginning at age 65 and ending at death. Not surprisingly, government 
programs have much lower administrative costs than private insurance. 
On average, administrative expenses for private insurers are 11.9 
percent of their health care expenditures. The costs of administering 
government programs (including not only Medicare and Medicaid but 
Veterans Administration, Department of Defense, Indian Health Service, 
and other direct health services delivery programs) average 4.6 percent 
of health expenditures--less than half that of private insurance.
               public vs. private sector spending growth
    Most health care in the United States is provided in the private 
sector; only the Defense Department, Veterans Administration, Indian 
Health Service, and state and local governments provide care directly 
in public facilities. However, the government is a major purchaser of 
care, paying about 45 percent of the national health bill. Medicare (18 
percent) and Medicaid (16 percent) alone purchase more than one-third 
of all care and therefore constitute a major influence on the use of 
services, the quality of care provided, and costs of care. Private 
health insurers purchase more than another third of care (36 percent) 
and consumers most of the rest, either directly out-of-pocket (15 
percent) or through philanthropic giving. Consumer out-of-pocket 
spending is actually an even larger share than reported, because the 
numbers do not reflect the premiums consumers pay for Medicare and 
private insurance. It reflects only their deductibles, coinsurance, 
copays, and payments for services not covered by insurance.\25\
---------------------------------------------------------------------------
    \25\ Levit et al.
---------------------------------------------------------------------------
    The public sector has been growing faster than the private sector 
in the last few years (9.4 percent vs. 8.2 percent in 2001), but these 
numbers reflect changes in enrollments as well as use, prices, 
administrative costs, and other factors. For example, Medicaid rolls 
grew 8.5 percent in 2001 as a result of the new SCHIP program covering 
low-income children, Medicaid expansions to some of their parents, and 
a weakening economy that brought more low-income persons onto the 
rolls. Without this increase in Medicaid enrollment, the numbers of 
uninsured would have been even greater than what they were. But it 
meant also that Medicaid spending overall went up 10.8 percent, placing 
a squeeze on both federal and state budgets.
    Private health insurance experienced a similar growth in 2001 (10.5 
percent), but enrollment declined sharply rather than increased. 
Private insurance expenditures rose because of increased use of 
services and higher provider payments, insurance profits, and 
administrative costs. Responding to the weakening economy and double-
digit premium increases, employers cut back the share of premiums they 
paid or dropped coverage altogether. Many employees found they could 
not pay their increased share. Because they lacked insurance, some 
consumers may have forgone care.
    Despite the higher administrative expenses of private insurance and 
the higher payment rates to providers, the belief that private 
insurance is more ``efficient'' is strongly entrenched. However, a 
recent study comparing the growth in per-enrollee payments for 
comparable services in Medicare and private insurance found that 
Medicare outperformed private insurance over the long term.\26\ 
Following the implementation of the hospital prospective payment system 
in 1984, Medicare per enrollee spending has moved slower than employer-
based insurance. The physician fee schedule, implemented in 1992, also 
contributed to lower spending. In 2002, Medicare fees were about 77 to 
79 percent of private rates; physician program participation, however, 
reached about 90 percent of physicians in the same year.\27\ The 
implementation of the newer prospective payment systems for nursing 
homes, home health care, and the hospital outpatient department are 
expected to continue to have a dampening effect on spending. A newly 
released study projects that in 2003, Medicare per-enrollee costs will 
have risen at about one-third the rate of employer premiums and less 
than one-third that of the Federal Employee Health Benefit Program 
(FEHBP). Administrative costs in FEHBP are estimated at nearly three to 
six times those in Medicare.\28\
---------------------------------------------------------------------------
    \26\ Christina Boccuti and Marilyn Moon, ``Comparing Medicare and 
Private Insurers: Growth Rates in Spending Over Three Decades,'' Health 
Affairs (March/April 2003): 230-237.
    \27\ Medicare Payment Advisory Commission, Report to the Congress: 
Medicare Payment Policy. March 2003.
    \28\ Mark Merlis, The Federal Employees Health Benefits Program: 
Program Design, Recent Performance, and Implications for Medicare 
Reform. Henry J. Kaiser Family Foundation, May 30, 2003.
---------------------------------------------------------------------------
                       international comparisons
    The United States has by far the most costly health care system in 
the world, both per person and as a percent of our nation's total 
economic resources. In 2000, we spent $4,631 per person on health care, 
69 percent more than in Germany, 83 percent more than in Canada, and 
134 percent more than in the average of all members of the Organization 
of Economic Cooperation and Development (OECD).\29\ Higher U.S. costs 
cannot be attributed to aging; in fact, the U.S. population is 
``younger'' than the populations of most European countries.
---------------------------------------------------------------------------
    \29\ Gerard Anderson et al., ``It's the Prices, Stupid: Why the 
United States is So Different from Other Countries,'' Health Affairs 
(May/June 2003): 89-105.
---------------------------------------------------------------------------
    Nor is the situation improving. Despite a decade of experimenting 
with managed care in the U.S., health spending rose faster than in 
other countries. Between 1990 and 2000, U.S. health spending, adjusted 
for inflation, increased by 3.2 percent a year, compared with the OECD 
average of 3.1 percent. By contrast, real spending per capita increased 
by 1.8 percent in Canada and by 2.1 percent in Germany. Moreover, most 
countries with above-average rates of increase in the 1990s were those 
that had particularly low spending on health care, such as the U.K. and 
Japan.
    The United States is alone among major industrialized nations in 
other respects. Over half of health care spending is paid for 
privately, compared with about one-fourth or less in other countries. 
Ironically, because the United States is so expensive, the government--
while it accounts for only 45 percent of all health care spending--
spends as much as a percent of GDP on health care as do other countries 
with publicly financed health systems. For example, U.S. public 
spending as a percent of GDP is 5.8 percent, compared with 5.9 percent 
in the U.K. and 6.5 percent in Canada.\30\
---------------------------------------------------------------------------
    \30\ Anderson et al.
---------------------------------------------------------------------------
    The United States is also alone among major industrialized nations 
in failing to provide universal health coverage. But even when people 
are insured by private insurance or Medicare, that coverage is less 
comprehensive than the coverage typically afforded in other countries. 
As a result, Americans pay more out-of-pocket for health care than do 
people in other countries--an average of $707 per person in 2000 versus 
$405 in Canada, $335 in all industrialized countries, and $171 in the 
U.K. Yet, some advocate increasing cost-sharing for patients as a way 
to give patients greater incentives to control utilization of health 
care services. Clearly, other countries have found effective mechanisms 
for keeping health care costs to a much lower share of their economic 
resources without putting financial barriers in the way of patients 
seeking care.
    Our typical assumption is that such countries are rationing 
effective care, have long waiting lists, and poorer health outcomes. It 
is true that patients in the United States wait shorter times for 
surgery than any other country. But our waits for a doctor's 
appointment when sick are actually longer than in other countries, and 
more Americans rely on emergency rooms for care.\31\
---------------------------------------------------------------------------
    \31\ Cathy Schoen et al., Comparison of Health Care System Views 
and Experiences in Five Nations, 2001. The Commonwealth Fund, May 2002.
---------------------------------------------------------------------------
    What is not well appreciated is that Americans receive less 
hospital care, on average, than people in other countries and see the 
doctor about as frequently. The annual number of physician visits per 
capita in the United States is 5.8 visits, about the same as the OECD 
nations' average of 5.9 visits and less than the 6.4 average number of 
visits in Canada. Fewer Americans are admitted to the hospital in a 
given year; when they are admitted, they stay a shorter time than 
patients in other countries. Consequently, the number of acute care 
hospital days per capita in the United States is 0.7, compared with the 
OECD's 1.0-day average, and less than the 0.9-day average in the U.K.--
a country where long waiting times for hospital care and surgery are a 
major issue.
    So if we get the same or less care than people in other countries, 
why do we spend more? It has led some analysts to conclude, ``It's the 
price, stupid.'' We do pay our physicians more than other countries. 
Fees for physician procedures are more than three times as high as in 
Canada.\32\ We pay more for the same drug than other countries--
sometimes twice as much for the same drug--even when it is produced by 
an American company. The United States spends $556 per person on 
pharmaceuticals, compared with $385 in Canada and $262 in other 
industrialized countries.\33\
---------------------------------------------------------------------------
    \32\ Victor R. Fuchs and J.S. Hahn, ``How Does Canada Do It?'' New 
England Journal of Medicine, September 27, 1990: 884-890.
    \33\ Gerard Anderson et al., Multinational Comparisons of Health 
Systems Data, 2002. The Commonwealth Fund, October 2002.
---------------------------------------------------------------------------
    We also have higher administrative costs than other countries. 
Canada averages about 1 percent of health care spending on 
administrative costs.\34\ We manage to devote 6 percent overall on 
administrative costs.\35\ And that does not count the administrative 
personnel who work in hospitals or doctors' offices--a much higher 
number in the U.S.'s fragmented and complex public-private insurance 
system than in the simpler, unified payment systems of other 
nations.\36\
---------------------------------------------------------------------------
    \34\ Committee on Ways and Means, U.S. House of Representatives. 
Health Care Resource Book. U.S. Government Printing Office, Washington: 
1993.
    \35\ Levit, et al.
    \36\ Steffie Woolhandler and David Himmelstein, ``The Deteriorating 
Administrative Efficiency of the U.S. Health Care System.'' New England 
Journal of Medicine, May 2, 1991: 1253-1258.
---------------------------------------------------------------------------
    But the story is more complicated than just higher prices and 
higher administrative costs, both of which are powerful explanations of 
our higher costs. While we have about the same number of physicians per 
capita as other countries, and fewer visits, a much higher fraction of 
our doctors are specialists. Not surprisingly, therefore, we greatly 
exceed other countries in the numbers of specialized procedures 
performed. For example, United States doctors perform 4.8 times as many 
coronary angioplasties per capita as Canadian doctors, and the United 
States has three times as many MRI units per capita as Canada.\37\
---------------------------------------------------------------------------
    \37\ Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi 
Petrosyan. ``It's The Prices, Stupid: Why The United States Is So 
Different From Other Countries.'' Health Affairs (May/June, 2003):89-
105.
---------------------------------------------------------------------------
    Of course, variations across countries in use of procedures does 
not tell us whether we do too many procedures or they do too few. The 
United States has about the same mortality from heart attacks as the 
average OECD country. But many factors enter into such mortality 
(France and Japan have rates considerably lower than other countries). 
On most measures of mortality, the United States performs more poorly 
than other countries, ranking 37th overall according to the World 
Health Organization ranking of health system performance.\38\
---------------------------------------------------------------------------
    \38\ World Health Organization, World Health Report, 2000. Health 
Systems, Improving Performance. World Health Organization, Geneva 2000.
---------------------------------------------------------------------------
    The question remains whether we get value for the highly 
specialized, intensive style of care practiced in the United States. 
The Commonwealth Fund 2002 International Health Policy Survey of Sicker 
Adults does suggest that we pay a price for our uniquely American 
approach to health care. Americans are more likely to be seeing 
multiple physicians and taking multiple medications. More things can 
and do go wrong when care is provided by multiple parties. Of the five 
nations surveyed (United States, U.K., Canada, Australia, and New 
Zealand), the United States had the highest serious medical error rate. 
Survey respondents in the United States were also more likely to report 
having tests duplicated and not having their medical records available 
when they went for care.\39\
---------------------------------------------------------------------------
    \39\ Robert Blendon et al., ``Common Concerns Amid Diverse Systems: 
Health Care Experiences In Five Countries'' Health Affairs (May/June 
2003): 106-121.
---------------------------------------------------------------------------
    Despite our costly health care system, other countries have moved 
more rapidly to adopt electronic medical records and electronic 
prescribing. The Commonwealth Fund 2000 International Health Policy 
Survey of Physicians found that 59 percent of primary care physicians 
in the U.K. have electronic prescribing, as do 52 percent in New 
Zealand, compared with 17 percent in the United States.\40\
---------------------------------------------------------------------------
    \40\ The Commonwealth Fund 2000 International Health Policy Survey 
of Physicians. http://www.cmwf.org/programs/international/
2000_intl_chartpack.pdf.
---------------------------------------------------------------------------
                               conclusion
    If we have the world's costliest health system yet still fail to 
provide everyone with access to care--and fall far short of providing 
the safe, high-quality care that it is possible to provide--the 
conclusion that there is room for improvement is inescapable.\41\ Only 
by facing this fact squarely and putting into action the best ideas and 
experiences across the United States and around the world can we 
achieve a vision of American health care that includes: automatic and 
affordable health insurance for all, accessible care, patient-
responsive care, information- and science-based care, and commitment to 
quality improvement.\42\
---------------------------------------------------------------------------
    \41\ Karen Davis, et al., Room for Improvement: Patients Report on 
the Quality of Their Health Care. The Commonwealth Fund, April 2002, 
and Karen Davis, et al. Mirror, Mirror on the Wall: The Quality of 
American Health Care. The Commonwealth Fund, forthcoming.
    \42\ K. Davis, C. Schoen, and S. Schoenbaum, ``A 2020 Vision for 
American Health Care.'' Archives of Internal Medicine, Vol. 160, No. 
22: 3357-62.
---------------------------------------------------------------------------
    Fortunately, there are examples of high performance in health care 
in both the private and public sectors. The Council on Accountable 
Physician Practices in the United States, which includes more than 
17,000 physicians in 14 large group practices, has demonstrated that it 
can provide superior quality care, as measured by widely used HEDIS 
quality indicators, more efficiently than in other settings.\43\ The 
Veterans Administration has markedly improved its performance in the 
last decade on both quality and efficiency.\44\ The United States 
Bureau of Primary Health Care has improved effective management of 
diabetic patients in community health centers that participate in 
learning collaboratives to improve quality of care.\45\
---------------------------------------------------------------------------
    \43\ Council of Accountable Physician Practices, Why Accountable 
Physician Practices Are Essential to the Future of American Medicine. 
January 2003.
    \44\ Kizer KW, Demakis JG, Feussner JR, ``Reinventing VA Health 
Care: Systematizing Quality Improvement and Quality Innovation.'' 
Medical Care, June 2000: pI7-16.
    \45\ D. Stevens, Changing Practice, Changing Lives: Large Scale 
Improvement in Health Centers Across the Nation. Presentation at 
Institute for Healthcare Improvement National Forum, December, 2002.
---------------------------------------------------------------------------
    But these success stories are far too isolated. If we are to 
achieve a truly high performance health system, bold action is 
required. The following steps would start us on this course:
  --Public reporting of cost and quality data on physicians, hospitals, 
        nursing homes, other health care providers, and health plans.--
        CMS has been a leader in posting nursing home quality data on 
        its website, but this is just a modest beginning. If we are 
        serious about doing better, we need to know where we stand.
  --Broad-scale demonstrations of: a new approach to health insurance 
        coverage, science-based benefits; use of modern information 
        technology, and high-quality care.--I served on the Institute 
        of Medicine committee which issued a report last fall calling 
        for statewide demonstrations of health insurance coverage for 
        all, model chronic care and primary care initiatives, 
        information technology, and medical malpractice.\46\ The $50 
        billion in the budget resolution for improving health insurance 
        coverage would go a long way toward putting these 
        recommendations into action in five or more states.
---------------------------------------------------------------------------
    \46\ Institute of Medicine, Fostering Rapid Advances in Health 
Care. The National Academies Press, November 2002.
---------------------------------------------------------------------------
  --Investment in health information technology.--Other countries are 
        quickly surpassing the United States in the adoption of 
        electronic medical records and electronic prescribing. They are 
        doing so because the government has been willing to invest in 
        the infrastructure and establish the standards required to make 
        this potential a reality.
  --Development and promulgation of clinical guidelines and quality 
        standards.--It is long past time to simply pay for services 
        rendered without establishing a scientific-basis for 
        effectiveness--not just for new drugs but for consultations, 
        procedures, and tests. This could be accomplished through an 
        expanded mandate for the CMS Medicare Coverage Advisory 
        Committee or establishment of a new National Institute on 
        Clinical Excellence and Effectiveness.
  --Paying for performance.--Medicare and private insurers tend not to 
        vary payment rates with quality. They pay for defects, whether 
        those defects are surgeries that need to be repeated; 
        infections that arise from failing to use state-of-the-art 
        technology, such as catheters impregnated with antibiotics for 
        heart valve patients; or medication errors. CMS has embarked on 
        some modest initiatives to begin testing paying-for-performance 
        rewards. Medicare can and should be a leader in promoting 
        quality. These efforts need to be substantially expanded and 
        best practices documented and disseminated. Medicare's 
        leadership can be instrumental in moving private payers as 
        well; to date, very few private insurers have instituted 
        ``value-based purchasing'' strategies.\47\
---------------------------------------------------------------------------
    \47\ Vittorio Maio, Neil Goldfarb, Chureen Carter, and David Nash, 
Value-Based Purchasing: A Review of the Literature. The Commonwealth 
Fund, May 2003 and Neil Goldfarb, Vittorio Mario, Chureen Carter, Laura 
Pizzi and David Nash, How Does Quality Enter Into Health Care 
Purchasing Decisions? The Commonwealth Fund, May 2003.
---------------------------------------------------------------------------
  --Investment in research.--We urgently need to gather evidence on 
        what works to improve care, eliminate waste and ineffective 
        care, and promote greater efficiency, including use of modern 
        information technology, team work, and improved care processes. 
        Any industry that fails to invest in research to improve 
        quality and efficiency is going to be a backward industry. The 
        federal government pays $455 billion for health care in the 
        United States but devotes only $300 million--.04 percent--to 
        the budget of the Agency for Healthcare Research and Quality 
        for learning effective ways to improve the performance of the 
        United States health system. The quality report on United 
        States health care due to be issued this fall is an important 
        starting point. But it needs to be followed with an investment 
        in research up to the task for ensuring that the United States 
        is a high-performing health system worthy of the 21st century.
    Thank you very much for the opportunity to join this panel. I look 
forward to learning from my fellow panelists and answering any 
questions.

