[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
    MEASURING PHYSICIAN QUALITY AND EFFICIENCY OF CARE FOR MEDICARE 
                             BENEFICIARIES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 15, 2005

                               __________

                           Serial No. 109-39

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
ROB PORTMAN, Ohio                    WILLIAM J. JEFFERSON, Louisiana
PHIL ENGLISH, Pennsylvania           JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
SCOTT MCINNIS, Colorado               STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky                  MIKE THOMPSON, California
MARK FOLEY, Florida                  JOHN B. LARSON, Connecticut
KEVIN BRADY, Texas                   RAHM EMANUEL, Illinois
THOMAS M. REYNOLDS, New York
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                NANCY L. JOHNSON, Connecticut, Chairman

JIM MCCRERY, Louisiana               FORTNEY PETE STARK, California
SAM JOHNSON, Texas                   JOHN LEWIS, Georgia
DAVE CAMP, Michigan                  LLOYD DOGGETT, Texas
JIM RAMSTAD, Minnesota               MIKE THOMPSON, California
PHIL ENGLISH, Pennsylvania           RAHM EMANUEL, Illinois
J.D. HAYWORTH, Arizona
KENNY C. HULSHOF, Missouri

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


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of March 8, 2005 announcing the hearing.................     2

                               WITNESSES

Center for Medicare Management, Centers for Medicare and Medicaid 
  Services, Herb Kuhn, Director..................................     6
Society for Thoracic Surgeon's Task Force on Pay for Performance, 
  Jeffrey Rich...................................................    12
National Quality Forum, Kenneth Kizer............................    31
Pacific Business Group on Health, Peter Lee......................    36

                       SUBMISSIONS FOR THE RECORD

Alliance of Community Health Plans, Jack Ebeler, statement.......    63
Alliance of Specialty Medicine, statement........................    64
America's Health Insurance Plans, Behrends Foster, statement.....    66
Ethical Health Partnership, Dawn Lipthrott, statement............    70
National Business Coalition on Health, Andrew Webber, statement..    75


                      MEASURING PHYSICIAN QUALITY
                         AND EFFICIENCY OF CARE
                       FOR MEDICARE BENEFICIARIES

                              ----------                              


                        TUESDAY, MARCH 15, 2005

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:10 a.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson, (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 08, 2005
HL-3

                 Johnson Announces Hearing on Measuring

                Physician Quality and Efficiency of Care

                       for Medicare Beneficiaries

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on measuring physician quality and 
efficiency of care in Medicare. The hearing will take place on Tuesday, 
March 15, 2005, in the main Committee hearing room, 1100 Longworth 
House Office Building, beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include a representative from the Centers for Medicare & 
Medicaid Services (CMS) and representatives from groups experienced in 
measuring quality and efficiency of care. However, any individual or 
organization not scheduled for an oral appearance may submit a written 
statement for consideration by the Committee and for inclusion in the 
printed record of the hearing.
      

BACKGROUND:

      
    Medicare currently pays physicians equally for the same service, 
regardless of the quality of that care or the efficiency of its 
delivery, but does adjust for geographic differences in the costs of 
delivering care. As the long-term financial security of the Medicare 
program is challenged by rising health care costs and increased 
enrollment from aging baby-boomers, Congress will examine 
recommendations by the Medicare Payment Advisory Commission (MedPAC), 
including its recommendation that Congress establish a quality 
incentive payment policy for physicians practicing in the Medicare 
program.
      
    CMS has a number of demonstrations underway to examine how to 
improve the quality of care under Medicare delivered by physicians or 
integrated health systems. These include a demonstration to reward 
physicians for improving the quality and efficiency of health care 
services delivered to fee-for-service beneficiaries in 10 large group 
practices (200+ physicians) across the country. A second demonstration 
promotes the adoption and use of health information technology to 
improve the quality of patient care for chronically ill Medicare 
patients provided by small and medium-sized physician practices in four 
states. In addition, CMS is funding several demonstrations on disease 
management and chronic care improvement which include payment based on 
quality of care. As part of the demonstration process, CMS has worked 
with providers and other groups to develop performance measures, data 
infrastructure, data collection and evaluation procedures, and linked 
these measures to payment or reporting criteria.
      
    Some physician specialty groups have well-developed systems to 
identify quality care and some private payers have begun to link 
payments to quality and efficiency. Other specialty groups have not yet 
developed quality and efficiency indicators applicable to the care they 
deliver. CMS is working with physician groups to identify measures that 
could be linked to payment for performance; measures identified by this 
group are under review by the National Quality Forum, a group that 
develops consensus about quality measures among various stakeholders.
    In announcing the hearing, Chairman Johnson stated, ``MedPAC has 
recommended that Congress vary payment to physicians based on quality. 
It is time to examine the quality and efficiency of care delivered to 
our seniors under Medicare, and to begin to develop a system to reward 
providers differentially based on that quality. This hearing will offer 
the Subcommittee an opportunity to hear what CMS is doing to relate 
physician payment to quality and what some physician groups are able to 
achieve with their systems of quality improvement.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on identifying the steps being taken by CMS 
and others to measure quality and efficiency of physician care. 
Witnesses will outline actions to pay for better results in Medicare.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
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submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
March 24, 2005. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
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not alter the content of your submission, but we reserve the right to 
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    1. All submissions and supplementary materials must be provided in 
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Committee relies on electronic submissions for printing the official 
hearing record.
      
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    Note: All Committee advisories and news releases are available on 
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    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
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materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman JOHNSON OF CONNECTICUT. The Subcommittee will come 
to order. Today we hold our second hearing of this Congress on 
physician reimbursement under Medicare. At the first hearing I 
stated that we need to fundamentally rethink how we pay 
physicians, and I said that because today we are truly at the 
brink of a new era in health care. Remarkable advances have 
been made in medical science, technology and pharmaceuticals. 
The next frontier is improving the health care delivery system 
to realize the quality of care these advances make possible. 
Improving the quality of health care in America requires 
systemic changes in the structure of our delivery system, and 
you will hear some of that today; the widespread adoption of 
interoperable electronics, describing the health record 
technology to reduce errors and better integrate patient 
information and relevant specialty knowledge, and a reform of 
our payment systems to foster the dissemination of best 
practices, and the coordination that disease management 
requires.
    As we move toward the new system to better reward 
physicians who deliver higher quality care, quality 
measurements must be clearly defined and reasonably achievable; 
be developed with input from the physician community, and 
recognize improving the quality of care delivered; reward, not 
penalize; recognize that e-mails, phone calls and many new 
forms of communication and care delivery must be integrated 
into the payment system to enable physicians to avoid more 
expensive care settings like hospitals, nursing homes and 
emergency rooms for their patients. The Medicare Payment 
Advisory Commission (MedPAC), recently recommended that 
Medicare establish a quality incentive payment policy for 
physicians. The Centers for Medicare & Medicaid Services (CMS) 
has begun to lay the groundwork for payments based on the 
quality of care delivered. The CMS already collects quality 
data from many Medicare providers and makes the information 
publicly available to allow beneficiaries to compare the 
quality of care provided by different nursing homes, dialysis 
facilities and home health agencies. The CMS will begin to 
report quality information for hospitals soon, to provide new 
resources for beneficiaries when they are searching for a 
hospital or other care givers.
    Other steps must be taken to lay the foundation for a 
system of payment based on results. First, key stakeholders 
including Congress, CMS and providers must develop measures of 
quality. This must be a collaborative effort involving 
significant provider input. Second, we must develop the data 
infrastructure to support collection of better information. 
Third, we must collect and evaluate the data. Finally, we must 
use the information to improve quality, or as a basis for 
payment. The CMS is operating a number of demonstrations to 
gain experience in linking payments to the delivery of quality 
care. One of these, the Physician Group Practice Demonstration, 
will begin operation in April. It will reward physicians for 
improving the quality and efficiency of the care delivered to 
beneficiaries in fee-for-service medicine. Of considerable 
interest to us, this demonstration is trying to encourage 
coordination of services under part A and Part B.
    The private sector is also moving forward with links 
between payment and performance. We took testimony from several 
witnesses on these developments in our hearing in February and 
will continue that exploration today. Our first witness is Herb 
Kuhn, the Director of the Center for Medicare Management at 
CMS. He will provide us with more details about CMS's efforts 
to measure quality and reward providers for better care. Next 
we will hear from Dr. Jeffrey Rich, representing the Society of 
Thoracic Surgeons (STS), who will present some exciting results 
demonstrating the improvement in care that is possible with the 
extensive database developed by the Society. Dr. Kenneth Kizer 
from the National Quality Forum (NQF) will discuss efforts to 
identify measures of quality in the ambulatory care setting. 
Finally, Peter Lee from the Pacific Business Group on Health 
will share some experience from the private sector on measuring 
quality and efficiency and linking these to payments for 
physicians. Now it is my pleasure to turn to Mr. Stark.
    Mr. STARK. Madam Chair, I genuinely want to thank you for 
holding this hearing today. We should be getting value for our 
money in Medicare and I am glad we are focusing on this issue. 
I am interested in hearing the panel's advice as to how this 
would be done. I have to make some comments about what we are 
doing in Congress, in general, and before I do that I have to 
suggest that I am not directing these remarks at the Chair, who 
I am not sure is a complete free agent in setting the overall 
policy that is set by leadership on her side of the aisle. It 
seems to me that this hearing is 18 months late and dollars 
short. The Medicare Modernization Act (P.L. 108-173) really 
begins to privatize Social Security and threatens the whole 
stability of the entire fee-for-service system. We used to deal 
with these issues on a bipartisan basis when both sides were 
interested in continuing Medicare as an entitlement, improving 
its benefits and keeping it fiscally solvent. Over the last 10 
years, this has changed, and we have been excluded, as you 
know, from conferences, and many of these issues have been 
decided without both sides of the aisle participating. That 
again has not been the Chair's decision, and I want to 
emphasize that.
    In privatizing, if we are not doing that, why else would we 
overpay private plans even though it shortens the solvency of 
our system and raises premiums? Why would we structure a 
prescription drug benefit that is unlike any insurance plan 
known to man, and then not allow or prohibit, in effect, the 
Secretary to negotiate lower prices? We negotiate with the 
doctors on the panel. We negotiate with our hospitals. Why we 
give PhRMA (The Pharmaceutical Research and Manufacturers of 
America) a pass on that escapes me. Then why would we set up an 
acute care program to, so-called, compete with private plans 
when they give private plans an advantage and they have an 
uneven playingfield?
    The Modernization Act shortened the life of the trust fund, 
contributed to the highest increase in beneficiary premiums in 
the history of the program, and I suspect later this month what 
we are going to see, I would almost bet you a nickel, Madam 
Chair, we are going to see the 45 percent trigger on general 
revenue spending. We will probably have the second warning next 
year and then the fat is in the fire. Fundamental changes 
really aren't that necessary. We just need to stop this rush to 
privatization, and deal with issues as you are dealing with 
this morning. We have to shore up the trust fund to accommodate 
the next generation, and not privatize this so that we, by 
doing away with Medicare as an entitlement, add probably 
another 20 million people to the uninsured rolls in this 
country. So, while I think this is a small bite at the apple, I 
only wish, Madam Chair, that we could deal with the question 
of, ``Are we going to privatize Medicare and what would that do 
to the system?'' I think that is the real danger that lays 
before us.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Stark. 
Since your remarks were more focused on the partisan rhetoric 
that prevents constructive discussion between the parties, let 
me just say I know of no one that wants to change Medicare from 
an entitlement to a private program on either side of the 
aisle, and that your prescription drug bill, until the last 
motion to recommit, also had the same negotiating process that 
our bill had and was far more expensive. If we were dealing 
with that, now we would be in greater trouble. Now, that isn't 
to say that it would be nice that we have a challenge in the 
prescription drug area, some of which is in our jurisdiction 
and most of which is not, but if we don't address ourselves to 
the kind of issue--and we do agree on this incidentally--if we 
don't address ourselves to some of the system's problems, then 
no matter what else happens, Medicare is going to fail. So, I 
am pleased to welcome this panel. We have structured this 
hearing differently than we have other hearings. There is only 
one panel, and each participant has 10 minutes. We talked about 
that earlier, and we welcome you. Mr. Kuhn, if you will please 
begin.

     STATEMENT OF HERB KUHN, DIRECTOR, CENTER FOR MEDICARE 
 MANAGEMENT, CENTERS FOR MEDICARE AND MEDICAID SERVICES, U.S. 
  DEPARTMENT OF HEALTH AND HUMAN SERVICES, BALTIMORE, MARYLAND

    Mr. KUHN. Chairman Johnson, Congressman Stark, Members of 
the Subcommittee, thank you for inviting me to testify on CMS's 
initiatives to provide financial incentives for health care 
providers to improve the quality of care they provide to 
seniors and people with disabilities. The Administration is 
committed to rewarding innovative approaches to achieve better 
patient outcomes at lower cost, and CMS initiatives will help 
achieve this goal. One of the changes made under the Medicare 
Modernization Act that has the greatest potential to improve 
quality and cut costs in Medicare, is pay-for-performance, and 
that is a huge priority for CMS today. Right now nearly 95 
percent of Medicare spending is for dealing with health 
problems after they happen. Clearly, we can do better. Pay-for-
performance means Medicare pays not simply for certain 
procedures for admitting a patient to a hospital, but rather 
for high-quality, efficient results. It means changing 
Medicare's reimbursement incentives to reward better outcomes, 
such as avoidable complications or hospital readmissions.
    Currently, there are several important pay-for-performance 
initiatives and demonstrations underway that will support 
quality improvement while also making the Medicare Program a 
more cost efficient purchaser of health care. For example, the 
Hospital Quality Initiative (HQI), is linking the market basket 
increase to reporting of hospital quality information. Already 
this initiative has shown that financial incentives can have a 
positive impact on quality.
    One of our most exciting pay-for-performance projects is a 
pilot fee-for-service program called the Chronic Care 
Improvement Program (CCIP). The CCIP is for Medicare 
beneficiaries with chronic diseases such as congestive heart 
failure, complex diabetes and chronic lung diseases, who 
collectively account for the majority of Medicare spending. 
There are proven approaches to managing these diseases and 
preventing complications that require hospitalization, but 
until now patients in the traditional Medicare Program have had 
little access to these approaches. Under the CCIP program 
participating organizations will manage patient care and will 
be paid if they satisfy patients and providers, improve 
clinical outcomes and reduce our costs. They will have 
tremendous freedom to implement quality improvement techniques. 
Madam Chairman, if I just may add here that I personally want 
to thank you for your work on this program. It is going to make 
a difference in the lives of many Medicare beneficiaries. Thank 
you very much.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Mr. 
Kuhn. Dr. Rich.
    Mr. KUHN. I just want to finish up just one additional 
thing.
    Chairman JOHNSON OF CONNECTICUT. Sorry, I thought you were 
finished.
    Mr. KUHN. I was just paying you a compliment on CCIP.
    Chairman JOHNSON OF CONNECTICUT. Thank you.
    [Laughter.]
    Mr. KUHN. Importantly, CMS is conducting a demonstration to 
test payment for performance and Medicare's fee-for-service 
payment system for physicians. Physicians influence, either 
directly or indirectly, almost all areas of Medicare spending. 
For example, physicians deliver services, admit beneficiaries 
to hospitals, and authorize home health visits. Under the 
Physicians Group Practice Demonstration, which you mentioned in 
your opening comments, which was announced in late January and 
will become effective on April 1, participating physician 
groups will be able to earn performance-based payments for 
implementing care management strategies that improve the 
quality of care. Under the demonstrations physician groups will 
continue to be paid on a fee-for-service basis. Physician 
groups will implement care management strategies designed to 
anticipate patients' needs, prevent chronic disease 
complications and avoidable hospitalization, and improve 
quality of care.
    This demonstration will reward 10 physician groups in 
various communities across the Nation. It reflects the hard 
work of physicians, consumer advocates and other health care 
payers and purchasers to develop valid measures of quality and 
efficiency, and use them effectively to support better care. 
The CMS is also exploring opportunities to implement payment 
for performance systems in nursing homes, home health care 
agencies and dialysis facilities, and that is why payment for 
performance is so exciting. It gives us the opportunity to 
support doctors for cultivating strong patient relationships, 
providing personalized care, and doing whatever it takes to 
improve quality and efficiency in our health care system. For 
pay-for-performance mechanisms to be successful, they must be 
based on valid measures of quality. In this regard, CMS, as 
evidenced by the success of our Physician Group Practice 
Demonstration program, is collaborating with a variety of 
stakeholders, including the groups at this witness table here 
today, to develop and implement uniform standardized sets of 
performance measures for various health care settings. In 
addition to establishing quality measures, we must investigate 
how best to structure performance-based payment systems.
    The CMS recognizes that pay-for-performance is a departure 
from the traditional way of conducting business. The CMS will 
seek input concerning actions we can take administratively to 
best implement a pay-for-performance system and achieve our 
goals of promoting better quality care and reducing program 
cost. We want to provide the public with an opportunity to 
present ideas and suggestions about how pay-for-performance 
payment mechanisms should be structured, including a public 
dialog on key technical and statutory issues. Chairman Johnson, 
Congressman Stark, thank you again for this opportunity to 
testify today about CMS's pay-for-performance initiatives. 
Performance based payment is a key next step in CMS's overall 
efforts to help health care professionals improve the quality 
and efficiency of the care that beneficiaries receive.
    I will be happy to answer any questions the Subcommittee 
may have.
    [The prepared statement of Mr. Kuhn follows:]

   Statement of Herb Kuhn, Director, Center for Medicare Management, 
 Centers for Medicare and Medicaid Services, U.S. Department of Health 
                and Human Services, Baltimore, Maryland

    Chairman Johnson, Congressman Stark, thank you for inviting me to 
testify on the Centers for Medicare & Medicaid Services' (CMS) 
initiatives to provide financial incentives for health care providers 
to improve the quality of care they provide to seniors and people with 
disabilities. The Administration is exploring innovative approaches to 
achieve better patient outcomes at lower costs, and the initiatives we 
are setting could help CMS realize this goal. The Administration also 
recognizes that pay-for-performance is in the early stages of 
development, and a great deal of work still must be done to develop a 
full set of widely applicable quality performance measures. Supporting 
efforts by health professionals to improve the quality and efficiency 
of care for Medicare beneficiaries is the motivation behind CMS' 
various efforts to develop pay-for-performance models, as inefficient 
health care is costly to the patient and to the government. Despite 
innovations in medical science, limited advancements have been made to 
integrate advanced capabilities with high quality medical practice.
    Financial incentives such as pay-for-performance, however, are only 
one part of CMS' efforts to support high-quality efficient care. For 
example, CMS is helping to support the development of valid quality 
measures and quality improvement efforts in a variety of care settings, 
including long-term care facilities. When clear, valid, and widely 
accepted quality measures are in place, pay-for-performance is a tool 
that could provide additional support. Furthermore, as demonstrated by 
our Hospital Quality Initiative, small percentages in financial 
incentives can encourage provider interest in quality, while keeping 
the payment system predictable for health care providers.
    In this context, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) recognizes additional opportunities for 
CMS to encourage and support high quality care. For example, the 
Chronic Care Improvement Program (CCIP) will test a population-based 
model of disease management. In addition, this program will generate 
data on performance measures that will be useful as we examine ways to 
improve the Medicare program as a whole. The program will use pay-for-
performance to provide beneficiaries with better outcomes, and we 
expect, at a lower cost. Madam Chairman, I would like to take this 
opportunity to thank your for your work on this program, which will 
help to make a real difference in improving the lives of beneficiaries. 
I also would like to note that CMS is supporting quality initiatives 
for chronic illnesses in Medicare Advantage plans through payments 
based on risk adjustment. Using risk adjusted payments ensures plans 
are paid more accurately for the health status of their members. As a 
result, plans with sicker beneficiaries are paid more than plans with 
healthier patients
    Government policies should support a health care system that 
provides doctors and patients with the ability to make effective 
decisions on the basis of the best scientific evidence about benefits 
and costs. In cases where there are clear opportunities to pay for 
better results rather than simply for more services, performance-based 
payments may be an important element in our efforts to support the 
right services and higher quality for our beneficiaries. The current 
Medicare payment system pays physicians and other health care providers 
based on the number and complexity of the services provided to 
patients. We are examining our current system to better anticipate 
patient needs, especially for those with chronic diseases, and how the 
incentives can be better aligned with the kind of care we want, 
expensive procedures and hospitalizations can be reduced, which 
benefits both patients and taxpayers.

Developing Standardized Quality Measures
    We are working toward improving quality in every setting in which 
Medicare pays for care. Based on collaborative work by a broad range of 
stakeholders, combined with experience in the private sector, there is 
a growing view that recognizing providers who furnish effective care 
can lead to better quality care. Valid consensus-based quality measures 
are critical to any system based on quality. This prevents providers 
from receiving conflicting directions and gives them meaningful support 
in providing better care.
    The ability to evaluate and measure quality is an important 
component to delivering high quality care. To do so, CMS is 
collaborating with a variety of stakeholders to develop and implement 
uniform, standardized sets of performance measures for various health 
care settings. For example, CMS is working in collaboration with 
hospital associations, the Joint Commission on the Accreditation of 
Healthcare Organizations (JCAHO), the Agency for Healthcare Research 
and Quality (AHRQ), consumer groups, major payers including the AFL-
CIO, representatives of health care purchasers, health professionals, 
and the National Quality Forum to refine and standardize hospital data, 
data transmission, and performance measures. Ambulatory care measures 
have also been developed by CMS working in an extensive process with 
the American Medical Association's Physician Consortium for Performance 
Improvement and the National Committee for Quality Assurance to measure 
improvements in care. The measures from this process were submitted 
late last year for review and comment to the National Quality Forum, a 
non-profit organization that represents a broad range of health care 
stakeholders and provides endorsement of consensus-based national 
standards for measurement and public reporting of healthcare 
performance data.
    These efforts build upon the success of CMS' other quality 
initiatives--Nursing Home Compare, Home Health Compare, and Hospital 
Compare--which provide quality information to consumers and others to 
help guide choices and drive improvements in the quality of care 
delivered in these settings.
    In addition, CMS recognizes the potential for information 
technology to improve the quality, safety and efficiency of health care 
services provided to all Americans. Through the Doctors' Office 
Quality--Information Technology (DOQ-IT) pilot project, CMS is 
exploring the adoption and effective use of information technology by 
physicians' offices to improve quality and safety for Medicare 
beneficiaries and all Americans. The pilot project promotes greater 
availability of affordable and effective health information technology 
by providing assistance to physician offices in adopting and using such 
technology.
    CMS also is working with Quality Improvement Organizations (QIOs) 
to improve the quality of care delivered to beneficiaries. In addition 
to CMS' various quality initiatives, CMS is supporting the development 
of more evidence-based care. For example, CMS recently launched the 
``Fistula First'' initiative, which is designed to give patients with 
end stage renal disease the ability to receive life-sustaining dialysis 
through a method that performs better than other procedures while 
requiring less maintenance. By funding and overseeing this initiative, 
CMS is using its leadership position to partner with the medical 
community and improve the lives of patients. Pay-for-performance has 
the potential to promote payment incentives that do not hamper, but 
rather encourage health care professionals to use the most clinically 
appropriate procedures.

Supporting Quality Through Pay-for-Performance
    Measuring quality and providing support for quality improvement is 
only the first step. The MMA provides CMS with the authority to conduct 
pay-for-performance initiatives and demonstrations, which will allow us 
to consider ways payment systems might provide appropriate incentives 
to providers. We expect these pay-for-performance initiatives will 
support quality improvement in the care of Medicare beneficiaries and 
make the Medicare program a more cost-efficient purchaser of health 
care services. Even small financial incentives can spur provider 
interest in quality of care projects, as evidenced by the high 
percentage of hospitals participating in the Hospital Quality 
Initiative.
    Pay-for-performance initiatives are currently underway in a variety 
of health care settings where Medicare beneficiaries receive services, 
including physicians' offices and hospitals (described below). Because 
patients with chronic conditions often require care across several 
settings of care, CMS is pursuing pay-for-performance initiatives to 
support improved coordination of care. CMS will seek input concerning 
actions we can take administratively to best implement a pay-for-
performance system to achieve our goals of promoting better quality and 
reducing program costs. We want to provide the public with an 
opportunity to present ideas and suggestions about how pay-for-
performance payment mechanisms should be structured, including a public 
dialogue on key technical and statutory issues.

