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



 
                         HEARING ON GAINSHARING

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH


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

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 7, 2005

                               __________

                           Serial No. 109-44

                               __________

         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
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    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______
Advisories announcing the hearing................................     2

                               WITNESSES

Office of Inspector General, U.S. Department of Health and Human 
  Services, Lewis Morris.........................................     6

                                 ______

American Association of People with Disabilities, Andrew J. 
  Imparato.......................................................    39
American Medical Systems, Martin Emerson.........................    24
Goodroe Healthcare Solutions, Joane Goodroe......................    21
Grand View Hospital, Stuart H. Fine..............................    34
New Jersey Hospital Association and Affiliates, Gary S. Carter...    30
The Society for Thoracic Surgeon's Task Force on Pay for 
  Performance, Jeffery Rich, M.D.................................    44

                       SUBMISSIONS FOR THE RECORD

Goodroe, Joane H., Goodroe Healthcare Solutions, Norcross, GA, 
  statement......................................................    59
Leahey, Mark, Medical Device Manufacturers Association, letter...    66



















                         HEARING ON GAINSHARING

                              ----------                                



                        FRIDAY, OCTOBER 7, 2005

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

    The Subcommittee met, pursuant to notice, at 9:40 a.m., in 
room 1100, Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee), presiding.
    [The advisory, revised advisory, and revised advisory #2 
announcing the hearing follow:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
September 29, 2005
No. HL-10

                Johnson Announces Hearing on Gainsharing

    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 gainsharing to align the interests 
of health care providers. The hearing will take place on Friday, 
October 7, 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 representatives from groups affected by 
Medicare's payment policies. 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:

      
    Improvements in the quality and efficient delivery of health care 
in the Medicare system is of paramount importance to Congress. In order 
to achieve these goals, it is essential that physicians and hospitals 
work together in the delivery of medical services. However, certain 
impediments prevent full cooperation between physicians and hospitals. 
For example, Medicare maintains separate payment systems for physicians 
and hospitals, and statutory and regulatory constraints make it 
difficult for physicians and hospitals to work together.
      
    The use of certain operational and financial incentive 
arrangements, commonly referred to as gainsharing arrangements, may 
assist in improving the alignment of physician and hospital interests. 
One type of gainsharing arrangement uses methodologies designed to 
enable hospitals to directly increase payments to physicians for 
measurable contributions to, and for improvements in, all areas of 
hospital operational and financial performance, while improving the 
quality of care.
      
    In announcing the hearing, Chairman Johnson stated, ``To ensure 
that fee-for-service Medicare continues to be a viable option for 
America's seniors and people with disabilities, it is imperative to 
implement system changes which include the creation of opportunities 
for skilled medical service professionals to work together to improve 
both health care quality and efficiency. Gainsharing arrangements, if 
designed properly, have the power to create fundamental changes to 
systems that can help integrate the delivery of medical services across 
different groups of providers to achieve higher quality care and 
improved efficiency. This hearing will provide the Subcommittee with 
the opportunity to hear from witnesses on this important issue.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the current Medicare payment system, 
identification of legal and regulatory considerations associated with 
the ability of physicians and hospitals to engage in gainsharing 
arrangements, and an examination of potential solutions. On the first 
panel, CMS and the Office of Inspector General will present information 
on the Medicare payment structure and gainsharing demonstrations, and 
the legal and regulatory considerations involved in gainsharing 
arrangements. The second panel will provide input from affected 
parties, including testimony from witnesses with experience in 
gainsharing arrangements, hospital and physician issues.
      

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 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Friday, 
October 21, 2005. Finally, please note thatdue 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 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below.Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
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    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
September 29, 2005
No. HL-10 Revised

            Witness Announcement for Hearing on Gainsharing

    The witnesses at the Subcommittee on Health, Committee on Ways and 
Means, hearing on gainsharing to align the interests of health care 
providers, will include a representative from the U.S. Department of 
Health and Human Services, Office of Inspector General, not the Centers 
for Medicare and Medicaid Services.
      
    All other details for the hearing remain the same. (See Health 
Advisory No. HL-10, dated September 29, 2005).

                                 

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
October 05, 2005
No. HL-10 Revised #2

             Change in Time for the Hearing on Gainsharing

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on gainsharing to align the interests of health 
care providers, previously scheduled for 10:00 a.m. on Friday, October 
7, 2005, in the main Committee hearing room, 1100 Longworth House 
Office Building, will now be held at 9:30 a.m.
      
    All other details for the hearing remain the same. (See Health 
Advisory No. HL-10, dated September 29, 2005).

                                 

    Chairman JOHNSON. We do have a closing time certain. I am 
sorry to get us starting a little bit late, but to make up for 
it, I am not going to use my opening statement, which is rather 
long. Instead, I am just going to say that this is as important 
a hearing as I have chaired in my years in Congress. There 
isn't a sector of economy that has improved quality without 
people working together in a different way than our current 
silo system allows, incentivizes, encourages, or even makes 
possible. So, we do need to think through the challenge that 
the gainsharing demonstrations that have already taken place 
pose to us. Because the next round of improvement in quality is 
going to come from the embedding of technology into the 
delivery system The inclusion of all actors in that system--the 
whole team--in the understanding of measurement, in the 
commitment to quality, in the transparency of the system. So, 
we have a real challenge before us, but it is one we cannot 
afford not to meet. So, we have a very good panel today that 
will both give us better understanding of some of the tools 
that we have at our disposal as well as some of the concerns 
that we also have to meet. So, I welcome all of you. I welcome 
the panel. I am very pleased to have Mr. Morris from the 
Inspector General's Office here. I yield to Mr. Stark.
    Mr. STARK. Madam Chair, it is so seldom that I take 
exception to your approach to these problems, but with the 
other issues we have before us--implementing the new private 
drug coverage, which evidently the Centers for Medicare and 
Medicaid Services (CMS) has screwed up again in their latest 
booklet. I recall 20 years ago in this Subcommittee we examined 
this gainsharing. We called it ``kickbacks'' in those days. We 
decided that wasn't such a good idea, to encourage profit 
sharing at the expense of beneficiaries Taxpayers, because they 
suffered. When the hospital prospective payment system was 
implemented, hospitals began enlisting physicians through 
incentive plans to help contain costs. But this created 
inducements for the docs to withhold care or create early 
discharge. We enacted new penalties in Title 9 of the Social 
Security Act. Bluntly stated, what we are going to talk about 
today is whether to turn back time Allow kickbacks, which will 
benefit nobody but either the doctor or the hospital, but saves 
money. The taxpayers The beneficiaries will suffer.
    I would like to insert in the record a New York Times 
article of September 22nd, which outlines some shyster doctor 
down in Louisiana who was collecting hundreds of thousands of 
dollars for getting kickbacks, The New York Times can say it 
more eloquently than can I. But we have heard from Dr. 
Kassirer, The New England Journal of Medicine, about financial 
relationships between physicians, the pharmaceutical Biotech 
Medical device industries that are adversely affecting the 
quality of care. I understand the U.S. Department of Justice 
has recently issued subpoenas in an investigation of orthopedic 
device manufacturers' relationships with surgeons. It is 
possible that at least some of these relationships include 
illegal kickbacks. We should be considering ways to curb these 
relationships, not propagate them. I believe that gainsharing 
is not only misguided, it is very dangerous. The overall 
direction of the program we may disagree with, but we should 
reduce fraud Abuse. This idea of kickbacks--which is the only 
thing that you can call gainsharing--is wrong. If there is 
money to be saved, the hospitals should give it back to 
Medicare. There is no reason on God's green Earth that they 
should give it to the doctors. It should go to the taxpayers, 
or back to Medicare to increase benefits for the beneficiaries. 
I look forward to the witnesses trying to explain why they 
should do otherwise.
    Chairman JOHNSON. Thank you, Mr. Stark. I appreciate your 
comments. Because certainly, those are the concerns that are 
raised by what I consider to be the historic system. I don't 
think it will meet the challenges of the 21st century, That is 
what we need to work on. So, Mr. Morris, welcome.

   STATEMENT OF LEWIS MORRIS, CHIEF COUNSEL TO THE INSPECTOR 
GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH 
                       AND HUMAN SERVICES

    Mr. MORRIS. Good morning, Madam Chair, Members of the 
Subcommittee. I am Lewis Morris, Chief Counsel at the U.S. 
Department of Health and Human Services (HHS), Office of 
Inspector General (OIG). I appreciate the opportunity to 
discuss the OIG's views on gainsharing programs offered by 
hospitals. While there is no fixed definition of 
``gainsharing,'' the term has typically referred to an 
arrangement in which a hospital gives physicians a share of any 
reduction in the hospital's costs attributable to the 
physicians' efforts. Although there are a number of different 
types of gainsharing arrangements, one purpose of gainsharing 
is to align physician incentives with those of the hospital, 
and thereby hospital cost reductions. The OIG recognizes the 
potential benefits of gainsharing arrangements That hospitals 
have a legitimate interest in enlisting physicians in efforts 
to reduce and eliminate unnecessary costs. Nonetheless, the OIG 
has historically been very wary of gainsharing arrangements 
because these arrangements implicate the fraud Abuse laws. With 
respect to the civil monetary penalty (CMP) law, the major 
concern is the impact of gainsharing on the quality of care 
provided to Medicare Medicaid beneficiaries. The CMP is an 
intentionally broad prohibition reflecting congressional 
concern that under the prospective payment system hospitals 
would have an economic incentive to pay physicians to discharge 
patients too soon--quicker Sicker--or otherwise stint on 
patient care.
    Put simply, any hospital gainsharing plan that encourages 
physicians through direct or indirect payments to reduce or 
limit clinical services violates the law. Gainsharing 
arrangements may also implicate the Federal anti-kickback 
statute, if one of the purposes of the payments is to influence 
referrals of Federal health care program business. For example, 
gainsharing arrangements that encourage physicians to ``cherry 
pick'' healthier patients for hospitals offering gainsharing, 
while sending the sicker, more costly patients to hospitals not 
offering gainsharing, implicates the anti-kickback statute. 
Although the OIG has significant concerns about the risks posed 
by gainsharing, we have issued seven favorable advisory 
opinions on gainsharing arrangements. The cost-saving measures 
in the improved arrangements generally fall into one of the 
following categories: product standardizations, product 
substitution, opening packaged items only as needed, or 
limiting the use of certain supplies or devices. We understand 
that the Committee is considering legislation that would allow 
the CMS to conduct demonstration projects to test and evaluate 
gainsharing methodologies. When considering the structure and 
requirement of such projects, we would recommend the inclusion 
of criteria that focuses on three aspects: accountability, 
quality controls, and safeguards against payments for referral.
    To promote accountability, the actions that will result in 
cost-saving incentives should be clear and separately 
identified. By ensuring transparency and full disclosure to 
patients, the demonstration projects would foster 
accountability, as well as allow for meaningful assessment of 
the arrangement's potential effects on quality of care. Quality 
controls are a second key safeguard. It is critical that the 
cost-saving measures for which gainsharing payments are made do 
not adversely affect patients. For example, establishing 
baseline thresholds below which physicians do not receive any 
money for savings may protect against inappropriate reductions 
in service. A third category of safeguards is directed at 
preventing gainsharing payments from being used to reward or 
induce patient referrals in violation of the anti-kickback 
statute. In this regard, the demonstration projects should 
contain limitations on how the payments are calculated 
distributed to physicians, including caps on the scope Duration 
of arrangements. Finally, in establishing the authority for a 
gainsharing demonstration, we recommend a careful review of any 
waiver of fraud abuse authorities, to ensure that it is not 
overly broad or undercuts the integrity of the project. In 
conclusion, gainsharing arrangements may help reduce hospital 
costs by aligning the economic interests of the hospital Its 
physicians. However, gainsharing arrangements violate the civil 
monetary penalty law and, improperly structured, pose 
substantial risks under the Federal anti-kickback statute. The 
OIG has approved several arrangements that have been structured 
very carefully in order to minimize the risk to quality of care 
The abuses associated with kickbacks. These arrangements 
incorporate a number of safeguards to promote accountability, 
quality, and protections against payment for referrals. We 
recommend that any gainsharing demonstration project 
incorporate these safeguards. Thank you.
    [The prepared statement of Mr. Morris follows:]
  Statement of Lewis Morris, Chief Counsel to the Inspector General, 
   Office of Inspector General, U.S. Department of Health and Human 
                                Services
    Good morning Madam Chairman and Members of the Subcommittee. I am 
Lewis Morris, Chief Counsel at the U.S. Department of Health and Human 
Services' Office of Inspector General (OIG). I appreciate the 
opportunity to discuss OIG's views on gainsharing programs offered by 
hospitals.
    While gainsharing promotes hospital cost reductions by aligning 
physician incentives with those of the hospital, these arrangements 
also implicate the fraud and abuse laws. When evaluating the risks 
posed by a gainsharing program, OIG looks for three types of 
safeguards: measures that promote accountability, adequate quality 
controls, and controls on payments that may change referral patterns. 
Properly structured, gainsharing arrangements may offer opportunities 
for hospitals to reduce costs without causing inappropriate reductions 
in medical services or rewarding referrals of Federal health care 
program patients. In a number of specific cases, OIG has concluded that 
the arrangement presents a low risk of abuse and, therefore, exercised 
its prosecutorial discretion not to impose sanctions. However, absent a 
change in law, it is not currently possible for gainsharing 
arrangements to be structured without implicating the fraud and abuse 
laws.
    My testimony begins with a brief overview of gainsharing and a 
discussion of the Federal laws that are implicated by these types of 
arrangements. I will then describe some useful considerations in 
evaluating the risk of fraud and abuse posed by gainsharing 
arrangements.
Background on Gainsharing Arrangements
    While there is no fixed definition of gainsharing, the term has 
typically referred to an arrangement in which a hospital gives 
physicians a share of any reduction in the hospital's costs 
attributable in part to the physicians' efforts. Gainsharing can take 
several forms. Some arrangements are narrowly targeted, giving the 
physician a financial incentive to reduce the use of specific medical 
devices and supplies, to switch to specific products that are less 
expensive, or to adopt specific clinical practices or protocols that 
reduce costs. Other more problematic arrangements are not targeted at 
utilization of specific supplies or specific clinical practices, but 
instead offer the physician payments to reduce total average costs per 
case below target amounts.
    A purpose of gainsharing is to align physician incentives with 
those of the hospital and thereby promote hospital cost reductions. 
Under Medicare's prospective payment system, hospitals have a strong 
incentive to reduce per patient admission costs, because they receive a 
fixed amount for inpatient services without regard to actual costs. 
Physicians, on the other hand, are reimbursed separately based upon a 
fee schedule and may have little or no incentive to choose less costly 
supplies or devices, or to support hospital efforts to negotiate lower 
prices from suppliers of physician-chosen items and supplies, such as 
stents and cardiac and prosthetic devices. In fact, there are reports 
of medical device manufacturers having financial relationships with 
some physicians that create conflicts of interest and potentially 
reward the physician for loyalty to the device manufacturer at the 
expense of the hospital and the health care system in general.
    Gainsharing arrangements are an attempt to bridge the gap between 
the hospital and physician payment systems. By giving the physician a 
share of any reduction in the hospital's costs attributable to his or 
her efforts, hospitals anticipate that the physician will practice more 
cost effective medicine. For example, gainsharing programs that include 
product standardization may provide a physician with an incentive to 
choose clinically equivalent and medically appropriate devices that are 
also less expensive. The hospital then shares with the physician a 
portion of the hospital's savings resulting from the physician's use of 
the standardized product.
Perspective on Gainsharing
    OIG recognizes the potential benefits of gainsharing arrangements 
and that hospitals have a legitimate interest in enlisting physicians 
in efforts to reduce and eliminate unnecessary costs. Nonetheless, OIG 
has historically been very wary of gainsharing arrangements, because 
these arrangements implicate the Civil Monetary Penalty (CMP) and 
Federal anti-kickback statutes. There may also be physician self-
referral or ``Stark'' law implications. However, the physician self-
referral issues are more appropriately addressed by the Centers for 
Medicare & Medicaid Services (CMS) because the ``Stark'' law falls 
under the purview of that agency.
    With respect to the CMP, the major concern is the impact of 
gainsharing on the quality of care provided to Medicare and Medicaid 
beneficiaries. The CMP, sections 1128A(b)(1) and (b)(2) of the Social 
Security Act, prohibits a hospital from knowingly making a payment 
directly or indirectly to a physician as an inducement to reduce or 
limit items or services furnished to Medicare or Medicaid beneficiaries 
under a physician's direct care. The CMP is an intentionally broad 
prohibition,reflecting Congressional concern that under the inpatient 
prospective payment system hospitals would have an economic incentive 
to pay physicians to discharge patients too soon--quicker and sicker--
or otherwise truncate patient care.
    Any hospital gainsharing plan that encourages physicians, through 
direct or indirect payments, to reduce or limit clinical services 
violates the CMP. The payment need not be tied to an actual reduction 
in care or to a reduction in medically necessary services, so long as 
the hospital knows that the payment may influence the physician to 
reduce services to his or her patients. There may be limited cost-
saving measures that do not have the potential to reduce services, such 
as not opening certain supplies until needed. Even then, the 
circumstances must be closely scrutinized to ensure that the delay in 
opening the supplies does not have the potential to cause a reduction 
in services.
    Gainsharing arrangements may also implicate the Federal anti-
kickback statute, section 1128B(b) of the Social Security Act, if one 
purpose of the cost-saving payments is to influence referrals of 
Federal health care program business. Examples of gainsharing 
arrangements that give rise to concerns under the anti-kickback statute 
include, without limitation: an arrangement intended to encourage 
physicians to ``cherry pick'' healthier patients for hospitals offering 
gainsharing while sending the sicker, more costly patients to other 
hospitals not offering gainsharing; an arrangement intended to foster 
loyalty and attract more physician referrals to the hospital; or an 
arrangement that allows a physician to continue for an extended period 
of time to reap the benefits of previously-achieved savings or to 
receive cost-saving payments unrelated to anything done by the 
physician. Moreover, OIG is concerned that gainsharing arrangements may 
lead to unfair competition among hospitals competing for physician-
generated business.
Guidance on Gainsharing Arrangements
    OIG has expressed significant concerns about the risks posed by 
gainsharing. In 1999, OIG issued a Special Advisory Bulletin on 
Gainsharing outlining its analysis of arrangements call ``black box'' 
gainsharing. Black box gainsharing refers to arrangements that give 
physicians money for overall cost-savings without knowing what specific 
actions the physicians are taking to generate those savings. Under 
these types of arrangements, there is little accountability, 
insufficient safeguards against improper referral payments, and a lack 
of objective performance measures to ensure that quality of care is not 
adversely affected. For example, the drive for savings could motivate 
the physician to discharge a patient prematurely or otherwise 
inappropriately influence length of stay decisions, the very abuses 
that led to the enactment of the CMP law.
    OIG also has issued seven favorable advisory opinions on 
gainsharing arrangements that are significantly different from the 
black box arrangements discussed in the 1999 Special Advisory Bulletin. 
The cost-saving measures in the approved arrangements generally fall 
into one of the following categories: product standardization; product 
substitution; opening packaged items only as needed; or limiting the 
use of certain supplies or devices. While each advisory opinion is 
limited to the specific facts presented by the requestor and cannot be 
relied upon by any other party, the considerations identified in the 
opinions are relevant when assessing gainsharing arrangements.
    When evaluating a particular gainsharing program, OIG has generally 
focused on three aspects: accountability; quality controls; and 
safeguards against payments for referrals. With respect to 
accountability, a transparent arrangement that clearly and separately 
identifies the actions that will result in the cost-savings promotes 
accountability in several ways. First, it allows for a meaningful, 
objective assessment of the arrangement's potential effects on quality 
of care. By contrast, black box gainsharing involves payments based on 
overall cost-savings, without any way to identify what specific and 
measurable actions the physician has taken to generate the cost-
savings. Second, full disclosure to the patient of his or her 
physician's participation in the gainsharing program promotes 
accountability. Finally, transparency permits scrutiny of the actions 
of physicians that are attributable to gainsharing payments, thus 
allowing the medical malpractice liability system to act as a further 
safeguard against inappropriate care.
    Quality controls are a second key aspect OIG looks at when 
evaluating a gainsharing arrangement under the advisory opinion 
process. It is critical that the cost-saving measures for which 
gainsharing payments are made do not adversely affect patients. 
Accordingly, OIG looks for features that protect quality care. For 
example, OIG believes it is important to have a qualified, outside, 
independent party perform a medical expert review of each cost-savings 
measure to assess the potential impact on patient care. The hospitals 
that obtained favorable advisory opinions established baseline 
thresholds based upon historic utilization and national data to protect 
against inappropriate reductions in services and to ensure that 
physicians would not receive any money for savings that accrued beyond 
the baseline thresholds. This structure helped protect against the 
physicians receiving payments for savings resulting from limiting 
necessary items and services. The arrangements OIG approved also 
include ongoing monitoring of quality of care and compliance with the 
gainsharing program. This oversight allows for the detection and 
appropriate handling of any inappropriate variation in treatment or 
uses of supplies or devices.
    A third category of safeguards is directed at preventing 
gainsharing payments from being used to reward or induce patient 
referrals in violation of the anti-kickback statute. In this regard, 
OIG focuses on how payments are calculated and distributed to the 
physicians. Examples of safeguards that minimize the risk of abuse 
include, but are not limited to: calculating savings based on the 
hospital's actual acquisition costs; limiting participation to 
physicians already on the hospital's medical staff (to prevent enticing 
other physicians to change referral patterns); limiting the amount, 
duration, and scope of the payments (there is less incentive for a 
physician to switch referral patterns for short-term dollars); and 
distributing the gainsharing profits on a per capita basis to all 
physicians in a single-specialty group practice (reducing the incentive 
for individual physicians to generate disproportionate cost-savings). 
In short, there need to be safeguards that minimize the physician's 
incentives to change referral patterns or cherry pick healthier 
patients for the hospitals offering gainsharing payments, while 
steering sicker, more costly patients to other facilities.
    It must be stressed that any evaluation of the risks presented by a 
gainsharing arrangement is highly fact specific. For example, with 
respect to the product standardization cost-saving measures approved in 
the favorable advisory opinions, OIG knew the specific vendors and 
products at issue and were able to have a medical expert evaluate the 
impact on quality of care. Furthermore, the physicians participating in 
the gainsharing arrangements could make patient-by-patient 
determinations of the appropriate supply or device, because the 
hospital continued to stock the full range of supplies and devices, not 
just those that would result in cost-saving payments. It is important 
to note that OIG did not approve every cost-saving measure proposed by 
the requestors of the opinions. As noted in the opinions, some measures 
were rejected and withdrawn from the arrangements. As such, any broad 
reading of the opinions should be done with caution. Different cost-
saving measures or different payment structures could have produced 
different results.
Conclusion
    Gainsharing arrangements may help reduce hospital costs by aligning 
the economic interests of the hospital and its physicians. However, 
gainsharing arrangements violate the CMP and, improperly structured, 
pose substantial risk under the Federal anti-kickback statute. OIG has 
approved several arrangements that had been structured very carefully 
in order to minimize the risk to quality of care and the abuses 
associated with kickbacks. These arrangements incorporated a number of 
safeguards to promote accountability, quality, and protections against 
payments for referrals.