    Senator Harkin. Well, Dr. Davis, thank you. That was really 
a great opening, I think, for what we are talking about here 
today. You have really set the stage for that.
STATEMENT OF JOHN MENTEL, M.D., CHAIR, DEPARTMENT OF 
            APPLIED INFORMATICS, MAYO CLINIC
    Senator Harkin. Next, we turn to--well, let us see--I will 
go to Dr. Mentel; this is not the way I have it lined up here--
Dr. John Mentel.
    Dr. Mentel is the Chair of the Department of Applied 
Informatics and assistant professor at the Mayo School of 
Medicine at the Mayo Clinic, in Jacksonville, Florida. Dr. 
Mentel received both his undergraduate and M.D. degrees from 
the University of Missouri, in Kansas City. Dr. Mentel was 
instrumental in facilitating the implementation of a paperless 
system at the Jacksonville Mayo Clinic. I understand Dr. Mentel 
wants to talk about information technology and how systems 
improvement can reduce healthcare costs.
    Dr. Mentel, welcome.
    Dr. Mentel. Thank you.
    Good morning, Senator Harking, members of the subcommittee. 
It is an honor to be with you today.
    I am John Mentel, Chair of the Department of Applied 
Informatics at Mayo Clinic, and I am also a practicing 
internist--doing it 50/50, each one--in our facilities in 
Jacksonville, Florida. I have been invited to participate in 
this discussion on access and affordability in healthcare to 
address the subject of electronic medical records, and, to be 
honest with you, in a little more general terms, automating 
healthcare.
    First, let me start with some demographic information about 
our facilities, so you can get some understanding of where I 
come from. Now, we have got 300 physicians. They are delivering 
primarily through quaternary care, so it is all levels. They 
are providing both inpatient and outpatient environment 
services, and it is complemented by activities in education and 
in research. We have been paperless in the outpatient 
environment since 1998, so for the last 5 years. We are 
chartless. We do not move paper. And we are achieving this in 
the hospital probably in another year.
    To begin with, I am going to break this discussion down 
into three topic areas: one, cost and savings; the second, 
improvements in quality and efficiency; and the third are the 
challenges to medical automation.
    First, cost and savings. We, evaluated--or internally, 
rather, evaluated the cost benefit of our outpatient, chartless 
environment. For a total investment of $16 million over the 
first 5 years of operation, we realized savings--on average, 
depending upon how you wanted to account for it--$3 to $7 
million. I can give you $3 million, of exactly hard 
reproducible; I can give you $7 million, if you try to look at 
every nickel and dime that you probably save.
    This is annual savings. And those savings go on beyond that 
initial investment. This includes all software, all hardware, 
all IT expenses. And interestingly enough, the model was later 
reproduced at our facility in Scottsdale and was relative 
reproduced, even though a different medical records vendor was 
used at that facility.
    In the radiology field, we are also filmless. We do not 
produce X-ray film; it is all digital. And we spent $5.8 
million to get there, between 1995 and 1999; and calculated 
savings were about $8 million on that $6 million expense.
    Senator Harkin. Per year? No.
    Dr. Mentel. Over that 4-year--over that 5-year period of 
time.
    Improvements in quality and efficiency--I could go back to 
our filmless environment there--it took us about 45 minutes--
this is pretty darn efficient--from the point that the patient 
arrived for a chest X-ray to the point that the ordering 
physician had the film and the report back. At our facility, it 
was 45 minutes. We have moved that to 5 minutes because of 
automating the process. CT and MR scans have gone from 2 hours 
down to 10 minutes for this same thing. The images are back to 
the ordering physician, and the report is there, in a 10-minute 
period of time.
    An even more dramatic example is an infectious-disease 
application we have just recently entered a pilot on--
constantly monitors for significant infectious events within 
the hospital environment, and then it automatically alerts the 
physician and/or the infection-control team of the event. And 
in some circumstances, it will even propose what the correct 
solution will be.
    We have extended the healthcare model to the home also, 
trying to improve quality and reduce costs. The diabetes 
program we are working with, for example, allows the patient, 
over the Internet, to customize their education program. They 
do not have to come in and sit with a group and learn about 
their diabetes. They can do it online, and it is customized to 
their own specific illness and needs. Then they can 
communicate, through this application, securely with their 
providers. They can conjointly set and manage their treatment.
    We are moving on to the next phase of this, which is 
automating, through the computer, the treatment 
recommendations. So you could, say, put your sugars in; it will 
tell you what next to do with your dosing, thereby reducing the 
need for the diabetic management team's involvement, which will 
reduce cost further, which increases quality, because we are 
going to take practice variation out once we automate that 
process. And it allows the same team, obviously, to care for 
many more diabetic folks.
    The challenges are legion, as well. The first is capital. 
Institutions have to make sizeable investments. And the return 
on investment does not start day one. So in these times of 
crises and hospital closures, finding capital is very 
difficult.
    Dollars are needed not only for the software and hardware, 
but also you have got to budget for the upgrades, for the 
maintenance. And I will tell you, a bigger part that we learned 
in going through this was it also requires a large investment 
in data center infrastructure. Once you fully depend upon that 
automation to be there 24 by 7, when Mary hits the ER, Tom is 
in the operating suite, you need that record available. So the 
redundancy, the fail-safe nature of that network, it also has 
an attendant expense.
    Then there is the subject of change management. How much 
can your staff accept change? How quickly can they adapt to the 
change? And do not be fooled; healthcare automation is still in 
its infancy, so these products are far from maximally efficient 
or user friendly.
    In conclusion, after going through those challenges, one 
might ask, ``Why change?'' We really thought that we had no 
choice. The savings are measurable. The savings are 
reproducible. And in these times of an aging population with 
declining resources, we really felt we had to automate to 
reduce our cost base.
    Complement that fact with a dramatic increase in the 
complexity of healthcare that medical sciences, such as 
genomics, are bringing forward, and automation just seems 
mandatory just to keep up. Add to that the desire for higher 
quality measures, increasing requirements from licensing and 
review organizations for these quality and outcome measures, 
and we could see no alternative but to automate to try to 
capture that data.

                           prepared statement

    Finally, as Dr. William Mayo stated so many years ago, the 
needs of the patient come first. Medical practice automation 
needs to be pursued because it provides higher quality 
healthcare, which, at the end of the day, is why we all do what 
we do.
    Thank you, Mr. Chairman.
    [The statement follows:]
                 Prepared Statement of Dr. John Mentel
    Good morning Mr. Chairman, Senator Harkin and members of the 
subcommittee. It is an honor to be with you today. I am John Mentel, 
M.D., Chair of the Department of Applied Informatics at Mayo Clinic and 
a practicing internal medicine physician based at our facilities in 
Jacksonville, Florida. I've been invited to participate in this 
discussion on Access and Affordability in Healthcare to address the 
subject of electronic medical records and in more general terms, 
automating healthcare.
    First let me start with some demographic information about our Mayo 
Clinic facility to give you some background concerning our challenges 
and accomplishments in this field. In Jacksonville we have around 300 
Physicians delivering primary to quaternary care in both an inpatient 
and outpatient environment complemented by activities in research and 
education. We see approximately 400,000 patient visits annually, almost 
50 percent of which are primary care visits and have approximately 
12,000 hospital admissions per year. We have been paperless in our 
outpatient clinics since 1998 and are well along the way of achieving 
this in the hospital as well. In the outpatient clinic, we do not have 
paper-based patient records. There are approximately 100 million 
results with approximately 9 million documents online at this time. 
Around 45,000 patient e-charts are viewed online daily.
    To begin, let's break this discussion into three topics:
    1. Costs and savings associated with automation,
    2. Improvements in quality and efficiency through medical 
automation, and
    3. Challenges to medical automation.
    As you may have noticed, I'm referring more to medical practice 
automation than to electronic medical records. This is a fundamental 
point to be made because to be successful we need to automate all 
healthcare processes in an integrated fashion. For without this vision, 
all we will succeed in doing is layering another complex system onto an 
already extremely complex field.
            1. costs and savings associated with automation
    We have internally evaluated the cost-benefit of our outpatient 
chartless environment and have broken it down into two categories. The 
first category is measured savings which consists of employee savings 
as well as paper printing and storage savings. The second category is 
measured plus estimated savings which includes these same elements plus 
income from improved coding, savings from less lost charges, and 
improved productivity. Using a rate of inflation of around 4 percent, 
we calculate the measured category's internal rate of return (IRR) to 
be 20 percent and the measured plus estimated category's internal rate 
of return (IRR) at 30 percent. To restate another way, for a total 
initial investment of $16 million over the first 5 years of operation, 
we realized additional savings of between $3 to $7 million annually 
thereafter. This includes all software, hardware, and information 
technology personnel costs. This model has been later reproduced at our 
sister facility in Scottsdale using a different commercial electronic 
medical records vendor and similar results have been found.
    Let's move on to the radiology field where we are filmless as well, 
fully utilizing digital imaging techniques. From 1995 to 1999 the 
calculated expenses were $5.8 million to achieve this goal while the 
attendant calculated savings were $8 million.
    We can even move down at the application level, where we have 
recently operationalized an infectious disease program. It cost 
$500,000 to install and is projected to save $2 to $4 million annually 
through many benefits including increasing the use of appropriate 
antibiotics while decreasing complications.
    In these days of constrained reimbursement and rapidly escalating 
costs we require a positive return on investment from our products and 
we consistently meet this goal.
   2. improvements in quality and efficiency with medical automation
    Cost savings needs be coupled with quality benefits to better evoke 
change. Healthcare automation brings about the obvious benefits of 
shared common data, drug-drug interaction checking, and automated 
monitoring of health maintenance items such as screening mammography 
dates and immunization schedules. It also makes possible the ability to 
operationalize the use of evidence based guidelines into daily practice 
in concert with the ability to measure the results in real time. Beyond 
this though, it makes possible advances in quality simply not 
achievable in the past such as rapid turnaround times, the inclusion of 
knowledge into the care delivery process, and the expansion of the care 
delivery model into the home and under the control of the patient-where 
it belongs.
    Examples here include our filmless radiology environment; there we 
have taken turnaround times from x-ray acquisition to report delivery 
for chest x-ray from 45 minutes to around 5 minutes and CT or MR exams 
from around 120 minutes to 10 minutes.
    An even more dramatic example is an infectious disease application 
just piloted. It constantly monitors for significant infectious events 
and then alerts either the admitting physician or the infection control 
team of the event, and in some circumstances, the best action to take 
to resolve the event.
    Finally, automation of the healthcare model allows the full 
extension of delivery to the home, thereby further reducing costs and 
increasing quality. A diabetes program we're working with allows a 
patient over the internet to customize a diabetes education program to 
their specific needs, communicate securely with their providers, and 
conjointly set and manage treatment goals online. The next phase of 
this project is automating the computer's treatment recommendations 
thereby reducing the need for the diabetic management team's 
involvement which reduces costs further, increases quality while 
removing practice variation, and allows this same team to care for a 
much greater number of diabetic patients increasing efficiency.
    Efficiency improvements abound in an automated environment. The 
instant availability of the medical record is a priceless asset to the 
care providers. Complimenting this with a unitary inpatient and 
outpatient record increases the value exponentially. This becomes not 
only an efficient tool for care delivery but an equally facile tool for 
research activities.
                      3. challenges to automation
    The first challenge is capital. Institutions have to make sizable 
investments to hope to realize any of the automation benefits. Return 
on investment when starting is far from immediate and in these times of 
hospital closures and malpractice crises, finding capital can be almost 
impossible. Dollars are needed not only for software and hardware, but 
also budgets are needed for upgrades and maintenance. The automation 
the clinical practice requires large investments in datacenter 
infrastructure also. When you automate, not only your business, but 
immeasurably of greater importance, the lives of your patients depend 
upon that automation being available 24 by 7. This pervasive 
requirement has its own significant cost attached.
    Another challenge is the dramatic complexity of healthcare. No two 
patients are alike and automating the care process around individual 
variation adds even more layers of difficulty to an already complex 
system. Add to this fact the sheer number of electronic medical record 
vendors and the relative paucity of data standards and complexity 
becomes an even more capable opponent.
    Then there are the challenges of legacy system integration. Almost 
all healthcare enterprises currently have multiple isolated electronic 
systems used for such processes as billing or for the lab that must be 
integrated into the new automated environment. This means building and 
maintaining complex interfaces between systems or completely starting 
over with a new integrated solution. Since the enterprise cannot risk 
the loss of current and historical data, converting systems typically 
involves complex historical data migration to the new environment. At 
our facility this alone was originally predicted to takeover one year 
running 24 by 7.
    Then there is the subject of change management. How much can your 
staff accept change and how quickly can they adapt to the change? These 
are extremely busy people responsible daily for individual's lives. 
Healthcare itself undergoes dramatic change daily that providers must 
assimilate and automation introduces further exponential change to this 
environment. And finally, don't be fooled, healthcare automation 
instill in its infancy and these products are far from maximally 
efficient or user friendly.
                               conclusion
    Then why change--because we have no choice.
    The savings are measurable, reproducible, and in these times of an 
aging population with declining resources medicine must automate. 
Complement this fact with the dramatic increase in complexity of 
healthcare that medical sciences such as genomics are introducing, 
automation will be mandatory just to keep up. Add to this yet the 
desire for higher quality measures and the increasing requirements from 
licensing and review organizations for these quality measures and we 
can see no alternative but to automate. Finally, as Dr. William Mayo 
stated so many years ago, the needs of the patient come first. Medical 
practice automation needs to be pursued because it provides 
significantly higher quality healthcare which, at the end of the day, 
is why we are here.

    Senator Harkin. Dr. Mentel, thank you. When we get back to 
you, I want to find out how you convinced them to put the 
capital in on this.
    Dr. Mentel. Stiff-arm techniques.
    Senator Harkin. Hmm?
    Dr. Mentel. Strong-arm techniques.
    Senator Harkin. That is pretty awesome.
STATEMENT OF DAVE HICKMAN, DIRECTOR, CLINICAL 
            INTEGRATION, MERCY MEDICAL CENTER
    Senator Harkin. Next, we go to David Hickman. Mr. Hickman 
is the director of Clinical Integration for Mercy Health 
Network in my State of Iowa. Mr. Hickman holds his B.S. degree 
for Iowa State University and a master's of public health from 
the University of Iowa. Mr. Hickman will discuss the Mercy 
Disease Management Program and how this program saved money and 
improved health outcomes for patients and how this might be 
used for Medicare and Medicaid for cost savings.
    Mr. Hickman, welcome.
    Mr. Hickman. Great, thank you.
    Senator Harkin and members of the subcommittee, my name is 
Dave Hickman, and I am serving as director of Clinical 
Integration for Mercy Health Network, based in Des Moines, 
Iowa. Mercy Health Network is a joint operating agreement 
between Catholic Health Initiatives, in Denver, Colorado, and 
Trinity Health, Novi, Michigan. I am a registered nurse and a 
fellow of the American College of Healthcare Executives.
    I want to thank you for the opportunity to tell you about a 
telemanagement program Mercy Health Network is using that is 
lowering the cost of care and increasing the quality of life 
for people with congestive heart failure. Nearly 5 million 
Americans have congestive heart failure today. CHF 
hospitalizations cost Medicare $5 billion annually. Within a 
month of discharge from the hospital, 20 percent of CHF 
patients will be readmitted to the hospital for CHF. And within 
6 months of discharge, 50 percent will be readmitted to the 
hospital.
    Half of all these re-admissions to the hospital are caused 
by patients not following the diet and medication treatment 
plan prescribed by their physician. Another 20 percent of re-
admissions are caused by patients not seeking care when 
symptoms are beginning to get worse. Clearly, costs can be 
avoided if patients can learn to be compliant with treatments 
prescribed by their physicians, and learn to recognize early 
warning signs of a worsening condition.
    Our CHF telemanagement program, which uses the Tel-
Assurance system, from Pharos Innovations, is relatively 
straightforward. Patients are enrolled in the program by their 
physician, who predetermines an acceptable body weight for the 
patient, and the case manager enters that into the computer. 
Every morning, patients use their touchtone phone to call a 
toll-free number to our telemanagement computer, and, in this 
phone call, to an automated attendant, the patient answers the 
same survey of seven questions every day. The first six 
questions ask patients about their symptoms. For example, 
``Have you felt more short of breath in the last day?'' And the 
seventh question asks the patient to enter their morning weight 
on the telephone keypad. The computer software then compares 
the patient's morning report to the preset parameters set by 
the physician. If the patient answers yes to any symptom 
question, or if the morning weight exceeds the acceptable 
weight, a variance report is sent to the nurse case manager for 
follow-up. Now, patients in our program only need to have a 
touchtone phone and a bathroom scale. That is all they need in 
their own home.
    Now, in our first year, case managers at Mercy Medical 
Center, in Des Moines, decreased re-admissions to the hospital 
by 84 percent.
    Senator Harkin. Amazing.
    Mr. Hickman. We replicated the program to our other four 
medical centers, and re-admissions to the hospital for CHF were 
decreased by 86 percent.
    Now, the estimated total net savings for the 182 patients 
in our five-hospital study was between $900,000 and $1 million. 
Costs, including today's newer versions of software and case 
manager salaries, are estimated at $187,000. So while the 
return on investment for hospitals is only about breakeven, the 
total return on investment for health insurance and patients 
and hospitals, collectively, is about five to one.
    But we believe that the program has been successful because 
early warning signs of an exacerbation of the CHF were 
identified and acted upon early by case managers. Over time, 
patients change their behavior and they follow the treatment 
plan, and they learn to recognize these early warning signs of 
an exacerbation of their illness.
    Mercy Health Network medical centers utilize CHF 
telemanagement for two reasons. First, because Iowa's average 
Medicare reimbursement is so inadequate--lowest in the United 
States--that costs usually exceed reimbursement for CHF 
admissions. So out of necessity, we reduce our CHF admissions 
to avoid further financial losses. Second, and more 
importantly, our CHF telemanagement program keeps patients 
healthier and at home, and that is where they want to be. We 
also believe that our telemanagement program shows promise for 
other chronic illness, such as diabetes, COPD, and asthma.
    Now, if our data continues to show the same return on 
investment as our previous studies, we would recommend that 
Congress consider adding case management as a reimbursable 
service to the Medicare program.