Improving Inpatient Care through Hospital Initiative and Demonstration 
        Programs
    Since 2003, CMS has operated the Hospital Quality Initiative, which 
is designed to stimulate improvements in hospital care by standardizing 
hospital data, data transmission, and performance measures to ensure 
that all payers, providers, oversight and accrediting entities use the 
same measures when publicly reporting hospital activities. Under the 
MMA, an initial set of 10 quality measures will be linked to Medicare 
hospitals payments. Hospitals that submit the required data will 
receive a market basket increase of 0.4 percentage points higher than 
facilities that do not. For FY 2005, virtually every hospital in the 
country that is eligible to participate (98.3 percent) has submitted 
the required data and received the higher payment.
    CMS also has partnered with Premier Inc., a nationwide alliance of 
not-for-profit hospitals, to conduct a demonstration program that is 
designed to improve the quality of inpatient care for Medicare 
beneficiaries by providing financial incentives. Under the Premier 
Hospital Quality Incentive Demonstration, about 300 hospitals are 
voluntarily providing data on 34 quality measures related to five 
clinical conditions: heart attack, heart failure, pneumonia, coronary 
artery bypass graft, and hip and knee replacements. Using the quality 
measures, CMS will identify hospitals in the demonstration with the 
highest clinical quality performance for each of the five clinical 
areas. Hospitals scoring in the top 10 percent for a given set of 
quality measures will receive a 2 percent bonus payment in addition to 
the normal payment for the service provided for Medicare discharges in 
the corresponding Diagnosis Related Groups (DRGs). Hospitals in the 
next highest 10 percent will receive a 1 percent bonus payment. In the 
third year of the demonstration project, hospitals that do not achieve 
absolute improvements above the demonstration baseline will be subject 
to reductions in payments.

Encouraging Physicians to Improve Patient Outcomes
    CMS recently announced a demonstration project to test pay-for-
performance in Medicare's fee-for-service payment system for 
physicians. The Physician Group Practice demonstration will access 
large physician groups' ability to improve care that could result in 
better patient outcomes and efficiencies. Ten large (200+ physicians), 
multi-specialty physician groups in various communities across the 
nation will participate in the demonstration, which will begin 
operations in April 2005. Participating physician groups will continue 
to be paid on a fee-for-service basis, but they will be able to earn 
performance-based payments for implementing care management strategies 
that anticipate patients' needs, prevent chronic disease complications, 
avoid hospitalizations, and improve the quality of care. The 
performance payment will be derived from savings achieved by the 
physician group and paid out in part based on the quality results, 
which CMS will assess. Providing performance-based payments to 
physicians has great potential to improve beneficiary care and 
strengthen the Medicare program.
    CMS also will test a pay-for-performance system to promote the 
adoption and use of health information technology to improve the 
quality and efficiency of care for chronically ill Medicare 
beneficiaries treated in small- and medium-sized physician practices. 
The Medicare Care Management Performance Demonstration will provide 
performance payments for physicians who meet or exceed performance 
standards in clinical delivery systems and patient outcomes, and will 
reflect the special circumstances of smaller practices. This 
demonstration currently is under development and will be implemented in 
Arkansas, California, Massachusetts, and Utah. Participating practices 
will receive technical assistance from the Quality Improvement 
Organizations in their areas, as well as bonus payments for achieving 
the project's objectives.
    CMS also is investigating how to enhance quality and safety in the 
Medicare Health Care Quality Demonstration. This demonstration program, 
which was mandated by the MMA, is a five-year program designed to 
reduce the variation in utilization of heath care services by 
encouraging the use of evidence-based care and best practice 
guidelines. CMS will soon seek public comment on the parameters for 
this initiative, and it will be open to physician groups and integrated 
health systems.

Promoting Coordinated Care and Disease Management
    CMS recognizes that many patients require care in a variety of 
settings. Therefore, CMS has projects in operation or in the planning 
stages that will use pay-for-performance systems to support better care 
coordination for beneficiaries with chronic illnesses.

      Chronic Care Improvement Program--This pilot program will 
test a population-based model of disease management. Under the program, 
participating organizations will be paid a monthly per beneficiary fee 
for managing a population of beneficiaries with advanced congestive 
heart failure and/or complex diabetes. These organizations must 
guarantee CMS a savings of at least 5 percent plus the cost of the 
monthly fees compared to a similar population of beneficiaries. Payment 
also is contingent upon performance on quality measures and 
beneficiaries and provider satisfaction. The program will generate data 
on performance measures that will be useful in improving the Medicare 
program as a whole.
      Disease Management Demonstration for Severely Chronically 
Ill Medicare Beneficiaries--This demonstration, which began enrollment 
in February 2004, is designed to test whether applying disease 
management and prescription drug coverage in a fee-for-service 
environment for beneficiaries with illnesses such as congestive heart 
failure, diabetes, or coronary artery disease can improve health 
outcomes and reduce costs. Participating disease management 
organizations receive a monthly payment for every beneficiary they 
enroll to provide disease management services and a comprehensive drug 
benefit, and must guarantee that there will be a net reduction in 
Medicare expenditures as a result of their services. To measure 
quality, the organizations must submit data on a number of relevant 
clinical measures.
      Disease Management Demonstration for Chronically Ill 
Dual-Eligible Beneficiaries--Under this demonstration, disease 
management services are being provided to full-benefit dual eligible 
beneficiaries in Florida who suffer from advanced-stage congestive 
heart failure, diabetes, or coronary heart disease. The demonstration 
provides the opportunity to combine the resources of the state's 
Medicaid pharmacy benefit with a disease management activity funded by 
Medicare to coordinate the services of both programs and achieve 
improved quality with lower total program costs. The demonstration 
organization is being paid a fixed monthly amount per beneficiary and 
is at risk for 100 percent of its fees if performance targets are not 
met. Savings above the targeted amount will be shared equally between 
CMS and the demonstration organization. Submission of data on a variety 
of relevant clinical measures is required to permit evaluation of the 
demonstration's impact on quality.
      Care Management For High Cost Beneficiaries--This pilot 
program will test models of care management in a Medicare fee-for-
service population. The project will target beneficiaries who are both 
high-cost and high-risk. The announcement for this demonstration was 
published in the Federal Register on October 6, 2004 and CMS accepted 
applications through January 2005. The payment methodology will be 
similar to that implemented in the Chronic Care Improvement Program, 
with participating providers required to meet relevant clinical quality 
standards as well as guarantee savings to the Medicare program.

Conclusion
    Chairman Johnson, Congressman Stark, thank you again for the 
opportunity to testify today about CMS' ongoing pay-for-performance 
initiatives and demonstrations. CMS is examining performance-based 
payments in its overall efforts to help health care professionals 
improve the quality and efficiency of care beneficiaries receive. By 
working with providers, payers, and other stakeholders, CMS believes 
pay-for-performance mechanisms have the potential to improve the 
quality of care delivered to beneficiaries, while at the same time 
improving the efficiency of the Medicare program. Thank you again for 
this opportunity and I would be happy to answer any questions you might 
have.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Mr. 
Kuhn. Dr. Rich.

STATEMENT OF JEFFREY RICH, M.D., CHAIRMAN, SOCIETY FOR THORACIC 
 SURGEON'S TASK FORCE ON PAY FOR PERFORMANCE, NORFOLK, VIRGINIA

    Dr. RICH. Thank you, Madam Chairman and Members of the 
Subcommittee for inviting me to speak to you today about 
quality measurement, quality improvement and achieving 
clinically appropriate cost-containment in health care. I 
believe that for the first time since the inception of Medicare 
the attainment of value, or higher quality for each Medicare 
dollars spent, is within our reach. My name is Jeffrey Rich. I 
am a practicing cardiac surgeon in Norfolk, Virginia. I am 
testifying today on behalf of STS, where I serve on the Board 
of Directors, and am Chair of the STS Pay-for-Performance Task 
Force. I also serve with Dr. Kizer on the NQF Board and 
importantly, as a Chair of the Virginia Cardiac Surgery Quality 
Initiative, a regional consortium that deals with quality 
improvement and cost containment. The STS takes this hearing 
very seriously, as evidenced by the fact that Dr. Sid Levitsky, 
our current president, is seated behind me at this hearing.
    We are in a unique position among physician specialties for 
one reason; our cardiac surgeons have been collecting uniform 
clinical data for their patients for the purpose of quality 
improvement for 15 years. With over 2.7 million records in our 
database we have been able to learn valuable lessons about what 
works and what does not work in physician quality measuring and 
improvement. We are very aware that most physician groups are 
not yet ready to participate in pay-for-performance, but we do 
believe that this should not be a barrier to moving forward. 
There are three action items all physicians can take 
immediately to reach the level where quality can be improved 
and value can be achieved. They are, number one, adopt 
structural measures. Use pay for participation in a systematic 
database as the cornerstone for quality improvement. Number 
two, once the data is collected, have the physicians create 
performance measures which address both process and outcomes. 
All of these measures should go through a review of scientific 
credibility process and be vetted through the NQF.
    These are the steps in the roadmap that will lead to higher 
quality care and lower cost for Medicare beneficiaries. 
Incentives should be created to help physicians reach each of 
these levels. Returning to the structural measure, the most 
important initial ingredient in quality measurement and quality 
improvement is uniform clinical data. Claims-based data, 
although easy to collect, has very limited application for 
quality improvement. Claims or administrative data simply will 
not allow physicians to make the crucial links between co-
morbidities and the outcomes of treatments for their patients. 
Additionally, several studies have shown that errors in 
Medicare administrative data vary widely across hospitals, 
averaging 15 percent statewide when compared to the STS 
database. We began collecting clinical data on open heart 
surgery in 1989. For 15 years and with over $12 million 
invested, we have the largest physician-led database in 
existence. This slide demonstrates some of the major elements 
of it. There are 600 hospitals that participate and 2.7 million 
patient records. Each patient has 200 clinical data points 
collected, and as a result of the information transfer, the 
information is analyzed at Duke Clinical Research Institute and 
sent back to physicians with reports on their quality and 
outcomes.
    With this database 58 peer-reviewed studies have been 
published and 11 more await publication. These studies have 
improved quality and have addressed important issues such as 
racial and gender disparities in health care. Since the 
creation of the database we have seen increasing complexity of 
patients, as seen on this slide.
    [The exhibits referenced in Dr. Rich's statement can be 
seen in his prepared statement below.]
    The blue line illustrates that our patients are getting 
sicker. They are older, they are more overweight and have more 
complex problems, yet at the same time, through the systematic 
participation in the database, our observed and expected 
mortalities have fallen, and I do note that this has occurred 
in the era of reimbursements declining by over 40 percent. This 
is a crucial example that physicians can do the right thing at 
the right time for the right reason.
    How did we do this? The answer is that we, as a specialty 
society, have developed the infrastructure through the database 
for the collection, analysis and feedback of data, and we 
compare it against regional and national benchmarks. This 
process of collection and sharing of clinical data in and of 
itself has led to significant improvements in quality. In 
essence, pay-for-participation as a start will lead to quality 
improvement in cardiac surgery and all other areas of medicine. 
Once data is collected, physicians must develop performance 
measures, and these are both process and outcome measures. We 
have cooperated with the Agency for Health Care Research and 
Quality in the largest clinical study ever performed. 
Identified were two process measures that were linked to 
quality improvement, implemented nationwide, with improvements 
in mortality. The success of this trial highlighted the 
shortcoming of implementing a bonus payment system that rewards 
compliance with process measures only which are not linked to 
quality improvement. A pay-for-performance system designed like 
this would pay bonuses to doctors to prescribe more medications 
and order more tests that have little clinical relevance to the 
care they provide. Such a process-oriented system has the 
potential to increase costs rather than decrease costs.
    Outcomes measures: STS has developed significant and very 
scientifically credible outcomes measures and have brought 
those to the NQF. We have developed the National Voluntary 
Consensus Standards for Cardiac Surgery last year. Of the 21 
approved measures, 16 are derived from the STS database. Armed 
with these measures and our database we can promote best 
practices nationwide, improve quality of care, and focus on 
cost containment. In Virginia, we took quality improvement one 
step further. Fellow heart surgeons and I established the 
Virginia Cardiac Surgery Quality Initiative. This is a map of 
the State. These are the members, which include 10 surgical 
practices and 16 hospitals. We all participate in the STS 
database. We formed an inclusive collaborative effort to 
improve quality in programs of all size, eliminating no 
programs. We focused on containing costs by focusing on 
quality, and wished to test new methods of reimbursement.
    To accomplish this we developed a new database. This 
database took the STS database and mapped it into the Medicare 
database using the ARMUS Corporation. This claims-based 
database is the one that we all use to submit claims for 
Medicare beneficiaries. Now we can look at quality improvement 
and its linkage to cost and tell whether this quality 
improvement is actually creating cost containment or value in 
the system. As you can see, we have taken the International 
Classification of Diseases (ICD)-nine codes for all of the 
charge codes for cardiac surgery and placed them in 21 revenue 
categories and are able to examine these cost buckets 
individually on a hospital basis or on a surgeon basis. We can 
compare hospitals with lower spending to those with higher 
spending in each category, and we can correlate outcomes with 
spending. By maintaining a focus on quality, we can begin to 
examine resource utilization management that is patient 
centered and without negative consequences. Basically, we have 
developed cost savings models that lead to improved quality of 
care.
    As you can see from this slide, there still remains 
variation in cost by hospitals. These are eight hospitals that 
I have chosen to use as a demonstration. The lowest cost 
hospital for coronary bypass had a cost of $18,000, while the 
highest was $28,000. We looked into the cost buckets within 
these hospitals and found that these were the six categories 
that were driving costs. In addition we looked within these 
categories at the surgeons practicing at those hospitals, and 
discovered that there was still cost variation in the ability 
to deliver the same quality care. With that, we were able to 
initiate cost containment models that did not impact quality 
and in fact improved quality. As you can see, in this slide--
that cost, is lowest for the two hospitals on the right-hand 
side. If you look on the bottom of the slide you will see 
something called an observed to expected ratio. This is the 
observed to expected mortality for hospitals. The observed 
mortality is what is reported to the STS. The expected 
mortality is what the STS database says we should be 
experiencing based on the complexity of the patients. The two 
hospitals to the right have the lowest ratio, meaning they have 
the highest quality within the State and have the lowest cost 
within the State.
    One of the key questions facing you today is how to pay for 
performance and how that can be implemented in the current 
difficult budget environment. The current recommendation is to 
repeal the sustainable growth rate formula and replace it with 
incentive payments to physicians, enabling them to make 
information technology (IT) investments required for quality 
improvement. This repeal will not be easy and it must be done 
thoughtfully. A budget neutral framework for pay-for-
performance must not be the tournament model where the funds 
are taken from the lowest performers and given to the best. We 
feel strongly that the tournament model will not produce the 
savings you seek and could hurt access to care for vulnerable 
populations. The primary goal of pay-for-performance must be 
quality improvement. Savings will accrue from this improved 
quality, as you can see from the previous slide.
    Let me demonstrate how this works with an actual example 
from the State of Virginia. One of the common complications of 
open heart surgery is atrial fibrillation. This is where the 
heart's electrical system is out of sync and cannot pump blood 
efficiently. While not often deadly we found that each instance 
of this complication adds $2,366 to the direct cost of care 
during the hospitalization. In addition, it can lead to much 
more serious and expensive consequences such as stroke and 
hospital readmissions. In analyzing our cost and quality data, 
we found that one hospital had significantly lower atrial 
fibrillation rates, as you can see on this slide. While this 
rate nationwide was 16 percent, this particular hospital had a 
10-percent rate. We took their treatment protocol and adopted 
it and implemented it statewide with an anticipated reduction 
to 10 percent in our atrial fibrillation, yielding an estimated 
cost savings of $1.3 million over the next 2 years. If applied 
nationally using the STS database and its quality improvement 
processes there will be $80 million saved alone in reducing 
atrial fibrillation in cardiac surgery.
    A point I must stress to you is that to achieve these 
savings you must improve the care of the lowest performers 
until inter-institutional variation is minimized and all 
quality is improved. That improvement would not have occurred 
had there been a budget neutral or tournament style pay-for-
performance system in place. The creation of winners and losers 
discourages the best performers from sharing their practices 
with others. In short, up front budget neutrality that robs 
Peter to pay Paul stifles communication, stifles quality 
improvement and stifles cost containment. In Virginia, we have 
looked at other complications and have seen that there are 
incremental costs associated with complications related to 
cardiac surgery and these are the costs that occur as a result 
of post-operative complications. If we achieve modest 
improvements in these measures in the State of Virginia and 
nationally in the country using the STS database, we have 
estimated that there can be $346 million saved annually with 
over $1 billion saved in 3 years.
    This is where funding for pay-for-performance should be 
generated. Incentives to reduce costly complications have 
immediate savings potential for the health care system. We 
strongly disagree with the MedPAC recommendation to use an 
across the board reduction for all physician fees to create a 
bonus pool. Although that would be a windfall for us, it would 
not be for others. We recognize it is costly to create these 
models, as STS members spend $50--to $100,000 per practice to 
participate in the database. We feel it is important.
    Lastly, we appreciate the need for budget neutrality and 
the need for the Office of Management and Budget (OMB) to have 
evidence of more tangible immediate savings in order to score 
these programs accurately. In this regard I would recommend a 
national demonstration project to evaluate the effects of 
incentives on participation and to document the cost savings 
that can be achieved through a collaborative quality 
improvement effort. This can be instituted immediately given 
the high level of readiness of STS with the potential for rapid 
replication in other specialties. Congress and CMS must 
recognize that not all physicians have reached the same level 
of readiness, but recognize that the system of quality 
improvement and cost containment can be employed nationwide by 
use of the STS database.
    For this reason Congress and CMS must do everything in 
their power to create incentives and promote the inclusive 
collaboration of physicians and all providers to improve health 
care quality for Medicare beneficiaries and contain costs. If a 
common theme must emerge from this hearing, then let that be 
one of ``include and improve'' rather than ``divide and 
conquer.'' In conclusion, we believe that supporting the 
development of condition-specific databases which are 
clinically driven is critical. Comparative effectiveness of 
treatments, long-term efficacy of drugs and devices, and 
appropriateness of care can all be answered. If we have the 
foresight to prevent cuts mandated by an ineffective formula, 
let that excess money flow toward quality improvement and 
database development. Thank you for this opportunity and honor 
to appear before you.
    [The prepared statement of Dr. Rich follows:]

  Statement of Jeffery Rich, M.D., Chairman, The Society for Thoracic 
     Surgeon's Task Force on Pay for Performance, Norfolk, Virginia

    Thank you Madame Chairman and members of the subcommittee for 
inviting me to speak with you today about quality measurement, quality 
improvement, and clinically appropriate and achievable cost 
containment. I believe that for the first time since the inception of 
Medicare, the attainment of ``value'', or higher quality for each 
Medicare dollar spent, is within our reach. I am here today to 
demonstrate to you that within our specialty of cardiothoracic surgery 
and applicable to all of medicine in general, there is a developing 
body of evidence that links quality improvement to cost containment in 
healthcare delivery.
    We have all witnessed the past and present attempts to contain 
costs in U.S. healthcare delivery: the poorly designed control of 
access and resource utilization by HMOs and other payers; the 
application of the principle of ``picking the low hanging fruit'' by 
streamlining purchasing, eliminating easily identifiable excesses, and 
discharging patients earlier without appropriate safety nets; the 
attempts to control physician services through the Sustainable Growth 
Rate Formula. Although some short-term transient gains have selectively 
been realized, we remain in a healthcare financing crisis with costs 
rising at multiples of inflation and an unsustainable physician payment 
system. The hearing today focuses on quality based payments to 
physicians and their impact on cost of care efficiencies for Medicare 
beneficiaries. Is Pay for Performance an answer to the problem?
    The Society of Thoracic Surgery believes that the answer to this is 
``yes'' if done correctly. We believe that only through a focus on 
quality can sustainable reductions in healthcare costs be achieved. By 
lowering complications and using quality-guided resource utilization 
management, savings can be achieved for all of medicine, with these 
savings accruing immediately. But to accomplish this we must collect 
clinically relevant data and allow providers to develop reliable, valid 
and trusted measures of care that are scientifically credible. They 
must then be used to guide quality improvement and meaningful, safe 
cost containment. This is exactly what we have accomplished through the 
use of the Society of Thoracic Surgery National Cardiac Database (STS 
NCD).
    My name is Jeffrey Rich, and I am a practicing cardiothoracic 
surgeon in Norfolk, Virginia. I am testifying today on behalf of The 
Society of Thoracic Surgeons (STS), where I serve on the Board of 
Directors, and chair the STS Pay for Performance Task Force.
    I am also a board member of the National Quality Forum, and serve 
as Chairman of the NQF Research and Quality Improvement Council. Last, 
but not least, I am the Chair of the Board of Directors of the Virginia 
Cardiac Surgery Quality Initiative (VCSQI), a regional STS-based 
consortium that is in the process of demonstrating the link between 
quality improvement and cost containment in cardiac surgery.
    The Society of Thoracic Surgeons is in a unique position among 
physician specialties for one reason. Our cardiac surgeons have been 
collecting uniform clinical data on their patients for the purpose of 
quality improvement for fifteen years. With over 2.7 million patient 
records in the STS NCD we have been able to learn valuable lessons 
about what works and what does not in physician quality measurement and 
improvement. I would like to share with you how we measure quality of 
care in cardiac surgery, and how our experience can be used to 
simultaneously improve care for our beneficiaries and reduce costs to 
the health care system. In short, physicians can save lives and improve 
health while saving money.
    I would also like to discuss the process for achieving Medicare 
savings in pay for performance, and outline what we believe is a road 
map that should get all physicians to the point where savings can be 
generated through higher quality, reduced complications, and more 
efficient care.
    We are well aware that most physician groups are not yet ready to 
participate in pay for performance. However, we do not believe that 
this should be a barrier to moving forward with this important new 
concept in physician reimbursement. There are three action items that 
Congress, CMS, and all physicians along with their respective specialty 
societies can take to reach the level where quality can be improved and 
value can be achieved. They are:

    1. Adopt structural measures using Pay for Participation: In the 
March 2005 Report to Congress, MedPAC urged the development of clinical 
IT systems by physicians and that ``functions of IT systems that are 
linked to quality improvements be included as measures in pay-for-
performance initiatives.'' Creating incentives for the collection of 
relevant clinical data by providers--eventually through electronic 
health records (EHR)--is the cornerstone of quality improvement. This 
is best accomplished through the development of relevant measures by 
providers and collected through participation in a database.
    2. Develop a consensus set of process measures for each specialty 
or disease area that is linked to quality improvement, and
    3. Develop a consensus set of risk-adjusted outcomes measures that 
will lead to reductions in death and complications. Both sets of 
measures should be subject to the consensus-building process at the 
National Quality Forum.

    Systematic participation in a standardized clinical database should 
be used to foster a culture of quality and quality improvement 
utilizing data collection, analysis, the development of evidence-based 
medicine and Continuous Quality Improvement (CQI) processes of care for 
performance improvement and cost containment. These steps are the road 
map to higher quality care and lower costs for all Medicare 
beneficiaries. Incentives should be created to help physicians reach 
each of these levels.
Structural measures--We must start with clinical data 
    The most important initial ingredient in quality measurement and 
quality improvement is uniform clinical data. This is where the rubber 
meets the road in determining what works in healthcare. Claims based 
data--though easy to collect--presently have limited application for 
quality improvement. Claims or administrative data simply will not 
allow physicians to make the crucial links between co-morbidities or 
disease conditions and the relative outcomes of treatments for their 
patients. Additionally, a Virginia study showed that errors in Medicare 
administrative data varied widely across hospitals, averaging 15% 
statewide when compared to the STS National Cardiac Database (NCD).
    The STS began collecting clinical data on open-heart surgery 
patients in 1989. We now have over 2.7 million patient surgeries in our 
National Cardiac Database, collected from almost 600 heart surgery 
programs across the country. This database contains nearly 200 data 
points on each patient, ranging from demographic factors to clinical 
risk factors, encompassing the whole spectrum of the complexities of 
cardiac surgery
    Fifty-eight peer reviewed studies have been published using our 
database; 11 more await publication. These studies have improved 
quality of care in areas from racial and gender disparities to efficacy 
of specific devices and techniques.
    Since the creation of the database in 1989, we have documented the 
trend that our Medicare patients have become sicker, older, more 
overweight, with a higher prevalence of previous cardiologic 
interventions. In short, the expected mortality rate for bypass 
patients has significantly increased by approximately 35%. However, 
over the same period from 1990 to 1999, both the observed and risk-
adjusted mortality in this Medicare CABG population decreased by 
approximately 30%. The chart below shows that risk-adjusted mortality 
rates have dropped markedly despite this increase in preoperative risk. 
It is important to note that over this period, Medicare payment rates 
for CABG surgery decreased approximately 40% as shown in the lower line 
on the chart. All of these trends, increasing expected mortality, 
decreasing observed mortality and decreasing payment rates have 
continued through 2003.

[GRAPHIC] [TIFF OMITTED] T6373A.001

    So, how did we improve survival despite increasing co-morbidities? 
The answer is that we, as a specialty society have developed the 
infrastructure through the NCD for the collection, analysis, and 
feedback of local data compared against regional and national 
benchmarks of care. This process of collection and sharing of clinical 
data led to significant improvements in quality. Our physicians 
consider it an important part of their professional responsibility to 
continually improve the quality of the care they provide.
    In essence, we feel that a correctly designed ``pay for 
participation'' model as a start to rewarding performance will lead to 
quality improvement in cardiac surgery and other areas of medicine.