                                 

    Chairman JOHNSON. Thank you very much, Mr. Morris. Let me 
just ask you a couple of things. You say in your testimony on 
page 2 that any hospital gainsharing plan that encourages 
physicians through direct or indirect payments to reduce or 
limit clinical service violates CMP. To me, it is an example of 
how backward-thinking our law is, because there is nothing in 
this statute that talks about medical necessity or quality. I 
mean, if the same device is on the market for about $1,000 
differential in payment, why isn't that kind of limit a 
reasonable limit? You see, to reduce or limit clinical services 
violates the CMP: that is what we used to think. Now there is 
such a plethora of services that medical necessity and quality 
care really should be the drivers of service determination. So, 
if we have a Federal law, it is kind of like defensive 
medicine. If courts are going to require you to be exposed on 
all fronts, well, then you are going to do every test under the 
sun. If they are going to hold you accountable for appropriate 
treatment of that disease, then you can look at the protocols 
of your specialty organization and the specific information 
about that patient, You can provide appropriate, high-quality 
care, without doing inappropriate and unnecessary tests, which 
we have seen a plethora of. So, doesn't it concern you that the 
civil monetary penalty law, as well as the anti-kickback law, 
really don't look at quality?
    Mr. MORRIS. You are correct that the CMP law is very broad 
Would sanction a hospital or a physician that receives payments 
to reduce care, regardless of whether that care was medically 
unnecessary or otherwise. The anti-kickback statute also 
addresses incentives that could potentially distort physician 
decision-making. The concern in both cases is that those 
incentives to physicians could adversely affect care. The CMP, 
however, does not distinguish between reduction of services 
that are medically unnecessary from those that are medically 
necessary.
    Chairman JOHNSON. Certainly, we are going to hear later 
from the next panel from a company that you actually have 
worked quite a bit with, I understand, Joane Goodroe's 
company--``Something Solutions,'' I have kind of forgotten its 
name. But anyway, would you say that the technology of 
measurement has advanced in recent years? Could we have 
benchmarked physicians 10 years ago the way we can benchmark 
them now? Could we have tracked specific actions of physicians 
that committed to gainsharing arrangements 10 years ago the way 
we could now?
    Mr. MORRIS. I think I would defer to Ms. Goodroe on that 
question. I would tell you that in the advisory opinions we 
have issued we relied heavily on the ability of both experts 
within HHS as well as the quality measures that the particular 
arrangements provided, to give us those sorts of assurances. I 
think, frankly, that much of this would turn on the specific 
arrangement, the particular sorts of services under the 
gainsharing arrangement, and the measures that would be 
available. But I think Ms. Goodroe could probably tell you more 
about what specific measures are available.
    Chairman JOHNSON. I did want to make that point early; that 
you really couldn't have overseen a system like this in the old 
days. Now that we have learned so much about chronic disease 
management, we have also learned a lot about measuring, a lot 
about oversight, that we didn't know even five years ago. You 
do have to have that kind of system capability or, you are 
right, you really expose the system to those who would most 
criminally manipulate it. Mr. Stark.
    Mr. STARK. Thank you. Mr. Morris, in your testimony you 
used the word ``share.'' As you think of that ``share,'' you 
mean sharing money, I suspect.
    Mr. MORRIS. In the context of the gainsharing arrangement?
    Mr. STARK. Yes.
    Mr. MORRIS. Yes, it would be sharing some of the proceeds 
that result from savings.
    Mr. STARK. Could those not be synonymous with--the 
financial words, I suppose, would be ``commission,'' ``profit 
sharing,'' even ``kickback'' if one wanted to use the 
vernacular. All of those things similar; would they not?
    Mr. MORRIS. Yes, they would. I think we always have a 
concern when sharing, commissions, or call them what you will, 
occurs between anyone who has the ability to control referrals 
and anyone who would benefit from those referrals.
    Mr. STARK. Now, you mentioned just a minute or two ago that 
this idea of paying physicians might, I think you said, distort 
the doctors' decision-making process. You are a lawyer?
    Mr. MORRIS. Yes, sir.
    Mr. STARK. If a doctor--I am not, but I wanted to think 
this through, and perhaps you could help me. But if a doctor 
were routinely taking money for using a particular device or a 
particular drug or a particular procedure--say, earlier 
discharge--the patient was subsequently harmed, wouldn't that 
information to be detrimental to the physician in a malpractice 
case, in your opinion as a lawyer?
    Mr. MORRIS. If I understand the question, if physicians 
inappropriately changed practice as a result of gainsharing or 
commissions or kickbacks, that resulted in harm, that would 
seem to be highly relevant to both the government's law 
enforcement efforts--because we would pursue that as a 
kickback--Also, certainly in the private sector, as a 
malpractice variable.
    Mr. STARK. Okay. Now, let me tell you what the VA does. The 
only reason I want to go through this is just to see, off the 
top of your head, whether you think there would be any problems 
with current law if we assumed for the minute that the VA was a 
state hospital association, or a single hospital or a chain. 
They bring together the clinicians, the docs--I suppose, maybe 
some other people, but the doctors principally who are involved 
in a procedure. The VA hospital people say, ``Look, we would 
like to standardize. We would like to use one drug or piece of 
equipment, or whatever. Doctors, as a group, can you all agree 
on one item that we would agree is the right one to use?`` 
Guess what? Generally, they can. So, they usually get somewhere 
between one and three items that are acceptable. They can 
define these in language so you could measure whether or not a 
piece of equipment or a drug met the standards. Then they go 
out to the manufacturers and say, ``Do any of you make or 
provide equipment that meets these standards?`` The ones that 
do are then allowed to submit a bid. They pick the lowest 
price, and that is how they proceed to buy those. I am not 
sure. I was talking with the VA; I forgot to ask whether 
somebody who wasn't the lowest price could also sell at that 
lower price that was established. Now, if that were set up, 
obviously, it would be a good thing for CMS to do that, and 
that would solve all of the problems. That would get us better 
results than this. But if a hospital did that, let's say, a 
large hospital, do you see anything in that kind of a procedure 
that would be considered a kickback or violating any current 
laws that you can think of?
    Mr. MORRIS. Under the hypothetical you have offered, there 
would not be any money or remuneration going back to the 
doctors who participated both in that decision and who then 
conformed their clinical practice. There would not likely be a 
kickback, based on the scenario as you have described it. 
Although we would need to know an awful lot about the 
particular docs.
    Mr. STARK. The doctors would just be helping the hospital 
save some money, They would be practicing good medicine.
    Mr. MORRIS. I think a distinction--I don't profess to have 
a full understanding of how the VA system works, but my 
understanding is most of the physicians working in the VA 
system are employees of the VA; Therefore, under the direction 
and control of the hospital.
    Mr. STARK. No. I mean, physicians are allowed to practice 
medicine in their own best judgment, so that they are no more 
under ``the control.'' I suppose, if they were lousy and goofed 
up or weren't productive, they could be fired. Any more than a 
lawyer who works for a salary would give an opinion that was 
any less valid than a lawyer who was working by the hour. I 
mean, they have a code of ethics--even as government employees.
    Mr. MORRIS. Well, as the New York Times article you 
referenced at the beginning indicates, one of the challenges 
that faces private-sector hospitals is having physicians order 
services or devices consistent with the procurement interests 
of the hospital. Device manufacturers can use various 
incentives.
    Mr. STARK. I suspect we would have to do that. I think you 
are right. I don't think they would have a lot of trouble. But 
there is always the CMS--could not follow a procedure like 
this. Then that would solve the problem. Thank you very much.
    Mr. MORRIS. Yes, sir.
    Mr. STARK. Mr. McCrery.
    Mr. MCCRERY. I will be very short, Madam Chair. Mr. Morris, 
you are from the Inspector General's Office with HHS; is that 
right?
    Mr. MORRIS. Yes, sir.
    Mr. MCCRERY. So, your focus is on enforcement of current 
laws, with respect to kickbacks and all those kinds of 
considerations; is that right?
    Mr. MORRIS. That is correct.
    Mr. MCCRERY. So, you are not here in a policy position with 
HHS to comment on potential changes to the law which might vary 
the scope of your examinations in the Inspector General's 
Office, right?
    Mr. MORRIS. That is correct.
    Mr. MCCRERY. But even working with the current set of laws 
that are in place, your office has found some of these kinds of 
arrangements to be acceptable under the laws we have right now; 
is that right?
    Mr. MORRIS. We have found the arrangements we looked at to, 
in each case, implicate the civil monetary penalty law. They 
violate the law by providing incentives to physicians to reduce 
care. They also implicate the kickback statute. But because our 
advisory opinion authority allows us in the specific instance 
to indicate that we will exercise prosecutorial discretion and 
not pursue a particular arrangement, provided there are 
adequate safeguards, in these instances we found that there 
were specific safeguards that would warrant us not pursuing a 
sanction or other action against these particular requesters.
    Mr. MCCRERY. Okay. Thank you. Madam Chair, it might be 
interesting to have HHS testify at another time as to any ideas 
they have for curtailing the increases in costs that we are 
seeing in the system. Obviously, we are looking at a very 
dangerous, I think, result of current law at the end of this 
year, when physicians' payments are going to be reduced 
dramatically because of the current law. If we don't find some 
way to curtail the increase in these costs, I am afraid we are 
going to be stuck with some of the old ways of living within 
our means; which is just to cut reimbursement rates. So, I am 
hopeful that HHS will bring us some positive ideas as to how to 
accomplish our task.
    Chairman JOHNSON. Thank you. I hope the Inspector General 
will work with us, from his experience in this regard, because 
we are just in a different world. The plethora of possibilities 
is just simply too great for the law not to notice the 
difference between necessary and unnecessary, or appropriate 
Inappropriate, care. Mr. Ramstad.
    Mr. RAMSTAD. Thank you, Madam Chair. Mr. Morris, a study 
published in yesterday's New England Journal of Medicine 
concluded that innovative new implantable cardiac 
defibrillators represent good value to the Medicare Program. I 
could have offered that voluntarily, but the empirical data 
don't lie. It was, as I said, a study released yesterday. This 
study's authors, as I read the article, noted that a key 
contributor to improved outcomes for patients, including heart 
patients, is the flexibility--I am quoting now from the study, 
``A key contributor to improved outcomes is the flexibility to 
change systems of care to incorporate new knowledge into 
practice.'' My question is this: How specifically would 
gainsharing recognize and reward important new medical 
breakthroughs, new medical knowledge such as the technology 
that led to the development of implantable defibrillators?
    Mr. MORRIS. I believe Ms. Goodroe could give you more 
specifics. I think the general answer would be this. 
Gainsharing, if properly structured, would provide for 
sufficient quality controls and accountability so that if 
physicians received incentives to try new devices or take into 
account savings that would result from certain cost-effective 
measures, we could both ensure that patient care was secured 
and cost savings were realized.
    Mr. RAMSTAD. I am sure you are aware, Mr. Morris, speaking 
of empirical data, of the studies in the field that show 
overall, if you look at the macro picture, health care, medical 
technology saves dollars for the system. There is ample 
research to support that assertion that conclusion. My concern 
is that we are going to provide an incentive for doctors and 
providers to do it in the cheap, to coin a phrase, to avoid the 
use of life-saving, life-enhancing medical technology--which at 
the time for that patient might cost more, but, if you look at 
that patient's longer view, could save his or her life or 
enhance their lifestyle, enhance their very life--it is, again 
looking at the macro picture, going to save the system money. 
So, don't you share that concern that perhaps we are going to 
provide incentive for providers to do it on the cheap?
    Mr. MORRIS. That is one of the concerns that we have, It 
was taken into account when we looked at these particular 
arrangements. As I mentioned, one of the reasons that these 
particular arrangements were approved was because we felt that 
there were adequate safeguards to ensure quality. For example, 
in the arrangements we looked at, the physicians, although they 
would receive incentives if they used some of the standardized 
cardiac devices, were all still able to get any device they 
wanted to use. So, their ability to provide the best device for 
a particular patient was preserved.
    Mr. RAMSTAD. What do you base that on, that the access has 
not been thwarted?
    Mr. MORRIS. Because as part of analyzing these particular 
arrangements, the requesters laid out in great detail the 
specific measures and both the accountability and quality 
control measures that were in place. They certified that those 
measures will be in place. We also relied on clinicians, 
experts within the department, to review all of the safeguards 
to ensure that patient care would not be compromised. So, we 
basically relied on both experts as well as the representations 
of the requester.
    Mr. RAMSTAD. Well, you know, they always say the proof is 
in the pudding. I don't think we know enough, the experience of 
gainsharing is not that long in terms of time span. But I am 
really concerned about access and quality, I think we need to 
keep those. I am glad you share those concerns as we work 
together on this legislation.
    Mr. MORRIS. Thank you.
    Mr. RAMSTAD. Thank you. Yield back, Madam Chair.
    Chairman JOHNSON. Thank you very much. Mr. Lewis.
    Mr. LEWIS. Thank you very much, Madam Chair. Thank you, Mr. 
Morris, for being here. Madam Chair, before I ask my questions, 
I would just like to say that I am very concerned about the 
mistake in the Medicare new handbooks that have been sent out 
to seniors. The mistake is in the table that helps 
beneficiaries compare plans. The mistake is in the column that 
tells beneficiaries whether they will have to pay extra 
premiums. So, beneficiaries choose a plan, think there are no 
extra costs; when in fact, they will be hit with extra 
premiums. I understand that CMS does not plan to correct this 
handbook. Instead of correcting the handbook and sending out 
new ones, CMS suggests that people can go to the Medicare 
website. Well, most seniors do not use computers. The CMS also 
says you can call the organization offering the drug plan, or 
call CMS. This prescription drug plan is already complicated 
enough. Seniors should not have the burden of making sure the 
information is accurate. People need to make informed choices. 
If the seniors see this information in print, they should be 
able to depend on it. The CMS should reprint the handbook. 
Otherwise, CMS should cover the costs of additional premiums 
for people who are surprised by additional costs. Madam Chair, 
I renew again my call for oversight hearings for Medicare part 
B. Now, Mr. Morris, what are the potential dangers for patients 
under gainsharing arrangements? Do you support codifying the 
safeguards that were in the OIG advisory opinion? If not, why 
not?
    Mr. MORRIS. The potential risks to patients posed by poorly 
designed gainsharing arrangements would include giving 
physicians incentives to reduce the length of stay, get the 
patient out of the hospital quicker and sicker; to skimp on 
devices or supplies that would be necessary to care for the 
patient; or otherwise cut costs in such a way that would 
compromise care. The particular arrangements that we looked at, 
and the many cost-saving measures that would be recognized as 
part of a gainsharing program, were carefully scrutinized by 
us, experts within the department, as well as outside 
consultants. Because each of those arrangements is very fact 
determinative, and there were many of the cost-saving measures 
which we did not find sufficiently safeguarded for quality, I 
think it would be dangerous to take any of the advisory 
opinions and codify a gainsharing standard based on those. The 
approach that we have recommended in our testimony is to take 
into account three general principles--accountability, quality 
controls, and measures to ensure kickbacks are not in play--and 
use those principles to oversee a demonstration project and the 
arrangements that would come out of it.
    Mr. LEWIS. When the OIG issued its advisory opinion on the 
six gainsharing arrangements earlier this year, what steps did 
you take to ensure that incentive was not included in 
arrangements to encourage physicians to reduce care to Medicare 
patients?
    Mr. MORRIS. What incentives were in place?
    Mr. LEWIS. Yes.
    Mr. MORRIS. There are a number of incentives we took into 
account. There were caps on the amount of money that a 
physician could realize. There were baselines established, so 
that a physician could not reduce the level of services he or 
she was providing based on historic baselines. There were 
quality oversight measurements. There is an ongoing monitoring 
of the arrangement itself to ensure that quality is preserved. 
So, there is a wide range of safeguards, both in terms of 
specific caps and ceilings, structural safeguards, as well as 
ongoing oversight. We believe that those in combination 
adequately protected the interests of the patient as well as 
the program.
    Mr. LEWIS. Thank you. Mr. Morris, why do you limit approval 
of a gainsharing program to just 1 year? What was the 
rationale?
    Mr. MORRIS. The rationale was that we did not want the 
payout coming from gainsharing savings to be spread out over 
multiple years, because it could implicate remuneration for 
kickbacks. We wanted to have a fairly tight, focused return to 
the physician for specific acts done within a tight timeframe. 
We thought a 1-year timeframe was appropriate.
    Mr. LEWIS. You think it would work?
    Mr. MORRIS. Well, I think we will be interested to see what 
the results are. We are going to be watching this area very 
carefully, to see whether gainsharing actually does 
successfully align the incentives of hospitals and physicians 
without compromising quality of care.
    Mr. LEWIS. Thank you very much. Madam Chair, yield back.
    Chairman JOHNSON. Thank you, Mr. Lewis. Mr. English. Oh, 
sorry. Mr. Johnson.
    Mr. JOHNSON. Mr. Morris, do you believe in gainsharing that 
doctors will place financial incentives above patient care if 
given the opportunity?
    Mr. MORRIS. I can't say as to any particular arrangement. I 
will say that our experience has been, as a law enforcement 
agency, that physicians respond to economic incentives. We have 
seen, both in their opportunity to invest in imaging centers 
and laboratories and the like, that if they can enhance their 
financial position by making referrals to a particular entity, 
they will do so. We have also seen at times that that results 
in both inappropriate costs to our program also can implicate 
quality of care. So, I think the short answer would be I think 
that some physicians may inappropriately allow financial 
incentives to affect their medical judgment.
    Mr. JOHNSON. Depends on the guy, is what you are saying.
    Mr. MORRIS. Or lady, yes.
    Mr. JOHNSON. Or lady. You know, since 1999, you only 
approved seven arrangements for gainsharing. It seems like it 
is exceedingly difficult to implement a meaningful program. 
Could you comment?
    Mr. MORRIS. I think that is a fair perception. We have 
worked very hard to ensure that any gainsharing arrangement has 
sufficient controls to assure accountability, quality controls, 
Inhibit kickbacks or referrals. We have scrutinized each one 
very carefully. A lot of the arrangements we have looked at did 
not pass the bar and were not deemed acceptable.
    Mr. JOHNSON. Well, you must have some criteria set up. What 
is it? Let me ask you this question. If you do approve a 
gainsharing operation in some hospitals, do they continue to 
have access to all of, let's say, the medical devices, for 
example? Or do they go to one company and try to cut costs? 
Have you run into that?
    Mr. MORRIS. In the arrangements that we approved, 
physicians continued to have access and were able to use 
devices that they felt, on a patient-by-patient basis, were in 
the best interests of the patient. They would realize the 
gainsharing benefits if they picked one of the products which 
had been standardized. In the arrangements we looked at, there 
was more than one vendor who was providing the devices that 
were standardized. But even so, physicians continue to have the 
ability to select particular devices or equipment that they 
felt was in the best interests----
    Mr. JOHNSON. But they wouldn't participate in gainsharing 
if they did that, according to you.
    Mr. MORRIS. They would not realize the gainsharing benefits 
from that particular decision. But most of these gainsharing 
arrangements had multiple--19, 20 different cost-saving 
measures. If they conformed their clinical practice to those 
measures, they would realize the benefit of gainsharing as to 
those measures. So, for example, they might choose not to pick 
a particular device, although it was part of the list of 
standardized products; but they might agree to use other cost-
saving measures that were part of the gainsharing arrangement.
    Mr. JOHNSON. I can't see much difference in that and 
specialty hospitals, for example, in which the docs get 
together and try to form their own gainsharing, if you will. Do 
you consider that a difference?
    Mr. MORRIS. Well, specialty hospitals are different. I 
mean, a gainsharing arrangement exists between a hospital and 
physicians who are not its owners, generally, and for whom it 
is trying to align their interests. Obviously, if the 
physicians own the hospital you have a very different matrix.
    Mr. JOHNSON. Okay. Thank you very much. Thank you, Madam 
Chairman.
    Chairman JOHNSON. Thank you. Mr. Camp.
    Mr. CAMP. Thank you very much. I, too, am interested in 
these pilot programs that OIG implemented. I just wonder if you 
could elaborate a little bit more on why OIG selected the sites 
that it did.
    Mr. MORRIS. Oh, let me clarify. We did not implement any 
pilot projects. The Inspector General's Office does not engage 
in any programmatic functions. What we did was, consistent with 
our advisory opinion authority, tell entitles that were setting 
up arrangements whether we felt there were adequate safeguards 
to warrant not pursuing our enforcement authorities. So, we did 
not pick the arrangements, and we did not pick the entities 
that came in and requested advisory opinions from us.
    Mr. CAMP. Thank you. Do you think there are adequate 
safeguards for further implementation of the gainsharing 
agreements for a wider-scale implementation or a larger-scale 
implementation of these agreements?
    Mr. MORRIS. It would really depend on the specific facts of 
the specific arrangement.
    Mr. CAMP. Are you satisfied, then, with the safeguards that 
were in place for those pilot programs that did occur?
    Mr. MORRIS. For the seven arrangements that we reviewed, we 
believe there were adequate safeguards to ensure 
accountability, quality control, and protections against 
kickbacks. We articulated those in the advisory opinions. So, 
as to those specific arrangements, we indicated that we would 
not use our enforcement authorities.
    Mr. CAMP. Does that allow you to make any judgment on a 
broader or a larger-scale implementation of the gainsharing 
programs in other places? I mean, you are satisfied with what 
occurred? Do you think that protections are in place? Are they 
adequate for larger implementations of the gainsharing 
agreements?
    Mr. MORRIS. It would depend on the agreement. It is, you 
know, the old adage: if you have seen one gainsharing 
agreement, you have seen one gainsharing agreement. It would 
have to be a case-specific analysis. If there was to be a 
demonstration whereby there were a larger number of gainsharing 
arrangements underway, we would urge that there be a range of 
safeguards put in place so that all of those arrangements 
conform to the three touchstones that we have touched upon: 
quality, insurance against referrals, and accountability.
    Mr. CAMP. Some have said that these agreements could lead 
to a lessening of the quality of care. What do you think about 
that?
    Mr. MORRIS. I think that is a real risk. I think it is one 
of the reasons why it is so important that there be a great 
number of safeguards and ongoing monitoring, to assure that 
patient care is not compromised through gainsharing. We do 
believe, based at least on the arrangements that we have 
reviewed and approved of, that it is possible, at least in the 
context of those arrangements, to structure a gainsharing 
arrangement so that patient care and the interests of the 
program are safeguarded. But vigilance is critical.
    Mr. CAMP. So, if there were a broader implementation of 
these agreements, you see that that could happen if the proper 
safeguards were put in place on a case-by-case basis?
    Mr. MORRIS. On a case-by-case basis.
    Mr. CAMP. All right. Thank you. Thank you.
    Chairman JOHNSON. You know, I am stunned at your comments. 
I want my colleagues on the Committee to think about this. You 
are saying only on a case-by-case basis, under a law that 
doesn't discriminate between medical necessity and non-medical 
necessity. Now, we have hip devices that are plastic, that are 
$3,000, that are good for 3 years. We have titanium hips that 
are good for 40 years, that are $8,000. Now, should a health 
care system that is getting increasingly unaffordable to the 
people of America have no ability to look at appropriateness of 
when to use the plastic and when to use titanium? Is that 
really what you are saying; that on their own they should have 
no ability to do this; that only if the government gets in 
there and approves this relationship, that only then should 
they have that ability? Because remember, the CMP law doesn't 
allow any consideration for anything other than access. Device 
numbers. They are all lined up on the shelf; you have to have 
access to every one. Now, are we nuts?
    Mr. MORRIS. I won't answer the second question, for lack of 
competence.
    [Laughter.]
    Chairman JOHNSON. Okay. Let me ask you--I do know the 
answer to that one. Let me ask you one other thing. The way you 
describe this, are you aware that hospitals and device 
manufacturers currently--currently--negotiate agreements that 
involve price and volume usage, just like the pharmaceutical 
companies do?
    Mr. MORRIS. Yes, I am aware of that.
    Chairman JOHNSON. Do you oversee those contracts?
    Mr. MORRIS. No.
    Chairman JOHNSON. No. You don't know in how many hospitals 
people have access. I have heard that there are some community 
hospitals that provide one device. I think our gainsharing bill 
will guarantee a far better selection than that, and a far more 
doctor-centered, doctor-controlled situation than that. I also 
know that there are contracts that are based on getting 70, 80 
percent of your business. Now, you are not looking at that. The 
government either can't see it, or doesn't want to see it. We 
are acting as if the gainsharing agreements are in a vacuum. 
The world is changing. If you don't think the big guys with big 
devices aren't negotiating in a way that keeps little guys out, 
you aren't noticing.
    Mr. MORRIS. The distinction I think I would make is that we 
certainly are very much in favor of volume discounts; provided 
that they are passed on to our program so we realize savings on 
behalf of the Medicare program. The concern that I think 
gainsharing raises is that if a physician shares in those 
savings, agrees to change his or her clinical practice so as to 
only use the less expensive hip, to use your analogy, and 
realizes profit or part of the revenues of it, and it doesn't 
go back to the program, the risk is that that may--may--affect 
his or her medical judgment. So, it is not a question of being 
in favor of discounts being passed on to our program. We 
strongly favor that. The question is ensuring that the 
decisions are made in a way that ensures quality of care.
    Chairman JOHNSON. But we are not overseeing that now. In a 
transparent gainsharing agreement we will actually know much 
more about that. There will be measurements; there will be 
parameters. What is going on now is happening, and we do not 
know how much it is happening, and we can't see it if it does 
happen. The money isn't going back to Medicare. It is keeping 
the hospital alive, and there is some value in that. But we 
don't know the interaction of the savings there with 
subsidizing hospital services that we don't recognize in 
Medicare and don't pay for, that Medicaid doesn't pay for, and 
the private sector no longer subsidizes. So, it is not quite as 
easy as: the money all has to flow back to Medicare. So, I 
don't want to put you in an awkward position, but I just want 
to point out that I agree with everything you said about 
gainsharing and how important it is to have a structure over it 
so that we can measure and hold people accountable. But I don't 
want the Members of the Committee to think that we have this 
structure in place now. Because I think gainsharing will give 
us more ability to assure that hospital care is physician-
patient-centered and accountable than we are seeing develop 
now, whether it is in the boutique hospital sector, the 
specialty hospital sector, or whether it is in some of the 
arrangements that the market of course is very ingenious at 
developing. So, I will conclude the comments of the panel, 
then, because we want to hear the other panel, and we are under 
a time constraint. Thank you very much, Mr. Morris, for your 
good answers to the questions and for your excellent testimony. 
We look forward to working with you.
    Mr. MORRIS. Thank you very much.
    Chairman JOHNSON. As the next panel assembles at the dais, 
let me recognize Mr. Ferguson of New Jersey to introduce one of 
the participants. Also, let me recognize Mr. Gingrey, who is a 
Member of Congress but also a physician, and has taken a great 
interest in the work of this Subcommittee because he 
understands the nature of what we are doing and its importance 
to the evolution of the medical community. We thank you for 
being here. Mr. Ramstad, did you wish to speak?
    Mr. RAMSTAD. Yes. Madam Chair, I would also like the 
privilege of introducing one of the witnesses from my district.
    Chairman JOHNSON. Well, why don't you start, Mr. Ramstad? 
Sorry, I was unaware of that.
    Mr. RAMSTAD. Not at all. Madam Chair, Members of the 
Committee, thank you for the privilege of introducing an 
outstanding chief executive officer, a great corporate citizen, 
and a personal friend, Martin Emerson, who is Chief Executive 
Officer of American Medical Systems in Minnetonka Minnesota, my 
hometown. So, it is great to have you here, Marty, as well as 
the other witnesses. Thank you, Madam, Chair.
    Chairman JOHNSON. Mr. Ferguson.
    Mr. FERGUSON. Thank you, Madam Chair. I very much 
appreciate your graciousness in allowing me to introduce a 
friend and constituent; I certainly appreciate your interest in 
this gainsharing issue. I serve as Vice Chair of the Health 
Subcommittee on the Energy Commerce Committee, and have a great 
deal of admiration for your work and the work of this 
Subcommittee. I also appreciate the fact that you have come to 
New Jersey to review and get a better understanding for our New 
Jersey demonstration project that is the topic of this 
conversation today. I am particularly pleased to be able to 
support something as creative as the New Jersey Physician 
Hospital Demonstration Project, and am very pleased to be able 
to welcome a friend Constituent, Gary Carter, who is President 
and CEO of the New Jersey Hospital Association (NJHA). Gary has 
been advocating for hospitals and improving health care for 
many years; the last 11 spent leading the health care advocacy 
group, the NJHA. Prior to coming to my home state of New 
Jersey, Gary was the President of the New Hampshire Hospital 
Association for 8 years. Before coming east, he had a number of 
executive management posts with Intermountain Health Care, 
which is a system of hospitals in Utah, Idaho, and wyoming, and 
Nevada. He is known as an association leader who builds 
consensus, who fosters cooperation. He is certainly dedicated 
to working in New Jersey to improve hospital-physician 
relations and broader advocacy on behalf of the NJHA's member 
hospitals; Certainly, I think, will have some great insights 
for your Subcommittee with regard to gainsharing. So, thank you 
very much.
    Chairman JOHNSON. Thank you for that nice introduction. I 
would say, I say this to all of you, it was a very important 
experience for us to go sit with the New Jersey people. I am 
going to invite all Members of the Subcommittee to repeat that 
experience. Because we got to talk to doctors; we got some 
sense of how the relationships changed as they got into this, 
and what it means to move to a patient-centered hospital 
system, which is not exactly what I believe we have now. So, I 
agree with you: he is a consensus builder. We are delighted to 
have him here. I consider his testimony, his contribution 
today, very crucial to our ability to move forward. I do think 
all Members need to do that. I think we need to go to other 
sites where people are doing creative things, and we need to 
understand how the current law is a barrier, actually, to 
deeper, more powerful relationships within the caring 
community. That much said, Ms. Goodroe?