                           prepared statement

    Senator Harkin, thank you, again, for the opportunity to 
present the information. We appreciate the assistance your 
Subcommittee provides. And I would be happy to answer any 
questions at this time.
    [The statement follows:]
                  Prepared Statement of David Hickman
    Mr. Chairman, Senator Harkin, and members of the Subcommittee, my 
name is Dave Hickman, and I am serving as Director of Clinical 
Integration for Mercy Health Network based in Des Moines, Iowa. I am a 
Registered Nurse and a Fellow of the American College of Healthcare 
Executives.
    I want to thank you for this opportunity to bring information to 
you about a telemanagement program Mercy Health Network has used that 
is lowering the cost of care and increasing the quality of life for 
people with congestive heart failure.
    Mercy Health Network is comprised of 1,792 staffed inpatient beds 
in five medical centers and 28 rural hospital affiliates; 104 clinics, 
numerous home care, hospice, long-term care facilities and senior 
housing facilities across Iowa. Our 1,637 affiliated physicians provide 
1.9 million emergency and outpatient visits per year to a primary and 
secondary service population of 1.2 million people. Mercy Health 
Network is a joint operating agreement between Catholic Health 
Initiatives, Denver, Colorado, and Trinity Health, Novi, Michigan.
       the problem: patient non-compliance, frequent readmissions
    Approximately 4.8 million Americans have congestive heart failure 
(CHF) today. After age 65, the incidence approaches 10 of every 1000 
Americans. From 1979 to 1999, hospital admissions for CHF increased 155 
percent. It is one of the most frequent diagnoses in American hospitals 
today. It is estimated that CHF hospitalizations account for 
approximately $5 billion in annual cost to the Medicare budget.
    Of all hospital admissions for CHF from the Emergency Department 
(ED), approximately 80 percent are repeat visits to the ED. And, 
approximately 80 percent of ED visits for CHF result in an inpatient 
admission. Data indicates that within a month of discharge from the 
hospital, about 20 percent of CHF patients will be re-admitted to the 
hospital for CHF. Within six months of discharge, about 50 percent will 
be re-admitted.
    Half of all readmissions to the hospital are caused by patients not 
following the diet and medication treatment plan prescribed by their 
physician. Another 20 percent of readmissions are caused by patients 
not seeking care when symptoms are beginning to get worse. Clearly, the 
problem can be reduced if patients can learn to be compliant with 
treatments prescribed by their physicians, and learn to recognize early 
warning signs of a worsening condition.
    Clearly, congestive heart failure is a large, growing and costly 
problem for the American healthcare system. And, clearly, the problem 
can be reduced if solutions can be found to improve patient's 
compliance with treatments prescribed by their physicians, and if 
patients can learn to recognize early warning signs of a worsening 
condition.
the solution: frequent monitoring by case managers using telemanagement 
                                 tools
    Since 1993, Mercy Health Network medical centers have recognized 
the need to case manage high-cost, high-risk patients who have 
experienced frequent ED re-visits and hospital re-admissions for 
various chronic illnesses, many of whom have CHF. MHN medical centers 
have implemented community-based and/or inpatient-based case management 
designed to intervene at key points in a patient's disease progression 
to improve clinical and financial outcomes. Each of our medical centers 
has invested in CHF case managers. They closely monitor the clinical 
conditions of CHF patients after they have left the inpatient setting 
to prevent an exacerbation of their illness and a readmission to the 
hospital.
    At Mercy Medical Center-Des Moines, clinical and administrative 
leaders recognized in 1999 that their ability to case manage their 
large CHF population was limited by the number of patients that a case 
manager could realistically contact at the frequency necessary to be 
effective. William Wickemeyer, M.D., medical director for the CHF 
program for the Iowa Heart Hospital at Mercy, and Deborah Willyard, 
R.N., CHF case manager, purchased, through a grant from the National 
Retirement Foundation, the Tel-AssuranceTM telemanagement 
system as a tool to assist case managers become more effective and 
increase their caseload of CHF patients. Tel-AssuranceTM was 
designed by cardiologist Randall Williams, M.D. from Northwestern 
University and founder and CEO of Pharos Innovations.
    The CHF telemanagement program used by Mercy Health Network medical 
centers is relatively straightforward in the following steps:
    1. Patients with high readmission rates are enrolled in the CHF 
telemanagement program by their physician. Because body weight is an 
important indicator of fluid balance and how efficiently the heart is 
pumping, the physician predetermines an acceptable body weight, and the 
case manager enters it into the computer.
    2. Patients enrolled in the telemanagement program use their 
touchtone phone to call a toll-free number to our telemanagement 
computer everyday between 4 a.m. and 12 noon. In this phone call to an 
automated attendant, the patient answers the same survey of seven 
questions everyday. The first six questions ask patients about their 
symptoms, e.g. ``Have you felt more short of breath in the last day?'', 
and the seventh question asks the patient to enter their morning 
weight.
    3. Between 12 noon and 1 p.m., the computer calls any patient back 
that did not call in before noon.
    4. At 1 p.m., the computer software compares the patient's morning 
report to the pre-set parameters. If the patient answered ``yes'' to 
any symptom question or if the morning weight exceeds the acceptable 
weight, a variance report is sent to the case manager for follow-up.
    With our current telemanagement system, Tel-AssuranceTM, 
patients enrolled in the program need only a touchtone phone and 
bathroom scale.
      the results: cost savings, healthier and satisfied patients
    In their first year in 2000, case managers at Mercy Medical Center-
Des Moines decreased re-admissions to the hospital by 84.4 percent and 
tripled their caseload (from 30 to 90) without adding additional case 
managers using telemanagement.
    One of the purposes of Mercy Health Network is to identify best 
practices, and then replicate them throughout the network. In 2001, the 
CHF telemanagement program was replicated to our other four medical 
centers. In the first year of the program, case managers decreased re-
admissions to the hospital for CHF by 86.2 percent collectively using 
the telemanagement system. Mercy Medical Center-Sioux City decreased 
readmissions by 100 percent using an innovative combination of 
telemanagement and palliative care. Daily patient call-in compliance 
rate was 93 percent. On a five-point scale, average patient 
satisfaction was 4.8 (very satisfied). Patients made comments such as 
``It gives me peace of mind'' and ``Someone is caring for me 
everyday.''
    Estimated cost savings of the telemanagement project are worth 
noting. Avoided admissions were estimated at 202. Based upon typical 
reimbursement and payment models, von Ebers & Associates estimated that 
health insurance (Medicare, Medicaid, Blue Cross, commercial insurance) 
gross savings was between $627,000 and $668,000. The savings to 
patients was estimated at $167,000 to $209,000. The estimated hospital 
savings was $152,485. The estimated total net savings for 182 patients 
was between $921,485 and $1,004,485. And there may have been additional 
savings by avoiding posthospitalization office visits. By contrast, the 
estimated cost of Mercy Health Network's CHF telemanagement program was 
about $25,000, excluding the cost of case managers. Costs including 
newer software versions and case manager salaries are estimated at 
$187,000. While the return on investment for hospitals is about 
breakeven, the ROI for health insurance, patients and hospitals 
collectively is about 5 to 1.
       the keys: early intervention and teaching by case managers
    In the first year that all five medical centers used the congestive 
heart failure telemanagement program, hospital readmissions were 
reduced by 86.2 percent. We believe that the program was successful 
because early warning signs of an exacerbation of the CHF were 
identified and acted upon by case managers. Often, patients are found 
to be not following their physician's treatment plan for diet 
restrictions and medications. Case managers respond by re-teaching 
patients the importance of following the treatment plan. Over time, 
patients with CHF change their behavior and follow the treatment plan 
more often, and they learn to recognize these signs and to notify their 
case manager or physician when necessary.
    Case managers intervene to break the cycle of frequently repeating 
hospital readmissions. Telemanagement is a tool that helps case 
managers be more effective. Our case management approaches and 
successes are further outlined in a chapter of a book to be published 
this summer by Health Administration Press titled Thinking Forward: Six 
Strategies for Highly Successful Organizations by John Griffith and 
Kenneth White with Patricia Cahill, featuring the work of selected 
Catholic Health Initiatives' facilities.
    Mercy Health Network medical centers utilize CHF telemanagement for 
two reasons. First, because Iowa's average Medicare reimbursement is so 
inadequate (lowest in the United States), costs exceed reimbursement 
for every CHF admission for most of our medical centers. Out of 
necessity, we reduce our CHF admissions to avoid further financial 
losses. Hospitals receive no reimbursement to provide case management. 
We invest in case managers and telemanagement systems at our own 
expense.
    Second, and more importantly, the CHF telemanagement program keeps 
people healthier and at home where they want to be.
                   collaboration to replicate success
    Earlier this year, Mercy Health Network co-founded the Iowa Chronic 
Care Consortium along with the Iowa Health System, Des Moines 
University, the Iowa Farm Bureau Federation, and the Iowa United Auto 
Workers. The purpose of the Iowa Chronic Care Consortium is to improve 
the health and productivity of Iowans through the routine practice of 
innovative, proactive chronic care strategies.
    Mercy Health Network is committed to participation in the Iowa 
Chronic Care Consortium because we believe that our telemanagement 
program is a breakthrough in decreasing the cost of care and increasing 
the quality of life for people with CHF, and we are willing to 
collaborate with other providers in the state to achieve the same 
results as we have.
    Through the Consortium, Mercy Health Network will be expanding our 
telemanagement program to heart failure patients in more remote rural 
locations and to diabetes patients in our urban medical centers.
                            recommendations
    We acknowledge that the causes of rising health care costs are 
complex, and the solutions are difficult to identify. We believe, 
however, the data indicates that our CHF telemanagement program could 
be a model for improving the care of persons with CHF.
    We offer the following recommendations: 1. Review Mercy Health 
Network's telemanagement results this Fall after we complete another 
year of using the telemanagement system 2. Review the comparative 
results of the telemanagement demonstration projects conducted by the 
Iowa Chronic Care Consortium in 2004; and, 3. If the data from these 
projects shows the same cost savings as our previous studies, we would 
recommend that Congress consider adding case management as a 
reimburseable service to the Medicare and Medicaid programs to incent 
hospitals to provide case management.
    Mr. Chairman, I am grateful for the opportunity to present this 
information to your Subcommittee. We appreciate the assistance that 
your Subcommittee provides for the healthcare community, and 
particularly acknowledge the consistent support provided by our good 
friend Senator Harkin.
    I would be happy to answer any questions from you and your 
Subcommittee members at this time.

    Senator Harkin. Thank you very much, Mr. Hickman. These are 
great stories. These are remarkable. I am going to find out why 
we cannot do this, what you and Dr. Mentel have done, all over 
the place, all over the country.
STATEMENT OF DR. JAMES F. FRIES, DIRECTOR, ARTHRITIS, 
            RHEUMATISM, AND AGING MEDICAL INFORMATION 
            SYSTEM, STANFORD UNIVERSITY
    Senator Harkin. Next, we turn to Dr. James Fries. I hope I 
pronounced that right. Dr. Fries is a professor of medicine at 
Stanford University School of Medicine, received his 
undergraduate degree at Stanford and his M.D. at Johns Hopkins, 
nearby. Dr. Fries is an expert in health promotion--prevention, 
and will discuss how health promotion and disease prevention 
can reduce healthcare costs through the reduction on the demand 
side, rather than the traditional effort to control the supply 
side. So now we will take a look at the demand side.
    Dr. Fries.
    Dr. Fries. Thank you, Senator Harkin and subcommittee 
members.
    Healthier persons have lower healthcare costs. And we know 
how to reduce health risks and to improve health and to, 
thereby, decrease the costs of healthcare. These amounts can be 
extremely substantial. I will not go over again the data that 
Karen presented or that you presented about the crisis in 
rising healthcare costs, but just suggest that it is, in large 
part, a result of the demand that we place, and that the demand 
that we place on healthcare is, itself, related to the 
disability and the state of health of the population that is 
receiving that. There are, as I will argue in several discrete 
ways, emerging evidence, very well-controlled scientific data 
that we have, that the time for initiatives to be examined and 
implemented has come.
    I will make four points. The underlying theory between 
health-enhancement initiatives is the compression of morbidity, 
a term which I coined a number of years ago and I will explain 
to you.
    Second, disability rates in the United States can decline 
by at least 2 percent a year. They are currently doing that, 
and they will continue to do that in the future if we are 
effective at implementing things. It is important that that 
happens, because the Medicare program becomes solvent, 
arithmetically, for 70 years or more if the rate of decline in 
disability is 1.5 percent a year. It is currently declining at 
2 percent, and this is some of the best news, in terms of 
health in the United States, that we have had for some time.
    Then the onset age of chronic infirmity may be postponed. 
We have data that it may be postponed by as much as 12 years, 
so that people end the period of adult vigor some 12 years 
later than people with less healthy lifestyles and a less-
healthy approach to managing their medical care.
    Finally, multiple large randomized controlled scientific 
trials have proved the effectiveness, cost effectiveness, of 
these. I will go through the points quickly, and then I will 
tell you six things that I think we ought to be doing now in 
order to get there.
    The compression-of-morbidity paradigm says that most 
illness in this era occurs between the time in which you first 
get sick for good--that is, the onset of chronic infirmity--and 
the time in which you die. And during that time, you become 
increasingly infirm. So that the area under the curve of that 
infirmity, between when you first get sick--this is 55 or 56 
for the average American, lowest levels of disability--until 
the time in which you die, some 20 years later, is where most 
of life's morbidity is. So compressing morbidity says, 
predominantly, let us postpone the onset of the period of 
disability and, thereby, compress the period of disability 
against the age of death, which, to be sure, is rising, as 
well, but perhaps not as rapidly. And that is where some of the 
data come in.
    So this is the life of a vigorous life until reasonably 
shortly before it is closed, at which time there is a terminal 
drop, with obvious implications for the health quality of life 
of the individual, and obvious implications for the financial 
health of the system that pays for this care.
    Disability, I indicated, was going down 2 percent a year 
since 1982. This is documented in the two major surveys, the 
National Long Term Care Survey and the National Health 
Interview Survey, which have been administered serially over 
that time, and it is consistent with everything else. It is 
interesting that the improvement in disability, which is very 
encouraging, is related, in lifestyle matters, only with the 
decrease in cigarette smoking, because we have actually, as 
everyone knows, become a more sedentary and a plumper Nation 
over this same period of time. So part of the impetus and the 
opportunity for postponing infirmity more comes to attacking 
those things which we have not successfully--well, we have not 
even really tried, on a national basis, to improve the health 
habits and the subsequent illnesses that occur.
    Now, recent data from longitudinal studies, in which we 
follow individuals for life, have really associated factors 
such as exercise or obesity or cigarette smoking or other 
health risk factors on the time at which we develop morbidity. 
Morbidity and disability are relatively interchangeable terms. 
And the effect is a profound one.
    In a University of Pennsylvania alumni study, we found an 
8.4-year postponement of disability in those who had moderately 
good health habits, compared with those who did not. In a 
longitudinal study we began in 1984, we recently reported a 
prolongation of 12.4 years in people, mainly, who were lifetime 
participants in vigorous physical activity. And we are in the 
process of reporting that those people who begin vigorous 
physical activity after age 60 can reach very similar goals, so 
that these benefits can accrue late in life, as well.
    So we have an emerging base of longitudinal studies which 
associate the health habits and health risks and personal self 
efficacy and other variables of the individual with their long-
term health outcomes. This contradicts, directly, an original 
fear that, in fact, if we had healthy people, we could not 
afford them, because they would live too long, and they would 
wear out our social support system. In fact, they live a little 
longer, but they live a lot less disabled. And the lifetime 
medical costs of the chronic cigarette smoker or the sedentary 
or obese person are higher, substantially higher, than those of 
the person who is fit, even though the life is shorter. So the 
cumulative metric, where we are looking at cumulative 
disability over a life span, is favorable with regard to these 
areas. There are many other studies that do this.
    Then, finally, randomized control trials are the finest 
final scientific proof for things. And questions such as, ``Is 
it too little too late to institute programs to change people's 
behaviors and, thereby, improve their health,'' have arisen. 
There now are a number of randomized control trials. I include 
five in the supporting materials, which total some 70,000 or 
80,000 people randomized to different groups, receiving 
different interventions, and the ability to improve health, 
both in working populations and in seniors. In working 
populations, one of the big metrics is productivity, which is 
improved; in senior populations, it is health and avoidance of 
disability. And we were able to prove both of those. They have 
been proven in multiple ways. They have been reviewed by many, 
many groups, and the conclusions are always the same.
    So it is time for us to take advantage of these data and to 
move forward with programs to build a healthier United States. 
And at the same time, within that healthier United States, to 
have an ability to moderate, not eliminate, for all of the 
reasons we have discussed here, but to moderate the rise, 
perhaps stabilize the rise in healthcare costs.
    Last year, RAND prepared a contracted report for the 
Centers for Medicaid and Medicare Services recommending a 
demonstration project of tailored print interventions, which 
turns out to be the most effective intervention--I can go into 
that later--with the goal of recommending that proven 
interventions be made available as a Medicare benefit. We are 
getting specific here. It is hoped that this demonstration, 
currently being designed, might be underway by the end of this 
year.
    The Health Promotion FIRST Act will shortly be introduced, 
by Senators Richard Lugar and Jeff Bingaman, and will provide 
support for new and existing programs at the CDC and NIH, which 
will accelerate progress in health promotion, knowledge, and 
applications. Forty-nine Senators have signed on as co-sponsors 
for a ``Building Health Promotion into the National Agenda'' 
Resolution. Clearly, there is increasing interest and 
activity--you mentioned this in your introduction--a mandate, 
an emerging mandate, for approaches to cost containment by 
improvement of health.
    There are six immediate policy imperatives that I would 
like to enumerate.
    First, support the Medicare Senior Risk Reduction 
Demonstration Project. It is critically important that this 
demonstration is designed, carried out, and implemented. It, by 
itself, can have a major factor on the solvency of Medicare.
    Second, support proven senior risk-reduction programs as a 
Medicare benefit. Changes will be required here to sections 
1861 and 1862 of the enabling legislation.
    Third, support the Health Promotion FIRST Act with 
increases in training and in application of health risk-
reduction principles. Details can be found at the Web site I 
have provided.
    Fourth, encourage reimbursement by federal, State, and 
private medical insurance for qualified health education and 
qualified health promotion programs provided as population 
health initiatives. These will be parallel to much of what we 
consider the medical-care system of today.
    Fifth, encourage work-site health-promotion activities to 
encourage health and productivity and to reduce costs. Details 
can be found in another Web site, which I have provided.
    Finally, monitor and evaluate these initiatives rigorously. 
We must only encourage and fund programs that are known to be 
effective, and that is inherent in the other recommendations 
which I have done.