Process measures--Clinical interventions that improve care must be 
        communicated
    The existence of this clinical database, which is warehoused and 
analyzed at the Duke Clinical Research Institute, has allowed us to 
make a quantum leap in quality measurement and quality improvement. 
With these clinical data, we have completed the largest randomized 
trial in medicine of Continuous Quality Improvement in a study 
sponsored by the Agency for Healthcare Research and Quality. This 
national trial studied 267,917 patients undergoing coronary artery 
bypass graft (CABG) surgery at 400 hospitals across the country. 
Identified were two potential best practices, which when communicated 
to our physicians, altered their behavior significantly in a period of 
18 months (Ferguson, JAMA 2003; 290, 49-56). This proved the ability to 
rapidly communicate, improve, and measure two care processes in 
medicine. Importantly, it was demonstrated at the end of the trial from 
parallel studies that incorporation of these two measures into clinical 
care reduced risk-adjusted mortality for CABG; this link to improved 
mortality provides the scientific basis for incorporating these process 
measures into evidence-based practice for CABG patients.
    The success of this trial highlighted the shortcoming of 
implementing a bonus payment system that rewards compliance with 
process only, without linkage to improvement in outcomes. A pay for 
performance system designed like this could pay bonuses to doctors to 
prescribe more medications and order more tests that may have little 
clinical relevance to the care they provide. Such a process-oriented 
system has the potential to increase costs, with little if any 
knowledge of whether the patient's condition actually improved or if 
complications, ER visits, and other problems were reduced.
    To ensure that improvements in processes of care actually improve 
Medicare beneficiary health in the real world, we must measure risk-
adjusted outcomes.

Outcome measures--Risk-adjusted patient outcomes must be measured to 
        show health quality improvement
    With the use of the STS database, we are able to correlate 
performance measures to outcomes and judge their relative impact on 
patient health and survival. As mentioned earlier, in an era of 
increasingly older and more severely ill patients, the mortality for 
Coronary Artery Bypass Grafting has fallen. This alone has validated 
the concept that participation in a clinical specialty driven database 
without linkage to payment has worked to improve patient care. Last 
year in an unprecedented move by a physician specialty group the STS 
worked with the National Quality Forum to create the ``National 
Voluntary Consensus Standards for Cardiac Surgery'' through their 
consensus building process. Out of over 160 proposed measures, the NQF 
Board approved a set of 21 measures that are most relevant to cardiac 
surgery. Of the 21, 16 are derived from the STS database.
    Now, armed with consensus measures (six of which are risk-adjusted 
outcome measures), and a clinical database, all stakeholders can 
evaluate cardiac surgical care with a level playing field across the 
nation using clinical data, processes, and outcomes. Every cardiac 
surgical program can be measured against the same yardstick. This 
allows doctors to see where care in specific areas can be improved, 
with the ability to analyze the techniques of ``Best Practices'' and 
apply these processes of care to improve quality and lower costs in 
their own practices.
    Of course, the integrity of the data is crucial. The STS is 
developing a three-part approach for validating the data in its 
database. First, there are internal checks for data accuracy with 
rejection of data that are out-of-bounds. This will be coupled with a 
newly developed on-site audit. Secondly, the STS is in discussions with 
CMS about a partnership involving a chart abstraction audit through 
their CDAC mechanism. We are hopeful that this will be approved at CMS 
shortly. And lastly, we are pursuing a longer-range validation of 
mortality data by using the social security National Death Index to 
validate deaths 18 months after surgery.
    Validation and audit mechanisms allow both providers and payers to 
rely on data for quality and cost implications. Trust is the foundation 
that physicians must have to participate in the process and to make 
changes in their care patterns based on feedback they get from a 
database. It is important that the STS NCD is a VOLUNTARY effort by the 
participants performing these cardiac surgical procedures, and an 
example of what the medical profession can do when agendas are aligned.
    In Virginia, we took this quality improvement feedback loop one 
step further. Fellow heart surgeons and I established the Virginia 
Cardiac Surgery Quality Initiative (VCSQI), to systematically improve 
care while reducing costs. The VCSQI is a voluntary consortium of 16 
hospitals and 10 cardiac surgical practices providing open-heart 
surgery in Virginia. They are diverse in patient population, geographic 
location, size and resources.

[GRAPHIC] [TIFF OMITTED] T6373A.002

    We used the clinical quality data in the STS database, and using a 
third-party software solution from ARMUS Corporation, mapped it to the 
Medicare Part A payment data from the standardized UB-92 files. This 
enables us to examine the relationship between quality improvement and 
cost, and to address the question of whether improved quality can equal 
reduced costs. In short we can now evaluate VALUE in health care 
delivery.
    Please allow me to give you a demonstration of how we are in the 
process of reducing costs by improving quality using real data from 
actual patients in Virginia.
    We allocated all costs into 21 revenue categories to better 
illustrate where resources were being spent. These categories are shown 
below, and include drugs, ICU costs, OR costs, lab, etc.

[GRAPHIC] [TIFF OMITTED] T6373A.003

    Now we can compare the hospitals with lower spending to those with 
higher spending in each category. We can examine how higher spending in 
any particular category correlated with outcomes, and can identify 
interventions or treatment protocols that lead to better and more 
efficient care. By maintaining a focus on quality we can begin to 
examine resource utilization management that is patient-centered, safe 
and without negative consequences. In short, we have developed cost 
savings models that lead to improved quality of care.

[GRAPHIC] [TIFF OMITTED] T6373A.004

[GRAPHIC] [TIFF OMITTED] T6373A.005

    We also measure costs by surgeon . . .

    [GRAPHIC] [TIFF OMITTED] T6373A.006
    
    And when we compared spending to mortality rates, we found that 
higher spending does not necessarily equal higher quality. In fact, in 
Virginia, the lowest spending hospital had the lowest observed to 
expected mortality ratio.

[GRAPHIC] [TIFF OMITTED] T6373A.007

    One of the key questions facing you today is how pay for 
performance can be implemented in the current difficult budget 
environment. The recommendation to repeal the SGR and replace it with 
incentive payments to physicians enabling them to make the IT 
investments required for quality improvement will not be easy, and must 
be done thoughtfully.
    A budget neutral framework for pay for performance must not be the 
``tournament model'' where the funds are taken from the lower 
performers and given to the best. We feel strongly that the tournament 
model will not produce the savings you seek and could hurt access to 
care by vulnerable populations. By punishing lower quartile providers, 
system capacity may be reduced, adversely affecting disadvantaged or 
minority patients. The primary goal of pay for performance must be 
quality improvement. Savings will accrue from improved quality.
    Let me demonstrate how this works using an actual example from our 
Virginia initiative:
    One common complication from open-heart surgery is atrial 
fibrillation. This is where the heart's electrical rhythm is out of 
sync and cannot pump blood efficiently. While not often deadly, we 
found that each instance of atrial fibrillation (A-fib) adds $2,366 to 
the direct cost of care during the hospitalization. In addition, it can 
lead to much more serious and expensive consequences such as stroke and 
hospital readmissions.

[GRAPHIC] [TIFF OMITTED] T6373A.008

    In analyzing our cost and quality data, we found that one hospital 
had significantly lower rates of A-fib after surgery. While the rate 
statewide was 16%, this ``best practice'' had a rate of 10% A-fib. The 
treatment protocol to accomplish this was shared with all other 
programs in the state and implemented within their practices. With an 
anticipated reduction of A-fib statewide to 10%, estimated cost savings 
to the healthcare system will be $1.3 million dollars every two years.

[GRAPHIC] [TIFF OMITTED] T6373A.009

    When extrapolated nationally using the STS database, cost savings 
can reach as much as $80 million dollars over 2 years
    Again, a key point here is that to achieve savings, you must 
improve the care of the lower performers until inter-institutional 
variation is minimized, and all quality is improved. That improvement 
would not have occurred had there been a budget neutral or ``tournament 
style'' P4P system in place. The creation of winners and losers 
discourages the best performers from sharing their best practices with 
others. In short, up-front budget neutrality, that robs Peter to pay 
Paul, stifles the communication that is essential to quality 
improvement and cost containment. The strides that the VCSQI is making 
in quality improvement would not be occurring without effective and 
open communications.
    In Virginia, we can also measure the costs of other common 
complications following cardiac surgery, and can show the incremental 
cost of each complication, as in the table below:

[GRAPHIC] [TIFF OMITTED] T6373A.010

    Using modest estimates of achievable reductions in the rate of each 
of these complications, one can estimate the potential savings to 
Medicare beneficiaries at the national level using the STS database and 
its CQI processes.

[GRAPHIC] [TIFF OMITTED] T6373A.011

    As you can see, we believe that through achievable improvements in 
quality, we can save $346 million in the U.S. each year by reducing 
these 5 complications in cardiac surgery. That equals a billion dollars 
every 3 years--imagine the savings you could achieve if all physicians 
were systematically participating in a clinical database and its 
associated CQI processes and reducing their specialty-specific 
complications. This system is designed to be replicated in other 
specialties and implemented in outpatient and chronic disease care as 
long as the process improvements are linked to outcomes measurement and 
quality improvement.
    This is where the funding for pay for performance should be 
generated. Incentives to reduce costly complications have immediate 
savings potential for the healthcare system. We strongly disagree with 
the MedPAC recommendation to use an across-the-board reduction from all 
physician fees to create a bonus pool.
    Although that approach would be a windfall for cardiac surgeons who 
are ready, it would likely have the unintended effect of taking 
resources from those who need them most to invest in health IT and 
develop clinical datasets.
    Physician practices are very different than hospital systems in 
terms of their readiness and ability to purchase needed technology. 
Reducing physician fees would not be the positive incentive needed for 
investment in new systems. STS database participants pay an average of 
$50,000 per practice to submit and analyze clinical data. They must 
purchase software, hire a data manager, and spend their time improving 
care processes. These costs are not reimbursed in any way and they are 
not recognized by Medicare.
    This is also why currently mandated SGR cuts threaten our ability 
to move forward with quality improvement. Facing larger than 5 percent 
fee reductions each year, physician practices are not in a position to 
invest scarce funds in new technology. We believe that the answer to 
inappropriate care lies in performance measures based on clinical data 
created by each specialty. Compounding the inability to invest is the 
uncertainty brought by the lack of standards for electronic health 
records.
    Lastly, we appreciate the need for CBO and OMB to have evidence of 
more tangible, immediate savings in order to score these programs 
accurately. In this regard, I would recommend a national demonstration 
project to evaluate the effect of incentives on participation in the 
STS National Cardiac Database and to document the cost savings that can 
be achieved through a collaborative quality improvement effort. This 
can be instituted immediately given the high level of readiness of the 
STS with the potential for rapid replication in other specialties.
    Congress and CMS must recognize that not all physicians have 
reached the same level of readiness as the STS, but must also recognize 
that the system of quality improvement and cost containment employed by 
the STS can be effective for every physician participating in Medicare. 
With this in mind, we believe that incentives should be established to 
encourage development and attainment of each component of a meaningful 
Pay for Performance Program that lends itself to quality measurement 
and improvement:

    1. Structural measures--pay for participation: collect, analyze and 
share clinical data with providers.
    2. Process measures--develop clinically relevant measures through a 
voluntary consensus process and measure compliance with a link to 
patient outcomes.
    3. Outcome measures--develop consensus risk-adjusted measures of 
patient outcomes to evaluate better care.
    4. Compare costs and link quality improvement to cost savings.

    It is crucial to understand that these incentives must be positive 
updates to the current Medicare rate. The avoidance of reductions in 
payment as proposed by MedPAC is not incentive enough for physicians to 
make the IT investments necessary to participate in these programs. 
More importantly, a system whereby the best performers are rewarded by 
reductions in pay to the lowest performers is counterintuitive to the 
spirit necessary to allow sharing of best practices. This approach will 
pit providers in the healthcare system against each other, stifling 
improvement and ultimately cost containment. In fact, many argue that 
the biggest incremental gains in quality improvement will occur by 
focusing on the lowest performers, and that incentives should be 
provided there equally.
    For these reasons Congress and CMS must do everything in their 
power to create incentives that promote the inclusive collaboration of 
physicians and all providers to improve healthcare quality for Medicare 
beneficiaries AND contain costs. If a common theme must emerge then let 
that be one of ``Include and Improve'' rather than ``Divide and 
Conquer''.
    In conclusion, we believe the answer to many of the questions 
policy makers have sought in health care is to re-engage the profession 
in husbanding what is an increasingly scarce resource, the health care 
dollar. We believe that incentivizing and supporting the development of 
condition-specific databases is one step in that process. Comparative 
effectiveness of treatments, long term efficacy of drugs and devices, 
appropriateness criteria for utilization, and racial or gender 
disparities can all be answered with valid clinical data.
    If we have the foresight to prevent cuts mandated by an ineffective 
formula, it will allow us to take the major steps that will move us 
from making budget-based health policy, to making clinically 
appropriate health policy. And that is what our patients and your 
beneficiaries deserve.
    Thank you for this opportunity and honor to appear before you.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Dr. 
Rich. Dr. Kizer.

   STATEMENT OF KENNETH W. KIZER, M.D., PRESIDENT AND CHIEF 
           EXECUTIVE OFFICER, NATIONAL QUALITY FORUM

    Dr. KIZER. Chairwoman Johnson, Mr. Stark, Members of the 
Subcommittee, I am pleased to be here this morning to make some 
comments on improving Medicare quality and efficiency through 
performance measurement and payment incentives, and especially 
how those relate to physicians. I would like to touch on three 
things in these oral comments. First, I would like to briefly 
describe the role of the NQF as it relates to the subject of 
the hearing. Second, I would like to say a couple things about 
getting physicians to practice better evidence-based care based 
on my experience. Third, I would like to offer some personal 
thoughts about Medicare's potential to drive improved quality 
and efficiency of care.
    First, on behalf of the more than 260 organizations that 
belong to the NQF, I am happy to tell you that we currently 
have under way a major project to identify performance measures 
that can be used to assess physician quality of care. I expect 
that the first set of those measures will be ready for 
implementation by late summer or early fall. I should probably 
say a few additional words about the NQF and the special role 
that it plays in this regard. The NQF is a not-for-profit 
membership organization that was created in 1999 to standardize 
national performance measures and quality indicators for health 
care. It does a number of other things, but it is most known 
for its work in performance measurement. The idea that there 
should be a private sector entity, with which the public sector 
was very much involved to standardize healthcare performance 
measures came out of a Presidential advisory commission. The 
commission felt that a forum was needed where both the private 
and public sectors could come together and where all health 
care stakeholders, i.e, consumers, purchasers, researchers, 
providers, manufacturers, and so forth, could be at the same 
table and working together to achieve some sort of coherent 
approach to quality improvement. The NQF is classified as a 
voluntary consensus standards setting body as specified by the 
National Technology and Transfer Advancement Act 1995 (P.L. 
104-113) and the OMB Circular A-119. That means that we use a 
formal consensus development process to achieve or reach 
consensus on performance measures, preferred practices, quality 
indicators, and other things that come through the pipeline.
    Since the Forum began operations in February of 2000 we 
have endorsed national performance measures for acute care 
hospitals, for nursing homes, for home care, for nursing 
sensitive care, for cardiac surgery, and, as Dr. Rich 
mentioned, for diabetes. We have work under way on cancer, deep 
vein thrombosis and ambulatory care. We have endorsed safe 
practices that should prevent medical errors, serious to 
reportable events that a number of States are now using for 
their adverse event reporting practices, and a number of other 
things that are currently under way. In particular, I think the 
ambulatory care project that is jointly supported by the Robert 
Wood Johnson Foundation and CMS will go a long ways toward 
addressing some of the needs here for performance measures that 
can be used for physician practices.
    With that, let me shift gears and just comment a little bit 
on changing physician behavior, especially as it relates to 
improving quality and efficiency of physician-related care. I 
base these comments on a variety of perspectives, not the least 
of which is many years as a practicing physician, but also 
having run the largest Medicaid program in the country for many 
years. I worked with physicians on issues where payment was 
often, I think we all agree, not--they were not overpaid for 
their services and we often had to use other mechanisms to 
encourage improvements in care. Also more recently, for 5 years 
I served as a CEO of the largest health care system in the 
United States, in which I oversaw the care providers, more than 
20,000 physicians, and during which time we engaged in a major 
quality improvement effort that is often used today as a 
example of radical organizational change.
    I would offer two sets of observations that are related 
regarding changing physician behavior, especially as it relates 
to improving quality of care. First, to be successful at 
changing physician behavior, the prescription for change has to 
entail three elements. One, we should make changes that are 
clinically the right thing to do, i.e., that are good for 
patient care. In this case, that means that performance 
measures have to be based on good, sound medical evidence. The 
second thing is that we need to make the practicing physician's 
life easier if at all possible. A good example in this case 
would be reducing the amount of paperwork that would be 
necessary. For example, if we had standardized performance 
measures that were uniform, this would go a long ways toward 
making life easier for those on the frontline. Third, use 
rewards and incentives that are meaningful to the physician. In 
most cases those rewards and incentives will be financial, but 
there are certainly other settings where those might relate to 
time to do research or teaching or other things that are 
important to the physician that is involved. I would also note 
that in my experience, and I think in that of others, 
physicians generally respond much more favorably to positive 
rewards than to negative or punitive incentives.
    The other lens that I would look through in sharing these 
comments is simply that there are three especially effective 
change levers that can be used to affect physician behavior 
today. One of those is performance measurement and public 
reporting. Second has to do with modernization of information 
management, and the use of IT. The third is the alignment of 
financial incentives with desired improvements in quality and 
efficiency. Dr. Rich has commented on some specific examples in 
that regard. From my experience at Veteran's Affairs (VA), I 
can attest to how powerful performance measurement and public 
reporting are as change levers for physicians. As I believe the 
Committee is aware, the veterans health care system underwent a 
major transformation in the latter half of the nineties and 
today, when comparison is made on standardized quality 
indicators, VA outperforms Medicare on essentially all 
indicators of quality. Much of that change was accomplished by 
implementing a performance measurement system in which 
standardized measures of quality were regularly assessed and 
the results were made available for everyone to see. In this 
case there were no changes in payment that went along with 
performance measurement. It was simply making performance data 
available for everyone to see. Physicians respond quite 
dramatically to having that information made available. I have 
provided some additional comments regarding IT and payment 
incentives in my written testimony, and in the interest of 
time, I will not repeat those now.
    I would just conclude these comments by making an 
observation about Medicare's potential to drive improved 
quality and efficiency of care. I think the Committee is well 
aware of the very robust documentation in recent years of the 
human and financial costs of medical error and deficiencies of 
quality in our health care system. I would commend CMS for the 
steps that it has taken so far in moving forward on a quality 
agenda, including things that are based on performance 
measurement and linking payment to performance. While 
applauding these things, if we compare the magnitude of the 
problem against the efforts that have been launched, I think 
that we would have to say that it is a very modest beginning. 
My recommendation to the Subcommittee is that payment for 
performance should become a top national priority and that 
Medicare should lead in this area, greatly expanding payment 
for performance programs for both hospitals and physicians. Not 
only would this have a positive effect in driving quality 
improvement in the Medicare Program, but it would also 
stimulate similar efforts and be encourage the private sector, 
just as Medicare's adoption of prospective payment for 
hospitals did 20 years ago. With that, Madam Chair, I conclude 
these comments. Thank you for the opportunity to be here.
    [The prepared statement of Dr. Kizer follows:]

    Statement of Kenneth Kizer, M.D., President and Chief Executive 
                    Officer, National Quality Forum

    Good morning. I am pleased to appear before you today to comment on 
measuring physician quality and efficiency of care for Medicare 
beneficiaries. I commend Chairwoman Johnson for holding this hearing; 
the subject is most timely.
    In the time that I have this morning I would like to do three 
things. First, I would like to briefly describe the role of the 
National Quality Forum as it relates to the subject of this hearing. 
Second, I would like to recount some lessons that I have learned over 
the years regarding physician behavior and improving physician quality 
of care. And third, I would like to offer some personal thoughts about 
Medicare's potential to drive improved quality and efficiency of care.
    First, on behalf of the approximately 260 organizations that belong 
to the National Quality Forum (see attached member list), I am happy to 
tell you that we currently have underway a major project to identify 
performance measures that can be used to assess physician quality and 
efficiency of care. I expect the first set of these measures will be 
ready for implementation by October of this year, if not sooner.
    Before saying more about this particular effort directed toward 
identifying physician-related quality indicators, I should take a 
moment to make sure that the Committee understands the role that the 
National Quality Forum (NQF) plays today in healthcare quality 
improvement.
    The National Quality Forum (NQF) is a not-for-profit membership 
organization created in 1999 to standardize national performance 
measures and quality indicators for healthcare; to develop a national 
strategy for healthcare quality measurement and reporting; to serve as 
an ``honest broker'' for convening multidisciplinary, multi-stakeholder 
groups to work on healthcare quality issues; and to do other things, as 
needed, to drive healthcare quality improvement. It was established 
pursuant to a recommendation of the President's Advisory Commission on 
Consumer Protection and Quality in the Health Care Industry. The 
Commission recommended that such a Forum needed to exist where both the 
private and public sectors and all healthcare stakeholders (i.e., 
consumers, purchasers, providers, researchers and manufacturers, etc.) 
could come together to achieve accord about a coherent way to improve 
the quality of American healthcare.
    The NQF is a voluntary consensus standards setting body as 
specified by the National Technology and Transfer Advancement Act of 
1995 and OMB Circular A-119 (1998). The NQF use a formal Consensus 
Development Process (copy attached) that resembles federal rulemaking 
in a number of ways, and is more explicit than many other consensus 
processes used by voluntary consensus standards setting bodies--e.g., 
that used by the American National Standards Institute (ANSI). The 
performance measures endorsed via the CDP can be used for both public 
reporting and accountability purposes or for internal quality 
improvement activities.
    Among the work the NQF has done to date has been to endorse 
performance measures in the areas of acute hospital care, nursing 
homes, home health, diabetes, nursing-sensitive care, and cardiac 
surgery. Other projects are underway to address cancer, deep vein 
thrombosis, and ambulatory care. In addition, we have endorsed a set of 
Serious Reportable Events in Healthcare, which serves as the basis of 
state-based mandatory adverse event reporting initiatives, and Safe 
Practices for Better Healthcare, a set of 30 practices that, if 
universally utilized in all applicable settings, would substantially 
reduce the risk of medical error. These 30 practices provide a clear 
roadmap for what needs to be done now to improve the safety of 
healthcare.
    Of probable particular interest to the Subcommittee is our project 
on ambulatory care performance measures--i.e., performance measures for 
physician offices. The NQF is currently engaged in Phase II of the 
ambulatory care performance measures project.
    Phase I consisted of a Robert Wood Johnson Foundation-funded effort 
to identify 10 priority areas for which standardized performance 
measures for outpatient care should be sought. These areas are: patient 
experience with care, coordination of care, asthma, prevention (primary 
and secondary, including immunization), medication management, heart 
disease, diabetes, hypertension, depression, and obesity.
    In Phase II, the NQF seeks consensus on ambulatory care performance 
measures in these priority areas by expedited consideration of an 
existing array of more than 100 performance measures that have been 
developed by the American Medical Association's Physician Consortium 
for Performance Improvement, the Centers for Medicare and Medicaid 
Services' Doctor's Office Quality Project, and the National Committee 
on Quality Assurance. This work is funded by the Robert Wood Johnson 
Foundation and CMS. We expect to achieve consensus on an initial set of 
physician office performance measures later this year. We will then 
embark on Phase III of the project, during which we will endorse a more 
complete set of ambulatory care measures.
    The second topic I want to comment on this morning is changing 
physician behavior and, in particular, improving the quality and 
efficiency of physician-related care. I base my comments on my personal 
experience as a practicing physician, my experience as the director of 
the largest Medicaid program in the nation, and my experience being the 
CEO of the largest healthcare system in the United States, in which 
capacity I oversaw the care provided by more than 20,000 physicians and 
during which time I engaged them in a major quality improvement effort 
that is often used today as an example of radical organizational 
change.
    I would make two sets of observations regarding changing physician 
behavior.
    First, to be successful at changing physician behavior the 
prescription for change should entail three elements: (1) a change that 
is clinically the right thing to do--i.e., it is good for patient care; 
(2) a way to make the practicing physician's life easier; and (3) 
rewards or incentives that are meaningful to the physician. In most 
cases, rewards and incentives will be financial, but in some settings 
they may be time to do research or time to do teaching or other such 
activity. Today, one of the most effective ways to make the practicing 
physician's life easier is to reduce the amount of paperwork that he or 
she has to complete in order to get paid. It is also worth noting that, 
in general, physicians respond much more favorably to positive rewards 
than to negative or punitive incentives.
    Second, similar to the above but viewed through a somewhat 
different lens, the three most powerful change levers for effecting 
physician behavior today are: (1) performance measurement and public 
reporting; (2) modernization of information management; and (3) 
alignment of financial incentives with desired improvements in quality 
and efficiency--what is often called payment for performance.
    From my experience at the VA I can attest to how powerful is 
performance measurement and public reporting as a change lever for 
physicians. As I believe the Committee is aware, the veterans health 
care system underwent a major transformation in the latter half of the 
1990s, and today the VA outperforms Medicare on essentially all 
standardized quality indicators. Much of that change was accomplished 
by implementing a performance measurement system in which standardized 
measures of quality were regularly assessed and the results made 
available for everyone to see. In this case, no changes in physician 
payment were associated with performance measurement.
    Modernization of information management, and especially use of an 
electronic health record, is an important change lever in so far as it 
is a critical enabler or facilitator of quality improvement. Basically, 
it provides an easy and reliable means to document and assess 
performance
    And lastly in this triad, while pay for performance is still in its 
infancy as a common method of payment for healthcare, conceptually it 
makes sense--as opposed to the current payment system in which one gets 
paid for the number of units of service delivered regardless of whether 
the service is truly needed or whether it is provided in a quality 
manner. Quite simply, if you want higher quality and more efficient 
physician services, then payment needs to be aligned in a predictable 
way with this goal.
    Finally, I would like to conclude these comments with a few 
personal reflections about Medicare's potential to drive improved 
quality and efficiency of care. I would preface these comments by 
noting that the human and financial costs of medical error and 
substandard care have been exhaustively documented in recent years, and 
American healthcare truly faces a quality crisis today. At the same 
time, a robust inventory of performance measures and standards for 
quality improvement have been developed, and the repertoire continues 
to grow. The main problem is getting these performance measures and 
quality standards used. In this regard, the two most important players 
are physicians and payers, with Medicare being the single largest 
payer. Medicare has a unique opportunity to address the crisis of 
quality through its payment mechanisms.
    The Centers for Medicare and Medicaid Services has taken 
significant steps toward operationalizing a quality strategy based on 
performance measurement and incentives. The agency's publication of 
performance data on nursing homes and home health agencies has 
heightened public awareness of the value of information on quality and 
has alerted the provider community that it has a critically important 
role to play in adopting best practices and improving patient safety. 
While information on hospital and physician performance may be more 
difficult to collect and organize, the CMS plans to extend the consumer 
information campaign to hospitals and in the meantime has launched a 
breakthrough demonstration project with Premier, Inc., a national 
alliance of nonprofit hospitals, to pay quality improvement incentive 
bonuses for Medicare patients at participating institutions. CMS has 
more recently announced plans for applying this concept to a number of 
large physician group practices. While applauding these milestones, 
when measured against the magnitude of the problem, these efforts have 
barely begun to achieve critical mass and momentum.
    The performance measures available today may not be perfect and do 
not address all the areas needed; however, they are more than good 
enough to be used to accelerate the drive for quality improvement. My 
recommendation to the Committee is that payment for performance should 
become a top national priority and that Medicare should lead in this 
area, greatly expanding payment for performance programs for both 
hospitals and physicians. Not only would this have a positive effect in 
driving quality improvement, but it would also stimulate similar 
efforts by private payers, just as Medicare's adoption of prospective 
payment for hospitals did 20 years ago.
    That, Madam Chair, concludes my comments this morning. Thank you 
for the opportunity to share my views with the Committee. I would be 
happy to answer any questions or clarify any of the points made here 
this morning.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Dr. 
Kizer. I do look forward to the discussion amongst all the 
panelists and the Committee Members. Mr. Lee.