STATEMENT OF JOANE GOODROE, PRESIDENT CHIEF EXECUTIVE OFFICER, 
        GOODROE HEALTHCARE SOLUTIONS, NORCROSS, GEORGIA

    Ms. GOODROE. Chairman Johnson Distinguished Members of the 
Committee, I want to thank you for the opportunity to appear 
before you today to share my thoughts on the topic of 
gainsharing. My name is Joane Goodroe. I received a bachelor of 
science in nursing and a masters in business administration, 
and have extensive clinical and administrative background in 
hospitals.
    Chairman JOHNSON. Excuse me, Ms. Goodroe. I did forget to 
mention that the timer gives you 5 minutes. This goes for 
everybody. Your whole statement will be included in the record, 
but you will have only 5 minutes. Now, the bells have rung for 
two votes: a 15-minute vote, followed by a 5-minute vote. I 
have read all the testimony. While I regret that I won't be 
here to hear your statement, I am going to leave immediately. 
Then I will come back Chair the hearing up until the point I 
have to go for the second vote. I would urge some of the 
members of the panel to go now, and come back and question, so 
that we can keep the panel moving through these two votes. So, 
know that I have read your testimony, Ms. Goodroe and Mr. 
Emerson, I will be back as promptly as possible. Meanwhile, Mr. 
McCrery will take the chair.
    Mr. MCCRERY. [Presiding.] Please continue, Ms. Goodroe.
    Ms. GOODROE. I am currently the CEO of Goodroe Healthcare 
Solutions, which was acquired this week by VHA, Inc. Goodroe 
Healthcare is the company that developed the gainsharing model 
which has received seven separate approvals from the OIG. These 
approvals were obtained only after our gainsharing methodology 
was highly scrutinized to assure that any decrease in cost 
would not negatively impact patients. As part of the 
gainsharing plan, there are safeguards to protect the patient, 
including that any technology a physician requests must be 
available. My first experience with gainsharing started in 
1989, when I was an administrator at Saint Joseph's Hospital of 
Atlanta, which was one of the hospitals that worked with CMS on 
the Medicare Coronary Artery Bypass Demonstration Project. In 
this well-studied project, we created a gainsharing model that 
aligned incentives to decrease costs while maintaining quality. 
As you consider legislation, I want to comment on three 
important aspects of gainsharing. The first: Gainsharing is 
important because it is the physicians who are the ones who can 
control costs. This has been well documented, and once again 
validated in the February 2005 Boston University School of 
Public Health study that was recently released. The summary was 
simple: Health care costs are soaring unsustainably.
    Their solution to the problem is economic alignment of 
physicians with these thoughts: physicians control 87 percent 
of spending; very important, physicians know where the waste 
exists; also, it is the individual doctor's decision that is 
the best way to assure that patient care is not compromised 
when saving money. The physician is the one with the ultimate 
responsibility of the patient. It is the physician who takes 
personal risk when caring for patients. It is the physician who 
has the knowledge to decrease costs without compromising 
quality. In our current system, the hospital pays for the 
products Services that are utilized, even though it is the 
physician who determines how to use them. Most people do not 
realize that each physician delivers care to the same type of 
patient in a unique manner. For example, in any procedure 
performed, each physician will have a preference card outlining 
the way he wants the procedure done. You can use the 
comparisons of a chef or an artist who wants to create the best 
possible product. Each takes pride in their individual process, 
because physicians believe they are delivering the best care to 
their patients.
    Yet each of these practices have not been studied to assure 
quality care to the patients. In gainsharing, cost-saving 
practices are analyzed before implementation, with safeguards 
in place to protect the patient. The second point: Gainsharing 
targets the waste of resources in the health care system, in 
order to improve quality. Physicians practicing with a unique 
preference is a waste of resources. More importantly, there is 
no way that so many different methodologies result in the best 
quality for patients. This diversity in patient practice begins 
in training. Physicians may have three different professors who 
teach them the same procedure three different ways. Each 
physician then takes all of these practices, and develops an 
additional methodology specific to their practice. There are as 
many ways to perform a procedure in this country as there are 
physicians performing that procedure. For the physician there 
has been no incentive for them to change their practice. Matter 
of fact, changing a way a physician practices is hard work, and 
requires a substantial amount of effort. From the physician's 
point of view, why take the risk of changing the way you 
perform a procedure, if you feel good about the outcomes?
    It is important to understand that no other industry could 
remain competitive on quality and cost without key engineers--
which are the physicians--determining how to maintain quality 
while decreasing costs. Physicians reengineering the care of 
patients is the best way to save billions of dollars, while 
assuring that quality is maintained. The final point: There are 
many misconceptions of gainsharing; most importantly, the idea 
that quality of patient care may be harmed. In order for 
gainsharing programs to work, you must make sure that quality 
of care is maintained by looking at quality, predetermining 
changes, and measuring data. If you look at 50 physicians 
performing the same procedure, you will see 50 different ways 
the procedure is formed. Gainsharing is a process where the 
physicians study how colleagues perform their procedures and 
determine the best processes to adopt in order to increase 
efficiency while assuring quality. In addition to a body of 
knowledge being created where physicians will constantly invent 
more efficient ways of delivering care to their patients, the 
best way to think of this is to look at how other industries 
operate. They look at not just quality, but also cost. That is 
what we must do in health care today, because we do not have 
the dollars to continue to just think that quality is the only 
thing that will be delivered to these patients. Quality will be 
withheld from patients if we can't afford to give patients 
quality. Thank you for your time.
    [The prepared statement of Ms. Goodroe follows:]
  Statement of Joane Goodroe, President and Chief Executive Officer, 
            Goodroe Healthcare Solutions, Norcross, Georgia
    Chairman Johnson and distinguished members of the Committee, I want 
to thank you for the opportunity to appear before you today to share my 
thoughts on the topic of gainsharing. My name is Joane Goodroe. I 
received a bachelor of science in nursing and a masters in business 
administration and have an extensive clinical and administrative 
background.
    I am currently CEO of Goodroe Healthcare Solutions, LLC, the 
company that developed the gainsharing model which has received seven 
separate approvals from the Office of Inspector General. These 
approvals were obtained only after our gainsharing methodology was 
highly scrutinized to assure that any decrease in cost would not 
negatively impact quality. As part of the gainsharing plan, there are 
safeguards to protect the patient including that any technology a 
physician requests must be made available.
    My first experience with gainsharing started in 1989, when I was an 
administrator at Saint Joseph's Hospital of Atlanta, one of the 
hospitals that worked with CMS on the Medicare Coronary Artery Bypass 
Demonstration Project. In this well studied project, we created a 
gainsharing model that aligned incentives to decrease costs while 
maintaining quality.
    As you consider legislation, I would like to comment on three 
important aspects of gainsharing.
One: Gainsharing is important because the physicians are the ones who 
        can control costs.
    This has been documented many times and again validated in the 
February 2005, Boston University School of Public Health study on 
Health Care Costs from 2000-2005. The summary was simple: Healthcare 
costs are soaring unsustainably. Their solution to the problem is 
economic alignment of physicians with these thoughts.

      Physicians control 87% of spending.
      Physicians know where the waste exists.
      An individual doctor's decision is the best way to assure 
that patient care is not compromised when saving money.

    The physician is the one with the ultimate responsibility for the 
patient. It is the physician who takes personal risk when caring for 
patients, and it is the physician who has the knowledge to decrease 
costs without compromising quality.
    In our current system, the hospital pays for the products and 
services that are utilized even though it is the physician who 
determines the products and services for each patient. Most people do 
not realize that each physician delivers care to the same type of 
patient in a unique manner. For example, in any procedure performed, 
each physician will have a preference card outlining the way he wants 
the procedure done. You can use the comparisons of a ``chef'' or an 
``artist'' who wants to create the best possible product. Each takes 
pride in their individual process because physicians believe they are 
delivering the best care to their patients. Yet, each of these 
practices has not been studied to assure quality care for patients. In 
gainsharing, cost saving practices are analyzed before implementation 
with safeguards in place to protect the patient.
Two: Gainsharing targets the ``waste'' of resources in the healthcare 
        system in order to improve quality.
    Physicians practicing with a unique preference is a waste of 
resources and more importantly there is no way that so many different 
methodologies result in the best quality for patients. This diversity 
in physician practice begins in training. Physicians may have three 
different professors who teach them to perform the same procedure three 
different ways. Each physician then takes all of these practices and 
develops an additional methodology specific for their practice.
    There are as many ways to perform a procedure in this country as 
there are physicians performing a procedure. For the physicians, there 
has been no incentive for them to change their practices.
    Matter of fact, changing the way a physician practices is hard work 
and requires a substantial amount of effort. From the physician's point 
of view, ``why take the risk of changing the way you perform a 
procedure if you feel good about the outcomes?''
    It is important to understand that no other industry could remain 
competitive on quality and cost without the key ``engineers'' (this 
would be the physicians) determining how to maintain quality while 
decreasing overall costs. Physicians reengineering the care of patients 
is the best way to save billions of dollars while assuring that quality 
is maintained.
Three: There are many misconceptions of gainsharing, most importantly 
        the idea that quality of patient care may be harmed.
    In order for gainsharing programs to work, there must be careful 
measurement of existing quality, pre-determination of where changes may 
be appropriate, and data to measure outcomes of changes. These simple 
tasks assure that quality patient care is maintained while cost are 
decreased.
    If you look at 50 physicians performing the same procedures, you 
will see 50 different ways the procedure is performed. Gainsharing is a 
process where the physicians study how colleagues perform their 
procedures and determine to best which processes to adopt in order to 
increase efficiency while assuring quality.
    Our gainsharing model was designed for complex cardiac procedures. 
With appropriate safeguards to assure quality, gainsharing concepts can 
be applied throughout all services.
    If physicians first make changes based on best practice outcomes, 
followed by eliminating unnecessary costs, then quality will actually 
improve.
    In addition, a body of knowledge is created where physicians 
constantly invent more efficient ways of delivering care to their 
patients. Again, the best way to think about this is to look at how any 
other industry operates today. For example, if you are making washing 
machines, you will not be able to produce the best product at an 
affordable product unless the engineer is considering both quality and 
cost of the products being made. No one but the engineers of this 
product are qualified to make the decisions of how changes will affect 
quality. In health care, the physician is the engineer.
    The physician has been concerned about quality but has never been 
concerned about costs. Today, healthcare is not affordable. This means 
that all patients are not currently receiving the care that they need. 
Physicians working with hospitals to assure that resources are 
available to pay for needed technology and services is the best to 
guarantee quality care.
    Gainsharing is simply:
    Physicians assuring that patients have access to all needed 
technology in order to deliver the best quality care while eliminating 
waste in the system.

                                 

    Mr. MCCRERY. Thank you, Ms. Goodroe. Mr. Emerson.