                           prepared statement

    Closing, we can improve health and reduce medical care 
costs substantially with currently proven health-enhancement 
approaches. These approaches, in turn, can be redefined and 
improved. Demand-side health-improvement initiatives benefit 
the individual, the payer, and the society. They do not 
encourage rationing or adversarial stances. They are entirely 
bipartisan. They are not inconsistent with other cost-
containment initiatives, and, indeed, will make such 
initiatives more effective. The need for a healthier society 
has never been more obvious or more important.
    [The statement follows:]
                Prepared Statement of Dr. James F. Fries
    Health care costs have resumed double-digit annual increases and 
are in crisis. Existing ``control'' mechanisms based principally on 
forms of rationing on the supply side have failed to be effective. 
Current costs approximate 16 percent of GDP. These costs threaten 
budgets in other areas, and put the Medicare program at risk.
    Yet, an effective cost-containment mechanism on the demand side is 
readily available, based on the established fact that healthier persons 
have much lower health care costs than do persons with preventable 
chronic illness. This mechanism holds great promise for reduction in 
the national burden of illness and for improvement in the quality of 
life.

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

                           Figure 1.--Outline
  --Healthier Persons Require Fewer Medical Services
  --Need and Demand Reduction Approaches are a Proven Approach to 
        Medical Care Cost Containment
  --The Compression of Morbidity Paradigm Provides a Theoretical Base
  --Disability among Seniors in the United States can Decline by at 
        least 2 percent per year; mortality rates by 1 percent per year
  --The Onset of Chronic Infirmity may be postponed by up to 12 Years
  --Multiple Randomized Controlled Trials Prove the Effectiveness of 
        these Approaches
  --There are Major Policy Implications

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

    I will make four points and explore their policy implications. 
First, the underlying theory behind health enhancement initiatives is 
the Compression of Morbidity. Second, disability rates in the United 
States can decline by at least 2 percent per year, while mortality 
rates will decline more slowly, at about 1 percent per year. Third, the 
onset age of chronic infirmity may be postponed by up to 12 years. 
Fourth, multiple large, randomized, controlled scientific trials have 
proved the effectiveness and cost-effectiveness of these approaches. 





    The Compression of Morbidity paradigm envisions reduction of 
lifetime infirmity, shown on Figure 2 as the shaded area, and of 
medical care costs, by squeezing the period of morbidity between an 
increasing age at onset of disability and the age of death. The healthy 
life is seen as a life vigorous and vital until shortly before its 
natural close. This is achievable by postponing the onset of disability 
and high medical costs through reduction of chronic illness and the 
pursuit of vigorous and healthy lifestyles.
    In the Figure, present average disability is represented by the top 
line and is concentrated between an average onset at age 56 and the 
average age at death, now 76 years. In future scenarios, extension of 
morbidity, on the second line, occurs if longevity is increased but 
disability is not postponed; this is the worst-case scenario. 
Compression of morbidity, on the third line, occurs when disability is 
postponed more than longevity is extended, as with reduction in health 
risks. This scenario reduces costs and improves life quality. 




    Disability, as documented by the National Health Interview Surveys 
and the National Long Term Care Surveys, has been declining at about 2 
percent per year since 1982 and even more rapidly in the most recent 
five year period, while mortality rates are declining at about 1 
percent per year. These data directly document compression of 
morbidity. These trends have many contributing causes, from declines in 
cigarette smoking to advances in medical science. It is important to 
note that these improvements in the national health to date have 
occurred despite the absence of a systematic approach to reduction of 
health risks; our increasingly obese and sedentary population offers 
major opportunities for continued reduction in chronic illness. 




    Recent data from major longitudinal studies document the 
association between reduced health risks and postponement of the onset 
of disability. For eighteen years our research group at Stanford has 
studied the effects of long-distance running and other vigorous 
exercise, after age 58, on health outcomes. Results were remarkable. 
Those exercising regularly postponed disability more than 12 years 
compared with controls, and health care costs were reduced by nearly 
one-third. Those who took up vigorous exercise later in life nearly 
achieved the health benefits of lifetime exercisers. For those who 
died, the exercisers had far less disability in the year prior to 
death, as well as in all prior years. In the University of Pennsylvania 
alumni study we have reported similar results in those exercising, of 
moderate weight, and not smoking. Daviglus and colleagues showed 
substantial decreases in Medicare costs for those with few health risk 
factors in mid-life. Reed and colleagues prospectively determined the 
effects of health risks, with results similar to ours. These results 
from major studies are consistent with the broader literature.

                                     FIGURE 5.--RANDOMIZED CONTROLLED TRIALS
----------------------------------------------------------------------------------------------------------------
                                                                        Health
                                                              Time       risk     Cost per   Savings
                                                  Number    (months)    score      person      per        ROI
                                                                      (percent)               person
----------------------------------------------------------------------------------------------------------------
Bank of America...............................      4,712         12        -12        $29       $179        6.1
CALPers.......................................     57,268         12        -10         59        300        5.1
Arthritis.....................................        809          6         -7         50        260        5.2
Parkinson's...................................        290          6        -10        100        570        5.7
Take Care of Yourself.........................      2,833         12        -17          6         20        3.5
----------------------------------------------------------------------------------------------------------------

    Randomized controlled trials represent the highest standard of 
scientific proof. Such trials prove our ability to achieve healthier 
and less costly lives, both in mid-life and in seniors, through 
relatively inexpensive health improvement programs costing less than 
$100 per year per person annually. The most effective approach has been 
``tailored print interventions'', where each set of feedback materials 
to the participant is exquisitely configured for the precise 
characteristics and previous behaviors of that individual.
    The Bank of America Retiree Study, the very large California Public 
Employee Retirement System trial, disease-specific trials in arthritis 
and other chronic illnesses, and trials of selfmanagement materials all 
have documented our ability to both reduce health risks and to achieve 
a substantial return on investment, ranging from 3.5:1 to 6.1:1. In 
terms of Maintaining Medicare solvency, these results indicate that 
investing about $100 per year per person annually, less than 2 percent 
of the $5500 paid out to the average beneficiary, would reduce Medicare 
claims by about $500 per beneficiary per year, even in the first year.
    Last year RAND prepared a contracted report for CMS recommending a 
demonstration project of tailored print interventions in Medicare, with 
the goal of recommending that proven interventions be made available as 
a Medicare benefit. It is hoped that this demonstration project, 
currently being designed, might be underway by the end of this year. 
The Health Promotion First (Funding Integrated Research Synthesis and 
Training) Act will shortly be introduced by Senators Richard Lugan and 
Jeff Bingaman and will provide support for existing and new programs at 
the CDC and NIH which will accelerate progress in health promotion 
knowledge and applications. Forty-nine Senators have signed on as co-
sponsors for a ``Building Health Promotion into the National Agenda'' 
resolution. Clearly there is increasing interest and activity, as well 
as an increasing mandate, for approaches to cost-containment by 
improvement in health.

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

                     Figure 6.--Policy Imperatives
  --Support the Medicare Senior Risk Reduction (SRRP) Demonstration 
        Project
  --Support Proven Senior Risk Reduction Programs as a Medicare Benefit 
        (changes will be needed in sections 1861 and 1862 of the 
        enabling legislation)
  --Support the Health Promotion FIRST (Funding Integrated Research 
        Synthesis and Training) Act
    --(to be introduced shortly by Richard Lugar and Jeff Bingman) 
            Healthpromotionadvocates.org
  --Encourage Reimbursement by Federal, State, and Private Medical 
        Insurance for Qualified Health Education and Health Promotion 
        Programs Provided as Population Health Measures
  --Encourage Worksite Health Promotion Activities of High Quality to 
        Increase Productivity and Reduce Costs--healthproject. 
        stanford.edu
  --Monitor and Evaluate these Initiatives Rigorously

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

    There are six immediate policy imperatives. First, support the 
Medicare Senior Risk Reduction (SRRP) Demonstration Project. It is 
critically important that this demonstration is designed, carried out, 
and implemented. Second, support proven senior risk reduction programs 
as a Medicare benefit; changes will be required in Sections 1861 and 
1862 of the enabling legislation; these will improve the health of 
Medicare beneficiaries through population health measures. Third, 
support the Health Promotion FIRST Act, with increases in training and 
in application of health risk reduction principles. Details may be 
found at healthpromotionadvocates.org. Fourth, encourage reimbursement 
by Federal, State, and private medical insurance for qualified health 
education and health promotion programs provided as population health 
initiatives. We must develop a culture of health rather than of 
disease. Fifth, encourage work-site health promotion activities to 
encourage health and productivity and to reduce costs. Details may be 
found at healthproject.stanford.edu. Finally, monitor and evaluate 
these initiatives rigorously. We must only encourage and fund programs 
that are known to be effective.
    We can improve health and reduce medical care costs substantially 
with currently proven health enhancement approaches. These approaches, 
in turn, can be refined and improved. Demand side health improvement 
initiatives benefit the individual, the payer, and the society. They do 
not encourage rationing or adversarial stances. They are entirely 
bipartisan. They are not inconsistent with other cost-containment 
initiatives and, indeed, will make such initiatives more effective. The 
need for a healthier society has never been more obvious or more 
important.

    Senator Harkin. Thank you very much, Dr. Fries. Thank you. 
I have some questions about some of those.
STATEMENT OF DR. DONALD R. HOOVER, PROFESSOR, 
            DEPARTMENT OF STATISTICS, RUTGERS 
            UNIVERSITY
    Senator Harkin. Next, we turn to Dr. Donald Hoover, who is 
a professor of statistics and a faculty member of the Institute 
of Health, Healthcare Policy, and Aging Research at Rutgers 
University. Dr. Hoover received his undergraduate degree at the 
University of California at San Diego, his Ph.D. at Stanford. I 
understand Dr. Hoover will discuss the expensive end-of-life 
care, which burdens States and the Medicare program.
    Dr. Hoover, welcome.
    Dr. Hoover. Well, Mr. Chairman, the committee, thank you 
for inviting me. I guess you have heard about me, so--a little 
bit.
    I have been--probably the past 2 years, I have been doing 
work on end-of-life care, which--in the literature, end of life 
is, a lot of times, defined as really the very end of life, the 
very last year of life. So I am going to talk about more--not 
so much implementation and things like that, but more of the 
descriptions of the costs in the very last year of life, which 
is a huge chunk of the medical care expenditures for Americans 
65 years and older.
    Now, I make three points. First, our Nation spends a 
substantial amount of money for medical care for people just in 
the last year of life alone. And even if we do nothing, no 
changes to the healthcare system, just because of a changing 
population demographics as the population ages, this amount is 
going to go up.
    Second, much of these end-of-life--and I am talking, again, 
last year of life--medical care expenditures are for less 
intensive care, such as nursing home and long-term care 
facility care, as well as for technologically intensive 
hospital care.
    The third point I am going to make is that while Medicare, 
right now, is paying most of the end-of-life, last-year-of-
life, medical costs, as the numbers of Americans age and the 
numbers dying at older ages increases--in other words, our 
population demographics shift and we have got more 75-year-
olds, 85-year-olds and people dying at older ages--just that 
alone is going to cause the States and the elderlies themselves 
to be required to assume more of these costs.
    So let me get to my first point. America spends substantial 
amounts of money for medical care during the last year of life, 
and this will grow. And so a few numbers here. A study that we 
published found that from 1992 to 1996, it was very expensive 
to die in America. And in fact, an average person over 65 who 
died created about $40,000 of medical expenditures in his or 
her last year of life. If you look at what has happened to 
medical costs since 1996, you know, it is maybe $50,000 to 
$60,000 maybe now in the last year of life might be what the 
expenditures are. And if you think about what an average person 
makes in a year, an average wage-earner, that is quite a bit of 
money to be spending for care in the last year of life.
    Some other ways to look at this, about one fourth of 
Medicare expenditures and one fifth of all healthcare 
expenditures for the elderly simply went to that very short 
time period during the last year of life. Now, there have been 
several initiatives, such as hospices and advanced directives 
that have tried to reduce these end-of-life, last-year-of-life 
medical costs. Despite this, if you look at what has happened 
with Medicare over the past 25 years, end-of-life costs have 
continually been about a quarter of Medicare costs. They have 
not gone down in spite of these initiatives.
    So one take-home message from this might be that while 
directed efforts to limit the last-year-of-life costs may be 
needed, in fact these costs may be best controlled through the 
same approaches used to control other general healthcare costs.
    Now, my second point is that substantial end-of-life 
healthcare expenditures go to less technologically intensive 
and other institutional care, as well as to technologically 
intensive inpatient healthcare. And the reason I make this 
point is, you know, expensive hospital-based medical technology 
is often blamed for higher end-of-life medical costs, which, in 
fact, is true to a certain degree. But our research suggests 
that non-intensive care of terminally-ill patients is, in fact, 
almost as costly, and it is growing. From 1992 to 1996, on 
average, about $15,000 for a person's last year of life was 
being spent for care in the hospital, on average. This compares 
to about almost as much, $12,000, being spent on non-
technological nursing-home and institutional care. However, 
again, even if we do nothing to the medical care system, 
because of the changing population demographics, end-of-life 
nursing home and institutional expenditures are going to grow. 
And the reason for that is, people who die at older ages--say, 
75, 85--are more likely to be institutionalized around the time 
of death during the year prior to death, and have higher 
institutional nursing home costs, if you will. And again, our 
population is shifting in age. We are getting more 75-and 85-
year-olds. So these costs are going to go up in the future.
    Now, the third point. While Medicare now pays most end-of-
life medical costs, as the population ages and dies at older 
ages, the States and the elderly themselves will have to assume 
larger roles and pay for more of this. From 1992 to 1996, the 
last year of life, Medicare paid about two thirds of all 
healthcare costs during this time period. But this varied with 
age of death and for people who were older who died at 75, 85, 
most of their costs, or more of their costs, were institutional 
care, and Medicare paid for less of those, because Medicare 
does not cover this. So as the elderly American population 
grows and shifts towards older ages, the States--that is, 
Medicaid--and, in fact, the elderly, themselves, will have to 
pay more for end-of-life medical care.
    Now, if you think of the current financial difficulties the 
States are in, they may be hard-pressed to come up with 
additional resources for Medicaid. If you look at the elderly 
and what they have to pay--from 1992 to 1996, on average, an 
elderly person, or their family, had to pay about $5,000 for 
their medical expenses during their last year of life, which 
would obviously create a great economic burden in this group.
    Now, in terms of supplemental and private insurance, right 
now that is only paying for about 5 percent of the medical 
costs in the last year of life, and it is really unclear that 
this can assume a larger role.
    So if end-of-life medical care expenditures, just the last 
year alone, are not reduced, there may be a need for the 
Federal Government to expand Medicare or find other ways to 
support institutional care and relieve elderly from their out-
of-pocket expenses just for their last year of life.