STATEMENT OF PETER LEE, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
  PACIFIC BUSINESS GROUP ON HEALTH, SAN FRANCISCO, CALIFORNIA

    Mr. LEE. Thank you very much, Madam Chairman, Mr. Stark, 
distinguished Subcommittee Members. I am Peter Lee, the 
President and Chief Executive Officer (CEO) of the Pacific 
Business Group on Health, and I appreciate the opportunity to 
be with you today to talk about how leading purchasers are 
joining with labor, consumers and providers to measure and 
reward quality and cost efficiency to foster improvements in a 
very troubled health care system. In my remarks, I will seek to 
provide concrete examples of efforts currently under way to 
promote higher quality and more cost efficient care, highlight 
some principles that should apply to the expansion of these 
strategies and describe how Medicare can lead these important 
efforts. The variation of care and the quality of care that 
Americans receive has been well documented, as Dr. Kizer noted, 
but this is also true for the cost efficiency with which care 
is delivered to Americans.
    In this slide I have before you and is attached to your 
material, this show actual data from a health plan in 
Washington that portrays the performance distribution of 
hundreds of individual physicians based on the quality of care 
and their cost efficiency. The vertical axis reflects their 
adherence to evidence-based quality of care process measures. 
The horizontal axis reflects cost-efficiency of the care they 
deliver, meaning it captures the total cost of care provided by 
each physician. This graph demonstrates that patients today are 
as likely to be seen by physicians who are providing lower 
quality care and less cost efficient--the lower left quadrant--
as they are to be seen by high quality, more cost efficient 
doctors, the upper right quadrant. Today the vast majority of 
physicians do not know where they stand in terms of the quality 
and cost efficiency of their care. They are not rewarded 
through payments for doing a better job and patients to do not 
have information to make better choices. Both research and 
practical experience have demonstrated that significant cost 
savings are achievable while improving the quality of care, and 
we have heard some examples of that already today from STS.
    Actuarial modeling--Medicare has demonstrated that slight 
movement upward and right--could generate 3 to 4 percent 
savings in Medicare alone. Other estimates show those savings 
could be far greater. Over the past 5 years there have been a 
growing array of programs that seek to measure provider 
performance, make that information available to providers for 
improvement, and reward better performers with payments or by 
public recognition. These programs are touching the lives of 
tens of millions of Americans today, and thousands of 
physicians and thousands of hospitals. They provide lessons for 
Medicare and chart the way for changing our payment system into 
one that actually rewards better performance. Many of the 
Nation's leading health plans have programs that promote high 
performing physicians and hospitals, such as Aetna, Blue Shield 
of California, Pacific Care, Humana and United Health. Health 
plans are developing these products in direct response to the 
call by purchasers and the evident gaps in the current payment 
and delivery system. We have also seen employers and labor 
institute collaborative projects to reward and measure 
performance.
    The three examples I would like to highlight briefly are, 
first, a program from the UNITE-HERE Labor Management Trust in 
Las Vegas. UNITE-HERE is a labor group that represents 120,000 
hotel workers and their families in Las Vegas, Nevada. After 
many years of double-digit cost increases the trust decided to 
focus on the variation in quality and cost efficiency of the 
physicians serving its members. It measured the physicians 
using industry standard cost efficiency tools, and measured the 
quality of care based on analyzing administrative data and 
looking at the extent physicians were meeting evidence-based 
guidelines.
    In 2003, after using cost efficiency analysis as a 
screening tool and applying other criteria to ensure fairness 
and maintenance of adequate access to all kinds of care, the 
Trust excluded 50 of 1,800 physicians from their network. The 
Trust at the same time identified physicians as gold star based 
on their quality of care. These gold star physicians were 
highlighted in the physician directory for their beneficiaries. 
In addition, these physicians were eligible for performance 
bonuses of up to 10 percent of their compensation weighted 
three-quarters by quality and one-quarter by cost efficiency. 
The results were dramatic, as you can see from the second 
slide. What you have is an experience where trend was reduced 
over 10 percentage points from what had occurred the prior year 
at a 12-percent rate increase. The vast majority of those 
savings, 70 percent, was due to changes in the physician 
network, and the ripple sentinel effect on the physicians in 
the network. For these low-wage hotel and restaurant workers 
and their families, the result of the savings generated has met 
that they were able to see salary increases for the first time 
in 3 years.
    The next program I would like to reference is the Bridges 
to Excellence Program, a multi-stakeholder approach to 
rewarding quality. Through Bridges to Excellence, quality is 
measured uniformly by three national Committees for quality 
assurance developed physician recognition programs. These 
programs look at physician practice connections which look at 
the extent to which physicians practices have implemented IT 
systems that have been proven to show that they can improve the 
quality of care. A version of these measures is currently being 
used by CMS as part of their pilot programs. The second 
recognition program is for diabetes care and the third for 
heart and stroke. Physicians elect to participate in these 
programs and go through a submission of data. The employers 
that participate use this data to reward higher performers who 
can receive bonuses of up to $20,000 depending on how many 
patients are in their panel. This program has been launched in 
four communities by employers such as Ford Motor, Verizon, 
General Electric and Hannaford Brothers. To date over $1 
million has been paid out, and Bridges to Excellence, beyond 
paying the physicians, is seeking to engage consumers by 
supporting them in care management tools for diabetes and 
cardiac care and providing incentives for patients to 
participate in programs to enable them to manage their 
illnesses. The program is now being expanded to over a dozen 
additional areas.
    The third program I would like to reference is the 
Integrated Healthcare Association's initiative in California, 
my home State. The Integrated Healthcare Association (IHA) 
initiative has brought together the seven leading health plans 
in California with over 200 medical groups, with purchasers, 
with consumer advocates, to launch a program that reaches 
physician groups in California's Health Maintenance 
Organization (HMO) market. The drivers of IHA's initiative are 
similar to the three we have heard from the prior programs. 
They are about common measures. It is about public reporting 
and payment, in this case from health plans. The seven health 
plans and over 200 physician groups encompass over 7 million 
HMO enrollees in California and 25,000 physicians. In 2004, 
using these common metrics, over $50 million was paid out by 
the health plans of these medical groups and $100 million in 
total with some of the health plans using other performance 
measures as part of their rewards. Many physician groups report 
these bonus payments are key drivers in terms of their making 
more rapid investments in IT, and at the same time these common 
measures are used by the State of California's Report Card on 
Medical Groups and by health plans in doing benefit designs.
    These three initiatives provide concrete examples of 
programs that share a common goal of encouraging improvements 
in quality and cost efficiency by linking payments to better 
performance and by engaging consumers. As a nation we need to 
move forward with a standard set of performance measures for 
physicians and hospitals as rapidly as possible. As other 
speakers have said, we need to avoid a tower of Babel of 
conflicting measures by getting a full set of physician and 
hospital measures endorsed by the NQF, and, through that 
process, assuring that these measures are valid, reliable and 
transparent. In addition to the clinical quality and patient 
experience measures that we need to have, we have to have a 
similar rapid review by the NQF for cost efficiency measures. 
We need cost efficiency measures that are feasible to implement 
by health plans and by CMS, credible and reliable for 
consumers, and fair, equitable and actionable by providers. In 
my written testimony I highlight some of the challenges for 
doing this right, but also underscore that we have to do this 
now.
    Finally, I would like to remark briefly on CMS. The CMS, as 
we have heard, has increasingly embraced performance 
measurement and rewards through demonstration projects, and I 
want to applaud CMS Administrator Mark McClellan's leadership 
in this area. We strongly support the recent recommendations of 
MedPAC that CMS go beyond demonstrations to phase in an 
increasing percentage of performance based payments for 
hospitals, physicians and home health care. We need to move to 
making performance-based payment a substantial portion of our 
payments to physicians and hospitals. Likely, I think we need 
to be in the range of the 20 percent that is currently being 
paid in the United Kingdom. The many private sector efforts 
need the leadership and partnership of Medicare to foster 
improvements that will ripple through the entire health care 
system.
    In addition to the MedPAC recommendations to phase in 
performance rewards for providers, we also need to move in 
parallel to phase in transparency in reporting, to allow 
consumers and the private market to make this information 
available for making better choices. Beyond its own use, CMS 
should make routinely available to the private sector the 
patient-identify encrypted version of the full Medicare claims 
database, so private plans can more precisely measure hospital 
and physician performance. Medicare must reward better 
performance and provide consumers with tools to make better 
choices. We have to take deliberate steps to increase the 
portion of payments made to providers that are based on 
performance and the extent to which this information is shared 
with the public. We must move beyond a system that currently is 
performance blind. Thank you very much for this opportunity to 
be with you, and I look forward to your questions.
    [The exhibits follow:]

    [GRAPHIC] [TIFF OMITTED] T6373A.012
    
    [GRAPHIC] [TIFF OMITTED] T6373A.013
    
    [GRAPHIC] [TIFF OMITTED] T6373A.014
    
    [The prepared statement of Mr. Lee follows:]
Statement of Peter Lee, President and Chief Executive Officer, Pacific 
          Business Group on Health, San Francisco, California
    Chairman Johnson, Congressman Stark, distinguished Subcommittee 
members, I am Peter Lee, the President and CEO of the Pacific Business 
Group on Health. I appreciate the opportunity to be with you this 
morning to talk about how leading purchasers are working with labor, 
consumers and providers to measure and reward quality and cost-
efficiency to foster improvements in a very troubled health care 
system. In my remarks I will provide concrete examples of efforts 
underway to promote higher quality and more cost-efficient care through 
measurement and reward programs, highlight some principles that should 
apply to the expansion of these strategies, and describe the how 
Medicare can join and even lead these important efforts.
    The Pacific Business Group on Health is a nonprofit association of 
many of the nation's largest purchasers of health care, based in 
California. PBGH represents both public and private purchasers who 
cover over 3 million Americans, seeking to improve the quality of 
health care while moderating costs. The members of PBGH range from 
large public and private purchasers such as Bank of America, CalPERS, 
FedEx, Target, the University of California and Wells-Fargo, to 
thousands of small businesses in California that we serve through our 
small employer purchasing pool--PacAdvantage. For fifteen years, PBGH 
has been a catalyst promoting performance measurement and public 
reporting at every level of the health care system to improve 
performance and to help consumers to make better choices.

Current Performance Gaps--Wide Variation and Significant Room for 
        Improvement
    Health care cost is one benchmark against which both employers and 
employees measure health care. By that measure, with costs nearly 
doubling over the last five years, we should be getting more and better 
health care. While it's true that there have been important advances in 
technology and new services, it is also sadly true that there is a huge 
value disconnect in our health care system. Recent research by RAND 
found that an American's likelihood of getting the right care at the 
right time was about 50 percent. This work only serves to underscore 
reports from the Institute of Medicine and others that document the 
chasm between what clinicians know works and the care actually 
provided. These deficits persist despite many initiatives by both the 
federal government and private health care delivery systems to improve 
care. Key findings of the RAND work include:

      Overall, adults received about 55 percent of recommended 
care;
      The level of performance was similar for chronic, acute, 
and preventive care;
      Quality of care varied substantially across conditions. 
For example, people with cataracts received about 79 percent of 
recommended care; those with hip fractures received about 23 percent.

    The variation in care is also true for the cost-efficiency with 
which care is delivered to Americans. In Slide 1 of the material 
accompanying this testimony we show data from a health plan in 
Washington that portrays a performance distribution of hundreds of 
individual physicians based on the quality of the care and their cost-
efficiency. The vertical axis reflects adherence to evidence-based 
quality of care process measures. The horizontal axis reflects the 
cost-efficiency of the care they deliver (measuring ``longitudinal 
efficiency'' which captures the ``total cost of care provided by each 
physician''--adjusting for the mix of illnesses among their patients 
and including all physician, lab, hospitalizations, pharmacy, imaging 
and ALL other costs related to an entire episode of acute care or a 
year of chronic illness and preventive care).
    This graph demonstrates that patients today are as likely to be 
seen by physicians who are both lower quality and less cost-efficient 
(the bottom-left quadrant) as they are by high quality, more cost-
efficient doctors (the upper-right quadrant). Today, the vast majority 
of providers do not know where they stand in terms of the quality and 
cost-efficiency of their care; they are not rewarded through payments 
for doing a better job; and patients do not have information to make 
better choices. Some of the lessons from this reality are:

      While we have an obligation to give patients better 
information to choose doctors--and let them know where their doctors 
stand with regards to quality and cost-efficiency--it is just as 
critical that we provide information and incentives to providers to 
move ``up and right.'' Consumer AND provider information and incentives 
must be about fostering performance improvement by physicians.
      Both research and practical experience have demonstrated 
that significant cost savings are achievable--while improving better 
quality care. The ``Breakthrough Competency'' assessment of health 
plans conducted by PBGH reported on research finding that up to 17 
percent of premium could be saved by better provider selection, while 
actuarial modeling in Medicare identified savings of 3-4% with 
relatively little movement ``up and right.'' (The full details of the 
evaluation of potential Medicare savings conducted by the Consumer-
Purchaser Disclosure Project are attached to my testimony.) Both of 
these figures are likely low estimates. Since we have never had a 
health care system that rewarded better cost-efficiency and quality, we 
have no idea how large the savings could be or how quickly quality 
would improve if we harnessed market forces to continuously motivate 
better performance.

    Over the past five years there have been a growing array of 
programs that seek to measure provider performance, make that 
information available to providers for improvement, and reward better 
performers with payments or by public recognition programs. The 
Leapfrog Group recently published a compendium of 90 incentive and 
reward programs sponsored by health plans, private purchasers, CMS and 
others. These programs are touching the lives of tens of millions of 
Americans, and thousands of physicians and hospitals. They provide 
lessons for Medicare and chart the way for changing our payment system 
into one that actually rewards better performance.

Performance-Based Provider Programs
    Many of the nation's leading health plans are instituting programs 
that promote high performing physicians or hospitals. Examples include:

      Aetna's Aexcel Network, through a set of multi-tiered 
options, promotes higher-performing physicians in 12 specialties based 
on clinical quality and cost-efficiency;
      Blue Shield of California's hospital tiering, which 
includes consumer information on hospital performance, is based on 
cost-efficiency and quality;
      PacifiCare's medical group and hospital tiering also 
combines quality and relative cost-efficiency;
      Humana promotes better consumer choice through its use of 
a ``Hospital Value Index;'' and
      United Health Plan's Performance Program identifies more 
efficient and higher quality physicians, and offers a Centers of 
Excellence program for hospitals.

    Health plans are developing these products in direct response to 
the call by purchasers and the evident gaps in the current payment and 
delivery of health care. We have also seen employers and labor 
institute collaborative projects to measure and reward higher 
performance. Three examples I would like to describe are a program 
sponsored by the UNITE-HERE Labor Management Trust in Las Vegas, Nevada 
to create a more cost-efficient network of physicians and reward better 
performers, the Bridges to Excellence program rewarding individual 
physicians, and California's Integrated Healthcare Association 
initiative for medical groups.

UNITE-HERE Labor Management Trust Fund, Las Vegas
    The UNITE-HERE Labor Management Trust Fund is a Taft-Hartley trust 
providing health care to 120,000 hotel workers and their families in 
Las Vegas, Nevada. Faced with years of double digit medical cost 
increases, the Trust decided to focus on the variation in quality and 
cost-efficiency of physicians serving its members. The Trust measured 
all of its physicians using an industry standard ``cost-efficiency 
tool'' that assesses the longitudinal efficiency of care provided, and 
also measured the quality of care provided based on analyzing 
administrative data to determine the extent to which physicians were 
meeting evidence-based guidelines. In 2003, after using cost-efficiency 
analysis as a screening tool and applying a variety of other criteria 
to ensure fairness and maintenance of adequate access to all kinds of 
care, the Trust excluded 50 of the 1,800 physicians that had been 
providing care as network providers. The rationale given by the Trust 
for its program was that multiple factors, of which cost-efficiency 
screening was one, were taken into account in deciding who was included 
in its restructured physician network. At the same time, the Trust 
identified ``Gold Star'' physicians based on their quality of care. 
These Gold Star physicians were highlighted in the physician directory 
for Trust beneficiaries. In addition, these physicians were eligible 
for performance bonuses of up to 10% of their compensation based on a 
calculation that gave \3/4\ weight to quality and \1/4\ weight to cost-
efficiency.
    The results have been dramatic (as can be seen in Slide 2)--with 
medical trend reduction of over ten percentage points from the trend 
that would have occurred if the 12% rate from the previous year had 
continued. The vast majority of the savings (70%) was due to the 
changes in the physician network and the ripple sentinel effect on all 
the network physicians. (At the same time, the Trust instituted changes 
to its formulary, added a pharmacy benefit that provided some generics 
at no cost and made other benefit design changes that accounted for the 
remainder of the savings.) For these low-wage hotel and restaurant 
workers and their families, the result of the savings generated has 
meant they are seeing salary increases for the first time in three 
years, making possible a 30 cents per hour wage increase that would 
have otherwise been unaffordable.

Bridges to Excellence
    Bridges to Excellence (BTE) is a multi-stakeholder approach to 
creating rewards for quality. The mission of BTE is to improve quality 
of care through incentives that encourage providers to deliver optimal 
care and encourage patients to seek evidence-based care and self-manage 
their conditions. By recognizing and rewarding providers who 
demonstrate they have implemented comprehensive solutions in the 
management of patients, BTE seeks to create significant leaps in the 
quality of care. Quality is measured uniformly using one of three NCQA-
developed physician recognition programs. These programs focus on areas 
where there is a clear link between quality improvement performance 
criteria and actuarially estimated financial returns for payers and for 
providers in a fee-for-service environment. The three NCQA recognition 
programs that serve as the basis for payments (summary information 
provided in Slide 3 attached) are:

      Physician Practice Connections measures the extent to 
which a practice has implemented information technology (IT) systems 
that leverage available data to track and educate patients, maintain 
medical records, prescribe medicines and ensure appropriate follow up. 
These are all IT systems that have been shown to dramatically improve 
patient care and prevent mistakes. A version of these same measures is 
in development to be used by CMS as part of its efforts to pilot reward 
programs with the DOQ-IT project, the Medicare Care Management Program 
Demonstration project, and the upcoming 8th Scope of Work for Quality 
Improvement Organizations.
      Diabetes Provider Recognition Program, developed with the 
American Diabetes Association, covers an array of measures for 
effective care to diabetics. The measures assess care for diabetics in 
a physician's practice including the measurement and control of 
cholesterol, blood pressure and blood sugar (HbA1C) levels, and whether 
critical eye, foot and kidney function exams are conducted; and
      Heart Stroke Recognition Program has six measures of 
effective care for people with cardiac disease, developed in 
collaboration with the American Heart Association. The measures assess 
physicians' care of patients with cardiac disease and include the 
measurement and control of cholesterol and blood pressure levels, use 
of aspirin and smoking cessation advice.

    Physicians elect to apply for recognition with NCQA and submit data 
documenting their performance. The sponsoring employers then assess the 
extent to which their employees are being seen by participating 
doctors. Those that are recognized as high performers can receive 
``bonus payments,'' which could earn a physician practice an additional 
$20,000 from BTE.
    The program has been launched in four communities in Ohio, 
Kentucky, Massachusetts and New York by employers such as Ford Motor, 
Verizon, General Electric and Hannaford Brothers with a half dozen 
health plans (as described in Slide 4 attached). While nationally these 
employers sponsor health care for millions of Americans, in the four 
named communities alone they are providing incentives for services 
provided to over 300,000 employees and dependents. BTE has paid out 
more than $1 million to date, out of an available pool of $8 million. 
Payments to physicians are geared to reflect higher standards over 
time.
    In addition, the participants in BTE seek to engage consumers by 
supporting them with care management tools for diabetes and cardiac 
care and providing information on physicians that have completed the 
recognition program to inform the consumers' selection of provider. The 
patients in physician practices recognized by BTE are more likely to 
get the right care at the right time, such as increased early testing 
for diabetes, for heart disease, or learning how to better manage their 
chronic illnesses. BTE also provides incentives to patients who 
participate in programs to enable them to better manage their 
illnesses.
    The program is now being expanded to over a dozen additional areas 
by United Health Care, multiple Blue Cross/Blue Shield plans, including 
CareFirst here in the Washington, DC area, and employers and purchaser 
coalitions. While BTE has learned that physician certification 
processes are resource intensive, they have also seen how important 
this route can be to engage physicians.