   STATEMENT OF MARTIN J. EMERSON, CHIEF EXECUTIVE OFFICER, 
      AMERICAN MEDICAL SYSTEMS, WEST MINNETONKA, MINNESOTA

    Mr. EMERSON. Thank you, Mr. Chairman, Ranking Member Stark, 
other Members of the Committee. My name is Marty Emerson. I am 
President CEO of American Medical Systems, a leading innovator 
today in the field of urology and gynecology. I am here today 
on behalf of the Advanced Medical Technology Association, 
AdvaMed. I ask that my full written statement be entered into 
the record. AdvaMed would like to thank the Subcommittee for 
holding this important hearing today to begin discussions on 
gainsharing. We strongly believe that significant changes to 
Medicare law require a thorough review of all potential impacts 
on patients. You will hear some things today that may sound 
appealing about gainsharing, but this is a complex issue. You 
are considering rolling back some basic provisions for 
protecting patients. We have two primary concerns about 
gainsharing. The first is setting up a system that incentivizes 
delivering cheaper care, versus delivering quality care. The 
second is creating a system that could limit patient access to 
beneficial technologies. We are entering an era of 
technological advance that is revolutionizing patient care. In 
the last few years, patients have benefited from new 
technologies like drug-eluting stents that open up clogged 
arteries without major surgery, and diagnostic tests that 
identify which patients will benefit from new cancer drugs.
    As I mentioned earlier, we are concerned that a policy like 
gainsharing will have a negative effect on these advances. This 
policy might reward short-term savings, not better treatments, 
and might impact patients' access to those better treatment 
options. My company recently introduced an innovative device, 
``Perigee,'' which is designed to significantly improve the 
treatment of bladder prolapse, a painful condition in which a 
woman's pelvic muscles become weak or damaged and the bladder 
shifts out of its normal position. Our Perigee product replaces 
the current procedure which requires significant recovery times 
and has a one-year failure rate of 30 to 50 percent. Our new 
technology provides consistent successful results that 
significantly reduce recovery times and prevent the need for 
further surgery. I ask you, what would have happened to 
thousands of patients who have already benefited from our new 
technology under gainsharing? Currently, a healthy tension 
exists between physicians who advocate for patient care via 
advanced medical treatments, and the hospital administrators 
who actively work to manage costs. Under a gainsharing program, 
this balance between patient care and cost cutting might be 
skewed, and access to innovative approaches, approaches like my 
company introduces, could be compromised, as hospitals might 
choose to focus on short-term savings over technologies that 
may cost more up front, but will also generate larger savings 
for our health care system in the long run.
    This is especially concerning to small company innovators. 
As you know, small companies create most of our new 
technologies. At least two-thirds of AdvaMed's membership is 
comprised of companies that are classified as small businesses. 
These companies already must overcome real hurdles to make our 
technologies available to Medicare beneficiaries. Gainsharing 
would create yet another hurdle within a marketplace where the 
largest manufacturers would have a significant advantage. 
Gainsharing could also negatively impact patient choice among 
current technologies. Medical devices are not always 
interchangeable commodities. For example, physicians are now 
able to choose between mechanical, porcine, and different heart 
valves made from the pericardium of a cow. The physician and 
patient together select a heart valve based on the assessment 
of the benefits and risks of each valve, and the lifestyle, 
age, and medical condition of the patient. Choosing the cheaper 
porcine valve would save money today, but would require another 
costly and painful surgery down the road. Even in situations 
where average results from two devices would be expected to be 
similar, factors unique to the patient--such as patient size, 
or the configuration of the patient's anatomy where an 
implantable device will be placed--may indicate that one brand 
of a device is superior for that patient.
    We are concerned that gainsharing arrangements would lack 
adequate safeguards to prevent these concerning situations for 
patients. We share the Subcommittee's desire to eliminate 
excess cost and waste from our health care system. We believe 
that there are a number of steps that can be taken to reduce 
costs without compromising quality care, such as: additional 
efforts to prevent and treat diseases early; reduction in 
medical errors; improvements to the management of chronic 
diseases; and advances to the infrastructure and organization 
of care through the adoption of information technology. Should 
the Committee choose to move forward on gainsharing, we welcome 
the opportunity to work with you on achieving mutual 
objectives, if we can find a carefully targeted and limited 
approach that does not create incentives to cut back on patient 
care, limit the therapeutic choices available to doctors and 
the patients, or slow the development and diffusion of medical 
innovation. Thank you.
    [The prepared statement of Mr. Emerson follows:]
Statement of Martin Emerson, Chief Executive Officer, American Medical 
                  Systems, West Minnetonka, Minnesota
    AdvaMed and its member companies would like to thank the 
Chairwoman, Ranking Member, and Members of the Subcommittee for holding 
this important hearing today to begin the discussion on the topic of 
gainsharing. We strongly believe that significant changes like this to 
Medicare law require thorough review of any and all potential impacts 
on the people the program is designed to serve, Medicare beneficiaries.
The Medical Technology Industry
    AdvaMed represents over 1300 of the world's leading medical 
technology innovators and manufacturers of medical devices, diagnostic 
products and medical information systems. Our companies produce 
approximately 90% of the medical technology products used in the United 
States. AdvaMed is proud to represent an industry that brings new hope 
to patients around the world, and U.S. companies that are benchmark 
manufacturing leaders in terms of total production, innovation and 
highest quality products. The medical technology industry directly 
employs about 350,000 workers in the U.S.
    Our industry is fueled by innovative energy and competition, which 
drives very rapid product development cycles that, in many cases, can 
lead to new technology iterations every 18 months. Two-thirds of 
AdvaMed's membership is comprised of companies with sales of under $30 
million annually.
    Innovative medical technology saves and enhances peoples' lives. 
Our products enrich patients' productivity and quality of life, thereby 
improving living standards and benefiting society overall. Medical 
technology also contributes substantially to economic growth. Our 
products increase productivity by allowing workers to recover from 
illness faster, remain longer in the workforce, and thrive without 
expensive long-term care. Studies show that funds invested in health 
care yield far greater benefits than costs to a nation's economy over 
the long term.
    The role of medical technology will become even more important as 
our nation's population ages. According to the 2002 Commission on 
Global Aging, medical advances will bring ``longer, healthier, more 
productive lives with declining rates of disability for the elderly.'' 
Innovative medical technologies offer an important solution for nations 
that face the challenges of balancing serious budget constraints and 
the demands of serving aging populations.
    To deliver value to patients, our industry invests heavily in 
research and development (R&D). The level of R&D spending in the 
medical devices and diagnostic industry, as a percent of sales, more 
than doubled during the 1990s, increasing from 5.4% in 1990 to 8.4% in 
1995 and over 11% last year. In absolute terms, R&D spending has 
increased 20% on a cumulative annual basis since 1990. Our industry's 
R&D spending is over three times the overall U.S. average.
The Potential Impact on Patient Care
    As the Members of the Subcommittee know, gainsharing is an 
arrangement between a hospital and a physician to share in any savings 
as a result of specific actions taken by the physician in directing the 
use of items or services for patient care. These arrangements have been 
considered to be in violation of the federal anti-kickback provisions, 
physician self-referral laws, and the civil monetary penalty (CMP) 
prohibition on hospital payments to physicians. Under the CMP rules, a 
hospital cannot pay a physician to induce reductions or limitations of 
patient care services to Medicare or Medicaid beneficiaries under the 
physician's direct care.
    The greatest concern about relaxing these existing laws designed to 
protect patients is the potential negative impact on patient care. 
Patients deserve the best treatment options and technologies available 
for their unique circumstances. They deserve to reap the fruits of this 
new century of the life sciences, unhindered by policies that will slow 
the progress of medical knowledge from the lab bench to the bedside. 
They expect government policies that support providing the most 
appropriate and highest quality care.
    American Medical Systems, Inc. (AMS) and the medical technology 
industry are very concerned about proposals to relax these laws and 
legalize gainsharing. We believe gainsharing should be carefully 
studied by Congress before any decision is made to move forward with 
relaxing the existing rules that prohibit gainsharing. We believe that 
gainsharing would have an immediate and significant negative effect on 
public health by encouraging the use of the least expensive option 
without consideration of long-term effects or overall health economics. 
It would be a severe impediment to the development and rapid diffusion 
of beneficial new technology, could have an especially negative impact 
on small companies, and could eliminate important therapeutic and 
diagnostic choices for doctors and patients. We are concerned that, in 
the end, patients could suffer most.
    At the same time, we share this Subcommittee's desire to reduce 
excess cost and waste in our health care system, and we want to work 
with you on ways to achieve this goal in a way that truly protects 
patients and medical innovation.
The Potential Impact on Technology Development and Diffusion
    We are entering an era of technological advance that has the 
potential to revolutionize patient care. In just the last few years, we 
have seen such remarkable new technologies as drug-eluting stents to 
open up clogged arteries and prevent heart attack without major 
surgery, new artificial hips and knees that may never need to be 
replaced, electrical implants to treat Parkinson's disease and 
epilepsy, and diagnostic tests to identify which patients will benefit 
from a new cancer drug and which will not.
    We are concerned that a policy like gainsharing will have a 
negative impact on these advances in technology development and 
diffusion. If not designed with adequate safeguards for patients, 
gainsharing could easily reward cheaper treatments, not better 
treatments. It could be based solely on the short-term cost of a 
hospital stay, not the longer term cost of treatment over the course of 
an illness. It is primarily focused on the issue of cost, not value.
    AMS is a medical device company that develops and markets 
minimally-invasive, life-restoring therapies. Recently, we introduced 
an innovative device, Perigee, which is designed to significantly 
improve the treatment of bladder prolapse in women. Bladder prolapse is 
a painful and distressing condition in which a woman's pelvic muscles 
become weak or damaged, and the bladder shifts out of its normal 
position. Our device integrates a specialty surgical mesh with a set of 
delivery tools to deliver superior efficacy in correcting the 
condition. This device replaces the current ``gold standard'' procedure 
for bladder prolapse in which the physician plicates (or pulls 
together) the patient's existing tissue to resupport the bladder. 
Plication procedures demonstrate a one-year failure rate of 30-50%, 
while our technology provides consistent, successful results that 
reduce and prevent the need for further surgeries.
    Despite the failure rates of the current plication procedure and 
the success rate of our technology, some patients do not have access to 
the technology when hospitals are reluctant to make them available for 
use. Currently, a healthy tension exists between the physician 
advocates for patient care and the use of advanced and new technologies 
and the hospital administration that seeks to manage costs. This is a 
good balance between patient care and efficient use of resources. Under 
a gainsharing program, the balance between patient care and cost-
cutting will be skewed. Patient access to the best care could be 
compromised and virtually insurmountable hurdles for adoption of 
beneficial new technologies could be created.
    Our company is also evaluating a number of innovative and minimally 
invasive techniques to treat benign uterine fibroids and their 
debilitating symptoms. The current standard of care for treating 
fibroids is a hysterectomy, an invasive procedure in which the uterus 
and offending fibroids are removed. While efficient for the healthcare 
system, the recovery period for a hysterectomy is long and there are 
significant risks associated with surgery. In addition, many women and 
physicians believe it is critical to leave the healthy uterus intact 
and treat this condition with the least invasive procedure possible.
    If gainsharing were implemented, our company would be forced to re-
evaluate our decision to invest in the design and development of new 
minimally invasive technologies in this area. We believe we would face 
overwhelming obstacles in the adoption of this new technology since, 
even though it offers the potential for improved patient care, it would 
not provide hospitals and physicians with the short-term savings that 
would be rewarded under gainsharing.
    A significant amount of new technologies are created by small 
companies. These companies already confront significant hurdles to 
bring technologies to market and have them accepted into the Medicare 
system. Gainsharing would place an additional barrier to the adoption 
of their advanced devices. Patients currently face notable barriers in 
accessing several innovative technologies made by AMS, even thought 
they offer clearly beneficial outcomes for patients. We are concerned 
that gainsharing would exacerbate this problem, especially since AMS 
does not have vast resources to overcome the additional market adoption 
hurdles that could be presented by gainsharing. Gainsharing's 
standardization measures would create an anti-competitive marketplace 
where the largest manufacturers would have a significant advantage.
The Potential Impact on Therapeutic and Diagnostic Choices
    Gainsharing could negatively impact patient access to new 
technologies as well as choice among current technologies. Advanced 
medical devices are not always interchangeable commodities. For 
example, physicians are now able to choose between mechanical heart 
valves, porcine heart valves, and valves made from the pericardium of a 
cow. The physician and patient select a prosthetic heart valve based on 
an individual assessment of the benefits and risks of each valve and 
the lifestyle, age and medical condition of the patient. When 
considering the use of a tissue valve, the porcine heart valve is 
cheaper, but may not last as long as the more expensive alternatives. 
For some patients, choosing the cheaper porcine valve would save money 
today, but could require another costly and painful surgery down the 
road. Plastic, metal, and ceramic replacement hips all have different 
characteristics that could affect their durability for individual 
patients and the likelihood that they would need to be replaced.
    Even when the choice is between two brands of devices made from 
similar materials, the best choice for an individual patient is not 
always obvious. In situations when average results from two devices 
would be expected to be similar, factors unique to the patient, such as 
the patient's size and the configuration of the area where an 
implantable device will be placed, may suggest that one brand of device 
is superior for that patient. Physician familiarity and comfort with a 
particular device is also critical. Typically, it is the match between 
a physician's skills, training, and familiarity with a specific device 
which produces the best outcome for a patient.
    Physician use is also important in medical device innovation. 
Physicians help generate the next generation of devices by coming up 
with new ideas in the clinical setting. Removing the choices available 
to physicians will only hinder the industry in device innovation.
Oversight of Quality and Accountability
    As you may know, the OIG issued advisory opinions in February 2005 
on six different requests by hospitals proposing gainsharing 
arrangements. In all six advisory opinions, the OIG noted that the 
gainsharing arrangements could violate the CMP statute, but the OIG 
wrote that it would not impose sanctions against the hospitals if 
several protections were included in the arrangements. The protection 
from sanctions was not granted for any other arrangements beyond these 
six specific requests, and under current law, the OIG will continue to 
scrutinize any gainsharing arrangement requests on a case-by-case 
basis.
    The tailored patient safeguards delineated by the OIG in the 
advisory opinions addressed maintaining patient access to quality care, 
designing quality controls with the input of credible medical experts, 
limiting the scope of the arrangements, ensuring public awareness and 
accountability on the details of the arrangements, and restricting 
actions allowed for yielding savings and methods of distributing the 
savings. The OIG required these elaborate and extensive safeguards to 
ensure that hospitals would not stint on care because it recognized 
that gainsharing could result in economic incentives undermining 
clinically appropriate decisions by physicians.
    Since we do not have feedback from the six arrangements to review 
and little experience with gainsharing, it seems premature to push 
ahead without careful study. For example, the several hospitals that 
have received advisory opinions are blinded to the public and 
stakeholders. We are concerned about how the quality will be measured 
given the difficulty of risk adjustment, lags in data, and the 
pervasive lack of measurement of value as opposed to cost across our 
whole system. It will also be hard to assess quality in the short term 
since different patient outcomes for some technologies will not be 
apparent for years after the procedure is performed, and it may be 
impossible to account for lost quality from failure to adopt new 
technology.
The Impact on Long-Term and Overall Program Costs
    We are strongly concerned that when gainsharing is permitted to 
occur, arrangements will be designed to find savings by limiting the 
range of medical technologies. While these approaches may yield short-
term savings to an individual hospital and the physicians working 
there, they may well be eclipsed by far greater overall health system 
costs in the long-run.
    Current contracting patterns at the hospital, regional, and 
ownership level already drive down the cost of devices without 
jeopardizing the physician or the patient in the quality of care 
provided. The medical technology industry is highly competitive and 
under immense market pressure to keep costs down. According to figures 
from the Bureau of Labor Statistics, price increases for medical 
devices have consistently been below the increases in the consumer 
price index for the last five years. According to Department of 
Commerce and CMS figures, medical devices as a share of national health 
spending have remained constant at about 5%. When the American Hospital 
Association (AHA) studied the increase in hospital costs over the last 
five years, it found that the cost of purchasing medical devices as a 
component of the increase was not even large enough to warrant breaking 
it out as a separate item.
Conclusion
    We share the Subcommittee's desire to eliminate excess cost and 
waste from our health care system and we strongly support evidence-
based medicine. We believe that there are a number of steps that can be 
taken to achieve the objective of reducing costs without compromising 
quality care, such as additional efforts to prevent and treat diseases 
early, reduction in medical errors, improvements to the management of 
chronic diseases, and advances to the infrastructure and organization 
of care through the adoption of information technology. Incentives 
should also be adopted to encourage treatments and innovations that 
focus on improved patient outcomes and overall savings to the health 
care system.
    As you know, Congress passed laws to prohibit gainsharing out of 
concern about conflicts of interest that could influence a physicians' 
ability to exercise independent professional judgment about the best 
interests of his or her patients. Congress did not want hospitals 
paying physicians to reduce or limit services to Medicare patients. 
Congress must continue to ensure that high-quality patient care is not 
jeopardized by financial incentives to cut costs.
    Thank you again for providing us the opportunity to submit the 
views of our industry on this important topic. We welcome the 
opportunity to work with this Subcommittee on achieving mutual 
objectives if we can find a carefully targeted and limited approach 
that does not create incentives to cut back on patient care, limit the 
therapeutic choices available to doctors and patients, or slow the 
development and diffusion of medical innovation.

                                 

    Mr. MCCRERY. Thank you, Mr. Emerson. There are only about 3 
minutes left on the vote. Mrs. Johnson obviously got tied up on 
the floor. So, I am going to recess the Subcommittee hearing 
until such time as Mrs. Johnson returns. It shouldn't be but 
just a few minutes. So, the Subcommittee is in recess.
    [Recess.]
    Chairman JOHNSON. The hearing will reconvene. While Members 
are on their way back from the floor, since some in our 
audience are fairly new to Washington, I do want to just take a 
point of personal privilege and say, if you haven't walked 
through the tunnel between Longworth and the Capitol, you owe 
it to the children of America. Every year, we have an artist 
from every district, through competition. We bring their work 
to Washington and we hang it in that tunnel. This year, it is 
just exceptional. There are some pieces there that will knock 
your socks off. You owe it to yourself, as well as to the youth 
in our high schools, to go by and look at it.
    Mr. STARK. Will the gentlelady yield?
    Chairman JOHNSON. Yes, I will be happy to yield.
    Mr. STARK. You weren't here at the time, but guess which 
elderly Member of the House of Representatives walked through 
that tunnel for years, looking at those stupid bare walls, and 
went to Architect White and said, ``Why can't we hang state 
posters or something in this hallway?`` Guess who that Member 
was who found the place to hang that art?
    Chairman JOHNSON. Outstanding! Pete, you have always been 
high on my list of creative thinkers and real contributors to 
this process, and you are now the best. Okay. Now, it rained. 
When I realized how hard it was raining, we all have to go 
around, and it takes longer. The best laid plans don't work. 
So, I understand that Ms. Goodroe concluded. I am not sure that 
Mr. Emerson concluded.
    Mr. STARK. Concluded, yes.
    Chairman JOHNSON. You concluded? Okay.
    Mr. EMERSON. I have concluded.
    Chairman JOHNSON. Mr. Carter.

  STATEMENT OF GARY S. CARTER, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, NEW JERSEY HOSPITAL ASSOCIATION AND AFFILIATES, 
                     PRINCETON, NEW JERSEY

    Mr. CARTER. Good morning. I am Gary Carter, President and 
CEO of the New Jersey Hospital Association. I would like to 
thank Chairwoman Nancy Johnson and the Members of the Committee 
for allowing me the opportunity to meet with you today. In 
particular, I would like to thank Mrs. Johnson and the members 
of her staff for their visit to New Jersey to get a better 
understanding of what we were trying to accomplish with our 
demonstration project; and I would let you know that, if you 
would like, we would be happy to bring physicians and CEOs to 
visit with you here to talk about what we were doing. Aligning 
the performance incentives of physicians, hospitals, and the 
Medicare Program is an efficient and practical way to encourage 
optimal quality of care decisions. Although it was stalled by a 
few hospitals that wanted to be included but were precluded by 
a CMS cap on participation, I feel that the New Jersey 
Demonstration experience I am about to describe held the 
promise to achieve this goal. If reimplemented in some form, 
hospital participation in this project should remain voluntary, 
with opportunities to opt out at the end of years one and two 
of the project if the participating hospital is not achieving 
an appropriate level of physician participation, quality 
improvement, or cost savings.
    Prior to granting New Jersey a waiver, CMS originally 
required participating hospitals to guarantee a savings to the 
Medicare Program of not less than 2 percent of a hospital's 
Medicare payments beginning in the second year of the 
demonstration. While participating hospitals would prefer a 
project without the guarantee, I believe it is critical that 
any guaranteed savings requirement begin no sooner than the 
second year. Also, a guarantee that is lower than 2 percent 
will stimulate greater hospital participation, and should be 
considered moving forward. Finally, while specialty hospitals 
do not exist in New Jersey, NJHA does not view the 
implementation of this project as a reason to lift or ease 
current efforts to implement a moratorium on specialty 
hospitals. They are very separate issues. Now I would like to 
provide a brief overview of our project. Traditionally, 
hospitals and physicians operate with different economic 
incentives. For the last 20 years, hospitals have been paid on 
a per-case basis, while physicians are paid on a fee-for-
service basis. Long lengths of stay, by default, tend to 
consume more services and accumulate additional costs and 
create potential quality problems. In order to guarantee proper 
oversight, a rigorous structure was created to ensure that 
everyone stayed focused on physician-hospital collaboration and 
quality performance. The NJHA created its own demonstration 
steering committee; each hospital also required to form its own 
internal oversight committee staffed by not less than 50 
percent physicians.
    In September of 2003, the CMS awarded to the New Jersey 
Hospital Association a waiver to demonstrate what is commonly 
referred to as gainsharing. The incentives were structured as 
follows: The objective of the demonstration was to reempower 
physicians, under a rational economic structure, to partner 
with hospitals in patient care; Physician participation is 
strictly volunteer; The project provided a bonus only for 
physicians; therefore, no risks or penalties; the purpose is to 
incentivize improvement and reward achievement, not to punish; 
The incentives are based on individual physician performance, 
adjusted for severity of illness; The demonstration was 
designed to place no additional paperwork demands on 
physicians; there are no changes in claims processing or 
payment routines; Quality and responsibility for quality are 
the project's highest priorities. It is the hospitals 
themselves who provide sources of funds for demonstration. I 
have been asked why hospitals would be willing to take on this 
responsibility. The obvious answer is that improved operational 
performance can lead to improved quality and financial 
performance. Quality monitoring is a key component of this 
demonstration. Process measures selected to evaluate 
performance were associated with acute myocardial infarction, 
heart failure, and community acquired pneumonia. These quality 
measures were chosen based on their relevance to the Medicare 
population. Participating hospitals also integrated their own 
individual quality programs into the project.
    Hospitals were given the power to condition participation 
in the demonstration by individual physicians on participation 
in institution-specific quality programs, including clinical 
quality protocols. As physician interest in the demonstration 
grew, interest also grew in promoting its success by utilizing 
the demonstration framework as a tool to further improve 
quality. In conclusion, I am here today to support legislation 
that would allow New Jersey and other states to participate in 
a program where we could align incentives of physicians and 
hospitals. We appreciate your efforts in this regard, and look 
forward to continuing our work with the Subcommittee in 
developing gainsharing policies. Thank you.
    [The prepared statement of Mr. Carter follows:]
Statement of Gary S. Carter, President and Chief Executive Officer, New 
   Jersey Hospital Association and Affiliates, Princeton, New Jersey
    Good morning. I am Gary Carter, President and CEO of the New Jersey 
Hospital Association. I'd like to thank Chairwoman Nancy Johnson and 
members of the committee for allowing me the opportunity to meet with 
you today. In particular I would like to thank Mrs. Johnson and members 
of her staff for their visit to New Jersey to get a better 
understanding of what we were trying to accomplish with our 
Demonstration project.
    Aligning the performance incentives of physicians, hospitals and 
the Medicare program is an efficient and practical way to encourage 
optimal quality of care decisions. Although it was stalled by a few 
hospitals that wanted to be included, but were precluded by a CMS cap 
on participation, I feel that the New Jersey Demonstration experience 
that I am about to describe held the promise to achieve this goal. If 
re-implemented in some form, hospital participation in this project 
should remain voluntary with opportunities to opt-out at the end of 
year's one and two of the project, if the participating hospital is 
unhappy for any reason, is not achieving an appropriate level of 
physician buy-in, quality improvement or cost saving success.
    Prior to granting New Jersey a waiver, CMS originally required 
participating hospitals to guarantee savings to the Medicare program of 
not less than 2 percent of a hospital's Medicare payments beginning in 
the second year of the demonstration. While participating hospitals 
would prefer a project without the guarantee, I believe it is critical 
that any guaranteed savings requirement begin no sooner than the second 
year. Also, a guarantee that is lower than 2 percent will stimulate 
greater hospital participation and should be considered moving forward.
    Finally, while specialty hospitals do not exist in New Jersey, NJHA 
does not view the implementation of this project as a reason to lift or 
ease current efforts to implement a moratorium on specialty hospitals. 
These are separate issues.
    Now I would like to provide a brief overview of our project. 
Traditionally, hospitals and physicians operate with different economic 
incentives. For the last twenty years hospitals have been paid on a 
per-case basis while physicians are paid on a fee-for-service basis. 
Long lengths of stay, by default, tend to consume more services and 
accumulate additional cost for which the hospital receives no 
additional reimbursement from Medicare. This has the potential to 
create an adversarial atmosphere between hospitals and physicians.
    New Jersey's Medicare Demonstration of Performance Based Incentives 
project was designed as an attempt to identify, pilot test and evaluate 
a specific methodology to better align current payment methods with 
quality improvement goals. Almost half of the hospitals in the state of 
New Jersey expressed interest in participating in the project.
    In order to guarantee proper oversight, a rigorous structure was 
created to ensure that everyone stayed focused on physician/hospital 
collaboration and quality performance. NJHA created its own 
Demonstration Steering committee staffed by participating hospital 
CEOs, CFOs and Medical Directors, as well as Quality Oversight and 
Finance sub-committees. Each hospital was also required to form its own 
internal Oversight Committee staffed with not less than 50 percent 
physicians. Hospital specific internal Quality and Finance sub-
committees were also a required component of participation.
    In September of 2003, the Centers for Medicare and Medicaid 
Services (CMS) awarded to the New Jersey Hospital Association a waiver 
to demonstrate what is commonly referred to as gainsharing. By properly 
aligning physician and hospital incentives the New Jersey demonstration 
held the promise to achieve several objectives:
    1.  Facilitate collaboration between physicians and hospitals;
    2.  Infuse efficiency through greater access to needed services, 
quicker turn around time on procedure scheduling and test results;
    3.  Provide a new source of funds to support quality initiatives;
    4.  Add incremental payments to augment depleted physician fee 
schedules;
    5.  Return patient care decisions to physicians in consultation 
with their patients;
    6.  Improve the financial health of hospitals;
    7.  Improve the long-term viability of the Medicare Trust Fund.