                           prepared statement

    Now, summary. End-of-life healthcare costs will rise and 
may be more and more shouldered by the elderly and the States. 
While efforts to reduce end-of-life medical costs should 
continue, the impact of these efforts maybe limited, just due 
to the changing demographics of a growing and aging elderly 
population. The Federal Government may need to increase support 
for Medicaid programs and/or to find other means to fund end-
of-life healthcare.
    I thank the Chairman and the Committee, once again, for 
inviting me to testify and will be happy to answer any 
questions you have.
    [The statement follows:]
               Prepared Statement of Dr. Donald R. Hoover
    Mr. Chairman and Honorable Members of the Subcommittee: Thank you 
for inviting me. I'm a Professor of Statistics at Rutgers University, 
and a member of the Rutgers Institute for Health, Health Care Policy 
and Aging Research. I've been funded by the Agency for Healthcare 
Quality and Research and National Institute on Aging to study health 
care costs. Based on this research that I've conducted with colleagues 
(Drs. Crystal, Sambamoorthi and Cantor) using the Medicare Current 
Beneficiary Survey, and on a review of other studies done in the past 
25 years, my presentation is on medical expenditures during the last 
year of life for elderly Americans 65 years and older.
    I make three points. First, our nation spends substantial amounts 
on medical care for persons in their last year of life; this will 
increase as our population ages. Second, much of these end of life 
medical care expenditures are for less intensive long term care and 
other institutional care, as well as for technologically intensive 
hospital care. Third, while Medicare now pays most end of life medical 
costs, as the numbers of American elderly dying at older ages 
increases, the States and the elderly themselves may find themselves 
required to assume more of these costs.
 first point--america spends substantial amounts of money for medical 
         care during the last year of life, and this will grow
    A study we published found dying in America was very expensive. 
From 1992 to 1996 an average person over 65 who died created $40,000 of 
medical expenditures in his or her last year of life, more than many 
people earned in a year. About one-fourth of Medicare expenditures and 
one-fifth of all health care expenditures for the elderly went to those 
in their last year of life. Several initiatives such as hospices and 
advanced directives have tried to reduce end of life medical costs. 
Despite this, end of life expenditures have not notably decreased as a 
fraction of Medicare expenditures over the past 25 years. While 
directed efforts to limit end of life costs may be needed, end of life 
medical care expenditures may best be controlled through the same 
approaches used to control other general health care costs.
 second point--substantial end of life health care expenditures go to 
less technologically intensive long-term and other institutional care, 
                 as well as to inpatient hospital care
    Expensive hospital based medical technology is often blamed for 
higher end of life medical costs. But our research suggests that non-
intensive care of terminally ill patients 1 is almost as costly and 
growing. From 1992-96 on average $15,000 was spent for inpatient 
hospital care for those in their last year of life compared to $12,000 
spent on non-technological nursing home /institutional care. However, 
end of life nursing home /institutional expenditures are higher for 
those who die at older ages. So as Americans continue to age and die at 
older ages, end of life nursing home /institutional costs will rise.
third point--while medicare now pays most end of life medical costs, as 
the population ages and dies at older ages, the states and the elderly 
                  themselves will assume larger roles
    From 1992-1996 Medicare paid about two-thirds of end of life costs 
for American elderly. But this varied with age at death and Medicare 
paid less for those who died at older ages. As the elderly American 
population grows and shifts towards older ages, the States (Medicaid) 
and elderly themselves will pay more for end of life medical care. 
Given current financial difficulties, States may be hard pressed to 
provide additional resources for Medicaid. From 1992-1996 an average 
elderly person directly paid $5,200 for health care during his or her 
last year of life, a great burden for this economically pressed group 
and their survivors. It is unclear whether supplemental /private 
insurance which currently pays only 5 percent of end of life medical 
costs can assume a larger role. If end of life medical expenditures are 
not reduced, there may be a need for the federal government to address 
gaps in Medicare causing high end-of-life out-of-pocket costs or to 
find other ways to support institutional care and relieve elderly from 
out of pocket expenses incurred for end of life healthcare.
                                summary
    Funding medical care in the United Sates is a growing problem. End 
of life healthcare costs will rise and may be more and more shouldered 
by the elderly and the States. While efforts to reduce end of life 
medical costs should continue, the impact of these efforts may be 
limited due to a growing and aging elderly population. The Federal 
government may need to increase support of Medicaid programs and/or to 
find other means to fund end of life healthcare.
    I thank you once again Mr. Chairman and Members for the opportunity 
to testify and will be happy to answer any questions you may have.

    Senator Harkin. Well, Dr. Hoover, thank you very much. You 
can anticipate one question from me, and that is, have you 
looked at hospice care and how that figures into all this?
    Dr. Hoover. Yup, okay.
    Senator Harkin. So we will get back to you on that.
STATEMENT OF DAVID L. BERND, CHIEF EXECUTIVE OFFICER, 
            SENTARA HEALTHCARE
    Senator Harkin. Last, we go with David Bernd. Mr. Bernd is 
the CEO of Sentara Healthcare, in Norfolk, Virginia, as well as 
the chair-elect of the American Hospital Association's Board of 
Trustees. Mr. Bernd holds a master's degree in hospital and 
health administration from the Medical College of Virginia. He 
got his B.S. degree from the College of William and Mary, and 
representing the American Hospital Association, and will 
discuss how health costs are impacted by excessive and complex 
regulation and administration in healthcare and will talk about 
the burden of paperwork on health providers.
    Welcome, Mr. Bernd.
    Mr. Bernd. Thank you.
    I am here today on behalf of the AHA's nearly 5,000 
hospitals, health systems, and healthcare provider members. 
Thank you for this opportunity to discuss regulatory relief for 
healthcare providers.
    Sentara owns and operates six acute care hospitals in 
Virginia, ranging in size from 100 to 600 beds. We are 
committed to serving the unique needs of our communities, but 
often these commitments are challenged by the host of 
regulations and statutes which govern each caregiver's 
interactions with their patients. More than 30 agencies oversee 
some aspect of healthcare delivery, and not just at the federal 
level. State and local Governments add yet another layer or 
two. For hospitals like Sentara, this means a constant juggling 
act of complying with regulations while providing quality 
healthcare to our communities.
    In order to determine what impact regulations have on the 
time caregivers spend with patients, the AHA, in 2001, 
commissioned PricewaterhouseCoopers to ask a group of 21 
hospitals about their paperwork experience. The results? 
Physicians, nurses, and other hospital staff spend at least 30 
minutes on paperwork for every hour of care provided to a 
Medicare patient. In the emergency department, it is worse. 
Every hour of patient care generates an hour of paperwork. 
These numbers are mirrored even when dealing with private 
sector insurance groups, payers, and regulators. Now, we 
brought a copy of this study for the Committee Members, and it 
will be available for you afterwards.
    Another part of this study is very interesting--is this 
flow chart, which is three pages in length and shows the major 
regulatory changes in Medicare regulations over the last 5 
years. Now, this does not include the literally hundreds per 
month of smaller regulatory changes that we get briefed on, but 
these are the major policy changes on Medicare, alone.
    We are pleased, Senator Harkin, that you and your 
colleagues recognize this dilemma and are examining the 
regulatory maze that providers face every day. And thanks to 
the efforts of concerned legislators and HHS Secretary Tommy 
Thompson, we are making progress in relieving some of these 
burdens.
    The Secretary's Advisory Committee on Regulatory Reform, 
fully supported by the AHA, provided opportunities for a 
firsthand look at the impact that regulatory burden has on 
patient care. The committee's report included 255 
recommendations, some of which are currently being implemented. 
A number of these were heartily endorsed by the AHA's 
Regulatory Reform and Relief Advisory Committee, which I 
chaired.
    These provisions include adopting recommendations on 
EMTALA, such as creating an advisory committee ensuring that 
local medical review policies for outpatient services are not 
applied to emergency department services. As I am sure you are 
aware, hospitals, under EMTALA, must provide emergency services 
to patients that are presented in the emergency departments, 
which is obviously supportive of our community, no matter what 
their insurance status. But on the back side, some of the local 
review commissions come in later and deny payment, Medicare 
payment, because they say these services are not necessary or 
medically needed. So it is a real problem.
    The other thing is to reduce the size and complexity of the 
antiquated pre-PPS Medicare Cost Report and modify or eliminate 
its Medicare cost-specific accounting principles. And I brought 
the Committee a summary of one of our hospital's cost reports. 
This 350-report, which I am sure that the Senator would love to 
read in his spare time, in fact, is a summary of our cost 
report. And in fact, I could only bring one box of additional 
papers that support this one report. On US Air, because of the 
increase of the average weight of our passengers on our 
airlines, they would not allow me to bring all eight boxes. So, 
Senator, it is hard to believe, but the summary report is 250 
pages. We have, behind each one of these summary reports, eight 
boxes filled with paper that we have to put in for Medicare 
Cost Reports on an annual basis. So that is 60 boxes of paper, 
with 350 pages summary of each cost report, for each hospital 
we have in Home Healthcare Agency.
    Senator Harkin. That is bizarre.
    Mr. Bernd. It is rather mind-boggling.
    These revised policies are helping to alleviate the burden 
on caregivers, and we appreciate the work that you all are 
doing. But hospitals, working together with you and the 
Secretary, can do more. In fact, I would urge you to work with 
CMS and HHS to fully implement the Secretary's recommendations. 
Too much work has gone into this report to simply allow it to 
lay dormant.
    We would also urge you to consider additional areas for 
reform. Amend the HIPAA medical privacy rule and allow 
hospitals to give patients, upon admission, a list of the types 
of disclosures that may be made using their information. Such 
actions makes more sense and strike an appropriate balance 
between patient confidentiality and caregiver burden. They also 
require less resources from caregivers, such as attempting to 
build an expensive new disclosure tracking database.
    Again, in a study AHA financed, one hospital in Boston, 
150-bed hospital, relatively small size, on average has 300,000 
disclosures required by law per year for its patients. And 
under current HIPAA regulations, we would have to get, for each 
one of those disclosures, an independent approval from patients 
to disclose this information. It is mind-boggling.
    We need to recognize that EMTALA should not apply to 
inpatients. Once a person is admitted as an inpatient, the 
hospital actually has taken responsibility for more than is 
required under EMTALA.
    Allow providers direct access to court to challenge 
decisions made by CMS. Currently, the only way to appeal 
decisions made by CMS is to fail to follow the rules, get 
kicked out of the Medicare program, and then appeal to the 
courts for relief. No other Federal agency operates in this 
way.
    Simplify the data-collection process that uses OASIS and 
MDS forms. Establish common sense guidelines for regulations. 
Regulations should be clear, unambiguous and well documented. 
They should also enable better communication between all 
parties involved--regulators, healthcare providers, and 
patients--as well as be cost effective. And they should 
encourage the pursuit of excellence through best practices.

                           prepared statement

    Our first priority is our patients, to provide high-quality 
medical care in the appropriate setting. While some regulations 
contribute to this goal, I think you can see that others drain 
away much-needed resources, placing a strain on our hospitals 
and the men and women who work there and take care of our 
patients. AHA believes healthcare should be regulated, but in a 
common sense manner that allows healthcare providers to do what 
they have been trained to do best, take care of the ill and 
injured in our communities.
    Thank you for your time today. We look forward to working 
with you and your colleagues further to provide needed relief 
from over-burdensome regulations.
    [The statement follows:]
                  Prepared Statement of David L. Bernd
    Good morning, Mr. Chairman. I am David Bernd, chief executive 
officer of Sentara Healthcare in Norfolk, Va., and incoming chairman of 
the American Hospital Association (AHA). I am here today on behalf of 
the AHA's nearly 5,000 hospital, health system, network and other 
health care provider members. We're pleased to be able to testify on 
regulatory relief and reform efforts for the health care field.
    Sentara Healthcare owns and operates six acute-care hospitals in 
Virginia, ranging in size from 100 beds to nearly 500. At Sentara, we 
are committed to developing hospitals and health care systems that 
serve the unique needs of our communities.
    Patients are our priority--no matter the time, no matter the 
condition and no matter the hospital. Our facilities are open 24 hours 
a day to provide health care services to our friends and neighbors in 
the communities where we work and live.
    But every time the nurses, physicians and other health care workers 
care for a patient, a host of regulations and statutes govern their 
very actions, especially if the patient is a Medicare or Medicaid 
recipient. More than 30 agencies oversee some aspect of that health 
care delivery process--and that's just at the federal level. State 
agencies add yet another layer--or two. More than 130,000 pages govern 
the Medicare system--a sheaf of paper three times larger than the IRS 
Code and its federal tax regulations.
                     paperwork versus patient care
    In order to estimate the amount of time caregivers spend on 
paperwork, the AHA commissioned PricewaterhouseCoopers (PwC) in 2001 to 
conduct a study of a group of America's hospitals about their paperwork 
experience. Amazingly, PwC found that physicians, nurses and other 
hospital staff spend on average at least 30 minutes on paperwork for 
every hour of patient care provided to a typical Medicare patient. In 
the emergency department, every hour of patient care generates an hour 
of paperwork including paperwork to comply with the vast array of 
federal, state and local health regulations. The study examined a 
typical episode of care for a Medicare patient suffering from a broken 
hip. We have provided a copy of the study for the record.
    While the PwC report did not evaluate the paperwork requirements 
placed on hospitals by the private sector, such as private health 
insurance plans, outside regulators, etc., we do know that these 
requirements mirror the paperwork burdens imposed by the Centers for 
Medicare & Medicaid Services (CMS). These numerous private sector 
payors and regulators add to the paperwork morass, since each typically 
has unique requirements with which hospitals must comply.
    Complete records and documentation, and compliance with important 
safety standards, are essential to making sure our patients receive 
safe, high quality care. But complying with the numerous regulations 
issued by CMS and other federal, state and local regulatory agencies 
should not dominate a caregiver's day. These regulations and statutes 
do not always enhance the patient care experience--in fact, quite the 
opposite. They absorb valuable time and resources--time that could be 
spent caring for the next patient to come through the emergency 
department doors, and valuable resources that could be used to purchase 
new, life-saving technologies.
    We are pleased, Mr. Chairman and Ranking Member Harkin, that you 
and your colleagues recognize this dilemma and are examining the 
regulatory maze that health care providers face. During the 107th 
Congress, the House unanimously passed H.R. 3391, the Medicare 
Regulatory and Contracting Improvement Act, which included a number of 
regulatory relief initiatives proposed by the AHA's own Regulatory 
Reform and Relief Advisory Committee, which I chaired. The bi-partisan 
legislation was reintroduced this year in the House (H.R. 810) and 
awaits action on the House floor. Though key members of the Senate 
advanced a regulatory relief package in the 107th Congress, similar 
legislation has not been introduced in the Senate to date.
HHS Advisory Committee on Regulatory Reform
    We're still a long way ahead of where we started, though, thanks in 
part to the interest legislators have taken in an issue that directly 
impacts our patients, and thanks in part to Health and Human Services 
(HHS) Secretary Tommy Thompson and his Advisory Committee on Regulatory 
Reform.
    Secretary Thompson's committee consisted of health care 
professionals, academics, beneficiaries and others committed to 
ensuring quality patient care with less burdensome regulations. The AHA 
fully supported the work of this committee, and, with our member 
hospitals, provided opportunities for the Advisory Committee and HHS to 
see first-hand the consequences that the regulatory burden has on 
patient care. The Advisory Committee's report to Secretary Thompson 
included 255 recommendations--some of which have been implemented, some 
of which are currently being implemented, and a number of which were 
heartily endorsed by the AHA, such as:
  --Adopting recommendations on the Emergency Medical Treatment and 
        Labor Act (EMTALA), including establishing an advisory 
        committee and ensuring that local medical review policies for 
        outpatient services are not applied to emergency department 
        services.
  --The Medicare Cost Report.--This relic of a previous cost-based 
        payment system, used prior to the current prospective payment 
        system, should be evaluated and overhauled to reduce its size 
        and complexity, and its arcane Medicare-specific cost 
        accounting principles should be modified or eliminated.
  --Streamlining the Minimum Data Set (MDS) for most nursing homes by 
        convincing the CMS to reduce the size of the MDS, and thereby 
        reducing by half the staff time spent on completing it.
  --Convincing CMS to streamline the OASIS form by eliminating 27 
        percent of the information items currently reported by home 
        health agencies and two of the 10 assessments currently 
        required, reducing by 25 percent the time spent by nurses on 
        OASIS data reporting.
  --Urging CMS to revise its policy for collecting Medicare Secondary 
        Payer information from every 30 days to every 90 days for 
        recurring outpatient services in hospitals, and from every 60 
        days to every 90 days for hospitals serving as reference labs.
  --Changing the Health Information Portability and Accessibility Act 
        (HIPAA) privacy rule so that patients no longer have to wait 
        until a consent form is signed to receive care, and so that 
        providers will have ready access to needed patient information 
        in order to continue to provide timely, quality care.
  --Addressing key concerns of rural providers. The committee 
        recommended consolidating the definition of rural to one 
        definition. In the past, the definition of ``rural'' was 
        different for hospitals versus health clinics. The committee 
        also recommended focusing on investing in best practices, as 
        well as providing more information to rural providers about the 
        more than 200 HHS programs that affect rural communities and 
        their health care entities.
What Needs to Be Done
    We've made great strides in addressing the regulatory burdens 
hospitals and caregivers deal with every day. But by continuing the 
collaborative working partnership between hospitals, HHS and Congress, 
we can make even bigger strides to reduce the red-tape burden on 
caregivers and strengthen our ability to continue providing the world 
class medical care that is the hallmark of our health care system. I 
would encourage you and your colleagues to keep the pressure on HHS and 
CMS to fully implement the Secretary's recommendations. Too much work 
has gone into this report to simply allow it to lay dormant.
    In addition, we would urge you and your colleagues to examine 
additional areas for reform.
  --HIPAA Medical Privacy Rule.--Hospitals have a long history of 
        protecting the privacy of patient information and this rule 
        goes a long way toward furthering this protection. However, 
        hospitals are facing an enormous administrative burden in 
        trying to comply with the rule's accounting for disclosures 
        requirement under the rule--a provision which states that 
        hospitals must track all disclosures made outside of providing 
        treatment, payment, and health care operations in case patients 
        request an accounting of those disclosures. Everyday, hospitals 
        are required by law to disclose patient information for 
        purposes of public health reporting, oversight activities, 
        disease registries, etc. While all of these are important 
        reporting laws, building information technology systems capable 
        of tracking these disclosures is, at best, enormously 
        expensive, and, in some cases, unobtainable depending on the 
        availability of vendors to provide the services. For example, a 
        150-bed hospital in Boston estimates that they make 300,000 
        legally required disclosures a year. Because each disclosure 
        takes 30-60 seconds to document and enter into a database, the 
        hospital would need to hire two full-time employees just for 
        data entry. Imagine the cost to a 500-bed--or larger--hospital. 
        These are resources that could and should be used to provide 
        patient care, not spent on paperwork. A common sense solution 
        exists, however: at admission, patients could be given a list 
        of the types of disclosures that may be made using their 
        information. The important goal of informing patients about 
        disclosures would be met without adding to the hospital's 
        paperwork requirement.
  --EMTALA.--We believe that EMTALA provisions should not apply to 
        inpatients. Congress enacted EMTALA to ensure that people have 
        access to emergency services regardless of their ability to 
        pay. Once a person is admitted as an inpatient, the hospital 
        has taken responsibility for more than is required under 
        EMTALA. At that point, the usual hospital-patient and 
        physician-patient relationships exist, creating duties of care 
        for the hospital and physicians, and giving patients legal 
        recourse if those duties are not met. In addition, keeping all 
        hospital staff current on EMTALA regulations--not just the 
        statute and formal requirements, but the continually evolving 
        informal guidance--takes additional time away from providing 
        direct patient care.
  --Allow providers direct access to courts to challenge decisions.--
        Unlike other federal agencies, Medicare program policy 
        decisions made by the Secretary are insulated from judicial 
        review. Health care providers are required to exhaust all 
        administrative processes and remedies before they can file suit 
        against HHS. However, there is effectively no such process to 
        exhaust on questions about whether the Secretary has exceeded 
        his authority or failed in his duty.
      Under Shalala v. Illinois Council on Long-Term Care, 120 S. Ct. 
        1084 (2000), the Supreme Court held that all matters arising 
        under the Medicare Act must be channeled through the Secretary 
        and that court review was available only following the 
        administrative process. The only time an administrative process 
        is available to hospitals to challenge a policy of general 
        applicability is if they are terminated from the program. 
        Consequently, as currently interpreted, the only means for 
        hospitals to challenge an unlawful action by the Secretary is 
        to fail to follow or ``violate'' the rules in order to be 
        terminated from the program. This means that the Secretary can 
        act outside the scope of his authority, without following 
        required procedures and be insulated from judicial review--
        unlike other federal agencies.
  --Simplify data collection process.--Currently OASIS and MDS use very 
        similar data collection tools, but they are unable to 
        communicate with one another and share data. Interoperability 
        between the two systems would greatly reduce the burden to 
        providers.
Establish Guiding Principles for Regulation
    Regulation is essential to protecting patients and building public 
trust and confidence in the system. But unnecessary, poorly targeted or 
poorly implemented regulations may be of little benefit to the public, 
frustrate health care providers and the patients they serve, and 
interfere with appropriate care delivery. We would suggest that the 
following be used as guiding principles for the promulgation of health 
care regulations:
  --The need to regulate behavior and the underlying objective of a 
        regulation must be clear, unambiguous and well-documented. For 
        hospitals, regulations should be used to protect patients from 
        harm, ensure that quality and other care and safety standards 
        are met, inform the public about their care, prevent fraud and 
        abuse, control expenditures under government programs, and 
        ensure fair functioning of the market for competing providers.
  --Regulations should facilitate channels of communication between 
        regulators and providers, and accountability of providers to 
        their patients and communities.
  --Regulations should be cost effective; linked to specific objectives 
        and regularly assessed as to whether it achieves its 
        objectives; based on sound scientific, technical, economic and 
        other relevant information; minimize the cost of compliance 
        assessment for both the regulated and regulators; and embody 
        the greatest degree of simplicity and understandability 
        possible.
  --Regulations should establish a safe haven for innovation and 
        encourage the pursuit of excellence through best practices.
  --Regulations should be applied prospectively and their 
        implementation appropriately staged to avoid disrupting patient 
        care activities, unnecessary costs, and overwhelming 
        administrative functions and information systems.
  --Interpretive guidance and CMS manuals should be kept up to date and 
        harmonized with underlying regulations. All too often, the 
        guidance and manuals are out of date and thus present 
        conflicting rules for providers and patients.
                               conclusion
    Our first priority is to provide high quality care to our patients. 
While some regulations contribute to this goal, others drain much 
needed resources, placing a strain on our hospitals and the men and 
women who work there. We believe the health care field should be 
regulated--but in a common sense fashion that allows health care 
providers to do what they've been trained to do--care for the ill and 
injured in our communities.
    Thank you for your time today. On behalf of the American Hospital 
Association and its members, we look forward to working with you and 
your colleagues further to provide needed relief from overly burdensome 
regulations.