California's Integrated Healthcare Association's Medical Group Pay-for-
        Performance
    Over the past four years, the Integrated Healthcare Association in 
California has brought together a collaboration of purchasers, seven of 
California's largest health plans, physician groups, consumer advocates 
and researchers to launch a pay for performance program to reward 
physician groups in California's HMO market. The goal of the IHA 
program is to create compelling incentives to drive breakthrough 
improvements in clinical quality and patient experience. The drivers of 
IHA's initiative are common measures, public reporting and payment from 
health plans. The use of standard measures creates economies of scale 
for data collection and enables a common platform for statewide public 
performance reporting (a full description of this program is attached 
to my testimony).
    The common metrics that are the basis of the IHA initiative are:
Clinical Quality (50% weighting)

      10 HEDIS-based measures for preventive care (cancer 
screening and childhood immunizations) and chronic disease care (for 
asthma, diabetes and cholesterol management) reported with 
administrative data
Patient Experience (30% weighting)

      5 measures that reflect overall ratings of care, access, 
specialty care, and communication between physician and patient, 
collected through common statewide CAHPS-like survey
Investment and Adoption of IT (20% weighting)

      Measuring extent of data integration (e.g., combining 
pharmacy and inpatient data) and clinical decision support at the point 
of care, with capacity collected through web-based survey plus audit

    The seven health plans (Aetna, Blue Cross of California, Blue 
Shield of California, CIGNA, Health Net, PacifiCare, Western Health 
Advantage) and over 200 physician groups participate in this 
initiative, encompassing 7 million HMO enrollees and 25,000 physicians. 
In 2004, more than $100 million in bonus payments were made to 
participating medical groups, with half of the pay-out, $50 million, 
based on common quality measures established by IHA. There is every 
indication that the 2005 payout will be even larger.
    A range of stakeholders--including health plans, physician groups, 
purchasers and consumers--selected the measures. In an effort to 
minimize burden on the participating physician groups, the clinical 
measures are all based on administrative data and the patient 
experience survey on a statewide standard. PBGH, together with the 
National Committee for Quality Assurance (NCQA), and the California 
HealthCare Foundation, have spearheaded the development of measures for 
this program. Many physician groups report these bonus payments as key 
drivers in making more rapid investments in information technologies. 
We are also seeing marked improvement in performance areas that we can 
track over time--such as for patients' reported experience of care.
    The program also gives credit for physician groups' efforts to 
measure individual physician performance on clinical effectiveness and 
patient experience, provide regular feedback to those physicians and 
offer rewards based on performance. Many of California's physician 
groups are taking this next step of measuring and rewarding individual 
doctors. One demonstration of the growing interest can be seen in the 
participation of 18 physician groups in physician-level patient 
experience surveying which is sponsored by PBGH and which seeks to 
align individual physician survey efforts with those at the group and 
health plan level.
    In addition to the common metrics being the basis of payments, the 
IHA initiative has helped provide a common picture of physician group 
performance for consumers, thereby providing a consistent picture of 
medical group performance. This information is now being used by the 
State of California's Office of Patient Advocate and PBGH's HealthScope 
consumer websites, as well as by the participating health plans. In 
addition, it is being used by health plans such as PacifiCare and 
Health Net to inform their design of higher value networks that deliver 
both higher quality care and relative premium savings.

Building on Lessons Learned
    These three initiatives provide concrete examples of programs that 
share the common goal of encouraging improvements in quality and cost-
efficiency by linking payments to better performance, and by engaging 
consumers. In each case, the sponsors recognized that they needed to 
constructively engage both providers and consumers. In addition, they 
all recognize that the measures each is using are a work in progress. 
As a nation, we need to move to a standard set of performance measures 
for physicians and hospitals as rapidly as possible. The Consumer-
Purchaser Disclosure Project, a coalition of employers, labor, and 
consumer groups, has endorsed a set of guidelines to encourage 
alignment of the many efforts in effect today. We need to also avoid 
having a Tower of Babel of conflicting measures by:

      Getting a full set of physician and hospital measures 
endorsed by the National Quality Forum (``NQF''), and through that 
process we are assured of their validity, reliability and transparency.
      Assuring that measures are not ``black boxes''--those 
conducting measurement and reward programs should be fully transparent 
and those being measured must have an active role in shaping the 
measures and understanding their component parts.

    In the case of physicians, within the next two years there should 
be an NQF-endorsed standard ambulatory patient-experience survey. On 
the technical quality of care front, while there are proven measures 
that use administrative data--none have yet been subject to the 
National Quality Forum's endorsement process. The NQF, however, is 
embarking on an Ambulatory Care measurement process, This process 
should result in a ``starter set'' of measures, but will need to be 
rapidly expanded to reach the full array of specialists through 
increasingly expanded administrative data reporting.
    We need to have a similarly rapid review and NQF-endorsement 
process for cost-efficiency measures. As detailed in a recent multi-
stakeholder effort describing working standards for measuring provider 
cost-efficiency, sponsored by the Leapfrog Group and Bridges to 
Excellence, we need cost-efficiency measures that are feasible to 
implement by health plans and CMS, credible and reliable for consumers 
and fair, equitable and actionable for providers. The need for 
efficient and timely data collection necessitates use of administrative 
data for reporting. In doing so, however, a number of key factors need 
to be considered, including:

      Using existing administrative data, but building on that 
data to include pharmacy and laboratory results data where it is not 
already present--these are key additions in the case of Medicare, and 
were recently recommended by MedPAC;
      Assuring that for physician measurement there are enough 
patient encounters combined to make reliable reports and enough 
physicians to make valid comparisons;
      Applying appropriate attribution rules for when to assign 
the cost of services to a particular physician and/or physician group;
      Determining the best balance between reporting physician 
performance via a few aggregate performance measures versus a 
complement of narrow performance measures;
      Applying appropriate case-mix and severity adjustment to 
account for different populations seen by physicians, and
      Assuring interoperability in health IT and data exchange 
systems to foster efficient data access and aggregation.

    These challenges have been and are being addressed in the dozens of 
programs that are up and running around the country. Our challenge as a 
nation is to make sure they are addressed consistently, fairly and soon 
to create truly national standards. Though there will always be ongoing 
opportunities to improve the precision and validity of provider 
performance measures, there is clear consensus among consumer 
organizations, purchasers and many providers that current measures are 
sufficient starting point and the time for universal performance 
transparency is now.

Medicare--The Opportunity and Necessity to Lead
    CMS has increasingly embraced performance measurement and rewards 
through demonstration projects. And we applaud CMS Administrator Mark 
McClellan's leadership in this area. We strongly support the recent 
recommendations of MedPAC that CMS go beyond demonstrations to phase in 
an increasing percentage of performance-based payments for hospitals, 
physicians and home health care. Though it remains unknown what level 
of performance-based payment will best accelerate our crossing the 
quality chasm, many researchers have observed that the small 
percentages tested to-date are woefully inadequate. We need to move to 
making performance-based payment a substantial portion of our payments 
to physicians and hospitals--likely in the range of the 20% currently 
being paid in the United Kingdom. The many private sector efforts need 
the leadership and partnership of Medicare to foster improvements that 
will ripple through the entire health care system. In contrast to the 
90 programs currently operating across the country, Medicare not only 
has a national geographic reach, but it has the service density in 
virtually every community to provide a robust picture of the 
performance of most providers.
    The programs I have described reinforce the rationale behind the 
MedPAC proposal to start with rewarding information technology capacity 
and then phase in performance rewards for quality, patient-experience 
and cost-efficiency as measures for these areas are endorsed by NQF. In 
addition to the MedPAC recommendations to phase in performance rewards 
for all providers in Medicare, we also need to move in parallel to 
phase in transparency in reporting to allow consumers and the private 
market to use the information to make better choices. Medicare itself 
should build on its important efforts at public quality reporting in 
the hospital and nursing home arenas to show publicly the relative 
performance of physicians and add measures of cost-efficiency.
    Beyond its own use, CMS should make routinely available to the 
private sector, the patient identity-encrypted version of the full 
Medicare claims data base, so private health plans can more precisely 
measure hospital and physician performance over longitudinal periods of 
illness (which most private sector plans do not have sufficient data 
with which to do on their own with precision).
    Medicare must reward better performance and provide consumers with 
tools to make better choices. While these steps should be taken with 
all due deliberation and consideration for the complexities--we need to 
keep in the forefront of our minds that employers, consumers and 
taxpayers are being faced with untenable options by a health care 
system that delivers inconsistent quality at a staggering cost relative 
to other countries with which our companies and workers compete. The 
National Health System in the United Kingdom has embarked on a program 
to have 20% of family practice payments be performance based. While I 
believe that we should move to a system that has a similar portion of 
payments based on performance, we need to move in that direction by 
taking deliberate and considered steps. Taking deliberate steps, for 
example, means that physicians and hospitals should see their results 
before they are publicly released. But deliberate steps must be taken 
to increase the portion of payments made to providers that are based on 
performance and the extent to which this information is shared with the 
public. We must move beyond a system that is performance blind.
    Most patients today are not receiving the care we know they should 
be. Most providers are paid the same whether they deliver the high 
quality or low quality care, irrespective of their cost-efficiency. 
Wasted spending that buys no incremental health likely exceeds 25% of 
current spending. We must change these dynamics--consumers must have 
the performance measurements and incentives to make the best choices; 
and providers must be rewarded for doing a better job. Thank you for 
the opportunity to be with you today.

                                 