    Physician and hospital economic incentives are, at best, 
inconsistent. This means that there will be a significant amount of 
inefficiency in the delivery system so long as this situation persists. 
Real progress cannot be made on the challenge of improving 
performance--both quality and operational--without returning 
responsibility to the doctors and making them partners.
    The way in which physicians in the field perceive this program is 
critical to its success. The incentives were structured as follows:
      The objective of the Demonstration was to re-empower 
physicians--under a rational economic structure, to partner with 
hospitals in patient care.
      Physician participation is strictly voluntary.
      The project is bonus only for physicians; therefore, no 
risks or penalties. The purpose is to incent improvement and reward 
achievement; not to punish.
      Incentives are based on individual physician performance, 
adjusted for severity of illness.
      The Demonstration was designed to place no added 
paperwork demands on physicians; there are no changes in claims 
processing or payment routines.
      Quality, and responsibility for quality, are the 
project's highest priorities.

    It is the hospitals themselves who provide the source of funds for 
the Demonstration. I have been asked why hospitals would be willing to 
take on this responsibility. The obvious answer is that improved 
operational performance can lead to improved financial performance. 
This, in turn, creates a source of funds for important needs including 
quality of care initiatives, care to the uninsured and capital 
improvement.
    For the hospital, aligning incentives can result in:

      Shorter inpatient stays;
      Improved quality of patient care;
      Fewer marginal but costly diagnostic tests;
      Reductions in pharmacy expense;
      Efficient use of operating rooms;Cost effective use of 
critical care and telemetry units;
      Evidence-based selection and purchase of medical devices 
and hardware;
      Improved discharge planning.

    In addition, if the Demonstration were to be implemented and 
successful, it should:

      Improve the financial health of hospitals;
      Augment physician fee schedules;
      Provide a new source of funds to Medicare and its 
beneficiaries; and
      Provide a model that could improve the performance of the 
Prospective Payment System (PPS).

    Quality monitoring is a key component of this demonstration. 
Process measures selected to evaluate performance were associated with 
Acute Myocardial Infarction (AMI), Heart Failure, and Community 
Acquired Pneumonia. These quality measures were chosen based on their 
relevance to the Medicare population. Participating hospitals also 
integrated their own individual quality programs into the project.
    Hospitals were given the power to condition participation in the 
demonstration by individual physicians on participation in institution-
specific quality programs, including clinical quality protocols. As 
physician interest in the Demonstration grew, interest also grew in 
promoting its success by utilizing the Demonstration framework as a 
tool to improve quality.
    In conclusion, I am here today in support of legislation that would 
allow New Jersey and other states to participate in a program where we 
could align incentives of physicians and hospitals. We appreciate your 
efforts in this regard and look forward to continuing our work with the 
Subcommittee in developing gainsharing policies.
    I would now be happy to answer any questions.

                                 

    Chairman JOHNSON. Thank you, Mr. Carter. Mr. Fine.

  STATEMENT OF STUART H. FINE, CHIEF EXECUTIVE OFFICER, GRAND 
  VIEW HOSPITAL, SELLERSVILLE, PENNSYLVANIA, ON BEHALF OF THE 
                 AMERICAN HOSPITAL ASSOCIATION

    Mr. FINE. Good morning. My name is Stuart Fine, I am the 
CEO of Grand View Hospital in Pennsylvania. I am here today on 
behalf of the American Hospital Association, its 4,800 member 
hospitals and health systems. Part of Grand View's mission is 
to provide and coordinate the appropriate utilization of 
quality, cost-effective health care and related services for 
our community. There are approximately 300 full- and part-time 
physicians on our medical staff and more than 1,500 employees 
of Grand View who help us to accomplish our mission. Madam 
Chairman, we commend your leadership, and thank the Committee 
for its work in seeking public policy changes that can help 
hospitals and doctors work together to improve the quality and 
efficiency of patient care delivery. But we believe very 
strongly that gainsharing can do the most good for the most 
people if we move beyond thinking of it only as a way to 
achieve cost savings. We need to be able to use incentives in 
working with physicians to improve quality of care and patient 
safety and to ensure that our communities have access to the 
care and services that they require. We believe it is time to 
move beyond demonstration projects. Such projects benefit only 
a limited number of communities, but doctors and hospitals 
everywhere need help. We need to clear away the underbrush of 
what are confusing laws and regulations that prevent doctors 
and hospitals from focusing on the bigger picture: providing 
quality care at an affordable price.
    Hospitals and doctors currently have only a few ways in 
which they can share incentives to come together. Hospitals can 
employ doctors, or they can spend large sums of money and years 
of time to take advantage of remarkably limited and confusing 
case-specific gainsharing opportunities. We urge you to amend 
Federal law and regulation. Many changes are desperately 
needed. The CMP law prohibition against any incentive to reduce 
care, regardless of medical necessity, is far too all-
encompassing. It prohibits inducements to reduce services even 
when such services may be unnecessary or duplicative. The HHS 
Secretary should be authorized to create safe harbors to foster 
this broader range of care improvement initiatives with proper 
safeguards. Those safe harbors should apply across all Federal 
that restrict them. The current Federal focus on limiting 
incentives to the sharing of cost savings feeds consumer fears. 
This causes folks to worry that this could result in stinting 
on care or delaying adoption of new technologies and 
treatments. For providers, gainsharing is often not a realistic 
option, because such collaborative programs have generally been 
limited to a year's duration. That simply does not support the 
needed investment, both in time and money, for either hospitals 
or physicians.
    Any proposal that would seek to guarantee up-front savings 
to the Medicare Program would likely stifle most providers' 
incentive to participate. For example, an initiative to adopt 
technologies that improve patient safety might require 
significant capital investment to purchase hardware and 
software, as well as to train hospital staff, physicians, and 
physician support staff in their use. That investment could 
reduce medical errors and complications, but might not yield 
monetary savings for the hospital. Yet it is the right thing to 
do for patients and for the Medicare Program. Hospitals should 
not be penalized or have impediments put in their way to making 
such investments on behalf of their communities. Because 
physician-owned limited-service providers can offer incentives 
without the same constraints that apply to facilities not owned 
by physicians, requiring payments to Medicare would be an 
unfair penalty against community hospitals. Importantly, 
patient safeguards could govern the incentive arrangements we 
are recommending. However, there are no patient safeguards 
covering the incentives allowed by physician-owned limited-
service providers. The financial rewards associated with our 
recommended approaches would never equal those of ownership. 
Therefore, we strongly urge that action to remove barriers to 
the use of incentives must not be considered a substitute for 
the needed ban on physician self-referral to limited-service 
providers.
    The actions we have recommended will help create productive 
working relationships with physicians. They can do nothing, 
however, to change the conflict of interest inherent in 
physician ownership under the physician self-referral 
prohibition. In conclusion, while the roles of hospitals and 
physicians are different, each needs the other, and our 
patients need us both. Too many legal and legislative barriers 
still in the way of hospital and physician efforts to 
collaborate in making health care better. Congress can help by 
modernizing law and regulations so that hospitals and 
physicians can work together in ways that benefit everyone 
having a stake in providing, or in receiving, high-quality 
care. Thank you very much for this opportunity to participate 
in today's hearing, I remain available to respond to your 
questions.
    [The prepared statement of Mr. Fine follows:]
   Statement of Stuart H. Fine, Chief Executive Officer, Grand View 
                  Hospital, Sellersville, Pennsylvania
    I am Stuart Fine, CEO at Grand View Hospital in Sellersville, 
Pennsylvania. I am here today on behalf of the American Hospital 
Association (AHA) and our 4,800 member hospitals, health systems and 
other health care organizations, and our 33,000 individual members. We 
appreciate the opportunity to share with you our thoughts on the 
potential of gain sharing to help patients, physicians, hospitals, and 
the Medicare program itself.
    Formed in 1913 as Bucks County's first hospital, Grand View 
Hospital is in most ways a typical community, not-for-profit hospital. 
We provide a broad array of patient services, from obstetrics to 
orthopedics, and from hospice/home care to oncology. Our mission, in 
brief, calls for us to ``provide and coordinate the appropriate 
utilization of quality, cost-effective health care and related 
services'' for the people of our community. More than 250 physicians 
comprise our medical staff.
    Madam Chairman, all health care is about teamwork. It involves the 
talent and dedication of a wide range of very special people--from 
doctors and nurses to technicians and nutritionists and many, many 
more. Hospital care is especially dependent on the ability of hospital 
leaders to work with physicians to make sure they have the resources 
needed to get patients the right care, at the right time, and in the 
right setting.
    We therefore commend your consideration of public policy changes 
that could improve the ability of hospitals and physicians to work 
together to improve the efficiency of hospital care delivered to 
Medicare patients. When we talk about gain sharing as a way to improve 
the efficiency of our health care system, we are talking about much 
more than just cost efficiency--gain sharing can also bring gains in 
quality, patient safety and community access.
    For this reason, we urge the committee to revise various federal 
laws that affect hospital-physician working relationships, so that they 
can foster the teamwork needed to address the many challenges facing 
the delivery of health care today and in the future.
    Currently, federal laws are focused on prohibiting or limiting 
interactions between hospitals and physicians that might have monetary 
value to either party. While the intent is honorable--to avoid 
conflicts of interest--the effect is to impede the ability of hospitals 
and physicians to work together using incentives to improve quality, 
patient safety and community access to services. The current federal 
focus on sharing ``cost savings'' gives rise to a fear among 
beneficiaries and consumers that such efficiency-only incentives would 
result in things like curtailed care and slower adoption of new 
technologies and treatments. We believe Congress should modernize the 
current concept of gain sharing and focus on the broader goal of 
fostering hospital-physician arrangements that provide incentives for 
care improvement.
    At the same time, we also urge that Congress not view action in 
this area to be a substitute for a permanent ban on the use of the 
whole hospital exception under the Ethics in Patient Care Referrals Act 
by physician-owned limited-service hospitals.
Gain Sharing in Today's Environment
    Gain sharing is currently understood to be the sharing between 
hospitals and physicians of cost savings that stem from specific 
actions to improve the efficiency of care delivery. Very little gain 
sharing is currently allowed. The Department of Health and Human 
Services (HHS) Office of Inspector General (OIG), which is charged with 
enforcing some of the laws that affect hospital-physician 
relationships, in 1999 issued a ruling that effectively banned gain-
sharing arrangements. In that ruling, the OIG noted that well-designed 
arrangements could result in better care at lower cost by, for example, 
encouraging physicians to reduce the use of unnecessary ancillary 
services and inpatient days. Nevertheless, the OIG concluded that the 
Civil Money Penalties Law prohibited gain sharing, and that the OIG 
lacked the statutory authority to impose safeguards to ensure that 
cost-saving measures do not reduce quality.
    Earlier this year, the OIG issued several advisory opinions that 
allowed a very narrow approach to reducing costs of cardiac procedures. 
The opinions allowed a specific arrangement to provide incentives for 
physicians to adhere to clinical best practices and reduce the 
inappropriate use of supplies. Though judged illegal under current law, 
the OIG elected not to challenge those arrangements at present because 
they included multiple safeguards to protect quality of care for 
beneficiaries and to guard against inappropriate use of Medicare funds. 
This slight alteration in the OIG's position on gain sharing may have 
been stimulated by recommendations from the Medicare Payment Advisory 
Commission (MedPAC) in March 2005. MedPAC urged that Congress provide 
HHS with the authority to allow a much broader use of hospital-
physician gain sharing arrangements, as long as they are regulated to 
protect the quality of care and minimize financial incentives that 
could affect physician referrals.
A Broader Approach
    The AHA believes that broadening gain sharing to focus not just on 
cost reduction but also on care improvement initiatives would benefit 
patients, hospitals and physicians. Specifically, we believe federal 
laws that affect hospital-physician relationships should be amended to:
    Foster hospital-physician incentive arrangements designed to 
improve or maintain community access to services, or to achieve one or 
more of the six aims for health care delivery articulated by the 
Institute for Medicine ( IOM) in its report, Crossing the Quality 
Chasm. The six aims are that health care be safe, effective, patient-
centered, timely, efficient, and equitable.
    Foster hospital-physician incentive arrangements that are designed 
to:

      Achieve needed improvements in the health care delivery 
system even if they do not produce an immediate cost savings.
      Sustain community access to services that are essential. 
With physicians less dependent on hospitals as a place to practice, new 
incentives should be allowed in order to maintain community access to 
services (such as trauma and emergency department services), support 
community outreach efforts, care for the uninsured, and other aspects 
of hospital operations that require physician support.
      Promote the integration of clinical care across 
providers, across settings, and over time.
      Adopt and integrate information technology (IT) systems 
and technology. IT linking hospitals, physicians, and other providers 
together is essential to improving patient safety, productivity, 
quality monitoring, and coordination across care settings.
      Enhance institutional or practitioner productivity or 
achieve other efficiencies.

    Establish a simpler, consistent set of rules for how hospitals and 
physicians construct their working relationships. The complexity, 
inconsistency and sometimes-conflicting interpretations of federal laws 
and regulations affecting hospital-physician arrangements is a 
significant barrier. Few arrangements can be structured without very 
significant legal expense. Even then, it is often unclear whether the 
arrangements might be challenged in the future.
    Enable hospital-physician contracting with health plans and 
purchasers as a single unit, especially when pay-for-performance 
provisions are utilized. Health plans and purchasers often adopt 
different approaches to payment for hospitals and physicians that in 
turn create different and sometimes-conflicting incentives. As more 
purchasers move toward pay-for-performance methods, the need to align 
hospital and physician payment incentives becomes critical.
    More specifically, AHA believes that the following types of 
arrangements should be allowed if they are designed to achieve an 
acceptable purpose, there are mechanisms in place to protect the 
quality of care provided to beneficiaries and avoid inappropriate 
influence on physician referrals, and the incentive arrangements are 
transparent to patients. These arrangements may not yield tangible 
savings to a hospital, but they may yield savings to the health care 
system overall and can improve the care we provide.

      Sharing of cost savings from efficiencies
      Incentives to meet quality indicators (even when savings 
do not accrue to the hospital)
      Incentives to clinically integrate services and 
coordinate care across settings
      Sharing of pay-for-performance bonuses from payers
      Joint recruitment of physicians by hospitals and 
physician practices
      Joint hospital and physician contracting with payers to 
ensure aligned performance incentives
      Service contracts with physicians to build new service 
capacities
      Management contracts with physicians
      IT and other technology sharing to enable communication 
across settings
      Ability to purchase or operationally support IT for other 
providers to increase IT adoption and integration
      Hospital assistance to physicians in obtaining 
malpractice insurance
Moving from Gain Sharing to Incentives for Care Improvement Initiatives
    Federal law affecting hospital-physician relationships is extremely 
complex and comes from multiple sources. These are the most-relevant 
federal laws:

      Medicare's Civil Money Penalty Law (CMPL) prohibits any 
direct or indirect hospital payments to physicians that are aimed at 
reducing or limiting services, regardless of medical necessity.
      Focusing this prohibition on preventing incentives to 
reduce medically necessary services would spawn many care-improvement 
initiatives, including those that would significantly improve the 
quality and safety of patient care both in the short and long terms. It 
also would allow hospitals to share with physicians the result of 
reduced costs.
      Medicare's Ethics in Patient Care Referrals Law prohibits 
physician self-referrals to any entity in which he/she has an ownership 
or financial interest for any of a lengthy list of designated health 
services, one of which is hospital inpatient and outpatient care. These 
provisions basically prevent any financial relationship between a 
hospital and a referring physician unless that relationship satisfies 
an exception. There are few exceptions that apply to non-ownership 
relationships between hospitals and physicians and the exceptions that 
do apply are very rigid.
      Medicare's Anti-kickback Law prohibits any payment for 
referrals, or inducement or reward for, the purchase, order, or lease 
of any covered item or service. The effect of these provisions is to 
limit arrangements to those that share verifiable cost savings. In many 
respects these provisions clash with those of the CMPL.
      Tax Exemption Law prohibits private benefit or inurement. 
These provisions prohibit payments to physicians that are based on a 
portion of gross or net revenues, or any payments that violate 
physician self-referral or anti-kickback laws.
Development of a Legislative Proposal
    We applaud the Chairman's leadership in examining how to modify 
current law to foster productive relationships between hospitals and 
physicians that also benefit Medicare beneficiaries and the Medicare 
program itself. As you develop your legislative proposal, we have 
several recommendations:
    Allow incentive relationships between hospitals and physiciansto 
support care improvement initiatives affecting quality, patient safety, 
and access to services, in addition to cost efficiency. Quality of care 
for beneficiaries, and cost savings to the Medicare program, will be 
the likely result in the form of reduced medical complication rates, 
reduced readmissions, reduced duplication of services by different 
providers, reduced admissions, and improved operational efficiency.
    Reach beyond demonstration projects and amend current federal laws 
to eliminate inconsistent and counterproductive provisions.Clearly 
there are some changes that must be made. For example, the CMPL 
prohibition on any incentive to reduce care, regardless of medical 
necessity, should be limited so that it only prevents incentives to 
reduce medically necessary care. We also believe that the imperative to 
systematically address health care delivery issues calls for immediate 
change in the complex maze of federal requirements governing hospital-
physician relationships. The HHS Secretary should be authorized to 
create safe harbors to foster care improvement initiatives with proper 
safeguards, and those safe harbors should be applied across all the 
federal laws that currently restrict them.
    Do not require that hospitals guarantee savings to the Medicare 
program as a condition for incentive arrangements. Such a requirement 
would have an overwhelmingly chilling effect on the development of care 
improvement initiatives for several reasons:

      Hospitals would be taking the risk of upfront investment 
in incentive approaches that might or might not yield cost savings to 
the hospital. For example, an initiative focused on adopting 
technologies that improve patient safety would require significant 
upfront investment. That investment could bring increased patient 
safety and fewer complications, which might prevent readmissions. Most 
of those gains would not yield operating cost savings for the hospital, 
and in fact might reduce revenues to the extent that admissions are 
reduced. But it is the right thing to do for patient care, and the 
hospital should not be penalized by a requirement to pay Medicare for 
the right to do it.
      The viability of incentive arrangements would be limited 
to those hospitals or areas where costs and/or length of stay (LOS) are 
high. Per-case costs and LOS are the primary areas where reductions 
would yield savings to the hospital under Medicare's inpatient 
prospective payment system. Hospitals that already are very efficient, 
or are in areas where they are historically very efficient, might 
achieve limited or no savings. They would have to generate enough 
savings or other funds to cover the payment to the program, the 
investment cost of the incentive arrangement, and the cost of incentive 
payments to physicians.
      The long-term viability of the approach would be limited. 
We question whether the savings each year would cover a payment to the 
program, as well as the cost of investments and physician incentives. 
This is especially the case when any productivity gains might generate 
MedPAC recommendations for further reductions in the update factor.
      Any required payments to the Medicare program would be an 
unfair penalty against community hospitals compared to physician-owned 
hospitals. Physician-owned hospitals are able to provide incentives 
without the same constraints as hospitals not owned by physicians, and 
they would not be subject to the same payment requirement. MedPAC has 
demonstrated that physician-owned specialty hospitals do not provide 
care at lower cost, even though they have shorter lengths of stay. Such 
differences under the program would not be appropriate.