    Senator Harkin. Thank you very much, Mr. Bernd.
    Boy, where do you begin on this? Well, where we ended up. 
What about what Dr. Mentel has done down in Jacksonville, in 
terms of getting rid of some of this paperwork and doing a 
paperless system? Does that answer some of this, or does it 
not? I am a little confused here, because his regulations there 
are the same that you have got. He has a hospital there, and 
he--I am trying to figure out whether his approach is one that 
really works for your hospital. Could this apply to all 
hospitals?
    Mr. Bernd. It certainly could. I think a paperless system 
is something that is a goal of probably every healthcare 
organization in the United States. And as the Doctor mentioned, 
though, it is extremely expensive. And with----
    Senator Harkin. Yeah.
    Mr. Bernd [continuing]. 30 to 40 percent of our hospitals 
running in the red, they do not have the capital available to 
invest in these systems. So it is one thing, we hope, that 
Medicare and Medicaid may be able to help us do in the future.
    But the information system he is talking about would not 
take care of the problem with having to produce these Medicare 
Cost Reports. That is done at the end of the fiscal year, and 
it is an accounting matter. It does not have anything to do 
with patient records, and he has automated patient records. But 
I think it is really excellent work they have done at Mayo.
    Senator Harkin. But I do not understand these reports. 
There are 350 pages.
    Mr. Bernd. Right.
    Senator Harkin. And that goes to CMS?
    Mr. Bernd. Yes. This is mandated, that each hospital 
produce this type of report on each institution, on an annual 
basis. It is the basis that Medicare can come in and audit your 
Medicare financing for hospitals. And so, literally, we 
probably have 3,000 pages per year per hospital, with these 
eight boxes of attachments and the summary of the Medicare 
report.
    A lot of the information is outdated. It has not been 
modernized. It still predates back when we had cost-based 
reimbursement, where the Government had to track all the costs 
in the hospital because we got paid on a cost basis.
    Now, of course, we are paid on DRG basis, which we have a 
flat set of money, and lot of this information is not needed 
anymore. We just have not had the effort or the reform to do 
away with a lot of these needless regulations. We really do 
need your help in that area.
    Senator Harkin. And does AHA have recommendations for us of 
what needs to be done?
    Mr. Bernd. Absolutely. Yes, sir, Senator. And we have 
provided those to you and your staff.
    Senator Harkin. And we have those, right? Okay. All right.
    I just wonder if, in some of the debate that is coming up 
on Medicare and stuff, I know it is all focused mostly on 
prescription drugs, but I am wondering if we should not--when 
the horse is leaving the barn to try to get on some of this, 
too, to see if we can streamline some of this.
    Mr. Bernd. Absolutely. If you think about it, with 1 hour 
of paperwork for every patient hour of care in an emergency 
department, you can see why the system is so expensive.
    Senator Harkin. I thought you----
    Mr. Bernd. It is part of the reason----
    Senator Harkin. I thought you said it was 30 minutes per 
hour.
    Mr. Bernd. That is on a medical/surgical unit, 30 minutes 
per hour. In the emergency department, it is worse.
    Senator Harkin. Oh. It is one for one.
    Mr. Bernd. One for one, yes, sir.
    Senator Harkin. Oh. Hmm. But what Dr. Mentel did down in 
Jacksonville--I will get to the capital issue of it here soon--
but would not that then replace all this paperwork? Because at 
the end of the year, could you not just send in the CMS data 
that would be paperless? Just electronic data?
    Mr. Bernd. Well, in fact, what we are dealing with here are 
the business systems, and he is talking about a clinical 
system. And in fact, the business systems already are 
automated, but we still have to produce this paper.
    Senator Harkin. I see.
    My staff just informed me that what you are dealing with is 
patient care, and what you are dealing with is administration.
    Mr. Bernd. Yes, sir.
    Senator Harkin. Patient care--I mean, I do not know where 
one ends and one begins.
    Mr. Bernd. Well, they are all part of the same system, but 
they are different----
    Senator Harkin. Yeah.
    Mr. Bernd [continuing]. Different regulations. This is the 
business aspects of healthcare to meet the regulations of 
Medicare.
    Dr. Mentel. They blur. It does become confusing. I charge 
whenever I perform a function. I order, and it ends up being a 
billable event.
    Senator Harkin. Right.
    Dr. Mentel. But I think--I end up spending a ton of money 
on programmers programming to get the data that he needs--even 
if I automated the darn thing, I would still be spending 
buckets of money on programmers to get the data out he needs to 
report, which he believes does not really need to be reported 
anyway in the current day and time.
    Senator Harkin. Hmm. Yeah, I--well, I do not know. I have 
to think about this some more, in terms of the necessity of 
having some way of having just sufficient data on which we can 
make public policy decisions.
    Mr. Bernd. Absolutely.
    Senator Harkin. You have got to have that. And then--but 
going overboard on some of this stuff--I mean, I have got to 
believe that that 350 pages really--no one really looks at 
that.
    Mr. Bernd. No. And again, it is 350 pages of summary. It is 
actually thousands of pages, because there are eight boxes 
behind this.
    Senator Harkin. You told me, yeah. Yeah.
    Mr. Bernd. It needs to be streamlined. It needs to be 
brought up to date. It needs to be less burdensome, because it 
is just eating up too many of our resources. This is just one 
example. There are hundreds of other examples of over-
regulation and paperwork that--it is costing us a lot of money 
and forcing--it is part of the--why we wanted to testify on 
this is it is part of the reason healthcare costs continue to 
accelerate.
    Senator Harkin. Uh-huh.
    Mr. Bernd. You know, it is not the whole reason, but----
    Senator Harkin. Right.
    Mr. Bernd [continuing]. It is a significant part. And we 
have had good cooperation from the administration and this 
committee to try to work on this. We just want to make sure 
everybody realizes how important it is and that we can 
hopefully reduce the increase of inflation in healthcare. This 
is one of the ways to do it.
    Senator Harkin. Just one last question for you Dr. Mentel. 
How did you convince Mayo to come up with the capital for this? 
Obviously, hospitals are strapped. I know that. Obviously, this 
took some up-front investment to do this. I know you show the 
payback is pretty good.
    Dr. Mentel. Yeah, it was a bit of a gamble.
    Senator Harkin. Yeah.
    Dr. Mentel. But with healthcare the way it has been going, 
we needed to take that gamble, basically, to try to reduce cost 
in a method that would not impact quality. And so the goal was 
basically to see if we could maintain the quality while 
attempting to reduce the cost, so it was an investment. It was 
just like any other investment you might make. ``We're going to 
spend x. We hope to have x-plus come back by the time it's all 
done.''
    Senator Harkin. And your data shows that you are getting--
--
    Dr. Mentel. Yeah.
    Senator Harkin [continuing]. A great return on that.
    Dr. Mentel. Yeah.
    Senator Harkin. I am just wondering what we should do 
nationally, maybe through Medicare or something else, to try to 
encourage other hospitals to go that route.
    Mr. Bernd. It might be good to fund some demonstration 
projects. I know that we cannot fund everybody, but, you know, 
to get some examples out there at different types of 
institutions that could have some research money from Medicare 
that would help set up precedents to show--I think we need to 
build the case, as Mayo has, through all of our hospitals that 
these kind of systems can pay for themselves in the long run.
    Senator Harkin. I like that idea.
    Mr. Bernd. And that is a possibility.
    Senator Harkin. I like that idea a lot.
    Mr. Hickman, if chronic care costs so much, and you have 
shown that disease management is effective in reducing these 
health costs, my question is, why is everyone not doing it? It 
would seem to me to be in the best interests of every hospital 
to be doing this. So why are we not?
    Mr. Hickman. We invest in disease management at our own 
expense. There is no reimbursement for paying for investing in 
nurse case managers or in the computer systems. That is at our 
own expense. And we get a payback, but it is about breakeven. 
Our payback is just in avoiding further financial losses. In 
heart failure, in some of our previous studies, we lose about 
$1,000 for every heart failure admission. So if we can care for 
our patients in other settings, at home, we avoid those 
financial losses.
    So, for us, for hospitals, there is not that much of an 
incentive to get into it. The big incentive comes--or the big 
payback is in from insurers. When we avoid a readmission to the 
hospital, you know, we may avoid some financial losses, but 
Medicare or Medicaid or the commercial insurer, that is who 
really reaps the big benefits. There is about a three-to-one 
payback there.
    Patients, they get some benefit because they do not have 
any out-of-pocket costs related to the hospitalization. The 
hospitals get a little bit of a break there. So, overall, it is 
about a five-to-one payback, but the big payback is to 
insurers--Medicare, Medicaid. So there is just not that much of 
an incentive for hospitals to do it. We do it because it is the 
right thing to do and we are values based.
    Senator Harkin. Are there any provisions in Medicare that 
would allow for the up-front payment or establishing chronic-
care management programs?
    Mr. Hickman. Well, there are some demonstrations going on 
at our hospital, Mercy Medical Center, in North Iowa. They are 
in a 5-year Medicare demonstration of--for case management to 
try to improve the case management. That is more of a 
community-based case management approach. The approach we are 
using now is more of a telemanagement approach.
    Senator Harkin. Uh-huh.
    Mr. Hickman. But otherwise, there is no reimbursement for 
the kind of disease management that we do.
    Senator Harkin. Yes, Dr. Davis?
    Dr. Davis. Commonwealth funded Don Burwick, at the 
Institute for Healthcare Improvement, to do a business case 
studies for quality, using the Harvard case-study method. And 
they looked at seven--mostly hospitals around the country. And 
what happened in Mr. Hickman's case happened in all of these 
places. The hospital spent money to implement a cholesterol 
control program, a diabetes management program. The patient 
benefitted by living longer. There might be reduced 
hospitalization, which normally loses the hospital money 
because they have fewer patients coming in. But the insurance 
company, or Medicare, saves. Medicare certainly saves when a 
diabetic patient is controlled at age 50 and then does not go 
into end-stage renal disease and cost Medicare money. But it is 
the problem of the payoff going to a different party or at a 
different time.
    What Medicare would need to do to deal with this is either 
to cover case management, as in the example Mr. Hickman's 
given, or pharmaceutical management--at Henry Ford used a 
pharmacy team--to really make sure that cholesterol was being 
controlled. But they had to pay the cost of those pharmacists 
to monitor that control, themselves.
    So adding case management to Medicare as a reimbursable 
service, pharmaceutical monitoring, as a reimbursable service 
would help, but I also think Medicare needs to be concerned 
about this pre-Medicare--older adults, who are--when the 
diabetes is starting and, as Dr. Fries says, put off really 
getting those--and that means finding a way to provide some 
direct support for these--chronic disease management and what I 
think of as the 50- to 64-year-old pre-Medicare age range.
    Senator Harkin. Okay. I am just going to--anybody who has 
got any thoughts on this, just--I am sort of just going down--
following from one statement to the other. Because, if what you 
just said, Dr. Fries, if we can get control of this--I mean, it 
is--if we had control, and if we can get this kind of case 
management system going, then it would seem to me then that you 
do buy that extra period of time in there that you are--that is 
my phrase. You push the onset back a little ways, right?
    Dr. Fries. That is correct, and I----
    Senator Harkin. You save a lot of money. You told me--I 
wrote this down; I thought it was interesting--if you decrease 
the rate of disability by 1.5 percent per month----
    Dr. Fries. Per year.
    Senator Harkin [continuing]. 1.5 percent per year.
    Dr. Fries. Yeah.
    Senator Harkin. I am sorry. Per year--that's--Medicare is 
solvent.
    Dr. Fries. That is correct.
    Senator Harkin. But you say it is already going down by 2 
percent a year.
    Dr. Fries. That is correct.
    Senator Harkin. So Medicare is solvent.
    Dr. Fries. If one plugs in those particular numbers, it is. 
But of course that is dependent upon a projection which says it 
will continue to go down by 1.5 percent or more per year for 
the next 50, 70 years. So it is a continued effect. And the 
question is whether you have achieved a one-time effect. And I 
am sort of emphasizing a long-term strategy in which we work on 
the biggest cost problems and drivers on the side of making 
sick people who require services--as we are moving along, so 
that we can keep that line going. I believe we could actually 
accelerate it.
    It is interesting, because Uwe Reinhardt, who is a well-
known economist, talked about what would happen when the care 
of the gross national product for medical care got to be 100 
percent. And he projected it was going to happen, I guess, late 
this century. And he saw the world as one in which everybody 
was a doctor, and they were in two-bed rooms, and they were 
feeding each other intravenously.
    That was the society which was envisioned. And I would like 
to, you know, counter-mark that by saying if we had a society 
in which nobody got sick or hurt, we would not need any system 
at all. Costs would go to zero.
    So let us just say that we can move a little bit toward 
there. And if we do it in a responsible, careful way--the 
arithmetic for Medicare goes something like this with regard to 
existing retiree randomized control trial data. A program which 
costs about $100 per person per year, and it is administered on 
a population basis through the mail and telephone, with 
tailored print interventions, will save about five times that 
amount, or $500 per year, in the first year, and that amount 
will grow slightly in succeeding years. So you can get an ROI 
of about five to one. The return can be very quick, with regard 
to providing some slack in the Medicare system.
    That is what the plan is now. The plan was the RAND review 
of whether this was a feasible approach, which said yes, it 
was; the design of a demonstration project, which is a very 
elegant randomized controlled trial which Medstat is currently 
in the process of completing; the implementation, hopefully, at 
the end of this year, and then going for the next couple or 3 
years, of the demonstration project itself, with yearly 
evaluation; and then the case made for a Medicare benefit which 
incorporates the proven arms that come out of the demonstration 
project.
    So there is a plan. It could get to a Medicare benefit 
stage where we are asking for large appropriations by 2008. It 
will not happen tomorrow, even if we are very quick about it. 
But it is very important that we get started. At the same time, 
we can encourage the private sector, and there are a variety of 
other folks, as to the same argument for work sites, for the 
50- to 64-year olds that Karen's considered about there. There 
are productivity issues. There are ways to return, by having 
healthier populations. There are ways to return money to the 
same people that are paying the money out, which is the 
argument that we are sort of having here. There is a mismatch, 
that you put in something visionary, and it works, and somebody 
else saves money. And that is not very much of an incentive for 
the hospital to put in the information systems or the chronic-
disease management systems to evaluate them, and so forth, 
because they are saving money for another pocket. Somehow or 
other we have to get that set so that the same pocket that 
saves the money pays for the program, and then it becomes self-
sustaining and can actually build.
    Senator Harkin. Well, if you have got some suggestions on 
how we do that, I would like to know.
    Mr. Bernd. Well, Senator, I think one thing we could do and 
look at--and AHA is thinking about this, too, along with AMA--
and that is to start paying providers, particularly Medicare, 
for clinical outcomes; paying for quality outcomes. Right now, 
we just pay across the board. Everybody gets paid the same 
amount of money. If we incent our institutions to do a better 
job, to maybe have a little larger reimbursement for 
institutions who do a better job and have better outcomes, 
lower length of stay, less complications, it probably could 
help greatly reform the Medicare program. It could really lead 
a reform of healthcare delivery in the United States.
    Senator Harkin. So you pay on the basis of outcomes.
    Mr. Bernd. Right. And it is not easy to do. And I know CMS 
is looking at it. But if you could start paying on quality 
outcomes, then it would encourage providers to start doing 
disease management, to----
    Senator Harkin. Right.
    Mr. Bernd [continuing]. Start taking care of the 
chronically ill----
    Senator Harkin. That is right.
    Mr. Bernd [continuing]. Because they are being paid on 
quality outcomes, rather than just providing a straight 
service.
    Senator Harkin. Do you think that that is possible to do 
that, to set up a system like that?
    Mr. Bernd. I think it is. Possibly one of the ways to do it 
is, in the future, with updates, inflationary updates, of 
Medicare, if we could get a decent inflationary update, to 
start using part of that update to provide a better payment for 
clinical outcomes. And I think what you would see is an 
overnight change of the way providers work. It is very hard to 
take the pie now and split it up. But out of future increases 
of Medicare, it is possible.
    Dr. Fries. I would just like to amplify that a little bit. 
There are a lot of us that have been--a lot of us here--that 
have been interested, a long time, in outcomes improvement, and 
say that that is really the job of a service profession, is to 
improve health outcomes. And everything we do should be focused 
on this. And one problem, of course, in terms of measuring and 
monitoring how much progress we are making toward improving 
outcomes, is, some part of a rubric, probably in future 
information systems or in future--hesitate to say--accounting 
mechanisms, but you are going to need to know individual 
disability, for example, and a couple of other quality-of-life 
measures, on a yearly basis, because you are going to have to 