    Chairman JOHNSON OF CONNECTICUT. Thank you very much, and I 
thank all the members of the panel. I want to raise the issues, 
more specifically, of technology. Dr. Lee, in your written 
testimony you say we must start with rewarding IT capacity and 
then phase in performance awards for quality patient 
experience, cost efficiency and so on. Mr. Kuhn, on the 
contrary, you note the potential of technology. How can we 
possibly do this? Dr. Rich, you certainly point to the 15 years 
it took to develop the clinical database that you need. What is 
the relationship of our incentivizing the adoption of 
technology, particularly in the physicians' offices out there? 
Most of the hospitals are pretty well on their way,but how far 
can we go, without the technology to collect the relevant 
clinical data, to make this realistic and fair, and make these 
steps a clinical advance in the delivery of quality care?
    Mr. KUHN. The technology is going to be key in all of this 
because through the technology you are going to be able to draw 
the picture, connect the dots--whatever you want to say--of the 
entire patient experience. It is an opportunity, at least in 
the physicians' offices for them to look at their patient 
cohort as a whole; to understand which ones have special needs 
and deal with those folks accordingly. It can set up the 
opportunities to trigger follow-up visits. Through technology, 
physicians can look for drug interactions. It includes all of 
the different things in the tool kit that physicians can use.
    We think technology is important and it creates some real 
value propositions to them on a go-forward basis, not only for 
the physician but also in this whole area of trying to drive 
better performance. We are excited that one of the 
demonstration authorities we have in the Medicare Modernization 
Act, Section 649, is an opportunity to reach out to both 
smaller and medium size physician offices to begin to look at 
opportunities to deploy technology in those settings. We are 
moving in that area now. We also have, through our quality 
improvement organizations, a program called doctors office 
quality information technology (DOQ-IT). We are engaging 
physicians on a one-by-one basis across the country in an 
upcoming scope of work to try to drive better opportunities. It 
is an important piece that helps us knit together the picture. 
So, I agree it is an important anchor as we go forward in this 
whole effort.
    Chairman JOHNSON OF CONNECTICUT. Anyone else want to 
comment?
    Mr. LEE. If I could. I think that it is an important step, 
and I actually did hear the doctor from STS, and it is an 
important first step in terms of recognition of having IT 
systems in place and using those systems. I think that the work 
STS has done has been so important as a national model. 
However, it is a model that we can't wait 12 years to have 
ripple through every other specialty. The issue of having IT 
systems in place is about making sure we can collect data 
efficiently so we can use administrative data in a valid way to 
make sure we are able to report more broadly across all 
specialties.
    Chairman JOHNSON OF CONNECTICUT. I should have added to my 
question, we don't have interoperable standards yet and that is 
an impediment to any government mandate. Dr. Rich, you guys 
have been at it a long time; is the technology you are using so 
standard? Dr. Kizer, in the VA, was the technology so standard 
that we would assume that any standards of interoperability 
would address the kind of technology that you are using in this 
instance? Dr. Rich?
    Dr. RICH. I don't think that it will take 12 years for any 
other specialists to develop what we have developed. We have 
been using it for 12 years. We have developed a very robust 
database with 200 data elements. I think that there are light 
versions of the database that can drive quality improvement far 
quicker and can be implemented within a 12-month timeframe. We 
are addressing this issue in the State of Virginia with the 
other specialists. We are working with Anthem of Virginia to 
develop the software that will allow others to develop 
specialty-specific versions of this STS database that will 
collect the important data for their practices. We are helping 
them develop the important outcomes and process measures that 
are necessary to promote quality improvement in their 
specialists. I do not think it will take 12 years and $15 
million.
    Dr. KIZER. I would just add that while technology is 
certainly needed and a big part of this, it doesn't mean that 
we shouldn't take small steps and move in the right direction 
first. There is a lot that can be done prior to having those 
interoperability standards. Of course we need to make the 
commitment to develop interoperability standards, and that is 
just a matter of tasking someone with the responsibility and 
doing it. It is something that certainly can be achieved in a 
reasonable amount of time.
    Chairman JOHNSON OF CONNECTICUT. I am going to ask a second 
question, and I will be kind of flexible to 5 minutes, but I 
hope we will be able to get two rounds of questions in. You may 
be familiar with the Johns Hopkins American Health Ways 
Project, where they call in the doctors from their system every 
year and talk about something, and this year they called in 
their many practicing physicians and the issue was outcome-
based compensation. One of the vignettes in that report--and 
they came to many of the same conclusions that you have come 
to--was about a 38-year-old male patient that this doctor saw 
who had very serious diabetes. He did all the counseling, made 
all the referrals, everything. That first office visit took 42 
minutes of face-to-face time. Then in spite of multiple efforts 
by telephone and mail, ``Mr. I'' did not return for follow up 
until 13 months later. He never went for monitoring, 
laboratories, the dilated retina exam, diabetic education or 
medical nutrition therapy. He had long since run out of 
medications and was no longer monitoring his plasma glucose.
    We had a long talk about the importance of forming a 
therapeutic patient-physician relationship, adherence with 
prescribed therapies and follow up in addition to the 
importance of controlling his multiple risk factors quickly and 
passably. He goes on at considerable length. This office visit 
required 23 minutes of face-to-face time. The fear is that this 
kind of patient who takes a lot of time, who requires a lot of 
education, and then doesn't cooperate, will be counted against 
this physician in terms of whether or not he is performing by 
quality. Dr. Kizer, who many years ago was the head of the VA 
Hospital in North Haven came to each one of us in the 
congressional delegation and said, ``Look, I have to take the 
post traumatic stress syndrome cases that no one else will 
take, and there are going to be some suicides, there are going 
to be some problems. Now people are avoiding those patients so 
they won't look bad and they have no place to go.'' So, this is 
the fear with going down the path that you are suggesting. You 
all have had some experience in it, and we talk smartly about 
risk adjustment, but risk adjustment is worrisome when it gets 
down to the individual patient, and if you get to be known as 
sympathetic, you get to attract that kind of patient. So, your 
comments.
    Dr. KIZER. Two things I would say in response to that. 
First of all, that is a very real world situation, and it may 
be an exceptional case, but those are the ones that always 
stick in the minds of the doctors; those are the cases that 
everyone worries about. In setting up measures, you have to 
have a panoply of measures, and physicians should be judged 
according to those things that are under their control. So, 
while we like to talk about outcome measures, often it is more 
important to have process measures that relate to what the 
physician is doing as opposed to something that requires both 
the physician and the patient or other factors that may affect 
the outcome. This also relates to your comment about risk 
adjustment, which is much more relevant to outcome measures 
than it would be to processor or structural measures. So, you 
need to have that mix of measures upon which physicians would 
be judged.
    The other comment is that many of the types of situations 
that you described can be appropriately dealt with in how the 
measures are constructed and in what is often called the 
specifications or the micro specifications, for the measures. 
In many cases these exceptional patients would drop out; they 
would not be counted in the final tabulation of the physician 
performance. So, while it is a real world issue, it is 
something that can be relatively easily dealt with.
    Mr. KUHN. Madam Chairman, if I might add to that. Last week 
at CMS we had our quarterly meeting of our Practicing Physician 
Advisory Committee. As we talked to these practicing physicians 
around the country about the issues of payment for performance, 
this very issue came forward; that is, what do you do with a 
noncompliant patient, and would that be scored against a 
physician as you went forward? As the physicians thought about 
it and reacted to it, I think they came to the same conclusion 
that Dr. Kizer was referring to. That is, you don't put one set 
of measures out there and you don't say everything is based on 
outcome. You look at process measures and you have a mixed bag 
to give the total picture of the patient experience. The total 
picture of the efforts of the physician or other clinicians to 
try to intervene on behalf of the patient gives you more of a 
balanced scorecard. As we had that conversation with them, I 
think it made a lot of sense and I think the practical 
experience that Dr. Kizer is describing here makes sense 
because you are going to have these noncompliant patients. They 
are going to try their best to be of assistance to them, but we 
need to help them understand, so that the measures are real and 
meaningful to the clinicians, and they don't get penalized by 
them either.
    Chairman JOHNSON OF CONNECTICUT. Dr. Rich?
    Dr. RICH. I would like to expand on that, and just as a 
point of clarification, not all physicians are created equal. 
There are some of us who practice in hospitals and some of us 
who practice in the outpatient setting, and we have very 
different worlds in which we practice. We don't deal and 
grapple with these issues. What I deal and grapple with is that 
patient who continued to smoke, who comes in with a blood 
pressure of 240 in the midst of a massive heart attack. Then my 
quality and my performance is measured on the entry of that 
patient into the system, the episode of care that I care for. 
So, hospital based physicians can be monitored and can develop 
performance measures, outcomes measures with the risk adjusted 
in a very real and different way than in the outpatient 
setting.
    Mr. LEE. The one thing that I would add is the consumer 
side of this. Some of the programs that we have seen out there 
increasingly in the market are also having employers or others 
trying to get tools to that consumer. So, I agree with all the 
remarks made about the physician measurement side, but also we 
need to get better tools to consumers, because it is not just 
with the physician that they interact, and they need to be 
given tools and incentives to engage in care management, and so 
forth. So, that is the one thing I just want to underscore.
    Chairman JOHNSON OF CONNECTICUT. Thank you. Mr. Stark.
    Mr. STARK. Thank you, Madam Chair. I want to thank the 
panelists, fascinating. I notice some disagreement basically 
between all of you on the question of positive rewards or 
negative or punitive incentives. I just make a couple of 
observations that I could get from your testimony or events, as 
Mr. Leno is in California. We have vast differences in this 
country. Minnesota I think is perhaps the lowest cost State as 
opposed to California, and I doubt if anybody would think that 
the Mayo Clinic is all that shabby as opposed to University of 
California. Costa Rica spends $500 a year on medical care for 
their citizens. We spend about $6,000 or $7,000 per head, and a 
baby born in Costa Rica today has the same life expectancy as a 
baby born in the United States. They may take more babies to 
term here, so you have a little bit difference, but still, 15 
times necessarily infant mortality.
    Two cardiologists, Dr. Rich, conspiring with a tenant 
hospital, killed 167 people in Reading, California and nobody 
caught them. Other cardiologists practicing in Reading said, 
``Oh my, something is wrong there.'' So, what I see here is, we 
do have a system in which I am going to suggest, one, we must 
punish substandard performance, that kind of substandard 
performance either with jail or defrocking. There has to be a 
penalty. That is not to suggest that we build a whole system on 
it, but there has to be some kind of retribution for reckless 
behavior.
    Second, Dr. Kizer suggests that he favors positive rewards, 
right, Ken, that is what you said in your testimony. However--
and most of that will be financial, you suggested. Part of it 
is pride in your work and recognition in other ways, but 
nonetheless financial, a pretty nice reward. Then in the VA, I 
suspect everybody is on salary. Yet your success there was 
accomplished without, I would imagine, huge payment 
differentials. I don't know how you want to resolve that.
    Then I go back and I wonder if in medical school, where 
those of you who are physicians all start--I will bet you that 
all of the incentive in medical school is don't screw up or you 
don't make it. I don't think they rank the way they do in law 
school. Maybe they do. Maybe you get ranked by how you get 
residencies, but I don't think they go, one, two, three, four, 
five down the list. You either make it or you don't. Somehow if 
you are going to suggest that you don't want punitive 
incentives, maybe you have to start in medical school then, 
ranking, paying, getting this done.
    So, the Stark program--and I am going to ask you all to 
comment on this--would punish substandard. We are going to have 
to go to uniform standards which physicians are going to hate. 
They are all sure they are the best, they are the best artist 
and they do not like what this guy at Dartmouth is doing, so 
that we get the same thing in Minnesota that we get in 
California. Pay uniform standards across the country. Demand 
uniform procedures, whether it is C-sections or how you treat 
breast cancer, whatever kinds of--prostate cancer, they are 
treated differently different areas. Re-operations, if it is 
the doc's fault, they have to be done free, just like my 
mechanic if he doesn't fix the tune-up right, he does the 
second one free. Not so in health care. Now, if it is just 
because I want to go back and I like being operated on, I got 
to pay for the same one, but it should be that if the doctor 
messes up, the second one should be free. Ask President Clinton 
about that.
    Lastly, if somebody is really outstanding, there is major 
rewards, develops a new procedure, leads something, 
breakthrough procedures, is a leader among his or her peers in 
developing new systems. Can we have that kind of a system, Mr. 
Lee? I don't care, anybody--that is just how I see it.
    Mr. LEE. We certainly don't have a system like that. A 
couple things that I would note though, I don't think anyone 
would disagree that for the real extreme outliers that are 
committing malpractice, we need a system that addresses them in 
a punitive way, but that is not the vast majority of 
physicians. The other thing that I think we all agree with is 
the primary driver needs to be about improvement, about 
motivating improvement of physicians to get better in terms of 
their quality and in terms of their cost efficiency, and I 
think that many of the elements you noted are incredibly 
important as we have huge variation that has no good reason for 
it. I think the incentives, physicians and hospitals respond to 
public reporting. That is a major incentive. A second major 
incentive----
    Mr. STARK. They hide from it. They don't like it, do they? 
Is that right, Ken? They don't like it?
    Mr. LEE. They absolutely generally don't like it, and some 
of the reasons are technical, make sure the measures are right. 
We do have to make sure the measures are right. Right now we 
have Americans driving blind. About 1 out of 10 Americans this 
last year made a choice of hospital in America based on what 
they thought was quality information. We don't have good enough 
quality information for Americans to make informed choices. We 
need to improve that. The other thing that I would note about 
salary is Kaiser Permanente in California pays their docs a 
salary, but they also have bonuses that are based on 
performance. So, even where you have a salary system, we should 
have some financial amount at play. So, thank you.
    Dr. KIZER. Mr. Stark, you raise a lot of complex issues and 
I would certainly echo Mr. Lee's comments, that I think the 
majority of physicians are trying to do the right thing. I 
think certainly there has to be mechanisms to deal with those 
exceptions such as the one you cited at Reading.
    Mr. STARK. At both ends.
    Dr. KIZER. At both ends.
    Mr. STARK. Real rewards and real--yes.
    Dr. KIZER. By the way, I think if I recall correctly, in 
one of the reports I read on the Redding situation, the 
physician wasn't even a cardiologist, and it may not have even 
been board certified in internal medicine; as I recall he was 
basically a general practitioner, but that is neither here nor 
there at this moment. The reason I cited the VA was simply to 
underscore the point that you are making, that in that system 
where there was not a financial incentive, simple performance 
measurement and reporting of performance, was, in and of 
itself, a very strong change lever. So, I want to make that 
clear, that public reporting of performance can very much 
affect behavior. Now, if you add some financial incentives to 
it that are aligned in the right direction, I think that can be 
even more powerful, and I guess that is the point that I was 
making.
    Dr. RICH. I think I alluded to quality improvement in the 
face of a decade of declining reimbursements for cardiac 
surgeons. They actually did the right thing, for the right 
reason, at the right time, with mortality decreasing by 40 
percent and their reimbursements decreasing. So, there was no 
reward for them. I do think the issue in Redding is real, and 
it is extreme. We discussed this at the NQF within our 
measure----
    Mr. STARK. You have guys in your profession who come up 
with new procedures that are outstanding, right?
    Dr. RICH. Correct.
    Mr. STARK. They are still getting the same fee for 
whatever. That end of the scale I think should be rewarded as 
well. How you determine that? My experience has been that 
doctors don't like to rank each other.
    Dr. RICH. They don't.
    Mr. STARK. They resist that somehow.
    Dr. RICH. One of the real issues that has been brought up 
is the validity of data. What are we collecting, what are we 
reporting, and what are we being judged on? We find 
administrative data to be very weak. We like to have peer-
reviewed databases. We believe it is our professional 
responsibility to collect and report the data. We have used it. 
The STS does support public reporting, and we would like to see 
more of it.
    Mr. STARK. So, the answer is, Mr. Kuhn is going to do it 
for you through CMS, right?
    Dr. RICH. No, the answer is we have to do it by ourselves. 
Physicians and their specialty societies need to pull up their 
bootstraps.
    Mr. STARK. I notice a little problem here, but go ahead.
    Dr. RICH. However, he will help us by providing incentives 
to do it.
    Mr. KUHN. There certainly is a partnership here. Speaking 
to the incentives issue, you raise a good point about 
hospitals. A couple of years ago, when we were conducting a 
voluntary effort under the Hospital Quality Improvement 
Program, hospitals were signing up, but not in great numbers. 
Then, the Medicare Modernization Act came along and said, ``We 
will pay you a 0.4-percent differential if you sign up for 
this.'' Virtually, every hospital in the country is now 
participating. I think what that tells us is incentives do 
work. I think it gives us a signal that it doesn't necessarily 
have to be a terrific or a great incentive, but incentives do 
work, and if they are deployed appropriately, we can change 
behavior. We can change how we deliver care.
    Mr. STARK. Thank you. Thank you, again, Madam Chair, for 
tackling this problem. In spite of my opening remarks, it is 
important, and you are to be commended. You won't get any more 
money, but you are to be commended anyway for going into this.
    [Laughter.]
    Chairman JOHNSON OF CONNECTICUT. Listen, if you don't shoot 
for the stars, you never get even half way. Just let me 
interrupt for 1 minute. There is one 15-minute vote, with a 
possible second vote. I am going to go and vote immediately. 
Maybe Mr. Stark will join me. I am going to recognize Mr. 
Johnson for his 5 minutes, and then Mr. Thompson would have 
time. I am going to come back, so we will be sure to get some 
more of your advice on the record, and I am going to ask my 
colleague, Mr. McCrery, to take over while I am gone, and then 
the two of them will get a chance to ask questions, too. Thank 
you. Mr. Johnson?
    Mr. JOHNSON OF TEXAS. Thank you, Madam Chairman. I have to 
agree with Mr. Stark that one size fits all is not a very good 
approach, but I have to tell him that we need to stop comparing 
the U.S. medical to any other country. I would ask the question 
would anybody go to Costa Rica for their medical care?
    Mr. STARK. In the winter?
    [Laughter.]
    Mr. JOHNSON OF TEXAS. No way. No way. You mentioned in your 
testimony, Dr. Kizer, that the best way to help physicians is 
to reduce the paper workload. I agree with you. It makes a lot 
of sense to me because every time I go home to the district 
that is all the doctors talk about again, and again, and again. 
I wonder, you talk a little bit about standardizing, but I 
don't see how that would help in that instance. Could you tell 
me a little bit more about what you mean, and what has worked 
so far, and what Medicare can do to help solve that problem.
    Dr. KIZER. Sure. Thank you. Today, physicians will often 
see patients for multiple different insurers. This notion of 
performance measurement, many insurers have put in play. 
However, they don't use standardized performance measures. So, 
at the end of the day, a practitioner may have to sit down and 
fill out 15, 20, 25, 30 different forms that are substantially 
the same information, but they are different enough that each 
one has to be filled out differently for whoever the payer is 
for that particular patient.
    Mr. JOHNSON OF TEXAS. Yes, and he doesn't do it. He hires 
two extra people to do that stuff for him, doesn't he?
    Dr. KIZER. Often that is the case, yes.
    Mr. JOHNSON OF TEXAS. Which costs money.
    Dr. KIZER. Which costs money, and the point is, if there 
were standardized measures that all of the payers were using, 
then one wouldn't have to hire those two additional people to 
fill out all of those paper forms.
    Mr. JOHNSON OF TEXAS. Well, why can't CMS do something 
about that? You guys have been dragging your feet forever on 
those issues.
    Mr. KUHN. Congressman, you make a good point there. In the 
area of trying to just get better improvement for the office 
clinical setting, there was a major initiative that the 
Secretary launched a couple of years ago where we began that 
process, and it is ongoing. It is called the Physician 
Regulatory Issues Team. We have dedicated physicians within the 
Agency who are contacting practicing physicians around the 
country, finding their issues, trying to solve those problems, 
and eliminate the bureaucracy and the redundancies that are in 
the system. That is an ongoing improvement program.
    When it comes to the payment for performance here, what we 
hope to be able to do is find ways that we can capture this 
information in an easy and seamless way. I couldn't agree with 
you more. For example, if we do chart reviews or look at the 
billing records, things that they are already doing, is there a 
way that we can pull that information from that system instead 
of them having to go out and erect a new system? The only way 
this is going to work is that people believe in these measures, 
they have confidence in the measures, and we make it simple for 
them to use. That is what we are trying to look at.
    Mr. JOHNSON OF TEXAS. You have got too many numbers for 
them to mess with. If they make one number mistake, the next 
thing you know the paperwork is shoved back at them, and they 
go through the whole process, again. Isn't that true, Dr. 
Kizer?
    Dr. KIZER. Certainly, if the forms aren't filled out 
correctly, they tend to be rejected.
    Mr. JOHNSON OF TEXAS. How many times do you have to send 
them back before CMS or the Medicare process approves them? You 
guys have got to streamline things over there and make it work. 
You're not hitting the problem on the head, I don't think, and 
test programs don't work. You need to fix it.
    Let me ask you another question, Mr. Kuhn. Medicare pays 
for hospital services under part A and physician services under 
part B. So, Medicare, also, prohibits hospitals from rewarding 
physicians who reduce admissions under the Stark law. How big 
of a problem is it, and what is CMS doing with your 
demonstrations to help that problem?
    Mr. KUHN. We don't have any demonstrations that look at 
those kind of joint opportunities for rewards because, as you 
may recall, Congressman, back in 1999, the Inspector General 
looked at this issue called ``gain sharing'' and said that it 
violated the civil monetary penalties in the Social Security 
Act. However, this year, as you may know, MedPAC, in one of 
their recommendations, urged the Agency to begin looking at 
gains sharing again and see if there were opportunities to 
create relationships between hospitals and physicians and put 
up the appropriate safeguards to prevent inappropriate 
inducements. That is something we are looking at now. We are 
going to begin working with the Inspector General. So, it is an 
issue. I think MedPAC gave us some good recommendations, and we 
will continue to work with them.
    Mr. JOHNSON OF TEXAS. You guys are focusing on it.
    Mr. KUHN. We are looking at it. That is correct.
    Mr. JOHNSON OF TEXAS. God bless you. Yield back. Thank you.
    Mr. MCCRERY. [Presiding.] Thank you, Mr. Johnson. Dr. Rich, 
we have heard that a primary obstacle to getting quality 
measurement standards in place is cost. Can you describe how 
the thoracic surgeons paid for your quality measurement 
standards.
    Dr. RICH. It is self-funded, basically, by practices shared 
somewhat with the hospitals. It depends on how much 
collaborative effort and data collection is at the hospital 
level and at the practice level. Just to personalize it, at our 
institution, we are doing 2,000 cases a year. There are 10 
cardiac surgeons in our practice, and our costs are about 
$118,000 a year to participate in the database, collect the 
data and to donate our time in supporting the effort. As I 
said, it can be divided among providers, but there are some 
incremental costs that are involved, and currently it is borne 
by the physicians and the hospitals.
    Mr. MCCRERY. Given the experience of the thoracic surgeons, 
do you think that other specialty groups should be expected to 
do the same thing?
    Dr. RICH. I do. Again, I will go back to the comment I made 
that there are lighter versions of what we do. This is a very 
scientifically robust database, with over 200 data elements. It 
is used for quality improvement, and it is used for research as 
well. So, you don't need as much infrastructure to begin at a 
lower level of involvement. I do believe that physicians in 
other specialties can do this quicker and less costly.
    Mr. MCCRERY. Any other panel members want to comment on 
that question of cost and how to handle it?
    Mr. KUHN. We continue, during our demonstrations, to look 
at the issues of cost and see what kind of barriers that might 
create. Also, we are hoping to be able to harvest information 
that will tell us what the return on the investment is from 
making these improvements, whether it is IT systems or 
performance improvement systems. I think as we talk to all 
providers, quality should be a central business strategy for 
all providers that are out there, and I think all of them are 
taking that as a central business strategy. We just need to get 
more information to understand what those costs are and how we 
can help providers manage those costs. Whether it is through 
differentiation and payment,education materials, or 
standardization, we can help the providers move forward in this 
area.
    Dr. KIZER. I would add that in putting forward any of these 
performance measurement sets, it has to be understood that 
there are ongoing costs associated with them. There is the 
initial cost of doing the big search through the data and 
coming up with that initial set of measures, but then those 
measures have to be maintained. As medical science continues to 
change, and as new technology becomes available, those measures 
quickly become outdated. New drugs become available that will 
then change the practices. So, whatever measure set is good 
today, 2 years from now or 3 years from now, several of those 
are likely to be out of date. The ongoing measures maintenance 
cost has to be factored into the expense of any of these 
systems.
    Mr. LEE. Congressman, the only thing that I would add to 
that is, we have heard a good bit about some of the concerns 
around administrative data. While some of those concerns are 
real, I think adding pharmacy and laboratory results data is a 
critical element, and that is one of the recommendations of 
MedPAC, to add those elements for CMS, to use administrative 
data in a more robust way. I would agree, though, that some 
specialties you may have trouble doing effective quality 
process outcomes profiling with the administrative data, and so 
building on models like STS's would be important. I am also 
optimistic that these specialty societies could do this in 1 
year instead of 12, which I applaud and strongly agree with.
    Mr. MCCRERY. Dr. Rich?
    Dr. RICH. Again, there is division of labor and intent on 
the administrative versus the clinical data. In the outpatient 
setting, some process measures using administrative databases 
may work and work very well and be less burdensome. On the 
inpatient side, the administrative data that we see, when we 
compare it to the STS database, is terribly flawed. It will not 
lead you down the road of quality improvement nor reward the 
right people at the right time for doing the right things.
    Mr. LEE. The one note that I would add, though, is flawed 
data will get a lot better when payment is being made based on 
it. The issues of these bounce-back of coding forms that Dr. 
Kizer noted are cutting down the deforestation, there are 
problems in charts as well. We have had a lot of looking at 
some of those issues, but the issue of getting good data used 
correctly is something we all want to do because we only want 
to be using valid results to report on physicians.
    Mr. MCCRERY. Well, gentlemen, I am going to have to recess 
the Committee. I have got to go vote. Mrs. Johnson should be 
back in just a couple of minutes. If the staff would tell Mrs. 
Johnson that Dr. Rich wants to make another comment on that, 
she will get to that. The Committee will be in recess subject 
to the call of the Chair.
    [Recess.]
    Chairman JOHNSON OF CONNECTICUT. [Presiding.] The seventh 
inning stretch is over, and the Committee will reconvene, 
having recessed for a vote. I would like to turn to the issue 
of data issues. I would like to hear all of your opinions on 
this issue of what can be done through analysis of current 
claims data versus clinical data and can we move forward in 
this area without clinical data and to what extent, and so on. 
So, if you will, please, comment on that issue, I would 
appreciate it. He is deferring to the government.
    Mr. KUHN. There we go. I am happy to take that. The issue 
for us at CMS, as we continue to look at the demonstrations, is 
our internal development of performance monitoring systems; we 
need to capture the information and make sure that it is 
functional to get the results and be able to pay the rewards 
accordingly. Part of that performance monitoring is not only 
the data management, but the opportunity to provide ongoing 
feedback to the clinicians so they can understand the 
information----
    Chairman JOHNSON OF CONNECTICUT. Excuse me. It wasn't my 
turn, and I didn't realize it. Also, I was supposed to let Dr. 
Rich add his comment to the preceding discussion. I will come 
back to that data issue when it is my turn, but I am going to 
recognize Dr. Rich, and then I am going to recognize my 
colleague, Mr. Thompson.
    Mr. THOMPSON. Thank you, Madam Chair. I thought maybe I was 
being punished, I had done something wrong. Thank you. It 
wouldn't be the first time.
    Chairman JOHNSON OF CONNECTICUT. That could happen.
    Mr. THOMPSON. Thank you for having the hearing, and I want 
to thank all of the panel members for being here. I just have a 
couple of questions, and one goes back to I think where Mr. 
Stark started, and that is the idea of some sort of standard of 
treatment and making sure everyone complies with that to get us 
where we need to be rather than trying to rethink the system, 
when it seems to me there are so many underlying problems, 
everything from 45 million people without any access to health 
care. There is a real void in the area of preventive health 
care. Reimbursement rates right now are just a real problem. I 
have a clip from one of my local newspapers, where a local 
physician is quoted. She says, ``My own practice has reached 
the point where it cannot take any more Medicare patients.''
    As this starts to happen, this is over in Sonoma County, in 
large part because of reimbursement rates, where Sonoma County 
is reimbursed at a rate that is different from the surrounding 
counties, most specifically Marin and San Francisco County, and 
it is about a $32 million problem. This particular physician is 
stating that it has hit her, but down the road it is going to 
start hitting other people. When she is having to turn people 
away, it creates big problems for other folks, and they come 
very, very suddenly. We have malpractice liability fears. There 
are all kinds of--and the cost of the IT, which I think 
everyone has stated that they think is a good idea. I am just 
wondering what these underlying problems that we have not been 
able to address, and we know they are there, but we haven't 
been able to deal with those and how this is impacting the 
issue that we are meeting on today, if you have any comments on 
that.
    Then I will just ask my last question, and then you can 
answer both of them. Someone mentioned, I think Mr. Lee 
mentioned that there have been some great examples of how docs 
have improved both quality or procedures. I am just wondering, 
to what extent have we brought the doc community into this, and 
how are we getting out to the physician community any 
improvements or any new procedural gains that we have made, to 
make sure we bring everybody into the same--so we have some 
sort of level playingfield in the way that we deliver health 
care?
    Mr. LEE. I will take a shot. I am not going to try to say 
how we can address all of these underlying problems, but I 
think one of the core underlying problems----
    Mr. THOMPSON. Not the way you address it, but how much of 
these core underlying problems are emblematic of the issue that 
brings us here today?
    Mr. LEE. I think that many of those core underlying 
problems would be addressed, in part, by having a valid 
performance measurement that cuts across. A lot of the issues 
that consumers don't know where to choose, we have medical 
trends that are going up because there aren't market incentives 
to reward more cost-efficient care, higher quality care. I 
think a lot of these underlying problems really are related to 
the fact that we are performance blind. I think that a lot of 
what we are talking about today will address those underlying 
issues in significant part. In terms of engaging the physician 
community----
    Mr. THOMPSON. So, if I could interrupt you, then, does that 
mean that our standard of treatment is lower because of the 
lack of resources to address these underlying problems today?
    Mr. LEE. I would go back to the chart that I noted about 
the distribution of where physicians fall. It is not 
necessarily, there are some physicians that are providing very 
high-quality and cost-efficient care. There are others that 
aren't. So, where you get care, how we are providing care, is 
throwing a dart at that dartboard. Without having good 
performance measurement and rewards, we aren't going to be, 
overall, for the entire system, getting more cost-efficient 
care and better-quality care.
    Mr. THOMPSON. Who is forced out of the game, given the 
procedures that we are following now? For instance, this doc 
who can no longer provide or take Medicare patients, she is a 
good doc--I know that--so she is out of the game because of the 
existing rules. Who is forced out--the good ones or the bad 
ones? Are we left with a few folks who are providing a good 
level of care or a few people who are providing sub-level of 
care?
    Dr. KIZER. I think all kinds of folks are forced out of the 
system, both practitioners, and patients and others. A couple 
of years ago, the Juran Institute did a study looking at the 
cost of poor quality of care. The Midwest Business Coalition on 
Health had asked them to do the study. They put the price tag 
of poor quality care at $585 billion a year, an enormous amount 
of money that could more than pay for all of the uninsured and 
go a long ways toward addressing many of the other systemic 
problems if we would just focus on improving the quality of 
care.
    Dr. RICH. I think you have just reiterated what I showed on 
my slides. In terms of who is left out and who is not, and why 
this is happening, if you look now, going forward, at the 
sustainable growth rate formula, with physician declines in 
reimbursements of 5.4 percent for the next decade, that 
scenario will happen more, and more, and more again. I don't 
want my comments misinterpreted from when I had said that 
physician specialty societies should be responsible for the IT 
development and the database development. I think from a 
financial standpoint, that it is impractical to think that in 
an era of a decade of declining reimbursements, that you will 
get these societies and physicians to invest in IT; that there 
has to be some other way that we can come up with that can 
provide incentives for us to invest in IT, so that we can do 
what Dr. Kizer just said--focus on quality and contain costs.
    Mr. THOMPSON. Madam Chair, if I could just clarify one 
thing. Just so you know, the Sonoma problem is not a problem of 
declining reimbursements, they are just not getting what they 
are supposed to be receiving.
    Dr. RICH. Right. Thank you.
    Chairman JOHNSON OF CONNECTICUT. You may have understood 
that last comment, but I didn't, so I will talk to you about 
that later. It is also true that, under the formula, in spite 
of the fact that we spent $54 billion the first year and many 
billions thereafter, to allow just a 1.5-percent increase at a 
time of significantly rising costs explains why your doctors 
don't want to add more Medicare patients. In some parts of the 
country, we are the best payer, but in other parts we are not. 
The contrast between Marin and Sonoma is a perfect example of 
the really systemic problems the system has. In facing the 
responsibility to actually repeal the Sustainable Growth Rate, 
which I see as the only possibility, we have to be able to, 
also, replace it with another system of payments. That is why 
this issue of how much we could integrate the new thinking on 
rewarding quality, and focusing on quality into a new payment 
structure, is so critical. It is unfortunate we have to do this 
about 2 years in advance of the technology curve, but those are 
the things we need to think out in the next weeks. I appreciate 
your comments in terms of helping us think out not only what 
has to be done, but how we interweave technology adoption and 
pay for quality care and so on.
    Let me go back to my question--and then we are going to go 
another round--that I had asked earlier. What can claims data 
do for us versus what clinical data can do for us? Would you 
see a way that just using claims data, we could start this 
process, with a certain year at which clinical basis which we 
would build between now and then, would then take over. Now, 
what is that kind of hybrid that we need to do to get from here 
to there?
    Mr. KUHN. Madam Chairman, we were talking earlier. As we 
look at this, we are looking at our performance monitoring 
systems and what we can erect and put in place in order to 
capture this information. So, we can not only validate the 
quality improvement we see, but, also, performance and 
efficiency as we go forward. Performance monitoring data 
management, the ability to provide ongoing feedback to the 
clinicians to see how they are performing, and to see how they 
are changing their behavior so they can do benchmarking with 
one another is important. As we look at that, we are looking, 
really, at two items here. We are looking at the claims data, 
which we think is a pretty good indicator. It might not be the 
perfect one, but we think it is a pretty good indicator. We 
are, also, looking at the chart audits and the extraction from 
the charts in order to capture that information so that we can 
use both in order to get, again, a broad picture of the patient 
experience and what is going on in the physician's office. So, 
we think claims data are a good start, and we think that is a 
good place to begin to start to capture this information as we 
move forward.
    Chairman JOHNSON OF CONNECTICUT. Dr. Rich?
    Dr. RICH. I think, again, it depends on what your 
expectations are for claims data, whether you want to create a 
claims database that looks at structural measures or process 
measures or outcomes measures. I think that we have looked very 
closely at the outcomes measures to----
    Chairman JOHNSON OF CONNECTICUT. Don't tell me what I need 
to think. Our thinking is too embryonic. What would you think? 
In other words, are there process indicators that claims data 
could help with? What are the pairings here?
    Dr. RICH. In your absence, I made the comment that on the 
outpatient side, in an ambulatory setting, there may be some 
process measures that claims data would track accurately. On 
the inpatient side, there is clearly not a lot of tracking and 
correlation between process or outcomes measures that can be 
generated from claims data. Since my world lives on the 
inpatient side and much of specialty medicine works on the 
inpatient side, we would find claims data to be the wrong route 
to take at this point in time; we should be supporting 
clinically driven database development, with incentives for 
specialty societies to develop those on their own and to 
integrate those, as the STS has done, with the NQF. The CMS, I 
have to applaud, is taking many of the measure sets from the 
NQF and integrating them into their hospital measure set.
    So, there seems to be some synergy developing in the 
country, and we can develop the necessary components out there 
for good data collection. A minute ago you stated that we are 
about 2 years out on electronic medical record (EMR). We don't 
need an EMR right now. We can take our database, and we can 
have all the specialties develop databases, which can be 
integrated into a larger system once it is ready for prime 
time.
    Chairman JOHNSON OF CONNECTICUT. So, you are saying that 
within 12 months, using the light databases that you could 
identify, that we could begin to move in this direction.
    Dr. RICH. With clinical data, yes.
    Chairman JOHNSON OF CONNECTICUT. With clinical data.
    Dr. RICH. Yes.
    Dr. KIZER. Mrs. Johnson, I agree with what Dr. Rich has 
said, but I would say it a little bit differently. The bottom 
line is that you need both, and you need them for somewhat 
different purposes, and both are currently being utilized. The 
other thing I would add to that is, certainly the experience 
with performance measurement systems is that nothing makes the 
measures better than being used. So, what we have to do is to 
start using the ones that we have, make them better as the 
systems evolve and as we add more to it.
    Chairman JOHNSON OF CONNECTICUT. Mr. Lee?
    Mr. LEE. I would absolutely agree with that and note that 
it does depend very much on the specialties. There is a very 
wide range of specialties and conditions for which 
administrative data--in particular when we include laboratory 
results and pharmacy--can provide a very solid picture of 
physician performance--not in all specialties. So, I would 
agree with Dr. Rich. When we look at asthma, breast cancer, 
depression, pneumonia, preventive care, hip fracture, there are 
a number of areas where there are vendors that are out there 
that have physicians getting feedback based on these measures. 
We can use administrative data, but it is not going to be the 
only source. The other data point that I would underscore, and 
I believe this is going to be going through the NQF process, is 
patient experience. One of the core elements of quality is how 
patients experience the care they get, and we look forward to 
having in the next 2 years a national standard for a patient 
experience survey at the physician level, and that is going to 
be a core element of having what we look to be a full dashboard 
of performance for physician care.
    Chairman JOHNSON OF CONNECTICUT. That patient experience 
stuff worries me. I have been to many new, freestanding 
ambulatory clinics. They are pink. They are beige. They are 
aqua. They are very pleasant. They have parking. I could get 
the same procedure done in my downtown hospital. It is not 
pink. We don't reimburse it to modernize its facilities, but it 
has brand-new operating rooms and brand-new equipment. Now, the 
patient is going to be happier going to the outlying clinic, 
but is that relevant, and who is going to pay? So, this is an 
issue that the surgery centers brought up first, now the 
boutique hospitals bring up. So, patient satisfaction is very 
dependent on the sort of pleasure of the experience. Well, at 
what cost to the taxpayers? I don't know why you are so hot on 
patient satisfaction. I agree that patient satisfaction with 
the doctor-patient relationship. I look at these forms they 
fill out or I fill out, and they aren't really talking about 
that.
    [Interruption.]
    Mr. JOHNSON OF TEXAS. That means the other Members won't be 
back. I will let you talk about this, and then I will have to 
go vote, but we will be back in touch with you. I want you to 
keep thinking about this because we are going to need a lot of 
help in how you step this out. We have really appreciated Mr. 
Kuhn's help on it, but we need the practical world involved, 
and we want you to stay involved. Yes, Dr. Rich?
    Dr. RICH. I am sorry. I did want to make that one comment 
that you alluded to when you came back. In your absence, there 
was a comment made about hospitals and physicians and hospitals 
rewarding physicians for improved quality of care and declining 
readmissions. Mr. Kuhn made some comments about that. This is a 
very real issue and sore point for me because we had worked 
with CMS for three years on a demonstration project that 
involved global payments for cardiac surgical care within the 
State of Virginia that followed exactly that model.
    Mr. JOHNSON OF TEXAS. You mean Medicare Parts A and B 
merged?
    Dr. RICH. The merger of part A and part B payments, where 
we took risk, the adverse risk for patient care. We assumed 
risk. We had patient beneficiaries who were receiving one bill 
and, at the local level, hospitals were to redistribute the 
payments based on performance measures, the same performance 
measures we spoke about here--outcomes and process measures. 
That was widely approved by CMS and supported by Secretary 
Thompson. It was approved at OMB. At OIG and the Department of 
Justice, it was termed to be in violation of Stark rules and 
regulations. Here we had a project that seemed to have all of 
the right stuff, that did all of the right things at the right 
time for patient care and, also, addressed cost, and it 
addressed efficiencies of care, yet the current system 
prohibited it from moving forward.
    Chairman JOHNSON OF CONNECTICUT. I am glad you did get into 
that because the relationship between what we need to do and 
current law barriers is very important. The current law, also, 
looked at Medicare as an illness treatment program, with tubes 
of payments flowing to people who took actions to cure illness. 
If we are going to move toward a preventive health, disease 
management model, we can't have those same narrow pipes through 
which stuff flows. So, I would be interested, and my staff 
probably has a copy of the OIG decision in your regard, in 
regard to this particular project, but if you are ready to go, 
we are just dumb not to provide an exemption so you can go 
ahead and try that. We can see what the consequences are. We 
will look at that.
    Dr. RICH. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Any further comment on 
this issue of staging claims data and payment structures? I 
guess that and the Stark barriers are things that we will need 
to work on more in the future. So, thanks a lot for your 
participation in this hearing. Thanks for all of you listening, 
for being here. This is an arcane subject, but in the end it is 
going to play a major role in how America does health care not 
just in Medicare, but for people of all ages throughout all 
systems. Thank you for your help. We look forward to working 
with you. The hearing is adjourned.
    [Whereupon, at 11:57 a.m., the hearing was adjourned.]
    [Submissions for the record follow:]
      Statement of Jack Ebeler, Alliance of Community Health Plans
    The Alliance of Community Health Plans (ACHP) applauds the Health 
Subcommittee for convening a hearing on Medicare Physician Quality and 
Efficiency of Care for Medicare Beneficiaries. We are pleased to have 
the opportunity to share our perspective on opportunities to improve 
health care quality.
    ACHP is a leadership organization of non-profit and provider-
sponsored health plans that are among America's best at delivering 
affordable, high-quality coverage and care to their communities. Today, 
ACHP member plans serve more than one million Medicare beneficiaries--
about 20 percent of current Medicare Advantage members. We count among 
our membership seven of the National Committee for Quality Assurance's 
top-ten highest quality Medicare plans.
    ACHP has a proud legacy of leadership on quality improvement and 
was formed more than twenty years ago to help health plan leaders share 
best practices, learn and innovate. One of the earliest products of 
this collaboration was the creation of the Health Plan Employer Data 
and Information Set (HEDIS'), which has now become the 
standard for assessing health plan performance in the commercial and 
public sector. Through the National Committee for Quality Assurance--
which today manages and updates the HEDIS' measurement 
process--employers, Medicare, Medicaid and other payers regularly 
monitor and evaluate health plan quality. The HEDIS' 
clinical quality reporting process, coupled with the CAHPS' 
survey of patient satisfaction, provide a vital and meaningful 
assessment of health plan performance for beneficiaries and for public 
and private payers.
    Having led the way in establishing health plan performance 
measures, ACHP remains focused on how to use what is learned from these 
measures to improve health care quality. This work takes two forms. 
First, ACHP members regularly review their clinical quality and 
customer satisfaction performance to identify areas for improvement 
and, through ACHP-sponsored learning sessions, help each other address 
key issues. Second, ACHP assesses the ways in which public policy can 
support high-quality care and advocates for policies that encourage 
quality improvement. Our learning sessions have included explorations 
of how and when plans can use pay-for-performance incentives to help 
drive quality improvements in specific health care settings and across 
multiple settings. Our policy agenda includes a commitment to helping 
Medicare link quality improvement and payment by promoting rigorous 
public reporting of quality measures by all Medicare Advantage plans 
and the creation of pay-for-performance incentives for Medicare 
Advantage.
MedPAC and Pay-for-Performance
    As the Subcommittee and MedPAC have noted, Medicare payment is at 
best neutral towards quality and at times even pays more for poorer 
quality, such as when medical errors produce complications. Having 
spent considerable time examining how Medicare could help beneficiaries 
receive higher quality health care, MedPAC has recommended that 
Medicare reform its payment policy by building quality incentives into 
its payment system. MedPAC's assessment of where and how to begin pay-
for-performance in Medicare, detailed in its June 2003 Report to 
Congress, identified health plans as a likely starting point, noting 
that: ``Medicare+Choice plans may be prime candidates for applying 
incentives because they meet, in whole or part, all of the criteria for 
successful implementation.'' Among the indicators of plans' ripeness 
for pay-for-performance are the following.