    Do not substitute action in this area for the much-needed ban on 
physician self-referral to limited-service hospitals. The actions we 
have recommended will help create productive working relationships with 
physicians without entering into joint ownership arrangements. They can 
reshape hospital-physician relationships at a time when physicians 
depend much less on hospitals as a place to practice. They can do 
nothing, however, to change the conflict of interest inherent in 
allowing physician-owned limited service hospitals access to the whole 
hospital exception under the physician self-referral prohibition. 
Safeguards would govern the incentive arrangements we are recommending; 
the incentives allowed under the whole hospital exception have no 
patient safeguards. Further, the rewards associated with our 
recommended approach would never equal those associated with physician 
ownership.
Conclusion
    The relationship between hospitals and the physicians who practice 
in them has always been central to quality care. Hospital managers and 
governing boards are responsible for providing the facilities, 
equipment, and staff required to deliver health care services, but it 
is the physicians who provide or direct the delivery of those services. 
While the roles of hospitals and physicians are different, they are 
highly interdependent--we need each other, and patients need both of 
us.
    But in today's environment, too many legal and legislative barriers 
stand in the way of hospital and physician efforts to make health care 
better for all they serve. The major delivery system changes called for 
by the IOM and others are within reach. Congress can help us reach 
those goals by easing federal law so that hospitals and physicians can 
work together in ways that will benefit everyone with a stake in high 
quality health care.

                                 

    Chairman JOHNSON. Thank you very much, Mr. Fine. Mr. 
Imparato.

STATEMENT OF ANDREW J. IMPARATO, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, AMERICAN ASSOCIATION OF PEOPLE WITH DISABILITIES

    Mr. IMPARATO. Good morning, Madam Chair and Members of the 
Subcommittee. My name is Andy Imparato. I am the President and 
CEO of the American Association of People With Disabilities 
(AAPD). We have about 120,000 members around the country, and 
our mission is political and economic empowerment for children 
Adults with all types of disabilities. I wanted to start by 
thanking all three of you for your leadership on disability 
issues. I know Congressman Ramstad is the Co-Chair of the 
Bipartisan Disabilities Caucus, and we really appreciate your 
raising the issues that you raised at this hearing today that 
are particularly important for folks with disabilities. This 
year, we celebrated the 15th anniversary of the Americans With 
Disabilities Act. The goals for that law is how we evaluate 
public policy: equality of opportunity, full participation, 
independent living, and economic self-sufficiency. We hold 
those goals up against the Medicare Program as it currently 
exists. Oftentimes, the program is not meeting the needs of 
people with disabilities who want to participate fully in their 
communities. We have had big fights with Medicare about getting 
coverage for a wheelchair for people who are able to take one 
step when they get out of their bed. So, there are a lot of 
real basic things that people need that Medicare oftentimes 
fights in terms of being willing to pay for them.
    That is the backdrop that we look at as we evaluate the 
practice of gainsharing. The AAPD is part of a coalition with 
seniors and health advocates who have some serious concerns 
regarding gainsharing, many of which have been mentioned; 
concerns that have to do with the potential of this practice to 
exacerbate preexisting problems with how Medicare meets the 
needs of beneficiaries with disabilities. It may harm the 
physician-patient relationship. It may produce illusory short-
term cost savings at the expense of long-term health. It may 
punish physicians who have developed a specialty practice with 
an emphasis on higher-cost patients with disabilities and 
chronic health conditions. In my written testimony I cite two 
studies that were done recently that document how Medicare is 
inadequately serving patients currently. There was a 2004 RAND 
report on quality of care received by older adults that found 
that vulnerable and disabled seniors receive about half of the 
care that would be recommended for people with their 
conditions. Also, a 2003 Kaiser Family Foundation survey of 
health experience of people with disabilities found that 
Medicare beneficiaries had the biggest cost-related problems of 
all of the respondents who had health insurance. Within this 
population, almost 70 percent reported going without needed 
items, such as equipment and eyeglasses. So, that is the 
backdrop that we look at this new practice of gainsharing.
    On the physician-patient relationship, I think we all want 
our doctor to be our advocate. When a doctor is evaluating what 
treatment to prescribe, we want the doctor to be using their 
medical training and making a medical decision that is in the 
best interests of the patient. Anything that gives the doctor a 
financial incentive around what they are going to prescribe 
raises a red flag. I know one of the things that the Inspector 
General has recommended is disclosure forms, so that patients 
know if there is a practice like this going on. But I really 
worry about how that is going to operate in practice. If you 
are getting that disclosure form as you are checking in for a 
procedure to a hospital, are you really in a good position to 
say, ``No, I don't like this gainsharing relationship``? Our 
fear is that it is going to be fine print that a lot of people 
won't notice. Again, it may affect the trust that the patient 
has for the physician. On the short-term versus long-term 
costs, just a basic example is the type of seating that 
somebody gets prescribed for their wheelchair. It may be 
cheaper to prescribe a seating system that may result in 
pressure sores, which could result in longer-term costs down 
the road. So, really, taking that into account is important.
    Last, on this issue of penalizing doctors, there was a 
reference by the Inspector General to ``cherry picking,'' where 
patients that are higher cost might get referred to hospitals 
that don't have gainsharing. We are also concerned about 
physicians who develop specialties and have a high-cost patient 
base. We don't want them to be penalized in a gainsharing 
context. So, I would like to close just by asking questions for 
the Subcommittee to consider as you look at this issue: Will 
patients be able to benefit from the latest technology, as 
Congressman Ramstad raised? What will be the impact on 
research, development, and innovation, if physicians aren't 
prescribing the latest technologies? Will people be able to get 
treatment or devices that are best suited to their individual 
needs, or will they be forced to select from a pre-approved 
list from the hospital that may not meet their individual 
needs? Will people with hard-to-diagnose conditions be 
obstructed from seeing an experienced specialist because of 
cost concerns? Thank you again for the opportunity to be here.
    [The prepared statement of Mr. Imparato follows:]
Statement of Andrew J. Imparato, President and Chief Executive Officer, 
            American Association of People with Disabilities
    Madame Chair, Ranking Member Stark, and Members of the 
Subcommittee:
    Thank you for inviting me to testify at this important hearing. My 
name is Andrew J. Imparato, and I am the President and CEO of the 
American Association of People with Disabilities (AAPD), the largest 
membership organization representing children and adults with all types 
of disabilities in the U.S. AAPD's pursues its mission of political and 
economic empowerment through programs in the area of public policy 
advocacy and research, leadership development, civic participation, and 
mentoring and career exploration.
    Prior to joining AAPD, I was general counsel and director of policy 
at the National Council on Disability, an independent agency advising 
the President and the Congress on public policy issues affecting people 
with disabilities. I have also worked as an attorney with the U.S. 
Equal Employment Opportunity Commission, the U.S. Senate Subcommittee 
on Disability Policy, and the Disability Law Center in Boston, 
Massachusetts.
    AAPD was founded on the fifth anniversary of the signing of the 
Americans with Disabilities Act (ADA), and we promote public policies 
that are consistent with that law's important goals for people with 
disabilities: equality of opportunity, full participation, independent 
living, and economic self-sufficiency. As we look at the potential 
impact of ``gainsharing''--the topic of today's hearing--on Medicare 
beneficiaries with disabilities, we will want to know whether or not 
this practice will lead to greater opportunity, participation, 
independence and self-sufficiency for the consumer population.
    Based on our preliminary analysis of the potential impact of this 
new practice on beneficiaries with disabilities and chronic health 
conditions, we have some important questions for the Subcommittee to 
consider.
    Will patients be able to benefit from the latest technology if 
doctors feel pressure to use older, less costly options? What impact 
will changes in physician behavior brought about by gainsharing have on 
research and development and innovation? Will people be able to get the 
treatment or device best suited to their individual needs, or will they 
be forced to settle for whatever the hospital decides to include in its 
inventory of low-cost options? Will people with hard-to-diagnose 
conditions be obstructed from seeing an experienced specialist because 
of cost concerns?
    As you know, Medicare is a critical program that serves millions of 
people with disabilities across the lifespan. Approximately 6 million 
current Medicare beneficiaries are people with significant disabilities 
who are under 65. Unfortunately, when Medicare was created, society's 
expectations for people with disabilities were not as robust as they 
are today. These artificially low expectations created restrictions in 
the Medicare program like the requirement that disabled beneficiaries 
with mobility impairments can only be covered for items they need to 
get around their home or apartment.
    AAPD has worked with other disability and seniors organizations to 
modernize Medicare so that it is made more consistent with the goals of 
the ADA. We welcome creative approaches to improve the Medicare program 
so that it works better for beneficiaries, including efforts to 
eliminate wasteful health care costs. We believe it is important that 
reform proposals be assessed so that they do not inadvertently harm 
patients or jeopardize quality care.
The Wrong Incentives Can Take a Bad Situation and Make it Worse
    Last year, RAND issued a report examining the quality of care 
received by older adults.\1\ In their report, the researchers found 
that vulnerable and disabled seniors receive about half the care that 
would be recommended for people with their health condition, and that 
care for geriatric conditions, such as incontinence or falls, is poorer 
than care for general medical conditions. They also found that 
physicians often fail to prescribe recommended medications for older 
adults.
---------------------------------------------------------------------------
    \1\ ``The Quality of Health Care Received by Older Adults,'' RAND 
2004, available at www.rand.org.
---------------------------------------------------------------------------
    These findings are particularly significant as the Subcommittee 
examines whether physicians should be given an incentive to reduce the 
costs of providing care to their Medicare patients. If patients are 
already being under-treated, do we really want to reward doctors 
financially for doing even less?
    In seeking to explain the reasons why geriatric conditions may get 
inadequate attention in primary care settings, the RAND researchers 
noted that medical schools and primary care residency programs may not 
emphasize the skills needed to diagnose and treat diseases limited 
largely to the geriatric population. This same concern applies in the 
diagnosis and treatment of many disabling conditions for people under 
65.
    When the Kaiser Family Foundation (KFF) did a survey looking at the 
health care experience of people with disabilities in 2003, they found 
that nearly half of those surveyed reported that they go without 
medically necessary equipment and other items due to cost; more than 
one-third postponed care because of cost; and more than one-third spent 
less on basics such as food, heat, and other services in order to pay 
for health care.\2\ Focusing in on the Medicare beneficiaries, the KFF 
researchers found that among the survey respondents with any type of 
health insurance, those with Medicare alone reported the highest rates 
of serious cost-related problems. Within this population, nearly seven 
in ten reported going without needed items, such as equipment and 
eyeglasses; 60 percent said they had put off or postponed care due to 
cost; and more than half said they spent less on basic needs, such as 
food or heat, in order to pay for health care.
---------------------------------------------------------------------------
    \2\ ``New Survey Shows People with Disabilities Face Major 
Barriers,'' Kaiser Family Foundation 2003, available at www.kff.org/
newsroom/Disability-Health-Coverage.cfm.
---------------------------------------------------------------------------
    Many of the problems experienced by people with disabilities and 
chronic health conditions stem from the inadequacy of the Medicare 
benefits package. When the incentives associated with gainsharing are 
superimposed on this already problematic situation, my concern is that 
disabled Medicare beneficiaries will have even greater difficulty 
getting the health care services that they need.
Harming the Physician-Patient Relationship
    In addition to the concerns about gainsharing exacerbating 
preexisting problems with the quality and adequacy of care being 
delivered to Medicare beneficiaries with disabilities, I have a 
parallel concern about what these kinds of financial incentives will do 
to the physician-patient relationship. People with disabilities and 
chronic health conditions often have a difficult time finding a 
physician with the skills and experience necessary to help them manage 
what are often complex and highly individualized medical conditions. 
Once a patient finds the right physician, s/he expects that physician 
to be an advocate for the patient when there are disputes with insurers 
about what is medically necessary and whether a particular course of 
treatment is justified over other, potentially less costly, 
alternatives. If a patient knows that his or her physician has a 
financial incentive to keep costs down, that knowledge is likely to 
make it more difficult for the patient to trust that s/he is getting 
objective medical advice. We should be very cautious about setting up a 
health care system where the physician comes to be viewed as an agent 
of the insurer and not as an advocate for providing the best possible 
care for the patient. Gainsharing raises many of the same issues for 
disabled consumers as the earlier proliferation of managed care. People 
with disabilities often ran into serious barriers in getting the right 
care from the right provider in the managed care environment. The 
difference in the gainsharing context is that the doctor now has a 
financial stake in limiting a patient's options.
Short-term Savings can Harm Long-term Outcomes
    For consumers with long-term disabilities and chronic health 
conditions, it is important for the health care system to take a long-
term view of how best to help the patient manage their condition. In a 
gainsharing system that rewards physicians for producing short-term 
savings, it is unclear that doctors will have the right incentives to 
take a long-term view about what equipment and procedures will produce 
the best long-term outcomes for a particular patient. In such an 
environment, savings may be short-lived and patient health and quality 
of life are likely to suffer. For example, if a patient with 
quadriplegia is prescribed a low-cost seating system, that might create 
short-term savings over a more expensive product, but it can also 
result in costly future emergency room visits to deal with the ensuing 
pressure sores.
    As AAPD noted in a letter from a range of patient advocacy groups 
sent to members of Congress earlier this week (a copy of the letter is 
attached to this testimony), we have a range of other concerns related 
to how the physician incentives associated with gainsharing will play 
out for patients.
    The letter raises several specific examples of how gainsharing 
might affect the quality of care patients receive in the context of 
artificial hips or heart valves, spinal fusions, heart monitoring 
devices, female Alzheimer's patients, and cancer detection and 
treatment. And once again, all of these concerns should be viewed in 
the context of a Medicare program that is already proving to be 
inadequate in meeting the health needs of disabled and vulnerable 
Medicare beneficiaries.
    There are currently powerful economic forces within the Medicare 
payment system, which are designed to drive costs down. Moreover, 
market competition and entities such as group purchasing organizations 
also force economies. We believe that additional efforts to contain 
costs should be focused on measuring and rewarding improved quality of 
care and outcomes as well as efforts to improve system efficiency 
through electronic medical records and greater use of health 
information technology. Also, if there are really savings to be 
realized from changing physician behavior, why not allow the Medicare 
program, as opposed to individual physicians, to benefit from these 
savings?
Penalizing Physicians Who Serve Difficult-to-Treat Patients
    A final concern that I would like to raise regarding gainsharing 
has to do with how it will affect physician decisions about which 
patients to treat. Physicians who have developed highly specialized 
skills and experience may find themselves penalized for having a 
practice that produces high per-patient costs associated with more 
expensive diagnostics and care. Although hospitals may attempt to risk 
adjust in these situations, there is no guarantee that the risk 
adjustment will be adequate to create a level playing field for 
physicians that have a particular expertise resulting in consistently 
high expenditures because of the complex nature of their patients' 
disabilities. Ultimately, this can create disincentives for doctors to 
go into certain specialties, and it can create disincentives for 
general practitioners to agree to treat patients who have unusually 
complex or chronic health conditions.
    Given the concerns that I and other patient advocates have raised 
regarding gainsharing, I strongly encourage the members of this 
subcommittee to proceed with great caution as you evaluate whether to 
encourage the use of this practice in the Medicare program. It is my 
understanding that limited use of the practice has been authorized by 
the Office of the Inspector General at the Department of Health and 
Human Services. I am hopeful that we will study how the practice is 
affecting patient care in these approved programs, paying particular 
attention to the quality of care being received by patients with 
disabilities and chronic health conditions, before taking up the issue 
of whether the practice should be expanded through new legislation.
    Thank you for the opportunity to testify on this important topic.

                                   ----------

    Dear Member of Congress:
    We, the undersigned consumer, patient and health care organizations 
are aware of various legislative proposals aimed at reducing waste and 
unnecessary costs in the health care system through the use of 
``gainsharing'' arrangements and by rewarding physicians for their 
``efficiency.''
    While we strongly support the need to eliminate wasteful health 
care costs, we are very concerned about the policies that create 
incentives to achieve short term savings at the expense of patients and 
quality care. These reforms could result in the following:

      The doctor-patient relationship could be undermined by 
creating a potential conflict between physicians' responsibility to 
provide the best possible care for patients and physicians' economic 
interests.
      Gainsharing could cause physicians both to forgo a more 
long-term, holistic approach to patient care in favor of short-term 
savings, and to view patients as data points.
      Patients may be denied the latest technology as 
physicians feel pressure to use older, less costly options.
      Research and development innovation could be severely 
impacted due to lack of physician adoption based on cost, making it 
even more difficult to bring new research that could benefit patients 
to market.
      Patients may not have access to the most appropriate 
treatment or device for their individual needs, due to the hospitals' 
inventory of lowest cost options.
      Patients with particularly hard to diagnose conditions 
may be obstructed from seeing an experienced specialist who would 
provide more extensive (and costly, but essential) tests, procedures 
and/or care.
      Groups that already suffer from undertreatment of their 
conditions--women, minorities, and people with disabilities or chronic 
conditions--may find their situation worsened.
      When translated into actual patient care, we are worried 
that the following kinds of examples may occur:
      Physicians may choose short-term savings solutions, such 
as less-expensive artificial hips or heart valves with a 5 year life 
expectancy versus a 10 year life expectancy, to receive a financial 
incentive.
      Patients requiring spinal fusion may only have access to 
the low-cost option of Allograft Bone products (which offer a limited 
choice of shapes and sizes), even though alternative, albeit more 
expensive, products offer an extensive range of sizes, angles, shapes 
and strengths to meet individual patient needs.
      For patients with Congestive Heart Failure, new medical 
devices are available which measure fluid levels in patients' chests, 
helping to prevent or minimize edema. However, these devices are more 
expensive than traditional devices and specialized implanting 
physicians have no incentive (in fact, they have disincentive) to 
implant the newer, improved, and more expensive devices.
      Female patients may be disproportionately impacted, as 
much of the new research and technology focused specifically on women 
has occurred in recent years. New information about the role gender 
plays in Alzheimer's disease may never reach patients if physicians are 
unable to justify the cost of understanding the differences of the 
disease in men and women.
      Cancer patients may be negatively affected from initial 
discovery of their disease thru treatment. Improved technology allowing 
oncologists to provide earlier, unequivocal cancer diagnoses could have 
a major impact on individual patient outcomes, but only if the medical 
environment continues to encourage research and development. Treatment 
breakthroughs in radiation therapy, such as brachytherapy and IMRT 
(allowing for more targeted radiation therapy) may be overlooked for 
older, less-expensive options.
      Highly specialized, experienced physicians may be most 
negatively impacted by physician profiling, as they are more likely to 
be involved with high risk or special needs patients, who require more 
expensive diagnostics and care. A specialist certainly couldn't compete 
with the ``cost-savings'' score of, for example, a family physician.

    We are deeply concerned about the consequences of legislation 
establishing gainsharing or ``efficiency'' standards for physicians. 
Before any legislation is enacted in this area, there should be a full 
and open consultation process with patient advocacy organizations, as 
well as experts in the field.
            Sincerely,
                   American Association of People with Disabilities
                                        Alliance for Aging Research
                                                       Families USA
                                                      Family Voices
                                          Kidney Cancer Association
                                National Association For Continence
                                 National Disability Rights Network
                                 National Mental Health Association
                            National Spinal Cord Injury Association
                                         Parkinson's Action Network
                                          Prevent Blindness America
                                Society for Women's Health Research
                                          United Spinal Association
                                                         WomenHeart

                                 

    Chairman JOHNSON. Thank you, Mr. Imparato. Dr. Rich.