measure this group of 50,000 people that are insured and being 
provided--are in a particular hospital system, and you are 
going to have to know that they actually have better outcomes. 
So you are going to have to measure those outcomes, or there is 
no way that you can do that.
    But if you did have that system in place--and I think it 
could be anything but onerous, compared with what we are 
talking about, be very, very simple--and then you were to pay 
people for keeping better outcomes than the competing 
healthcare system, you would have a real horse race.
    Senator Harkin. Do we have anything out there anywhere that 
can show us the way on that?
    Dr. Fries. We do----
    Dr. Davis. Senator?
    Dr. Fries [continuing]. We do it experimentally, so we know 
it can be done. I mean, I have 17,000 people that are under 
such monitoring. You would not do it as ambitiously as we do if 
you were to do it on a larger scale, but it is a feasible thing 
to do.
    Dr. Davis. Senator, if I----
    Senator Harkin. Yes.
    Dr. Davis [continuing]. Could add to that?
    Senator Harkin. Yes.
    Dr. Davis. We have done a study of what is called ``value-
based purchasing'' in the private sector. I have got a 
reference to it at the end of my testimony. But you take a 
company like PacifiCare. They are starting to give bonuses to 
group practices whose HEDIS quality scores for diabetes 
management, for example, are up in the top range, so they are 
giving bonuses. They are actually spending $15 million a year 
on bonuses to group practices that----
    Senator Harkin. But what is the bonus based on?
    Dr. Davis. It is having good diabetes controls. So, in that 
case, it is getting your hemoglobin A1C level down below, say, 
a nine level. So having a high percent of your patients whose 
diabetes is getting controlled.
    Let me give you another example. Johns Hopkins Hospital has 
recently started using--and I may need Dr. Mentel's help here--
catheter impregnated with antibiotics for heart-valve patients, 
and they reduce their infection rate to zero over the first 
nine months that they have tried this new technique. Now, under 
Medicare's normal payment system, that patient with a hospital 
infection would probably be an outlier, and they would pay 
more. If we were willing to say, ``You'll get a bonus on your 
DRG if you have a low infection rate,'' then more places would 
adopt the technologies that would actually get the infection 
rate down. It is most costly for the hospital to do it, but it 
is better care. In the long run, it is better--it is more 
efficient for Medicare. So that is one concrete example.
    Mr. Hickman. Senator, I have another example. I believe it 
is BlueCross of Michigan that pays a bonus now, as Karen was 
talking about, for achieving certain outcomes. Now, 
fortunately, right now, across the country, you are starting to 
see some consistency in measures that are being agreed upon, 
clinical quality outcome measures, from American Hospital 
Association, CMS, Joint Commission. You are beginning to see a 
set of clinical quality measures that everyone is agreeing on--
would-be good measures. BlueCross of Michigan, I believe, is 
doing to this already. They are paying--and I believe it is a 5 
percent bonus if you achieve certain higher levels of quality.
    So you might want to ask your staff to look into that one 
particular area.
    Senator Harkin. Right.
    Mr. Hickman. But the quality initiatives, especially 
American Hospital Association, now, through their voluntary 
reporting project, you are getting some agreement across the 
country on what could be measured and what are good measures in 
cardiovascular care--pneumonia, for example.
    Senator Harkin. See, it seems to me this is--it has been a 
kind of a--how do you--you can measure on an illness, if 
someone gets ill, and what--the reimbursement rate and stuff--
but how do you get a measurement of wellness so that you build 
in incentives? I supposed you could look at the data right now 
and say, well, if you fall below--or if you do certain things 
and your rate of increase is not so much, I suppose you can get 
a bonus. Is that----
    Mr. Bernd. I think you have to start--you probably have to 
start with a certain disease process, such as we talked about 
this morning--diabetes or congestive heart failure, a set 
population of Medicare beneficiaries--and incent the right type 
of care, the use of these case managers, and monitor that, and 
then pay on the results. And what you will see is, the total 
Medicare cost will go down. There is no doubt about it.
    We run a health plan with 300,000 members, on the private 
side, and we have seen significant decreases in our cost in 
treating those types of patients. But we are doing it within 
our own system. It is similar to these other demonstration 
projects. We need to change the entire Medicare program on this 
basis, and I think you will see we will get better care, better 
outcomes, happier consumers, and I think we can decrease the 
increased costs of Medicare over the long run. But somebody has 
got to step forward and take the bold step to change the 
system.
    Senator Harkin. Yeah. It sounds like the kind of thing that 
you cannot do in one fell swoop. But you can do some 
incremental things. Like you say, at least focus on a couple of 
disease groups, like diabetes, congestive heart failure. Is 
there anything else that leaps to your mind, other than those 
two, that might be really good examples? Are there a couple 
others that you might think of?
    Mr. Hickman. COPD and asthma, chronic obstructive pulmonary 
disease and asthma, are also two areas that need focus. 
Depression is another.
    Senator Harkin. Let us see. Asthma--what was that? Chronic 
obstructive----
    Dr. Fries. Emphysema.
    Senator Harkin. Yeah.
    Dr. Davis. If I could just elaborate on the asthma, the 
Children's Hospital in San Diego cut their length of stay for 
pediatric asthma in half through better management. But the 
California Medicaid program pays per day. So they actually get 
penalized financially by cutting the length of stay in half. So 
I think there are also some issues in the Medicaid program 
about the need to restructure the incentives to reward, not 
punish, better quality.
    Dr. Fries. Senator, the research in the area has tried to 
separate out process measures of care--that is, hemoglobin A1C 
sorts of things--and the outcomes of care. And there are 
elaborate guideline systems which have attempted to codify 
clinical reasoning so that the process measures are better 
linked to the outcome. So we now know, for example, in 
diabetes, because that has been the subject we have been having 
here, that improving the hemoglobin A1C does improve outcomes 
in diabetic people. We know that having the diabetic see an 
ophthalmologist yearly, after the first 5 years, to look for 
early proliferative retinopathy is important. We know that 
certain anti-hypertensives in diabetics are effective at 
prolonging the period of good renal function and delaying any 
onset of complications in those areas.
    So those are, sort of, a perfect area where we can take a 
process measure, which, by itself, does not mean anything to 
the patient, but we can, with some confidence, say this should 
be done because it will improve outcomes.
    Now, my viewpoint is a little different than the disease-
specific one, although I do not disagree with the disease-
specific one at all. It is that we do have interactions between 
diseases and between drugs for those diseases. And so unless we 
start looking at outcome measures which are truly outcome 
measures--like the level of disability in a population, or the 
level of mortality rates in a population, number of hospital 
days per year in that population, compared with something else, 
really global things--then we miss the fact that the anti-
hypertensive drug does this, the anti-arthritis drug causes 
heart attacks. And so you would have translations across. And 
you can have areas--and, in fact, the medical literature is 
pretty full of them--in which you have improvement in a 
disease-specific thing, but no effect on, let us say, total 
mortality.
    Senator Harkin. Yeah.
    Dr. Fries. So that you have some intervention which makes 
sense at the local disease level, but, somehow or other, in the 
system, they are compensatory losses, so that you really did 
not get the gain out.
    So we clearly need to work this on several fronts. And I 
would say the process area, in hooking it to outcome, looking 
at the major disease categories which people have been 
gravitating to just because of their magnitude, the ones we 
have been listing, and then look at overall health outcomes, 
and see if we cannot beat some of these other countries.
    Dr. Hoover. The one cautionary note is, this reminds me of 
something similar I was involved with, where they were trying 
to come up with an improvement measure, or improving an 
outcome, but the concern was that the institutions--in this 
case, Long Term Care Facilities--would select the patients, so 
that they would be able to get the outcomes, and that there was 
a fear that there might be some discrimination against patients 
they thought were not going to comply or who medically were not 
going to meet the outcome. And so----
    Dr. Fries. There are adjustments for that, though. I mean, 
it is----
    Dr. Hoover. Yeah, but----
    Dr. Fries [continuing]. From your field.
    Dr. Hoover. Well, no, but I mean, in terms of the 
implementation of the----
    Dr. Fries. Oh.
    Dr. Hoover [continuing]. Program, too. Once things are up 
and running, the hospitals then, themselves, might try to--and 
that was the concern.
    Dr. Fries. It is clear there needs to be case-mix 
adjustment, and people have tended to do that. For example, the 
academic medical centers tend to see more complex, more 
difficult kinds of patients. And you have to have some way of 
adjusting for that.
    Dr. Hoover. Yeah, but even beyond that. For example, you 
think a certain ethnic group is not going to comply with the 
procedures or things like that. I mean, there could be other 
problems.
    Mr. Bernd. We do a random sample, a blind sample, of the 
cases that you put in place.
    Another good example is of schizophrenia patients under our 
health plan in Norfolk, Virginia. We put case managers in place 
that communicate with these people on a daily basis to make 
sure they are taking their medications and to make sure they 
are eating right. And it is very simple, but it is expensive. 
But it is simple, and we have been able to reduce admission 
rates by 50 percent, both the emergency departments and in-
patient admissions, of these patients. It can be done.
    So you can see, if we could incent--we are doing this 
through a grant from our own internal foundation and from a 
grant from a pharmaceutical company.
    Senator Harkin. Thank you, Doctor.
    We have been joined by our distinguished colleague, Senator 
Craig, from Idaho, and I would yield to him for statements, 
questions, observations, or whatever you like.
    Senator Craig. Thank you very much.
    Senator Harkin. We have had a great discussion here, by the 
way.
    Senator Craig. I know, and I missed it, and I apologize. I 
am going to read your testimony, lady and gentlemen, because I 
am--we are all very interested in this issue, and I think we 
are all very concerned at this moment, as we reform Medicare 
and add prescription drugs to it and try to project its cost, 
that we just open the door to the U.S. Treasury and step back, 
all in the name of humanity and all in the name of older 
Americans who need. And I hope we have not done that. I am 
obviously going to vote for the legislation. At the same time, 
I know our ability to project. Also, I know our inability to 
micromanage effectively at this level. So I hope we can create 
some diversity in that new program that will allow the 
marketplace opportunity to help us micromanage.
    Now, having said that, Dr. Hoover, in another iteration I 
am chairman of the Select Committee on Aging, and I have spent 
the last good number of years looking at the demographics of 
our aging population and, of course, the impact they have now 
on the healthcare system and on all of our social systems, if 
you will, or public policy systems where we are involved. 
Marvelous things are happening out there to our aging 
population. They are also darned expensive, and I tell my folks 
that, who are aging. And I am about to become a--I am in that 
boomer class, so I am going to be part of the problem here in 
the near future.
    I say that all in good humor, but, in reality, we have some 
very real concerns that both aging Americans and mainstream 
workforce Americans are going to have to face collectively 
together. And I have read bits and pieces of your testimony. 
But my frustration is, and your studies apparently have shown, 
that it is darned expensive to die in this country. Nobody 
wants to get sick, and nobody wants to die, but dying is more 
expensive than getting sick in some instances.
    So visit with me about that for a few moments. We have got 
to figure out a cheaper way to die in this country.
    Dr. Hoover. Well, it is also the getting sick before you 
die----
    Senator Craig. Yes, of course.
    Dr. Hoover [continuing]. That costs, as well, too. You 
cannot----
    Senator Craig. No, I understand all of those problems----
    Dr. Hoover [continuing]. Completely separate----
    Senator Craig [continuing]. But, you know, the reality is, 
we need to figure this out. We are all going to die, and it 
should not have to be the most expensive episode in our lives 
and in the taxpayer of America's lives.
    Dr. Hoover. Yeah, well, I think, as a lot of the speakers 
also said, there were maybe two or three components, in terms 
of where the costs are coming from. Some people, they have 
very, very expensive medical procedures at any time, but 
usually it is more likely to be closer to death, in terms of in 
hospital care, and a few of these were talked about. Others, it 
is just the general disability and things like that, and, you 
know, there needs to be supportive care, in terms of, you know, 
nursing home and long-term care.
    Now, in terms of where the population is and where it is 
shifting, you know, you were talking about the baby-boomers, 
and we are all getting older, and we are going to start aging 
into older ages where there is actually going to start being a 
lot more, in terms of long-term care and disability care, as 
opposed to, necessarily, the intensive hospital care. This 
other part will not go away.
    So I guess, to try to close, is, it is the long-term care 
of people who have disabilities, I see as becoming a bigger----
    Senator Craig. Disabilities and chronic illnesses----
    Dr. Hoover. Yes.
    Senator Craig [continuing]. I would assume.
    Dr. Hoover. Right. And where you need to have nursing-home 
and that type of care, supportive care.
    Dr. Fries. Senator Craig, if----
    Senator Craig. Let me just do a follow-up, and all of you 
can respond to this, if you wish. I am asking it specifically, 
but I ask it also generally.
    I am assuming--and we have looked at that, and I think one 
of your, or one of your testimonies, or maybe all of you, spoke 
about the cost of managing chronic illnesses and the value of 
the savings that comes from that, instead of letting sick 
people really get sick. But can we assume that if we get into 
the business of better management of folks with chronic 
illnesses, that we spread those costs backward instead of see 
them kind of accumulate in that last year of life?
    Dr. Hoover. I am going to let everybody else jump in----
    Senator Craig. Okay.
    Dr. Hoover [continuing]. Because I think they have been 
talking about that. And my suspicion is, there is going to 
always be some cost at the very end, at the end of life. As 
people get ill and they pass on, they are going to go through a 
stage where it is going to generate some costs. I think the 
discussion has been that there is a way to do what you are 
saying.
    Dr. Fries. Let me just follow on----
    Senator Craig. Sure.
    Dr. Fries [continuing]. From that. I think that most people 
who have studied the area have felt that it might be possible 
to reduce these costs by as much as one half, but that--because 
you never know, going into the last year of life, that it is 
the last year of life. It is really very----
    Senator Craig. That is true.
    Dr. Fries [continuing]. Very difficult, when you have 
defined these numbers looking backward. But just a couple of 
things.
    Bill Foege and Mike McGinnis----
    Senator Craig. We could legislate it. But then again----
    Dr. Fries. It is a hard thing to----
    Senator Craig. I told the folks in Idaho, when we failed to 
eliminate the death tax, and we spread it over a 10-year 
period, I told the people in Idaho that they could not die for 
10 years.
    But that did not work, either.
    Dr. Fries. That is right. Well, Foege and McGinnis 
emphasized that chronic diseases are not causes of death or 
disability. Chronic diseases have causes. And that until we get 
set for the causes of the chronic diseases, which is lack of 
exercise and cigarette smoking and everything, we are not 
anywhere near the root system. We published, last year, in the 
American Journal of Epidemiology, a paper looking at the last-
year-of-life costs by fitness level, essentially, by health 
risks; and those people with good health risks, who had good 
health habits, had less than one half of the last-year-of-life 
of costs of those who did not. So, clearly, the compression of 
morbidity that we were speaking of earlier operates on last-
year-of-life costs.
    Then a final point, because you correctly made, Dr. Hoover, 
the point that advanced directives, which have been many of our 
hopes as a helpful interaction here--that is, living wills and 
durable power of attorney--have not been proven, in the main, 
as helpful as we would like.
    But there is a real anomaly here with an initiative to be 
seized. 85 percent of people say that they would like dignified 
and humane care at the end of their life. And the absence of 
this is a major driver. Only 15 percent of people have executed 
such documents. Now, it is a tremendous area, where people say 
they want to execute the documents, but they have not done it. 
We, clearly, get these people to execute these documents. Then, 
having executed the documents, you have to get the documents in 
the right place. Your doctor has to have it, your caregiver--
remember, you are not going to walk in and say, ``Here's my 
thing.'' You are going to be rolled in for this. So you need to 
have the copies of your wishes as to what is done to you in the 
chart, with your doctor, with the caregiver or an alternate 
caregiver who might be involved in that. And those things which 
have tried to take advanced directive seriously and not just 
say--you know, have actually tried to implement them, are 
showing some signs that this may be an important way to deal 
with this issue.
    Mr. Bernd. I think the other way is to continue the 
encouragement of the use of hospice programs. Outpatient 
hospice programs have been very effective to have a higher 
quality in the end-of-life experience and also to keep the 