      Standardized, credible measures of health plan 
performance and customer satisfaction already exist and are reported 
annually to CMS; Health plans have data collection capacity and 
mechanisms to report on quality measures already in place;
      Plans have leverage to improve performance across the 
variety of settings with which they contract; and
      Plans can improve coordination of care across settings in 
a way that is ``not possible through provider-specific efforts.''

ACHP and Pay-for-Performance
    MedPAC's 2003 discussion of the opportunities for performance 
incentives to promote health plan quality includes a summary of a pay-
for-performance proposal ACHP developed in partnership with our member 
plans. ACHP's proposal would create performance incentives that 
recognize both high quality health plans and those demonstrating marked 
improvement, and award incentive payments both at the national and 
regional levels. This proposal became the basis for legislation, the 
Medicare Equity and Access Act, introduced in the last Congress by 
former Health Subcommittee member Representative Jennifer Dunn.
    ACHP's work on pay-for-performance for Medicare Advantage plans is 
informed by our key principles for pay-for-performance. They include 
the following:

      Payment-for-performance incentives should eventually 
apply to all Medicare providers, including fee-for-service and Medicare 
Advantage. Given health plans long record of reporting on standardized 
measures of quality, it is reasonable to begin with Medicare Advantage 
plans, including HMOs and PPOs.
      Pay-for-performance incentives should be based upon 
standards of excellence and improvement.
      Measures to evaluate both fee-for-service Medicare and 
Medicare Advantage plans should be developed. In the interim, 
incentives should be based on existing measures and should emphasize 
clinical effectiveness.
      To ensure successful implementation and sustainability, 
pay-for-performance incentives should be financed with a new, dedicated 
stream of funding.

    ACHP believes that pay-for-performance incentives are an essential 
means of raising the quality not just of Medicare Advantage plans, but 
of all sectors of Medicare. We applaud the Subcommittee for its ongoing 
efforts to examine pay-for-performance models for physicians. We share 
MedPAC's assessment that health plans may be among the most logical 
places to begin using quality incentives, but that Medicare should be 
aggressively working to develop quality measures for other sectors, 
including fee-for-service settings such as physician offices. We 
believe that adopting pay-for-performance for Medicare Advantage plans 
would be an important initial step in moving Medicare toward a more 
performance-driven system, while also helping to inform the development 
of measures and mechanisms for using incentives with physicians, 
hospitals and the other health care sectors.
    Thank you for the opportunity to share our views. We look forward 
to working with the Subcommittee in the year ahead on this important 
issue.

                                 

            Statement of the Alliance of Specialty Medicine

    The Alliance of Specialty Medicine is a coalition of 13 physician 
specialty societies representing over 200,000 specialty physicians. The 
Alliance's member specialty physician organizations are continually 
striving to offer the highest specialized quality care to all Medicare 
beneficiaries. However, with our physicians facing over 30 percent 
reductions in Medicare reimbursement from 2006 through 2013 compounded 
by exorbitant liability premium increases, many of these specialty 
physicians are reconsidering their Medicare participation status. 
Therefore, the Alliance believes that if Congress is to begin to 
explore alternative payment requirements--such as pay for performance--
then the current unsustainable Medicare physician payment system needs 
to be fixed.
    The Alliance represents 13 physician specialties which are all at 
varying stages of sophistication regarding pay for performance 
initiatives; therefore, we believe that the following points need to be 
considered:

      Any type of system that rewards providers by improving 
patient care and outcomes should not be subject to budget neutrality or 
be used as a physician volume control.
      The reporting of quality or efficiency indicators and 
health outcomes data could be administratively prohibitive to many 
physicians, especially those in small practices that do not have 
electronic medical records. It could be difficult to link payment to 
performance without an interoperable health information technology 
infrastructure.
      Pay for performance programs must not be punitive.
      Measures will need to be specialty specific. Some 
measures may be appropriate for some specialties, and not others. In 
some areas, particularly surgery--it can be difficult to keep quality 
measures up-to-date enough to be perceived as relevant.
      Any measures would have to be developed by the physician 
community.
      In order to be effective, collecting data must be 
reliable and easy for physicians to record and report based on a 
clinical data set and in a manner that is acceptable to the physician 
community. The collection of such data must be timely and easily 
submitted and should not create a burden on practices. Furthermore, the 
data collected must allow for physicians to comply with Medicare HIPAA 
requirements.
      Given the limitations on the current status of specialty 
performance measures, the Alliance believes that incentives should be 
placed on optimizing quality of care and physician participation, not 
on performance of specific quality measurements.
      If a pay for performance requirement is implemented, it 
should be phased-in and pilot tested on a voluntary basis first.

    Currently, through the use of demonstration projects, CMS is 
testing various aspects of pay-for-performance programs. However, there 
must be a transition time to address challenges and questions before 
pay-for-performance is incorporated fully into the Medicare physician 
fee schedule, as many physicians are simply not ready for this step. 
This transition should involve stabilization of the physician payment 
system first, before any pay for performance initiatives are 
implemented. Also, pay for performance initiatives can not be a 
replacement for the current physician payment system, or used as a 
physician volume control.

MedPAC recommendations
    We would also like to address the Medicare Payment Advisory 
Commission's (MedPAC) March 2005 recommendations on pay for performance 
in its Report to the Congress. Without addressing the significant flaws 
with the SGR and the predicted cuts of 31 percent over the next seven 
consecutive years, MedPAC instead recommends the implementation of 
quality improvement measures to encourage individual physicians to 
control unnecessary volume; for example, implementation of ``resource 
use measurement'', pay-for-performance programs, and the rapid adoption 
of health information technology (HIT) systems.
    MedPAC recommends that these measures be implemented in a budget 
neutral scenario; specifically, by taking 1-2% from the physician 
payment pool and re-distributing those monies to those providers who 
participate in these quality improvement programs. Those who do not or 
can not participate in these programs will fund the ``bonus'' payments 
for those who can. MedPAC believes that ``all physicians are ready'' to 
participate in these pay for performance programs.
    According to the report, MedPAC suggests that two types of measures 
are ready to be collected; 1) quality-enhancing functions and outcomes 
associated with information technology (IT) use, and 2) claims-based 
process measures. The report notes that CMS should begin collecting 
both structural and process measures--but only base rewards on the IT 
structural measures. The Alliance is very concerned with these 
recommendations, including MedPAC's perception that ``all physicians 
are ready'' to participate in these programs. We strongly disagree with 
this perception and maintain the position that all physicians are not 
ready.
    According to the National Center for Health Statistics (2005), 
about 17 percent of physicians are using electronic health records in 
their practices, and the majority of these are group practices. 
However, more than 50 percent of America's physicians are small 
practices with 5 or fewer physicians. With physicians facing steep 
reductions of 31 percent over the next seven years, it is totally 
unrealistic to expect that physicians would be able to invest in these 
expensive IT systems--especially small practices with one or two 
physicians. Further, without documented national standards for HIT 
systems in place yet, how can physicians reasonably invest in something 
that may become obsolete in only a few years?
    In terms of claims-based process measures, the Alliance is 
concerned as to how physicians will be able to report the use of 
``claims-based process measures'' on a CMS-1500 form or the electronic 
equivalent. What ``coding system'' exists that would allow providers to 
report these claims-based process measures? The only available 
``performance measures'' set that are currently available for reporting 
on the CMS 1500 form are the American Medical Association's (AMA) 
Current Procedural Terminology (CPT) Category II codes ``which include 
a little over a dozen performance measures'' most of which do not cross 
all specialties.

Conclusion
    Thank you for the opportunity to submit a statement for this 
hearing. Congress must rationally implement physician quality 
initiatives involving pay-for-performance and other untested programs, 
and the Alliance of Specialty Medicine looks forward to working with 
you to develop a transition plan that will insure fair reimbursement 
for physicians and continued beneficiary access to quality specialty 
healthcare.

            Submitted by,

American Academy of Dermatology Association
American Association of Neurological Surgeons
American Association of Orthopedic Surgeons
American College of Emergency Physicians
American College of Obstetricians and Gynecologists
American Gastroenterological Association
American Society of Cataract and Refractive Surgery
American Society for Therapeutic Radiology and Oncology
American Urological Association
Congress of Neurological Surgeons

                                 

     Statement of Behrends Foster, America's Health Insurance Plans

Introduction 
    AHIP is the national trade association representing nearly 1,300 
private sector companies providing health insurance coverage to more 
than 200 million Americans. Our members offer a broad range of health 
insurance products in the commercial marketplace and also have 
demonstrated a strong commitment to participation in public programs.
    For more than 20 years, our member companies have been working to 
meet the health care needs of Medicare beneficiaries. Our broad-based 
membership includes Medicare Advantage organizations and Medicare cost 
contractors that cover almost 5 million beneficiaries and Medigap 
carriers that cover 10 million beneficiaries.
    All segments of our membership, regardless of which products they 
offer, are committed to providing beneficiaries with affordable 
protection against high out-of-pocket health care costs. By covering 
more than the Medicare fee-for-service (FFS) program, our members serve 
as a crucial health care safety net for many minority beneficiaries 
with chronic diseases and for many low-income beneficiaries who cannot 
afford the high out-of-pocket costs they would incur under the Medicare 
FFS program.
    As we begin the 21st Century, the U.S. health care 
system faces a number of significant challenges, including sub-optimal 
care in varying parts of the country, racial disparities in access to 
care and quality of care, and skyrocketing health care costs. For the 
last 40 years, Medicare has helped introduce innovative changes into 
our nation's health care system by leveraging its power as one of the 
largest purchasers of care. Our member companies enthusiastically 
support the work by the Centers for Medicare & Medicaid Services (CMS) 
and the Medicare Payment Advisory Commission (MedPAC) to promote pay-
for-performance initiatives that pay providers based on the quality of 
services delivered to beneficiaries.

Importance of Pay-for-Performance
    Through its landmark reports released in 1999, To Err is Human, and 
in 2001, Crossing the Quality Chasm, the Institute of Medicine (IOM) 
focused the nation on the critical need to improve health care quality 
and patient safety, coordinate chronic care, and support evidence-based 
medicine. Variation in medical decision-making has led to disparities 
in the quality and safety of care delivered to Americans. The 1999 IOM 
report found that medical errors could result in as many as 98,000 
deaths annually, and a 2003 RAND study found that patients received 
only 55 percent of recommended care for their medical conditions.\1\
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    \1\ ``To Err is Human,'' Institute of Medicine, 1999; ``The Quality 
of Health Care Delivered to Adults in the United States.,'' Elizabeth 
A. McGlynn, RAND, June 25, 2003.
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    Part of the problem is that in general, payment systems have not 
historically paid for quality, including improved clinical outcomes and 
patient satisfaction; improvements in processes; or investments in 
infrastructures, such as information systems. Instead, traditional 
payments to providers, particularly in Medicare's fee-for-service 
program, have been based on the volume and technical complexity of 
services--rewarding over-utilization and misuse of services, health 
care complications, and poor quality. Moreover, in many instances, the 
current financing system actually creates disincentives to improve 
quality and efficiency. For example, more efficient hospital care leads 
to shorter lengths of stay, which unfortunately produces less income 
for those providers who are most effective in keeping patients healthy.
    Critically, physicians have expressed concerns about the quality 
challenges within our current system, and the lack of recognition and 
reward for providing high quality care. According to a 2004 survey of 
400 primary care and specialty physicians across the country conducted 
by Ayres, McHenry & Associates, a large majority of physicians (86 
percent) are concerned that the current payment system does not reward 
practitioners for providing high quality medical care. Seventy-one 
percent of physicians favor paying physicians, in part, based on the 
quality of care they provide.
    All of us in the health care industry must be held accountable for 
the quality of care delivered to Americans. Ensuring nothing less than 
high-quality care must be the nation's commitment, and moving toward a 
system that rewards providers based on performance is necessary to 
accomplishing that goal. While changing the payment system is 
admittedly a difficult task, it's the right thing to do because it's in 
the best interest of patients.

Paving the Way
    Paying for quality is a promising strategy for improving overall 
wellness and advancing evidence-based medicine, thereby reducing 
unnecessary follow up care and improving efficiency--which in turn will 
lead to better health outcomes and greater value. Health insurance 
plans have long been at the forefront of developing innovative payment 
arrangements that have promoted population--based health care, improved 
care for the chronically ill, and more systematic investment in 
prevention. Many plans currently are offering financial awards to 
physicians in the form of increased per-member-per-month payments or 
non-financial rewards in the form of public recognition, preferential 
marketing or a reduction in administrative requirements. Additionally, 
some plans are beginning to tier provider networks and offer consumers 
reduced co-payments, deductibles, and/or premiums for using providers 
deemed to be of higher quality (based on select performance measures). 
Based on recent interviews with select health insurance plans, the most 
common categories of performance measures reported include clinical 
quality, utilization/efficiency, patient satisfaction, and information 
technology infrastructure.
    Appendix I highlights several examples of health insurance plans 
that have achieved measurable results by changing their payment 
mechanisms to recognize and reward quality performance.

Collaboration Between Providers and Plans 
    Our member plans are committed to working with stakeholders across 
the health care community, particularly the health care professionals 
working on the frontlines everyday, to develop a strategy that accounts 
for the quality of care delivered to patients. To demonstrate this 
commitment, the AHIP Board of Directors in November 2004 released 
fundamental principles to maximize the effectiveness and value of 
health care services (see Appendix II). Entitled, ``Promoting an 
Effective and Efficient Health Care System Through Rewarding Quality 
Performance,'' these principles provide a vision for the future of pay-
for-performance programs based on first-hand experience by health care 
plans as they work to ensure higher-quality care for members. 
Highlights of these principles include:

      Incentive programs should be designed to give providers 
the opportunity to receive rewards for achieving agreed-upon quality 
goals.
      The involvement of physicians, hospitals, and other 
health care professionals in the design and implementation of programs 
that reward quality performance is essential to their feasibility and 
sustainability.
      Incentives must be sufficient enough in size to attract 
participation and alter provider behavior.
      Stakeholders should collaborate to develop standardized 
measures to ease the administrative burden of data collection and 
reporting.

    Health insurance plans remain committed to working with providers 
and other stakeholders to further improve programs that better measure 
and reward quality performance, as well as other initiatives that 
promote health care effectiveness and efficiency.
Conclusion 
    We applaud the subcommittee for recognizing the value of pay-for-
performance systems. We also commend CMS and MedPAC for their strong 
commitment to improving the quality of care delivered to Medicare 
beneficiaries by evaluating performance and efficiency. While this is 
not an easy task, it is a critical one. We look forward to working with 
policymakers and medical professionals as we chart this new course for 
health care in America.
    Thank you.
                                 ______
                                 
    Promoting an Effective and Efficient Health Care System through 
Rewarding Quality Performance

    Through its landmark reports released in 1999, To Err is Human, and 
in 2001, Crossing the Quality Chasm, the Institute of Medicine (10M) 
focused the nation on the critical need to improve health care quality 
and patient safety, coordinate chronic care, and support evidence-based 
medicine. These quality challenges are further heightened by rising 
medical costs, the growing gap between evidence and practice, and 
significant expenditures for sub-optimal care.
    Taken together, these factors create an urgency for stakeholders to 
work collaboratively to improve the quality, safety and efficiency of 
the health care system. A key element of this strategy should include 
alignment in payment mechanisms. Health insurance plans have long been 
in the forefront of developing innovative payment arrangements that 
have promoted population-based health care, encouraging better care for 
the chronically ill and more systematic investment in prevention.
    These payment arrangements as well as new efforts to re-align 
payment policies in accord with safe and effective care: (1) encourage 
higher-quality clinical performance; (2) provide purchasers and 
consumers with greater value for their health care expenditures; and 
(3) support consumers in making more appropriate health care decisions.
    Physicians as well as health insurance plans express concern about 
the quality challenges within our current system, and the lack of 
recognition and reward for providing high quality care. According to a 
new survey of 400 primary care and specialty physicians across the 
country, a large majority of physicians (86%) are concerned that the 
current payment system does not reward practitioners for providing high 
quality medical care. Seventy-one percent of physicians favor paying 
physicians, in part, based on the quality of care they provide.
    Finally, there is a growing interest by other stakeholders to 
better align reimbursement with enhanced quality, and a variety of 
initiatives that include benefit redesign, tiered provider networks and 
a range of other financial and non-financial rewards are emerging. To 
facilitate this movement to a quality-based payment system, our 
community expresses its commitment to work together and with other 
stakeholders, consistent with federal and state laws, to advance the 
following fundamental principles.

FUNDAMENTAL PRINCIPLES THAT MAXIMIZE THE EFFECTIVENESS AND VALUE OF 
        HEALTH CARE SERVICES
      Programs that align payment methods with the goal of 
improving quality of care for acute and chronic conditions will play an 
integral role in encouraging the transition to a health care system 
that achieves optimal health care quality.
      Programs that reward quality performance should promote 
medical practice that is based on scientific evidence and aligned with 
the six aims of the 10M for advancing quality (safe, beneficial, 
timely, patient-centered, efficient, and equitable).
      Research is urgently needed to inform clinical practice 
in priority areas currently lacking a sufficient evidence-based 
foundation.
      The involvement of physicians, hospitals and other health 
care professionals in the design and implementation of programs that 
reward quality performance is essential to their feasibility and 
sustainability.
      Collaboration with key stakeholders, including consumers, 
public and private purchasers, providers, and nationally recognized 
organizations, to develop a common set of performance measures-process, 
outcome and efficiency measures-and a strategy for implementing those 
measures will drive improvement in clinically relevant priority areas 
that yield the greatest impact across the health care system.
      Reporting of reliable, aggregated performance information 
will promote accountability for all stakeholders and facilitate 
informed consumer decision-making.
      The establishment of an infrastructure and appropriate 
processes to aggregate-across public and private payers-performance 
information obtained through evidencebased measures will facilitate the 
reporting of meaningful quality information for physicians, hospitals, 
other health care professionals, and consumers.
      Disclosure of the methodologies used in programs that 
reward quality performance will engage physicians, hospitals, and other 
health care professionals so they can continue to improve health care 
delivery.
      Rewards, based upon reliable performance assessment, 
should be sufficient to produce a measurable impact on clinical 
practice and consumer behavior, and result in improved quality and more 
efficient use of health care resources.
                                 ______
                                 

     Rewarding Quality Performance: Health Insurance Plan Examples

Blue Cross of California
Woodland Hills, California
    In October 2002, Blue Cross of California introduced its PPO 
Physician Quality and Incentive Program (PQIP). This program includes: 
(1) an online PPO Physician Report Card that allows physicians to 
benchmark their performance compared to their peers; (2) a Physician 
Recognition Program that provides rewards for superior performance on 
clinical, administrative and pharmacy indicators, and (3) information 
resources provided to the PPO physician network to support quality 
improvement. The Report Cards and information resources are available 
statewide; the payment rewards are currently limited to six counties in 
the San Francisco area.
    This program is in addition to the quality efforts offered under 
Blue Cross of California's HMO products. Blue Cross of California 
collects information from PPO physicians on their performance in 
various areas, such as clinical care, access, affordability, and 
physician status. In the first year of the PQIP, over 12,000 Blue Cross 
PPO physicians statewide will have access to the PQIP Scorecard, 
permitting these physicians to access information about their own 
performance, and compare data on their performance to that of other 
physicians by specialty and geographic area. Over 4,000 physicians 
located in six counties in the San Francisco area are eligible to 
participate in the Physician Recognition Program and receive a 
financial bonus for superior performance on clinical quality (e.g., 
breast cancer screening, childhood immunizations, and eye exams/
Hemoglobin A1C testing for diabetes), service quality (e.g., enrollee 
complaints) and pharmacy measures (e.g., generic substitutions) in the 
PQIP Scorecard. Nearly $3 million in bonuses were distributed to close 
to 2,000 physicians in Spring 2004 based on first year PQIP 
performance. Going forward, PPO physicians could be eligible for a fee 
schedule increase up to 14 percent above the plan's standard PPO fee 
schedules.

HealthPartners
Minneapolis, Minnesota
    HealthPartners' Outcomes Recognition Program (ORP) offers annual 
bonuses to primary care clinics that achieve superior results in 
effectively promoting health and preventing disease. Eligible primary 
care groups are annually allocated a pool of bonus dollars that is 
awarded if a group reaches specific performance targets. Measures focus 
on important clinical issues, such as diabetes, coronary artery 
disease, tobacco cessation, generic prescribing, and consumer 
satisfaction. ORP bonus awards are an addition to the standard provider 
payment for primary care provider groups. In 2004, eligible clinics 
were able to earn financial rewards ranging from $90,000 to $290,000, 
depending on the size of their HealthPartners' enrolled populations and 
the number of measurable targets reached. In 2004, 19 of the 26 
eligible primary care groups received a total of $656,250 in ORP bonus 
awards. Since 1997, ORP bonus awards have totaled over $3.95 million.

Highmark Blue Cross Blue Shield
Pittsburgh, Pennsylvania
    Highmark Blue Cross Blue Shield's Quality Incentive Payment System 
(QIPS) rewards physicians for improvements in measures based, in part, 
on the Health Plan Employer Data and Information Set (HEDIS) for 
preventive screenings and treatment for chronic conditions. Additional 
quality and service performance measures include generic versus brand 
prescribing patterns, electronic submission of claims, use of 
Highmark's provider portal, and enrollee access. Highmark's QIPS 
rewards are for Primary Care Physicians (PCP's) as a bonus in addition 
to capitation. Scoring is based on meeting or exceeding the Highmark 
network average for each indicator. In the tenth year of the program 
(2003), primary care physicians were reimbursed $12.3 million for 12.6 
million member months or approximately $0.98 per member per month.