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

    Dr. RICH. Thank you, Madam Chairman Johnson, Ranking Member 
Stark, and Members of the Subcommittee, for inviting me to 
testify on behalf of the cardiac surgeons about gainsharing and 
aligning incentives for quality improvement and cost savings. I 
am the Chair of the Virginia Cardiac Surgery Quality 
Initiative, an organization that has been restricted by current 
laws in our attempt to advance quality improvement. We support 
the intent of these laws, but believe their broad 
interpretation has led to the stifling of innovation in health 
care delivery and payment. Finding a balance between these two 
goals will be critical as we move forward with value-based 
purchasing; for in this difficult budget environment, 
incentives for these programs can come from the sharing of 
savings between hospitals and physicians that stem from 
improvements in quality. It is critical that we make a key 
distinction between two types of gainsharing. The common model 
of gainsharing that many are discussing today occurs through 
the coordination of supply-based purchasing to manage resources 
and create cost savings that are shared with physicians. This 
model can be appropriate with routine items used in care 
delivery where quality is not significantly impacted by the 
choice of supplies. We must be careful, however, not to impede 
access to advanced technology and devices where clinical 
indication and quality are critical.
    The other model for gainsharing is very different. We 
believe this is the model on which the future of value-based 
purchasing will be built. This is the model that I will refer 
to as ``quality sharing,'' because improved quality is the 
primary factor that drives cost containment. While there is 
debate regarding the benefit of purchasing decisions, there is 
no question that reducing complications is best for patients, 
can lower costs, and can be fostered through quality sharing. 
Quality sharing does not create incentives to use inexpensive 
but sub-optimal supplies. It refers to the savings that accrue 
from improving quality of care. The Virginia Initiative has 
tested this model, and we believe we can now achieve and 
quantify cost savings associated with quality improvement, as I 
noted in my testimony before you in March. In 2002, we proposed 
the CMS demonstration that would achieve savings by the sharing 
of data between hospitals and physicians on outcomes, costs, 
and best practices. The purpose was to show how we could 
simultaneously improve quality and reduce costs in cardiac 
surgery by aligning incentives for physicians and hospitals. 
Payments to surgeons were to be adjusted based upon the outcome 
of their patients. A portion of the savings was to be returned 
to CMS. Secretary Thompson announced approval of our project in 
2003. The CMS issued strong statements in support of it. In 
July 2004, CMS advised us that our quality improvement demo was 
in violation of Federal law. The OIG maintained that a 
redistribution of a global payment by the hospital with 
incentives for performance violated ``Stark'' regulations and 
civil monetary penalty laws, despite quality controls, 
accountability through public reporting, and monitoring of 
referral patterns.
    The project was effectively terminated due to broad 
interpretation of the current statutes. Our work in Virginia 
now forms the basis for a proposed Medicare pilot program yet 
to be approved by Congress. The STS seeks to establish a 
national program whereby we reduce complications from cardiac 
surgery for all Medicare beneficiaries, while potentially 
saving the program hundreds of millions of dollars annually. We 
will accomplish this by combining our National cardiac clinical 
database with the Medicare part A claims database, to determine 
exactly the level of quality that is being delivered at each 
site, and at what cost. We will improve outcomes, reduce costly 
complications, Achieve savings. Under our pilot program, cost 
savings will occur from improved outcomes. The majority of 
these savings accrue to the hospital, but some is also returned 
to CMS. However, without changes in existing laws, none of the 
savings will go to the surgeons who bear the responsibility for 
achieving them. This is why restrictions such as the ``Stark'' 
CMP laws must be reexamined to allow and encourage quality-
focused cost containment. The laws should allow the sharing of 
Parts A and B savings with the hospital and the physicians who 
create these savings, as long as quality improvement is 
demonstrated. Shared savings are one way to help finance value-
based purchasing programs.
    Can quality sharing offer a solution to the health care 
financing crisis? Most definitely, but it will require the 
approval of the shared savings models that are quality-focused, 
patient-centered, and safe. Current laws have stifled 
innovation in health care reform and prevented the 
implementation of some of these more unique programs. Perhaps 
it is time for a change. Physicians, hospitals, and device 
manufacturers are striving for ways to simultaneously protect 
beneficiaries, improve quality, and reduce costs. I am here to 
tell you that we have shown that it is possible. All we need is 
trust granted us by the government, to allow us to create these 
models of care delivery and realize these shared goals. Thank 
you for your time this morning.
    [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
    Good morning Madam Chairman Johnson, Ranking Member Stark, and 
members of the Subcommittee. Thank you for inviting me to this hearing 
on gainsharing and to discuss our experience with sharing incentives 
between Medicare parts A and B to improve the quality of care for 
Medicare Beneficiaries. My name is Jeffrey Rich. I am Chairman of the 
Society of Thoracic Surgery (STS) Taskforce on Pay for Performance. I 
am also the Chair of the Board of Directors of the Virginia Cardiac 
Surgery Quality Initiative (VCSQI) an organization that has felt the 
implications of current laws in attempting to advance quality 
improvement.
    The term gainsharing can carry a negative connotation to patients, 
providers, industry and even some in Congress. This has occurred as a 
result of the perception that gainsharing works explicitly to reduce 
choice and services to patients in an effort to save money through the 
sharing of these dollars with physicians. Congress enacted legislation 
to protect populations at risk against some gainsharing activities, and 
we support the intent of these laws. As we will discuss, the broad 
interpretation of these laws, however, has led to the stifling of 
innovation in healthcare delivery and payment reform. We fear that this 
may continue. In the current healthcare financing crisis as 
stakeholders attempt to craft potential solutions, it has become 
apparent that Pay for Performance leading to Value-Based Purchasing has 
ascended to the option of choice. It has also become apparent that 
these proposals, including the Chariman's H.R. 3617, the Medicare 
Value-Based Purchasing for Physician Services Act of 2005, will utilize 
incentives for achieving measures of economic efficiency, translated as 
cost savings. Money to finance these programs will almost certainly 
come in part from the sharing of Part A/B savings that result from 
physician's improving quality. These incentives may first be shared 
between CMS and physicians and ultimately between physicians and 
hospitals as the savings potential is greatest on the Part A side. 
Proper interpretation and application of current Stark and CMP laws or 
modifications of them will be decisive in their success.
Gainsharing--or Qualitysharing
    It is critical that we make a key distinction in our discussions of 
``gainsharing'' arrangements. Much like Pay for Performance, which is 
in a rapid evolutionary phase, gainsharing can have a variety of 
meanings to different people and we must be certain that we understand 
the intended definition as we discuss health policy and legislative 
action. Two types of gainsharing need to be understood and considered 
separately in order for us to move rapidly towards innovative payment 
reform. The first is perhaps the most commonly understood which is 
coordination of supply-based purchasing to manage resources and create 
reduction in costs. This model can be appropriate with routine items 
used in care delivery such as gloves, masks, intravenous tubing, and 
other medical supplies where clinical indication and outcomes are not 
significantly impacted by the choice of supplies. This model, however, 
can impede a very critical component of high quality care, and that is 
access to advanced technology and devices such as heart valves and 
artificial joints. It is essential that gainsharing arrangements not 
restrict the physician's choice of the most beneficial clinical device 
or treatment solely on the basis of cost. Additionally, gainsharing 
agreements that promote buying consortia for advanced technologies are 
acceptable but must provide equivalency in outcomes related to the use 
of the product and include the proviso that providers continue to have 
access to clinically appropriate alternate products which may be 
considered superior.
    The other model for gainsharing is very different, and we believe 
this is the model for the future of P4P with the potential for savings 
of a much larger magnitude. This is a model that I will refer to as 
``Qualitysharing'' because quality must be the primary factor that 
drives resource utilization management and cost containment in 
healthcare through the development of cost savings models.
    We know that medical complications lead to a higher cost of care 
because complications are linked to prolonged hospitalization and 
increased use of diagnostic and therapeutic interventions. As I 
demonstrated in my testimony here in March, the highest quality 
hospitals in our project were also those with the lowest costs. As 
quality increases, complications--and therefore costs--are decreased. 
Qualitysharing refers to the savings that accrue from improving quality 
of care.
    Qualitysharing does not create incentives to use inexpensive but 
suboptimal resources. The quality of care is ensured through careful 
development of the models and is measured prior to the sharing of 
savings. We believe that qualitysharing can appropriately align 
incentives between physicians, hospitals, and CMS to improve the 
quality of care for all Medicare beneficiaries leading to reductions in 
costly complications, the creation of quality guided resource 
utilization, and the achievement of sustained savings. This should be 
the ``Holy Grail'' of Value-Based purchasing. It will, however, require 
the development of physician incentive programs that allow in the 
sharing of savings generated by these QI efforts, a concept quite 
different from the currently perceived gainsharing arrangements.
VCSQI Demo
    I'd like to explain how ``Qualitysharing'' would have worked 
through our experience, and why it ultimately was prevented from moving 
forward by the Civil Monetary Penalty Laws and, with no offense to the 
Ranking member, ``Stark'' laws.
    In 2000, we had proposed a demonstration program that would achieve 
savings through hospitals and physicians sharing data on outcomes, 
cost, and best practices. The purpose was to increase quality and 
contain costs in cardiac surgery statewide in the Commonwealth of 
Virginia through an initiative called the Virginia Cardiac Surgery 
Quality Initiative (VCSQI).
    The VCSQI is a voluntary consortium of 16 hospitals and 10 cardiac 
surgery practices providing open-heart surgery in Virginia. Hospitals 
include four multi-hospital systems (one for-profit), two state 
university medical centers, and 6 regional medical centers and 
community hospitals. They perform 99% of Virginia's open-heart 
procedures. The VCSQI was established through a grass roots, self 
funded effort in 1996 with a mission to improve the quality of cardiac 
surgical care on a statewide basis, contain healthcare costs, and test 
reimbursement methodologies that reward quality improvement. It sought 
to demonstrate that an inclusive collaboration between hospitals and 
physicians would improve clinical outcomes across an entire state in 
programs of all size through the sharing of data, outcomes analysis, 
and process improvement driven by use of the Society of Thoracic 
Surgeons (STS) National Cardiac Database. Its cost containment goals 
were to occur through the creation of a unique IT platform, a database 
linking clinical and financial outcomes. The VCSQI's intent was to 
demonstrate that through a focus on quality, cost containment in 
cardiac surgical care could be achieved through a reduction in 
complications, improved efficiencies of care and reduced resource 
utilization driven by explicitly defined savings models.
    The VCSQI in conjunction with ARMUS Corporation developed a unique 
clinical/financial IT platform. Clinical data from the Society of 
Thoracic Surgeons (STS) Adult Cardiac Surgery database was mapped with 
financial data from standardized hospital (Medicare Part A ``UB-92'') 
claims files. These Part A, UB-92 files were further refined by 
organization of 239 ICD 9 revenue codes into 21 Revenue Categories to 
allow more definable hospital-to-hospital comparisons. Hospital 
specific Medicare defined Ratio of Cost-to-Charges (RCCs) were then 
applied to the charge driven UB-92 record to normalize charges and 
create applicable cost profiles. Tracking of the financial impact of 
quality improvement was, and currently is possible and forms the 
cornerstone of many current VCSQI QI initiatives. A business case for 
quality has been developed within the state.
    In March 2000 an application to CMS for a demonstration project 
(Demo) entitled ``Statewide Quality Focused Global Pricing for Cardiac 
Surgery'' was submitted. The 3 year project was to combine Part A and B 
payments into a single hospital specific global payment for cardiac 
surgical DGRs, and would allow payment redistribution at the local 
level based on physician performance as measured by quality metrics. 
The intent was to create financial incentives for meeting quality goals 
tied to clinical performance in open-heart surgery. The demonstration 
was designed to align clinical and financial incentives between 
hospitals and physicians while elevating the standard of care and 
reducing costs. On the physician side, it provided a method for 
physicians to remove themselves from the much-maligned Resource-Based 
Relative Value System (RBRVS) through the use of Pay for Performance 
models. For CMS, there was potential to reduce financial risk (outliers 
included), stabilize payments for costly procedures, and reduce 
administrative costs (simplified billing). On the hospital side there 
was the potential to increase profitability by the application of 
explicit savings models aimed at reducing resource utilization while 
always maintaining a focus on quality. Patients benefited from 
statewide access to high quality care and a single co-pay.
    In early 2001, the VCSQI Demo application was introduced to 
Secretary of Health and Human Services (HHS) Thompson who immediately 
was in support of the project. Subsequent meetings with CMS 
Administrator Scully and the Division of Demonstration Projects at CMS 
occurred. Concurrent with these efforts the Institute of Medicine (IOM) 
had issued its report on ``Crossing the Quality Chasm'' which described 
exactly the VCSQI efforts to improve quality and ``better align current 
payment methods with quality improvement''. Additionally on April 12, 
2001 Reuters Health announced ``upcoming White House efforts to reform 
Medicare are likely to include financial incentives to hospitals and 
doctors who successfully--improve the quality of care''.
    The VCSQI project gained tentative approval at CMS in March 2002 
and final approval in November. Secretary Thompson announced approval 
of the project to a standing ovation at the STS annual meeting in 
January 2003. The project was temporarily derailed when budget 
neutrality as defined by the Office of Management and Budget included a 
post-acute care component that placed hospitals at-risk for financial 
losses occurring beyond the hospitalization discharge DRG. An 
acceptable risk model was eventually developed and the VCSQI hospitals 
and physicians began an intense implementation design for the project 
while the project was under review at the Office of the Inspector 
General (OIG). Simultaneously, CMS was describing this project's 
ability to ``achieve savings for the Medicare program through increased 
efficiencies and, in the longer term, reductions in complications'' and 
stating that ``the global payment will align financial incentives of 
hospitals and physicians and give providers flexibility to allocate 
resources as they determine appropriate''. In July 2004 CMS advised the 
VCSQI that the Demo payment incentive plans would be a violation of 
federal law. The Department of Justice maintained that redistribution 
of a global payment by the hospital with incentives for performance 
violated Stark Regulations and Civil Monetary Penalty laws. Although 
told to proceed if desired, it was in the context of the statement that 
the VCSQI ``would be in violation of the law but the department would 
not prosecute''. Furthermore, we were simultaneously advised that any 
other entity could file civil suit. This was occurring in the same 
timeframe that a group of hospitals in New Jersey followed similar 
advice and had their project halted by court order. This directly led 
to the VCSQI hospitals and physicians collectively deciding not to 
pursue any further efforts to implement the project. Despite widespread 
support from HHS, CMS, and the entire state of Virginia, and in line 
with IOM directives, a project that appeared to have ``all the right 
stuff'' was dismantled by a federal agency.
    Since that time additional voices have weighed in about the value 
and efficiency of reducing the artificial barrier between Parts A and B 
for some services. In a letter dated December 30, 2004 from MedPAC 
Chairman Hackbarth to Vice President Cheney, he described the global 
payment model as a solution to payment reform whereby ``the quality of 
a surgery and its related pre--and post-surgical care could be measured 
as a whole; and the hospital and surgeon would be held jointly 
accountable. Combining hospital and physician payments would make it 
possible for Medicare to reward good quality outcomes directly, and 
leave it to the participants in the care to divide the reward among 
themselves.'' The VCSQI model exactly!
    Since the undoing of the VCSQI demo, Dr. David Brailer at the then 
newly formed Office of the National Coordinator for Health Information 
Technology had a high profile IT projected in metropolitan Chicago 
halted by OIG on grounds of violation of Stark Regulations. At this 
point red flags should be flying high for any private or government 
agency wishing to embark on Pay for Performance or any other payment 
reform methodology. An important solution, I believe, will be for 
Congress to create carefully crafted leeway in the Stark and CMP rules 
to remove barriers to implementation for similar projects. Exceptions 
are needed that protect patient choice and quality of care, yet still 
align incentives to accelerate quality improvement, reduce costly 
complications, and develop patient centered, safe cost savings models, 
all of which will work to achieve significant savings in healthcare 
costs.
Future STS and VCSQI Initiatives
    Where does that leave the VCSQI? VCSQI remains a collaborative 
effort actively improving quality on a regional basis. In fact we are 
leading the private P4P effort. We have entered into agreements with 
the largest private insurer in the state, Anthem BC/BS of Virginia, to 
utilize our STS quality data in a private P4P program. We hope to 
continue to be a test bed for policy formulation/ payment reform in 
cardiac surgery with a model that can be replicated nationally. Our 
collaborative will continue to address the quality/ cost relationship 
in an attempt to achieve cost containment through a focus on quality.
    In fact, the VCSQI is the basis for a national pilot program that 
the STS has submitted to Congress entitled ``Quality Focused Cost 
Containment in Cardiac Surgery for Medicare Beneficiaries''. It is a 
national program designed on the Virginia model with a blended STS 
clinical and Medicare UB-92 financial database. It will focus on 
quality improvement through the creation of regional collaborations 
that will share data and develop and share national best practices. 
Clinical performance will be based on the National Quality Forum 
National Voluntary Consensus Standards for Cardiac Surgery, a project 
that the STS was instrumental in bringing to fruition. Cost containment 
will occur through the reduction of costly complications and the 
development of cost savings models using quality guided resource 
utilization management and measures of efficiency that are patient 
centered and quality focused. Through this mechanism we hope to achieve 
significant and sustainable reductions in Medicare healthcare spending. 
Implicit will be the need to provide performance-based incentives to 
physicians that are meaningful and can drive change. This will require 
the sharing of Part A/B savings with CMS and hopefully between 
hospitals and physicians consistent with the principles outlined 
previously for ``QualitySharing''. We hope that CMS and Congress will 
join us in another attempt to improve quality for Medicare 
beneficiaries while reducing costs and ask respectfully for relief of 
the legislative and regulatory barriers that we have encountered 
previously.
The Future of quality improvement without incentives
    This debate is really about where to locate incentives to 
accelerate quality improvement in health care delivery. However, it is 
impossible to have this debate without some suggesting that physicians 
ought to improve quality without incentives, but rather because it is 
what they do. I agree with those sentiments. I think the same ought to 
be true of hospitals and device manufacturers and purchasing 
consultants, but that is not the reality that we are living in today. 
The STS has some strong feelings on this central topic that I must 
share with you.
    Through our STS National Cardiac Database cardiac surgeons have 
improved quality by dramatically reducing mortality in open-heart 
surgery. These reductions in operative mortality were achieved in the 
face of dramatic progressive increases in the risk and acuity of our 
patient population.
    In the last two decades, the STS has taken the lead in objective, 
data-centered quality improvement on a national level. We will continue 
to do so with the resources available, but I must emphasize that:

1.  Quality Improvement requires significant investments in time and 
money. The much sicker patient population mandates increased resources 
to provide safe care. The well-recognized quality improvements 
associated with IT require significant capital investments. The STS 
Database itself is an unfunded financial burden on an already strained 
system. We can improve quality and we can reduce costs, but we can not 
continue to do while the government continues reduce our payments and 
undervalue our services.
 2.  Our financial resources are greatly diminished. We improved 
quality over a period during which our Medicare payment rates were cut 
by over 50%, and while our practice costs skyrocketed. Unfortunately, a 
major consequence of these payment cuts has been an unsustainable 
reduction in applicants to our specialty and the early retirement of a 
large portion of our workforce. One third of our residency programs did 
not fill this year. This is occurring at a time when the population 
ages and the potential pool of Medicare beneficiaries in need of 
cardiac surgery is expanding rapidly. By our estimates, we are on the 
verge of an access crisis in cardiothoracic surgery--the specialty that 
treats the top six causes of death in the country. Under the current 
payment system you may witness the slow death of a specialty that quite 
literally none of us can live without. The STS believes that under 
``QualitySharing'' agreements meaningful incentives can and should be 
provided to reverse this trend.

    Furthermore, there is a related problem that now serves to prevent 
cardiothoracic surgeons from continuing to improve quality and achieve 
cost savings. As the IOM has pointed out, in high-risk surgery such as 
open-heart surgery, having a consistent team in place in the OR is a 
key to quality. Cardiothoracic surgeons currently employ such a team 
and bring those team members to the hospital to give clinical 
assistance. In 1999 CMS decided to remove the payment for these 
clinical staff from the practice expense calculations. Very rarely do 
hospitals pay for such a skilled team, and Medicare no longer will. In 
fact, we have recently seen examples of hospitals charging the surgeons 
to bring clinical staff to the hospital! This is a direct barrier to 
our ability to improve patient outcomes, is counter to the IOM 
recommendations, and more to the point, is directly in violation of the 
BBA '97 language on practice expense.
    Rather than compromise the quality of care, most CT surgeons 
continue to employ these clinical staff at their own expense, and again 
the costs are borne not by Medicare, not by hospitals, but by the 
surgeons--who have no opportunity to share in the savings these staff 
generate. For most, the improvement in lives saved is enough 
compensation, but the cost of $50 to $100 million per year of 
uncompensated expense in this specialty has further decreased 
reimbursement making the specialty less attractive to trainees and has 
furthered the reduction in applicants. ``Quality Sharing'' would allow 
incentives that may once again maintain consistent teams for high 
quality care in cardiothoracic surgery.
Current and future implementation potential
    It is important to highlight that not all physician groups can 
presently achieve quality-based savings. It requires the development of 
a set of the most clinically relevant specialty performance measures 
that must be vetted through the consensus development process at the 
NQF as we have done with our NQF approved cardiac measure set. It 
requires a database of clinical data mapped into Medicare claims data 
with a high match rate. It requires not only process measures but also 
outcome measures that use scientifically validated risk adjustment. And 
it requires the will and determination of physicians, hospitals, data 
managers, and Government. Most importantly, it requires the creation of 
shared savings models that provide meaningful incentives to create 
change. I must say CMS has been a tremendous asset to us, with 
intelligent and well motivated people sharing our goals of striving for 
ways to improve quality and simultaneously reduce costs. I am here to 
tell you that it is possible, all we need is trust granted us by 
government to create these models of care delivery and realize these 
shared goals.
    Since it is the goal of the Congress and CMS to one day have all 
physicians electronically submit clinical data on their patient 
encounters through EMRs, it is important that we undertake pilot 
programs now with those who are prepared. Credible models must be 
developed prior to implementing these payment systems for all 
physicians in the future.
QualitySharing: the New Metric
    In conclusion, the STS and its regional collaborations such as the 
VCSQI have been involved in QI for the past 15 years. These 
improvements have occurred in an era of declining reimbursements and 
without incentive payments primarily because we feel that this is our 
professional responsibility. I personally feel that the greatest 
privilege society has given us as physicians is the ability to care for 
patients. But on behalf of all physicians, as perhaps the primary 
drivers of quality improvement, and hence health care savings, I must 
ask a central question about gainsharing. Why should physicians, who 
drive much of the ``gain,'' be the only group excluded from the 
``sharing''?
    In the current healthcare financing crisis, the STS now realizes 
that our next greatest responsibility is the delivery of high quality 
care in a fiscally responsible manner. Is traditional gainsharing a 
partial solution? Possibly, if done properly. Is ``QualitySharing'' a 
more complete solution? Most definitely, but it will require the 
development of shared savings models that are quality focused, patient 
centered and safe and that will hopefully lead to reductions in 
healthcare expenditures and the stabilization of the Medicare Trust 
Fund. To date, current laws have stifled innovation in healthcare 
reform and prevented the implementation of some of these more unique 
programs. Perhaps it is time for a change. ``QualitySharing'' appears 
to be the right thing to do, at the right time, and for the right 
reasons.
    Thank you for this opportunity and your attention this morning.