costs within control. And utilization is increasing, but it 
really needs to be encouraged.
    Dr. Hoover. Yeah, if I could comment a little--and, Senator 
Harkin, you had a question on the impact of hospices. They do 
work. And I think Hogan, et al., says about 19 percent or 20 
percent of the patients that are dying are using hospices. Now, 
not every patient who dies needs to use a hospice. And a 
hospice reduces, on average, the cost, of about $3,000 per 
patient end-of-life-cost, through use of a hospice.
    But the problem, though, is that end-of-life costs, in that 
last year are so high that this $3,000--it is helpful, but it 
is maybe, you know, 1 to 2 percent of the total end-of-life 
cost. So it is not, in and of itself, an answer, but it is part 
of something that is needed.
    Senator Craig. Well, thank you all. I have no other 
questions. But you mentioned a fitness and less--healthy people 
dying at older ages costs less. My family, my wife's father 
passed away summer before last, at 89. He had completed a golf 
game, came in, sat down, was resting to go down--they lived in 
a retirement community--for dinner, and fell asleep and never 
woke up. His cost impact on that unit, that family, his wife, 
and it was really that, except for burial. And I think 
backwards to that, he was a physically fit man all of his life, 
took care of himself, exercised, and really was very seldom 
ill, and only minor. And I had not thought of in that context 
until you mentioned it, that here was a very healthy man who 
was fit, whose impact, from the standpoint of cost to die, was 
just very minimal, in reality. Point well made, thank you.
    Senator Harkin. Thank you, Senator Craig.
    Let me ask you a question. Let me ask how this happens. How 
would it happen that a 95-year-old woman in a hospital in a 
State had a quadruple bypass performed on her, and she died two 
weeks later? Why would that happen? I mean, how could something 
like that--and this is a case that is actual. Now, this same 
person--again, this is information--just performed a fourth 
bypass on a severely obese woman in her 40s. Fourth bypass. But 
no one has been working with her on her obesity and to get it 
under control. She just comes in, and they do another bypass. 
How do these things happen?
    Mr. Bernd. It is the way the system is set up. If you have 
a beneficiary or someone under insurance comes in and demands a 
procedure--and, in a lot of cases, it has got to be done. The 
other thing is the incentives are--as we talked earlier, the 
incentives are that we are paid on piecework. We are not paid 
to keep people well; we are paid to take care of and intervene 
in diseases processes. And those are two examples, obviously, 
that are of not good care. And I certainly would not condone 
them.
    Senator Harkin. I just do not know how that happened. You 
know, you would think a 95-year-old woman, quadruple bypass, I 
mean, it just does not make sense. I do not know how that 
happens.
    Yes?
    Dr. Mentel. And you know, we always might assume the more 
puerile inside of the story. But I have got to tell you, when 
you suggested that we could limit or legislate end-of-life 
care----
    Senator Craig. I trust you recognize the context in which I 
said that.
    Senator Harkin. I am sure he was----
    Senator Craig. I do not think we would get many votes on 
the floor of the Senate, so I doubt that I would offer it.
    Dr. Mentel. Well, I actually thought, it is done. It is 
done around the world. We legislate on dialysis. We legislate--
I mean, not ``we''--but other countries and other people do 
that. And if we legislated on transplant and dialysis--I mean, 
there is a lot of high-cost care out there that is legislated 
around the world, but you do not, because you really do think 
it would not go over very well with the American populace. 
Well, guys, change roles with us. Sit in the room with the 91-
year-old lady who has got a breast lump. And you say, ``Well, 
you're 91, and maybe that mammogram's probably going to not 
show anything, but it just might,'' and am I going to make the 
decision on whether you can or cannot have your mammogram, am I 
going to tell you no? Or if you are 95, and you are sitting 
there with angina, severe chest pain, and you cannot even get 
out of your darn wheelchair because of the angina; actually you 
were out in the garden, and you were having a pretty good time. 
Are you going to tell that lady, ``No, you're 95. I'm not going 
to have you undergo bypass surgery''? This is not as easy as 
the rule would be to write.
    Senator Harkin. I understand that. These are difficult 
questions, you are right.
    Senator Craig. Senator, I have an 87-year-old father, who 
is physically very active and fit, but he has prostate cancer. 
He detected it--it was detected at 78 years of age. And he 
called me to intervene with the doctor, because the doctor 
refused to take him through surgery. And the reason he refused 
to, he says, ``You're too old for that. There are other ways.'' 
In other words, what he was saying is, ``There are other ways 
to treat you that will allow you to live out your life, because 
you're not going to''--what he did not say was, ``because 
you're not going to live that much longer. And so, therefore, 
we won't do as radical a treatment.'' My father was very angry, 
because somebody was all of a sudden putting a timeline out 
there for him, and he had not planned yet to die.
    Now, a substantial number of years later, the surgery was 
not done, other treatments have been used, and he is very much 
alive and healthy. But I had to walk him through it. And what I 
had to do--because I walked my mother through it to understand 
it, and then I actually called the doctor--we went back to the 
doctor, and I had the doctor walk through with him, in a much 
more detailed way, why these things were being done and what 
was the likely outcome. When it was over with, my father was 
satisfied. But he grew up in a time--when you had a cancer, you 
cut it out. And then he had not factored in age. And the moment 
age was factored in, he was a very angry person.
    I would suggest, afterwards, that the doctor and I had 
several conversations, at the doctor's initiative, saying, ``I 
misjudged that one. I have learned something here.'' And I 
said, ``Well, I did, too.'' Because I was suggesting to my 
father, in some context, what the doctor was saying, and my 
father was then angry with me. All of a sudden, ``Well, you're 
going to out--this is going to outlive you, Dad, or you're 
going to''--``No, it's not.'' You know, he had not planned 
yet--and, right now, my guess is he is good for a good number 
of years left.
    Mr. Bernd. You know, Senator Harkin, earlier we talked 
about how much less GNP is being spent in Great Britain and 
Canada and some other areas, and one of the major reasons for 
that is rationing of healthcare and not doing procedures on the 
very elderly and having waiting lists for elective surgeries, 
and that does drive the cost of healthcare down. Is that the 
kind of system the American public wants? I do not know the 
answer to that, but that is a large part of the cost equation.
    Senator Harkin. I do not know, either. And I do not know 
those systems real well, but, I mean, I--Canada is not that 
much different than we are, people-wise, how people live and 
what they do. I am a little bit familiar with some of the 
systems in Germany, having had my wife's family members to 
die--and live under that health system. And so we got a kind of 
a firsthand look at that.
    I mean, it is hard to detect rationing. I mean, it is hard 
to--I could not detect it in the German system. I thought they 
got very good care and everything, but somehow they do not 
spend as much.
    Mr. Bernd. Well, I will give you a concrete example. In 
Great Britain, we had an exchange program with one of the 
regional governmental systems that provide all the care for 
part of a suburban area in London, and we went over there and 
visited their system. And I went to the regional cancer center 
there and talked to the physician in charge, and I asked him 
what the cancer incident rate was per thousand in his 
community, and he gave me the number. And then I asked about 
his treatment slots per year, and they came out to be about 60 
percent of the incidents of cancer. And I said, ``What do you 
do?''--being an American businessman, I said, ``Do you go to 
other regions in the healthcare system and bid these out to get 
the best price to stay within your budgets?'' And he looked at 
me like I was crazy. He said, ``No, we've got these kind of 
treatment slots, and it's all we use.'' And I said, ``What do 
you mean?'' He said, ``Well, somebody comes in with terminal 
cancer, we give him pain medication, and we send him home.'' I 
said, ``If you did that in the United States, you'd have, you 
know, three Congressman, five lawyers, and the Washington Times 
on you.''
    So it is a different system. It really is.
    Senator Harkin. That is true.
    Mr. Bernd. The one other thing--I am going on, but--the 
other thing is, when they visited our organization, one of the 
doctors said, ``Do you know the difference between America and 
the United Kingdom?'' I said, ``No.'' He said, ``Americans feel 
that death is an option.''
    Dr. Davis. You know, Senator, if I----
    Senator Harkin. Yes.
    Dr. Davis [continuing]. If I could speak to this point.
    Senator Harkin. Let us wrap this up, please.
    Dr. Davis. We support a U.K./U.S. quality improvement 
conference annually, and we feature best practices. The U.K. 
cancer learning collaborative, the regional network, to improve 
cancer care, has developed new, kind of, management and 
scheduling techniques, that even without an expansion of 
capacity, they have reduced the waiting time for definitive 
treatment for cancer from 260 days down to 60 days. Now, we 
would think that is still unacceptable, but I think they are 
recognizing that they have under-invested, particularly in 
oncology care and in cardiac care, and are doing some very 
interesting things to that kind of improvement.
    But one of the things they have in the U.K. that I think is 
interesting is something called the National Institute of 
Clinical Excellence. And I think there is something for the 
United States to look at in this. Certainly, there are examples 
of people not getting needed care, but we also have examples of 
excess care. You know, examples are surfacing of chemotherapy 
being provided in the last days of life. And these are patients 
with extensive spread for whom it is really not indicated. And 
it is not as if even the patient or the family is demanding it. 
It is that the financial incentives in our system reward it.
    So the truth in the matter is, we do not know whether we do 
too much or the U.K. does too little, because we do not have a 
scientific way of really looking at the effectiveness and the 
cost of providing these services. And until we are really 
willing to talk about quality standards, clinical guidelines, 
and building the evidence base for what is appropriate, and 
then let patient and family preferences modify that--but being 
fully informed that going through this chemotherapy regimen is 
really not going to extend your life, and it is really going to 
make the quality of your life much reduced. And so I think we 
need to move to a science-based standards of care and get 
beyond this rhetoric of ``They're rationing care in other 
countries; we need all the care that we're providing.''
    We really need to look at cost and quality, what is 
effective, what is scientifically sound, and have a mechanism 
for doing that.
    Senator Harkin. Thank you. I am going to look at that. 
National Institute of Clinical Excellence. I want to take a 
look at that and see what--I have not heard of that before.
    Well, thank you all very much. Did anybody have something 
else you wanted to add? I have to wrap up here shortly.
    Dr. Fries. Well, I was just going to make a short comment 
that when we are talking about healthcare costs and the 
technology drivers and so forth--I am kind of echoing Karen's 
point--we are a country that loves technology----
    Senator Harkin. Yeah.
    Dr. Fries [continuing]. So that the demand-side view would 
say that--why do we have the same ratio of televisions per 
capita to healthcare costs per capita, versus U.K. and the 
United States? Why do we have the same amount of automobiles, 
the ratio of automobiles per person, ratio of computers per 
person? They are much higher than they are in these other 
countries. So there is--and Victor Fuchs and others have said 
this technological imperative, which is driving part, a good-
sized part, of the costs that are going up. And in part, that 
is a national pastime, and we are very easily sold on the 
latest and the most expensive and the highest tech, 
particularly if somebody else will pay for it.
    So what I think Karen is saying, in terms of establishing 
the quality guidelines, is that--and something that perhaps the 
Senate can get involved with at some level--is it is a rational 
use of these kinds of things, recognizing that there is clearly 
such a thing as overuse, even if we cannot define it exactly 
the way we would like to, and that it is fairly prevalent in 
this country, by any international comparison.
    Senator Harkin. Well, thank you all, again, very much. This 
has been a very intellectually stimulating morning for me, I am 
sure for our staff.
    It seems--you know, again, in terms of what is driving 
costs and cost containment, you have got two sides. You have 
got demand side and supply side. And so you have got to--as I 
have heard you this morning, there are ways of addressing it on 
both sides. And the problem, on the demand side, seems to be 
that how we build in incentives for wellness, how we build in 
incentives for being healthy and----
    I just remembered a trip I took to China. One of my trips 
to China, we were out looking at a medical clinic in a fairly 
rural area, and it was very rudimentary, obviously, but--it was 
very rudimentary, but the doctor and the healthcare people 
there had this system where this doctor and his healthcare 
personnel in this clinic were responsible for so many people--
they had so many people in a certain area that they were 
responsible for. And of course, they worked for the Government. 
And they were reimbursed--and he had--they kept track of these 
people--they had their names in little card files. It was not 
very high-tech. And at the end of the year, someone came around 
and checked on them, and based upon how few had to go to the 
hospital, how few had to go on, they got more money, this 
doctor and the healthcare--they got more money for that. And so 
they were out trying to keep people healthy all the time, 
because that gave them an incentive to do so. I thought--
obviously, that is not our system, but----
    How do we build in incentives for keeping people healthy? 
How do we start changing some of our habits in this country, in 
terms of obesity, which is now a big problem, and exercise, 
and--it is starting at an early age and getting the kids--we 
have got to start with the younger generation to get people to 
start getting a lifestyle that is different that will keep 
people healthy later on in life. It is pretty hard, when you 
are 55 and you have never exercised, and, you know, you have 
led a sedentary life and you are sitting there watching TV all 
the time, it is very hard to change. But if you have done that 
all your life, well, then it becomes a part of your lifestyle. 
So how do you provoke the demand side to have a healthier 
lifestyle, to utilize services less?
    Then, on the supply side, how do you we encourage and give, 
again, incentives for the supply side to go to paperless 
systems? How do we get incentives to cut down on this kind of 
stuff? I mean, what do we have to do to stop this? Because this 
is just nonsense. This is nonsense. How do we build those in, 
on the supply side, to make a more efficient system?
    Then there is this last issue of end of life. In your 
situation--I forget----
    Dr. Fries. Compressing morbidity.
    Senator Harkin. Collapsing mobility?
    Dr. Fries. Compressing morbidity.
    Senator Harkin. Yeah, collapsing morbidity. And how, again, 
in that--again, how do we do that? How do we, again, provide 
the incentives and the encouragement to do that in this system? 
And how do we figure the end of life? Because, you are right, I 
mean, what did you say--how much money do we spend in the total 
system? It was----
    Dr. Hoover. One fourth of Medicare.
    Senator Harkin [continuing]. One fourth.
    Dr. Hoover. And one fifth of all healthcare----
    Senator Harkin. Yeah.
    Dr. Hoover [continuing]. Expenditures.
    Senator Harkin. That is big.
    Dr. Hoover. That is last year. Yeah. Only 5 percent of 
people are--you know, die every year, so it is that much money 
for a very small portion.
    Senator Harkin. That may be the touchiest part of all with 
how we handle that, just in terms of--I do not know. Some of 
these others, I think we might be able to work on, but I do not 
know how we would work on that one.
    Dr. Hoover. Yeah, well, as someone was alluding to before--
I think it was Dr. Fries--to a certain degree, it is impossible 
that you do not know who is going to die in advance, and so you 
even if you wanted to say, you know, you are going to die, you 
know, next month, or whatever, you do not know that. But the 
fact is, even if you could do that, in our paper that we did, 
even if you could predict in advance--1 month, 3 months in 
advance--some person was going to die, you actually do not end 
up saving all that money, at least for intensive technology-
based inpatient care. You know, if you say, ``We're not going 
to do these expensive things on you, because, you know, we know 
you are going to die,'' the costs there would not be all that 
much, because so much of the costs are, you know----
    Senator Harkin. Exactly.
    Dr. Hoover [continuing]. Other things.
    Senator Harkin. Yeah.
    Well, these are all very stimulating, and I think there are 
some suggestions I got this morning that I just asked my staff 
to work on that we might look at in terms of this Medicare 
bill. And if any of you have any other further suggestions that 
we might want to try to do in this Medicare bill coming up, I 
mean, we are open for suggestions, written suggestions, that 
you might have on some little fixes we might do. Maybe it is on 
the margins, but sometimes on the margins, it helps. Or 
demonstrate some programs. We might demonstrate different 
things. I have got some ideas for those here this morning, too.
    So, again, I thank you all very much, some of you coming a 
great distance. Thanks for all the great work you are doing out 
in the field. And I can say, about each one of you, you are 
sort of on the cutting edge of what we have got to be doing to 
get this healthcare cost a little bit contained, to slow the 
growth in terms of the GDP that we are spending on healthcare.

                         CONCLUSION OF HEARING

    Thank you all very much for being here. That concludes our 
hearing.
    [Whereupon, at 11:29 a.m., Wednesday, June 11, the hearing 
was concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]

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