Independent Health
Buffalo, New York 
    The goal of Independent Health's Quality Management Incentive Award 
(QMIA) program is to improve enrollee health through improved access/
timeliness of care, preventive screening, and adherence to evidence-
based guidelines for the treatment of chronic conditions. A physician 
advisory group helps to develop ``performance targets'' in key areas, 
such as patient satisfaction, emergency room utilization/access, 
access/office visits, breast and colorectal screening, immunizations, 
and treatment for diabetes and asthma. Physicians then earn an award 
based on their level of performance: high, average and below average. 
Payment is based on additional per member per month reimbursement for 
the level of performance achieved. Certain primary care physicians, for 
example, can earn up to $2 PMPM for high-level performance in all five 
areas. Independent Health's QMIA program is already meeting success, as 
significant improvements in clinical care have been documented.

PacifiCare Health Systems
Cypress, California
    PacifiCare's semi-annual Quality Index' profile uses 
clinical, service, and data indicators to rank medical groups. The 
measures are sorted into five categories: Staying Healthy (e.g., 
includes cervical and breast cancer screening, chlamydia screening and 
childhood immunizations); Appropriate Care (e.g., appropriate care for 
diabetes care and coronary artery disease); Patient Safety (appropriate 
use of antibiotics and cholesterol-lowering drugs); Service & 
Satisfaction (e.g., satisfaction with medical groups or primary care 
physicians, and Primary Care Physician communication); and 
Affordability. PacifiCare profiles the medical groups and then posts 
the results as ``report cards'' on its Web site and includes a summary 
in its provider directory to members.
    Enrollees who select physicians from PacifiCare's ``value network'' 
of higher quality, lower cost providers, also may pay $10 per visit for 
their primary care physician and $20 per visit for a specialist, 
whereas co-payments for office visits using physicians and specialists 
in the ``standard network'' may be double those amounts. Furthermore, 
PacifiCare's Quality Incentive Program (pay for performance) 
incorporates a subset of the Quality Index' profile and has 
demonstrated an average improvement of 20 percent in 17 of 20 measures, 
with rewards exceeding $15 million in the past three years to better-
performing providers.

                                 

 Submission by Dawn J. Lipthrott, Ethical Health Partnerships, Winter 
                             Park, Florida

    This Committee is faced with the unenviable task of trying to meet 
the current proposed budget requirements while not compromising 
healthcare quality or accessibility. The task is especially challenging 
since accessibility, quality and cost reduction each commonly raise 
costs initially rather than reduce them. Savings are gained over the 
long-term as improvements occur. Because of budget pressures, such as 
those you currently face, immediate and short-term measures are most 
often explored, rather than the more difficult longer-term efforts to 
solve those things that most significantly increase health costs. In 
fact, physician care has historically been the slowest growing category 
of health care spending and has increased very little in recent years. 
(Source: Tracking Health Care Costs, Strunk, BC and Ginsburg, PB, 
Center for Studying Health system Change, December 2004.)
    Since this hearing is specifically about pay-for-performance, I 
will present recommendations, concerns and potential modifications in 
the proposed pay-for-performance approach you are currently 
considering.
    As you and I and others look at this issue, some of the questions 
are:
    a) How can you and we as patients and healthcare professionals 
realize the positives and avoid the negatives, both in a pay-for-
performance approach and in quality improvements beyond or in addition 
to pay-for-performance
    b) How do we co-create a more ethical system--to patients, to 
physicians, to other healthcare partners, including our government 
agencies?
    c) How do we address quality and cost in ways that strengthen the 
patient/physician relationship rather than weaken it?
    d) How do we challenge each contributor to healthcare (patients, 
physicians, insurance, government, pharmaceuticals, the legal 
profession, the media and others) to take responsibility for their own 
contributions to both problems and solutions?
    Most patients and physicians want continued and increasing quality 
and time and cost effectiveness. Pay-for-performance may not be the 
only, or even the most effective way to obtain those goals, especially 
if presented primarily as an immediate way to balance the budget. At 
the same time, while I think all physicians should be compensated 
fairly, I do believe that those physicians who provide superior care, 
should be rewarded in some way. The problem with that is that 
sometimes, though not always, the higher quality care is more expensive 
care.

Recommendations for A Pay-for-Performance Approach:
1. Link Pay-for-Performance with Improved Patient Safety:
    Ethical Health Partnerships is designed to educate and challenge 
all individuals and groups that impact healthcare to take personal 
responsibility for creating more ethical health partnerships with 
patients, physicians and other partners in the system of relationships 
that is healthcare.
    As part of that, our group is beginning to challenge each national 
specialty association of physicians, nurses, other healthcare 
providers, in collaboration with its members, to identify the top 3 
most common serious errors that occur in that specialty and then to 
create and implement plans to reduce those identified errors. The 
errors may be due to physician/provider, procedural, equipment, or 
systemic error. The goal is to increase patient safety in systematic 
and effective ways, designed by physicians, nurses and hospitals 
themselves----the ones who know first-hand the real factors that lead 
to avoidable injuries and negative outcomes.
    Once the 3 areas of highest error have been identified, the 
specialty association would create a committee for each error in order 
to develop plans and procedures to eliminate that error or effectively 
and efficiently reduce avoidable serious injuries. The committee would 
receive suggestions and information from the association membership to 
help develop the plan. In addition, the association would post the 3 
primary errors identified, committee information (including contact 
information), plans and progress on the association website, available 
not only to the membership, but also to patients and other specialties. 
They could invite input to help view the problems from a variety of 
perspectives, all of which are important in developing effective plans. 
They would then develop a timeline for information and implementing 
actions that will lead to the elimination of the error.

Medicare Can Lead the Way and Expand the Challenge While Rewarding 
        Progress:
    Medicare can become a leader in issuing that challenge to improve 
quality and cost effectiveness in healthcare by improving patient 
safety. In addition to protecting patients and physicians themselves, 
medical errors raise the cost of healthcare. For example, the challenge 
could become to annually identify and address one area of avoidable 
serious area, the highest area of waste/duplication, and the highest 
area of patient non-compliance (in each specialty)----all of which 
affect patient safety, quality of care, and health costs. We also 
believe that even addressing those errors systemically will create 
policies and procedures which ultimately will become more cost-
effective.
    You could challenge the associations to design ways to effectively 
improve those areas, with incentives and tax credits for those 
physicians working to test or implement the recommendations of their 
respective associations.
    This challenge could become an ongoing process, with additional 
areas needing improvement continually identified and addressed as 
progress is made.

2. Pay-for-Performance Program Standards Should be Designed by 
        Physicians' Associations, and Where Appropriate, Nurses 
        Associations and Hospital Associations:
    Physicians with experience in each area of medicine are the ones 
who should be challenged to create any standards of more efficient and 
higher quality care for pay-for-performance standards. Government 
officials, insurance company executives, patients, or outside 
consultants can and should be encouraged to provide input, but the 
standards must come from the physician organizations to fully protect 
the patient and to address clinical issues. I believe that our 
physicians and nurses are deeply committed to quality care and patient 
well-being. They have knowledge, experience, awareness of most of the 
factors impacting care and should be challenged to use that creatively 
to further their commitment to quality care for their patients.

3. Initiatives Should Be Encouraged to Reduce the Largest Drivers of 
        Healthcare Costs:
    The rate of physician reimbursement is not a large driver of 
increasing cost. There has to be the distinction between RATE of 
reimbursement as a health cost factor versus VOLUME and utilization 
rates as factors increasing the amount of money that goes to physician 
reimbursement. Reimbursement has already been regularly reduced over 
the past 10 years. Therefore to focus on that is an ineffective 
approach to addressing rising cost.
    Some of the highest drivers of healthcare costs are obesity, 
chronic illnesses, patient non-compliance (especially with medication), 
pharmaceutical cost and defensive medicine (which you cannot expect 
doctors to change without addressing medical liability issues, 
including alternatives to the current tort system.) However, because 
many of the biggest drivers are seen more by some specialties than by 
others, it could create unequal situations between specialties.
    Offering bonuses for initiatives, programs, procedures to reduce 
these areas should be part of a pay-for-performance approach. Offering 
grants to develop programs would also contribute to quality and cost 
effectiveness in the long term.

      Therefore, we also recommend that your committee make 
recommendations to appropriate departments to address those high cost 
factors that directly impact the Medicare budget. When you look at 
these factors and remember that the amount spent for Medicare 
reimbursement of physician services was an estimated $54.2 billion for 
2005, it is clear that addressing the biggest drivers of increasing 
costs makes more sense than penny-pinching and placing undue burden on 
the providers of healthcare. (Source: MEDICARE PHYSICIAN PAYMENTS 
Information on Spending Trends and Targets--May 5, 2004 Testimony 
Statement of A. Bruce Steinwald Director, Health Care--Economic and 
Payment Issues, Testimony Before the Subcommittee on Health, Committee 
on Energy and Commerce, House of Representatives www.gao.gov/cgi-bin/
getrpt?GAO-04-751T)

Some of these high cost factors include:

      Increasing prevalence of obesity in adults and children: 
The rapidly rising prevalence of obesity puts people at greater risk 
for numerous serious illnesses such as certain forms of cancer 
(including breast and colorectal, kidney among others), diabetes, high 
blood pressure, arthritis, cardiovascular disease and more. The 
combined prevalence of both overweight and obesity averages 53.6% 
across all categories and is largest for those enrolled in Medicare 
(56.1%) Obesity-attributable expenditures totalled $75,051, 000,000 
from 1998-2000. We urge Medicare to work in partnership with private 
insurance to develop national and local campaigns to prevent and reduce 
obesity. (Sources: Estimated Adult Obesity-attributable Percentages and 
Expenditures by State (BRFSS 1998 to 2000). http://www.naaso.org/
statistics/obesity--exp--state.asp. Also: National Medical Spending 
Attributable to Overweight and Obesity. Finkelstein, EA et al, Health 
Affairs. May 14, 2003.)
      Patient non-compliance with treatment for chronic 
conditions such as diabetes, high blood pressure and others; In 1992, 
the cost of medication noncompliance alone was $100 billion ($45 
billion in direct medical costs). $31.3 billion was spent on nursing 
home admission due to noncompliance, $15 billion was spent on hospital 
admissions due to noncompliance, $1000 was spent per year per non-
compliant patients versus $250 dollars spent per compliant patient. No 
doubt these costs have gone up considerably in 10 years since little 
has been done to address them. (Source: Compliance in Elderly Patients, 
University of Arkansas College of Pharmacy http://www.uams.edu/
compliance/; Also, Schering Report IX: The Forgetful Patient: The High 
Cost of Improper Patient Compliance. Also Standberg, LR, Drugs as a 
Reason for Nursing Home Admissions, American Healthcare Association 
Journal 10, 20, 1984))
      Defensive medicine: Explore meaningful alternatives to 
the current tort system for handling complaints and patient injury to 
reduce cost, improve patient safety, and avoid unnecessary tests and 
procedures. If reasonable limits were placed on non-economic damages to 
reduce defensive medicine, it would reduce the amount of taxpayers' 
money the Federal Government spends by $23.6-42.5 billion per year 
(Source: Confronting the New Health Care Crisis, U.S. Department of 
Health and Human Services, July, 2002.)
      Rising drug costs, especially for Medicare beneficiaries: 
Marketing and research companies such as Delta Marketing Dynamics of 
New York and PriceAlert show that 31 of the top 50 drug companies 
raised prices from November 2004-January 2005. The year before, 22 of 
those companies increased prices. Analysts believe that this is part of 
the preparation to take advantage of the prescription drug benefits 
through Medicare. We recommend that Congress change the law recently 
passed that prohibits Medicare from negotiating prices with 
pharmaceutical companies. Veteran Affairs already negotiates their 
prices. Even under the best of reimbursement systems, you negotiate 
physician services. Negotiating with pharmaceutical companies is the 
sensible choice of action

4. Change in SGR Formula Must Take Place Apart from any Pay-for-
        Performance or Other Incentive Programs;
    One of my deep concerns is that pay-for-performance will be used 
simply as an attempt simply to save money, given the challenges facing 
Medicare and this committee. And once again, physician reimbursement is 
the easiest to control. I cannot say strongly enough, as a patient, not 
as a physician, that continuing declines in physician reimbursement 
harms both physicians and patients. It reduces quality and ultimately 
adds to costs. Pay-for-performance cannot become a way of side-stepping 
the fundamental flaw in the current payment system OR a way to avoid 
reimbursing physicians in a more just manner. Payment must be adjusted 
in light of cost of living increases and physician practice expenses. 
Since most physicians have had to work hard to cut expenses, this is 
the ideal time for Medicare to start with a less inflated base.
    It is imperative that physicians are not penalized further by 
withholding money from them to pay some additional amounts. MedPAC's 
approach of withholding 1-2% and then using that to pay bonuses 
continues, and adds to, the injustice of the current system. It is like 
saying ``we will continue to penalize you, but then some of you can 
benefit from what we take away from others who also have increasing 
expenses and decreasing income.'' As a patient, I oppose this. The 
trend has been to penalize physicians rather than tackle the bigger 
issues. I strongly encourage you to stop that trend. A just system for 
physician payment, relative to practice expenses and other indices, 
must be created.

5. Pay-for-Performance Cannot Be One More `Cookbook' Approach to 
        Healthcare:
    Another concern is that pay-for-performance standards will become 
another attempt at insurance or government to create a cookbook of 
their definition of `efficient and quality' care. We have gone that 
route with managed care and it has contributed to the decline in 
patient and physician satisfaction and in quality of care. It has also 
compromised patient safety in many instances.
    Any proposals must strengthen the patient/physician relationship 
and use the knowledge and skill of the physician. There is no 
government or private substitution for the clinical judgment of a 
competent physician. As a patient, I want treatment decisions made by 
me and my physician based on my situation and physician-created 
standards rather than checklist of what insurance or Medicare or even a 
physician association has decided is the correct procedure, amount of 
tests or visits. To have basic standards of care is a good thing, as 
long as they are used as a basic guideline, realizing that quality and 
efficient care for the same disease can be very different for different 
patients. Any attempt at pay-for-performance must be wary of the `one 
size fits all' approach.

6. Pay-for-Performance Needs to be Fair and Effective:
    The American College of Physicians issued a position paper in 
April, 2004 on pay for performance that listed recommendations for the 
approach to be fair and effective. Some of their recommendations are:

      To create voluntary demonstration programs of performance 
measurement before implementing system-wide change.
      To use widely accepted, evidence-based measures that 
``provide valid and reliable comparative assessment across 
populations''
      To avoid rating physicians on factors that they cannot 
control (like compliance)To use incentives that are positive, not 
punitive
      To use pay for performance to foster quality improvement, 
not just competition.
      To ensure that any data collection needed to demonstrate 
performance will protect patient privacy and avoid adding to the 
paperwork burden or additional costs of data collection.

    It is also important to note that some specialties, like surgery, 
are very different than monitoring patients with chronic illnesses like 
diabetes. So even process-oriented standards need to be specialty 
specific and not imposed uniformly across specialties.
Other Factors to Consider:
    A March, 2005 article in the Journal of the American Medical 
Association points out that a healthcare `report card' approach 
evaluating services provided by hospitals, physicians and health 
insurers is ``largely undemonstrated'' and ``may have unintended and 
negative consequences on health care.'' It can encourage physician 
practices to avoid sicker patients in order to achieve target rates for 
outcomes or process. Another study reported in the Archives of Internal 
Medicine in January, 2005 said that such reporting can influence 
physicians to withhold procedures from patients at higher risk, even 
when the physician believes that the procedure might be beneficial. 
(Source: The unintended consequences of publicly reporting quality 
information. JAMA. 2005 Mar 9;293(10):1239-44. See also: The influence 
of public reporting of outcome data on medical decision making by 
physicians. Narins CR, Dozier AM, Ling FS, Zareba W. Arch Intern Med. 
2005 Jan 10;165(1):83-7.)
    One of the leaders of the quality improvement and pay-for-
performance approaches has changed his view in the past year. Donald 
Berwick, president and chief executive officer of the Institute for 
Healthcare Improvement (IHI) in Boston, Massachusetts, and one of the 
leaders, has recently changed his long-held position on pay-for-
performance on an individual physician or physician group level.
    He states that:
    ``It (pay-for-performance) certainly will drive expensive 
consultancies, and lots of money will change hands. But will care get 
better? I think that care will get better much more quickly with a 
national commitment to learning, putting knowledge about improvement in 
the public domain, and developing appropriate information 
infrastructures. I don't think that the market will be sufficient to 
support the kind of national learning we need about what care has to 
become. I just don't trust it enough. I think we'll end up with gaming. 
When we got DRGs [diagnosis-related groups] into place, we didn't get 
this wave of learning about how to manage cases better. We got a wave 
of learning about how to bill properly. I want to induce real 
improvement, not games--that's all. And I don't trust the market to do 
that the way you do. I think that improvement should be regarded as a 
property of knowledge for the common good, somehow. We don't have a 
national policy that really does that.
    With respect to your first point about pay-for-performance, I would 
first draw a very dark line between the incentives that apply to 
organizations, boards, executives, and the bottom line of a company, 
where I do want incentives in place. I want it to be good for an 
organization to be safe, and I want it to be good for an organization 
to manage chronic illness carefully or to put patients in control.
    As far as organizational incentive structures--I want the kind of 
reforms you're after, to the extent that we possibly can. At the 
individual level, I don't trust incentives at all. I do not think it's 
true that the way to get better doctoring and better nursing is to put 
money on the table in front of doctors and nurses. I think that's a 
fundamental misunderstanding of human motivation. I think people 
respond to joy and work and love and achievement and learning and 
appreciation and gratitude--and a sense of a job well done. I think 
that it feels good to be a good doctor and better to be a better 
doctor. When we begin to attach dollar amounts to throughputs and to 
individual pay, we are playing with fire. The first and most important 
effect of that may be to begin to dissociate people from their work. 
That's really where we've come to, and we've done it by pay-for-
performance in terms of throughput measurements and manipulating 
payment schemes.
    I think we need a national agenda to restore joy in work, and I 
don't see that as the direction we're moving in right now. Ninety-nine 
out of a hundred people would think that's a naive comment. But they 
don't think it's naive when they go to work. Because they know when 
someone shows up and says, I'll pay you ten bucks more to do a good 
job, they feel not helped out, not incentivized. They feel insulted. 
And they ought to feel insulted. When we have garbage--bad doctors, bad 
nurses, bad hospitals--we ought to nail them, shut them down, throw 
them out, fire them. That will make the system a tiny bit better. But I 
don't think we're going to get to the heart of the problem in American 
medicine by paying doctors to try harder.
    Mr. Berwick continues:
    ``Pay-for-performance at the entity level would be probably a 
pretty good idea. It would be better for organizations that are safer 
and more effective and more patient centered to find that that's good 
for their wallets. It is always a little bit troublesome to me, though, 
that we have to dangle money before the system before it does the thing 
it was created to do. There's something a little off-center about pay-
for-performance as a fundamental strategy, and I think we should talk 
more about that. But it's probably going to be helpful.
    It's really crucial that anything we do with pay-for-performance 
and incentives be linked strongly with a capability-building agenda. 
The average hospital, the average doctor, cannot improve what they do, 
because they don't know how. That's a big, big gap, and that part of 
the strategy has got to be completed.''
    (Source: ``A Deficiency Of Will And Ambition'': A Conversation With 
Donald Berwick by Robert Galvin. Health Affairs 12 January 2005.
    I encourage you to make choices that protect and support patient 
care and the physician/patient relationship, that are ethical and just 
to both, and that are truly focused on quality and not just saving 
money in the short term. To truly improve quality and affordability of 
healthcare, we need to invest in programs that will reap benefits in 
the long-term. I hope that Medicare, in their efforts to provide 
quality care while addressing the very real concerns of costs, will 
become leaders in promoting patient safety and programs that address 
those drivers of healthcare costs that are more complicated and more 
difficult to effectively impact, but that could save significantly more 
money in the long run.
    Thank you for continuing to struggle with the questions.

                                 

                              National Business Coalition on Health
                                               Washington, DC 20036
                                                            3/23/05
    Dear Chairwoman Johnson,
    It is an honor for the National Business Coalition on Health (NBCH) 
to provide a submission for the Congressional Record relative to the 
Committee on Ways and Means Health Subcommittee March 15, 2005 hearing, 
Measuring Physician Quality and Efficiency of Care for Medicare 
Beneficiaries.
    NBCH is a national, non-profit, membership association of business 
health coalitions committed to reforming the health care system and 
improving community health through value-based purchasing. NBCH's 
membership consists of nearly 80 employer-based health care coalitions 
dedicated to value-based purchasing of health care services. 
Representing more than 10,000 employers and approximately 20 million 
employees and their dependents, NBCH's member business coalitions are 
composed of mostly mid- and large-sized employers in both the private 
and public sectors across the United States.
    As the catalyst for value-based purchasing, for over a decade NBCH 
has been focused on a clear set of principles:

      Value-based health care purchasing--obtaining the highest 
quality care at the most reasonable cost
      Measuring the comparative quality and efficiency of 
hospitals, physicians, and health plans in the community to identify 
the best value
      Creating incentives to provide higher-value care through 
integrated delivery systems and continuous quality improvement
      Improving the overall health of the community

    To move value-based physician pay for performance incentive 
programs forward, late in 2004 NBCH selected four of its member 
organizations as Bridges to Excellence demonstration sites. The sites 
are part of an overall NBCH physician incentive program implemented 
through a partnership with the Bridges to Excellence coalition, a group 
of large employers supporting physician pay-for-performance efforts 
around the country.
    Bridges to Excellence creates market incentives for physicians to 
follow best practices, which will yield better outcomes and reduced 
costs. The NBCH Bridges to Excellence initiative was launched in July 
2004 to assists local business coalitions in taking a leadership role 
in recognizing and rewarding health care providers who demonstrate that 
they deliver performance-based, efficient and effective care.
    Business coalitions were selected for this grassroots effort 
because they can coordinate the action of many employers, which is a 
key component to creating market incentives for improved health care 
quality and value. Business coalitions can have a strong impact in 
their markets and, in turn, can be instrumental in restructuring the 
health care reimbursement system that rewards performance-focused 
activities.
    The four business coalitions selected as demonstration sites are:

      Employers' Health Coalition, Fort Smith, Arkansas
      Tri-State Health Care Coalition, Quincy, Illinois
      Heartland Healthcare Coalition, Peoria, Illinois
      Colorado Business Group on Health, Denver, Colorado

    With the addition of these new markets, Bridges to Excellence has 
become one of the largest national pay for performance programs. 
Working with these four coalitions, NBCH is developing and implement 
strategies to promote the adoption of Bridges to Excellence tenets by 
both local employers and physicians. The lessons learned and experience 
gained in these markets will assist other business coalitions, 
purchasers and providers in implementing future physician incentive 
programs.
    NBCH strongly believes that the key to the success of value-based 
purchasing is the commitment to continuous quality improvement, 
standardized assessment of performance, and the delivery of evidenced-
based care.
    In providing a knowledge base for employers to improve health care 
quality and make the most of their health care spending, over the past 
four years NBCH has developed a tool known as eValue8. This is a Web-
based health plan procurement system enabling health care purchasers 
and coalitions to focus on plan performance management and improvement 
while reducing the time involved and associated expense.
    eValue8 is conducted annually and is driven specifically by NBCH 
coalitions and members, focusing and uniting purchaser voices informed 
by public health and clinical experts. The tool includes information on 
hundreds of benchmarks on critical issues such as plan administration, 
provider performance, pharmacy management, disease management, patient 
safety, and member and provider communication. It also complements the 
National Committee for Quality Assurance (NCQA) accreditation process, 
an essential foundation without which eValue8 would need to be vastly 
more extensive.
    NBCH and our members commend Medicare for taking a leadership role 
in provider pay for performance. As the nation's largest health care 
purchaser, Medicare has an opportunity to set an example to the private 
sector, and is in a very unique position to have the most influence on 
building the business case for quality. Additionally, to the degree 
possible, Medicare and private sector pay for performance activities 
need to be coordinated. A fine example of such collaboration is a 
Medicare pilot program in Arkansas in which physicians will be paid a 
bonus for investing and using health information technology (HIT). 
Similarly, NBCH's member coalition in Arkansas is participating in a 
pay for performance project that comprises a bonus for physicians 
investing in HIT who have been certified through NCQA's physician 
recognition program.
    Finally, key to the success of a performance-based health care 
provider payment system is a standardized set of national consensus 
measures. Consistency and reliability are vital to the success of 
performance-based health care. These measures should be used as a 
platform for all private and public sector performance programs, with 
preference given to measures endorsed by the National Quality Forum 
(NQF), and independent and national accreditation entities.
    NBCH and its members are dedicated to value-based purchasing of 
health care services through the collective action of public and 
private purchasers. In developing, identifying and disseminating best 
practices in value-based purchasing strategies; NBCH seeks to 
accelerate the nation's progress towards safe, efficient, high quality 
health care. NBCH is eager to provide more information to the Committee 
regarding our organization's efforts toward health care payment reform.
            Sincerely,
                                                      Andrew Webber
                                                    President & CEO

                                 
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