                                 

    Chairman JOHNSON. Thank you very much, Dr. Rich. I have 
basically two questions that I want to bring to people's 
attention. Mr. Emerson, in your testimony you clearly state 
what others have raised concerns about; that gainsharing could 
have an especially negative impact on small companies and could 
eliminate important choices for doctors and patients. You go on 
to state that gainsharing would place an additional barrier to 
the adoption of smaller companies' devices, and would create an 
anti-competitive marketplace where the largest manufacturers 
would have a significant advantage. Now, isn't it true that in 
today's world hospitals negotiate with device manufacturers and 
agree and develop purchasing contracts where larger device 
companies provide reduced prices to hospitals that promise 70 
to 80 percent of annual revenue from device-related procedures; 
that 70 to 80 percent of the annual revenues will go directly 
to that company's devices? Aren't there a lot of things going 
on right now between device manufacturers and hospitals that 
are clearly barriers to smaller companies getting their devices 
onto the market, clearly barriers to competition?
    Mr. EMERSON. Madam Chairman, I would agree with your 
statement. But I would draw one clear distinction between an 
era of gainsharing as it is currently being discussed, and the 
era that we live in today. What we live in today as a small 
company is, yes, we have significant hurdles in front of us; 
but when we bring innovation to the market, we always know that 
we can count on physicians to be an advocate for that 
technology. The concern I would have in an era of gainsharing 
is that we have put the physician on the other side of that 
advocacy equation. As we move forward as a small company trying 
to bring innovation to market, who at a hospital will we find 
that we can hope to look for a friendly ear, who will be 
looking to advocate for patient care and new technologies? 
Certainly, we have competitive issues today; but the 
competition, in and of itself, is not bad.
    Chairman JOHNSON. Well, it is these controlling contracts 
that I think are very concerning. If 80 percent of the revenues 
from device-related procedures will be directly tied to the use 
of that company's devices, you have really closed a lot of the 
market to any other competitor, large or small. But the other 
thing I wanted to mention, too, is in terms of the doctor being 
an advocate, unfortunately, we are seeing more and more 
evidence that the doctor is an advocate because the doctor gets 
a cut. So, we can't answer this one way or another. I know you 
don't condone that, but I think to notice that the way devices 
are marketed now does not assure either physician choice or 
patient choice--nor does it assure easy access for small, 
innovative companies--is important. You know, the heart of this 
matter is exactly what Mr. Imparato said. The heart of this 
matter: Is this going to be a more doctor-centered system, or a 
less doctor-centered system? Is it going to increase the voice 
of physicians in the running of hospitals? Now, when I sat with 
Mr. Carter's people, doctors and others, at first the doctors 
didn't believe this was going to give them any more. So, I want 
you to talk about--those of you who have tried it, Dr. Rich Mr. 
Carter Ms. Goodroe, who have had experience--at first, doctors 
are suspicious. At least, that has been my experience.
    You have been in this a long time, Dr. Rich, over many 
years now. What happens? Why is it doctors change their 
attitude? What happens afterward? What are the systems 
consequences of the attitudinal changes that take place, when 
you really can work together for quality Cost, but cost is 
secondary to the quality changes that take place? Now, that is 
my impression. So, I want you to either affirm or deny. Don't 
feel uncomfortable denying. Remember, my knowledge is about as 
big as a thimble. So, why don't we start from the left. Ms. 
Goodroe, would you comment on this issue of systems change in 
quality and doctor control? Because that is at the heart of 
this whole thing.
    Ms. GOODROE. There is a lot of misunderstanding when people 
think that the technology is going to be withheld. If anything, 
the opposite happens. What you have are physicians finally, 
under these economic arrangements, physicians working together 
to look to see what is the best quality. Then, how do you apply 
costs to that? How do you figure out how to get the physicians 
all going in the same direction to get the best quality? That 
turns around to be less cost. So, it is not about not putting 
in something. Matter of fact, there is no reward if you don't 
put in an internal defibrillator that we heard earlier. A 
defibrillator would be that you would look at the options of 
the types of defibrillators you would put in. Is it right to 
put in a single chamber versus a dual chamber that has a huge 
price difference? Then, you have a lot of different vendors. 
So, it is not about ever the technology not being available. 
There is no reward for that, whatsoever.
    Chairman JOHNSON. Mr. Carter?
    Mr. CARTER. Madam Chairman, we actually have seen a 
tremendous amount of collaboration between the physicians and 
the administration. I think what happened, as you found when 
you visited our State, there was a concern: what was the 
agenda? But once we explain we are trying to improve the 
quality of care through discussion about the way in which we 
are doing it--as Ms. Goodroe said, at the beginning, your 
physicians are trained by a variety of different teachers; have 
different techniques of doing things. The whole staff could be 
trained by different physicians and all have a unique way of 
doing it. Once we got together and talked about a better way of 
doing it from a scientific standpoint, there was great 
collaboration. We weren't allowed to proceed, because of 
litigation, but there is still interest in improving this by 
working together.
    Chairman JOHNSON. How did you select medical devices? You 
say in your testimony that it was an evidence-based selection 
and purchasing process.
    Mr. CARTER. What we did was, we brought together the 
physicians and asked them what was the best approach to this. 
It wasn't a CEO-driven issue or a CFO-driven issue. It was the 
physicians talking about what they thought was the best 
technique for the patient.
    Chairman JOHNSON. Could they have a range of choices?
    Mr. CARTER. Yes.
    Chairman JOHNSON. If they decided they wanted something 
that wasn't on the shelf, could they get that?
    Mr. CARTER. Yes.
    Chairman JOHNSON. They were not in any way dinged, in terms 
of their payment, if they used devices that were not part of 
the original plan?
    Mr. CARTER. Well, again, it was all outcome basis. So, with 
the patient, if there were no complications and they were 
discharged in a timely fashion, then there was no ding, as you 
call it.
    Chairman JOHNSON. Yes. I meant to bring this up earlier, 
because a big point was made of how voluntary this is, both on 
the institution's part and on the doctor's part; that is very 
important; That you can come in or you can go out, You have 
control over that. But in terms of payment, are the doctors all 
paid the same?
    Mr. CARTER. I honestly cannot remember how they were done. 
I think it was individual-based, but I can't remember for sure. 
Can I just turn around and look at somebody?
    Chairman JOHNSON. Yes.
    [Pause.]
    Mr. CARTER. It was individual-based.
    Chairman JOHNSON. Okay. Dr. Rich?
    Dr. RICH. For us, collaboration with the hospital has been 
incredibly important. I will speak from my own personal 
experience at Sentara Health Care, where we put together 
collaborative arrangements between cardiologists, cardiac 
surgeons, The hospital administrators a decade ago. The focus 
of those collaborations was, and always will be, quality 
improvement. It was designed to bring people together to 
continue to improve quality, with the realization that by 
improving quality we could reduce complications and potentially 
save money for the system. We used that model in the private 
sector, and had enormous benefit from it. We had no restriction 
to any technologies. The determinations of the results of the 
program on quality and on the financial side were all done at 
the programmatic level, so no physician was ever stopped from 
using any technology. Every technology was available. There 
were, of course, groups put together that looked at perhaps 
picking three valves, or three devices that would be the 
preferred devices; but never any restriction beyond that in 
terms of being able to obtain technologies.
    Chairman JOHNSON. But what you were able to do in the 
private sector, you were not able to do in the public sector?
    Dr. RICH. No. This is just a model that we used for our 
demonstration project. Basically, the restrictions were put on 
us through these current laws that said that any redistribution 
of payments--in our payment mechanism, there was a pay-for-
performance mechanism that we developed with variable payment 
rates to physicians Surgeons. We went at-risk as well as at-
benefit, so we could potentially reduce our payments on any 
annual basis. The problem was that the interpretation of the 
law said that one penny above our medical allowable charge in 
an incentive program violated these laws.
    Chairman JOHNSON. Right.
    Dr. RICH. Despite focusing on quality, providing absolute 
improvement in quality, monitoring of quality, and 
accountability through public reporting.
    Chairman JOHNSON. Okay. Those of you who have had 
experience in this, we have a premiere hospital demonstration 
that is electing to meet a far greater number of quality 
criteria--I think it is 62, or something--than the 12 required 
under the law. We are looking to see what are the consequences 
of this. What we are finding is that there is a dynamic that 
happens when you reach the 62 that doesn't happen when you 
reach the 50. A dynamic that results from closer collaboration, 
mutual respect, broadening of the team, so on. So, are you 
seeing that? Can you measure that, Ms Goodroe?
    Ms. GOODROE. That is exactly what you are seeing, is a 
collaboration between hospital and all the different physician 
colleagues. Right now, everybody is working very independently, 
on their own. These types of economic alignments bring all 
physicians together, and the hospital together with the 
physicians. It is all based on data, looking, discussing 
things; instead of people doing the things they think work 
best, which may get a quality outcome but you are going to have 
a huge cost differentiation, and that is why there is so much 
waste in the system right now.
    Chairman JOHNSON. So, you actually can measure specifically 
what they are doing? For instance, if they get together and 
discuss the way one person is working, another person, what the 
protocols are in that discipline?
    Ms. GOODROE. Yes. I will give you an example. Every surgeon 
sutures differently. They use different lengths, types, 
everything. Now, those are $1, $5, $10 items that can cost 
millions of dollars at the end of the year. They will sit down 
and discuss, ``Well, why do you suture that way? Why do you 
suture this way? What is good about this? What is the best 
way?''
    Chairman JOHNSON. They never did that before?
    Ms. GOODROE. Never. It is not in the literature. They have 
never discussed it. It is truly in this very artistic way the 
physicians have practiced.
    Chairman JOHNSON. Yes, Dr. Rich?
    Dr. RICH. Yes. We did exactly that. I would say, you know, 
we talk about standardized treatment protocols; we developed 
within the system standardized practice protocols. Those are 
exactly as Ms. Goodroe described. Tracking quality and tracking 
outcomes is important, and we do this through the Society of 
Thoracic Surgery database. We blended it with the UB-92 
database, the Medicare claims database, so that we can actually 
look at the impact on quality.
    Chairman JOHNSON. Let me call myself to a halt, because I 
am over my time I want the others to have a chance before we 
have to adjourn at 12:00. But both of you have databases. I 
think I have to point out from your testimony that the burden 
of these databases is almost greater than any one organization 
can bear. That is another reason why you really have to have 
collaborative efforts. But technology and measurement are at 
the heart of what you have been able to do. Mr. Stark.
    Mr. STARK. Thank you, Madam Chair. Dr. Rich, have you ever 
opened a bag of charcoal briquettes?
    Dr. RICH. Yes, sir.
    Mr. STARK. You know if you pull that string, sometimes, if 
you get the right string, the whole top comes right off, and if 
you don't get the right string, you sit there and pull? Can you 
assure me--I can't look at my latest wound here in public, but 
can you assure me that they never used those stitches on me?
    Dr. RICH. Yes.
    Mr. STARK. Okay. I feel much better. I will pull on this 
string.
    [Laughter.]
    Mr. STARK. Actually, I want congratulate the thoracic 
surgeons.
    Dr. RICH. Thank you.
    Mr. STARK. In pedestrian parlance, you were back here in 
March, suggesting to us that, while you thought pay-for-
performance had its good qualities, we weren't ready for it 
yet. I think I am going to hark back to your testimony. This 
excludes the thoracic surgeons, but for the most part, most 
specialties don't have the database, the outcomes research that 
your specialty has built up, I think over the last 5 or 6 
years--which may be long enough or not. But I think what you 
indicated is that we need more information More database to 
effectively do pay-for-performance. I am further advised, or 
guess, that the anesthesiologists may be the one other 
specialty besides the thoracic surgeons. This was to defend 
themselves from malpractice, but I don't care why. But at any 
rate, they have gathered a great database on anesthesia 
procedures that they have found have saved lives and been more 
efficient as they worked on this. Is it fair to suggest that 
there aren't any--at least, I am unaware--specialties, 
procedural specialties, that have done as advanced research and 
building a database as you and the anesthesiologists?
    Dr. RICH. Actually, the cardiologists have a very 
sophisticated database.
    Mr. STARK. That is separate? That is different from 
thoracic?
    Dr. RICH. Yes.
    Mr. STARK. Okay. But don't we need that across the 
procedural specialties to really accomplish any kind of 
measuring of quality? Don't we need to collect more and more 
sophisticated and detailed databases and outcomes research?
    Dr. RICH. Yes. Absolutely.
    Mr. STARK. Thank you. That, I think, is key. Also, I want 
to congratulate you. Again, in your testimony, slipped in here 
someplace, you suggest that you think that it is impossible to 
have this debate that we are having today without some 
suggesting that physicians ought to improve quality without 
incentives, but rather because it is what they do. I think that 
is a very good statement, because I notice that Ms. Goodroe 
suggests that there is no incentive for physicians to change 
their practices. I just go down the list, other than dollars: 
professional recognition; pride; successful treatment of 
patients; psychic remuneration; for those of you who care, 
under this faith-based Administration you get brownie points 
from Saint Peter. All kinds of incentives out there.
    [Laughter.]
    Mr. STARK. So, I would just like to suggest that there are 
incentives other than dollars. Then I would like to talk with 
Mr. Carter and Mr. Fine. I was up early this morning reading 
``Pig Will and Pig Won't.'' I suspect, unless your children are 
very small like mine, you haven't read ``Pig Will and Pig 
Won't'' lately. You can skip it. But you guys remind me of 
that, because both of you in your testimony say--Mr. Carter 
says, ``Finally, while specialty hospitals don't exist in New 
Jersey, the New Jersey Hospital Association does not view the 
implementation of this project as a reason to lift or ease 
current efforts to implement a moratorium on specialty 
hospitals.'' Mr. Fine, you suggest that you don't substitute 
action in this area for the much-needed ban on physician self-
referral to limited-service hospitals. Gentlemen, we don't have 
time in my allotted time, but I am going to submit to you that 
there is no difference; that this gainsharing is just the 
camel's head going into the tent of specialty hospitals. The 
only difference is a matter of degree. Some legal basis to make 
that statement is that if we allowed the gainsharing, we would 
just open the doors to specialty hospitals, and for general 
acute care hospitals this could be financially disrupting. I am 
one to say that is up to what the hospitals want to do. I am 
not going to tell you how best to organize. But I just want you 
to think carefully. I mean, I would want to get the savings 
back for Medicare that you guys think you would get, and not 
let you give it to the doctors. You don't like that idea. But 
the other side of it is, you may just open the floodgates to 
specialty hospitals, because there isn't much difference. It is 
only in degree Intensity. So, go back and think about that with 
your members and colleagues, Think how much you really want to 
share all these savings with the docs. I yield back.
    Mr. FINE. Well, may I offer a comment concerning that?
    Mr. STARK. Oh, sure. I would love to hear it.
    Mr. FINE. I believe my comments spoke not only about 
limited-service hospitals, but limited-service providers. In my 
region in southeastern Pennsylvania, we have a vast number of 
private endoscopy centers, private imaging centers, things of 
that ilk. We, like in Mr. Carter's state, do not have specialty 
hospitals of the types referred to.
    Mr. STARK. Right.
    Mr. FINE. We certainly have rehab hospitals like Children's 
Hospital.
    Mr. STARK. But Mr. Fine, it is the same thing. It takes the 
high-profit, high-margin services out of your members' 
hospitals, and sets them over here where there is more profit 
to be made. That is profit that you have to use in cost 
shifting to pay for the emergency room or whatever is the least 
profitable part of your members' services.
    Mr. FINE. We have no ability to work with members of our 
medical staff to try to come out with something that addresses 
both of our needs. They are now incented to construct these 
freestanding facilities and skim the cream and leave us dealing 
with the more complicated higher----
    Mr. STARK. To the credit of the physicians, most of those 
things are promoted by the ``Shylocks'' of the medical care 
promotion industry, who are neither hospital administrators nor 
physicians, but people out there creating a good--they are 
entrepreneurs of a sort. It is something you guys have to deal 
with. I don't have any answers. But I mean, the question I am 
only saying is, do you really want to cannibalize the whole 
hospital, and put the emergency room here and the birthing 
center there and the acute care center there? Traditionally, 
you have kept it together for cost shifting. That is a 
discussion I think needs to go on before we just open the gates 
to letting people cannibalize the various procedures within.
    Mr. FINE. Yes, we would certainly enjoy working with you 
and your staff to pursue that further.
    Mr. STARK. Great. Talk to the Chairman. She is the one in 
charge around here.
    Chairman JOHNSON. Mr. Ramstad.
    Mr. RAMSTAD. Thank you, Madam Chair. Mr. Imparato, first of 
all, I want to thank you for your kind words and for the 
privilege, really, of working with you and your group, the 
American Association of People With Disabilities. Both Jim 
Langevin, my colleague and friend from Rhode Island, I, and the 
rest of our bipartisan Disabilities Caucus really enjoyed it 
and appreciated working with you and your group. My first 
question for you, Mr. Emerson, if you will, please, as all of 
you know, the Committee is considering proposals to ensure, 
really, that Medicare genuinely receives value for the 
physicians' services that it purchases. Hardly an Earth-
shattering concept, and certainly a worthy one, an important 
one. But again, the devil is in the details. In determining 
value, these proposals must rely on quality and efficiency 
measures selected through a careful consensus-based review 
process based on recommendations of physician specialty 
services--or societies, rather. Various societies determine the 
standards. Now, if gainsharing were implemented, wouldn't it be 
problematic--or irresponsible, really--to subject patients to 
possible cuts in services that haven't been similarly reviewed; 
that is, that haven't gone through the same careful review and 
selection process based on the judgments of national specialty 
societies or a consensus of the peer-reviewed literature? Is 
that a different standard?
    Mr. EMERSON. Yes, Mr. Ramstad, it would be difficult. One 
of the challenges facing the health care system today is the 
disparity of data across different disease states and different 
specialties. There are clearly some disease states and some 
specialties where the data is well understood and the dataset 
is very solid; which can lead to a fruitful conversation as to 
the ultimate goal of delivering better patient outcomes. Across 
different specialties, and quite honestly in areas where we are 
talking about introducing new technologies, by definition, the 
dataset isn't as robust. So, one of the challenges then in a 
gainsharing environment would be, how would those new 
technologies be assessed from a perspective of being able to 
deliver the innovations that we believe they will deliver? I 
think the outcome of that would be patients running the risk, 
again, of not having a physician advocate on their side, in 
terms of trying to bring forward new technologies as a way of 
bettering outcomes.
    Mr. RAMSTAD. Well, those are pretty important caveats, and 
certainly my concerns, as well. The other question I have is 
for you, Ms. Goodroe, if you please. You have publicly talked 
about the rise in acquisition costs of devices in coronary 
stenting procedures, and the increase in total costs per 
procedure. This is a little bit puzzling to me, and perhaps you 
can help me understand. My understanding is that the newer 
drug-eluting stent products have resulted not in increases, but 
in substantial reductions in the need for retreatment and 
hospital readmissions caused by rhestinosis. In addition, 
according to the literature I have read and the studies that I 
have seen, the newer devices have really become more 
sophisticated. Doctors are dealing with more complex cases that 
previously would have required more invasive, and therefore 
more expensive procedures; more expensive, more invasive 
surgeries. For example, people like my dad, who had a blockage 
in the left main artery, or multiple arteries, and require more 
stents per procedure. Diabetics is another example, with 
multiple problems; and others. Do you, when you make those 
statements, acknowledge those factors?
    Ms. GOODROE. Yes, sir. Our technology measures cost, 
quality, and utilization. You are referring to studies that 
were very small studies that were to the approval of those 
devices. Our technology actually captures data on every patient 
that had a stent procedure. We look at how those stents were 
used What happened. An example is when drug-eluting stents were 
released about a year and a half ago, the cost of the stents 
was very, very high for drug-eluting. They actually came down 
when another stent came on the market that offered the same 
thing. But the cost per case went up immensely over the last 
year and a half, even though the price came down. Our database 
can show that the physicians started utilizing more devices per 
patient; that right now, out of our database--and we are hoping 
now to get these studies published; we are working with 
Stanford University and others on it--it is showing that you 
can't measure a benefit from that increase in cost. That is our 
problem right now. It is that we use technologies without 
evaluating where we are getting the benefits. I am the first 
one that is for new technology. We need the best technology for 
patients. But we have got to make sure that we put an incentive 
in there that people study how these technologies are really 
being utilized. The initial studies that look at the 
effectiveness of this are not enough. Because the effectiveness 
has nothing to do with how those devices are really used once 
they come into the market.
    Mr. RAMSTAD. Well, I think your assertion that you cannot 
quantify--not to use your words, but to use my words--cannot 
quantify a benefit from the increase in costs, I am not sure 
all the literature, all the studies would support that.
    Ms. GOODROE. We are working on studies right now that there 
has been a $4 billion increase in costs based on drug-eluting 
stents, alone. We are working on studies right now--that have 
not been accepted yet, but we are looking at it--that will look 
at what kind of benefit there has been.
    Mr. RAMSTAD. How many people's lives have been saved, like 
my dad's life, in that expenditure? How many people's lives 
have been enhanced so they can function?
    Ms. GOODROE. It is interesting because it----
    Mr. RAMSTAD. I hope your studies measure----
    Ms. GOODROE. Yes, that is what we----
    Mr. RAMSTAD. --the human value, as well.
    Ms. GOODROE. Yes. We are looking at that. Rhestinosis--and 
the cardiac surgeon probably could answer this the best--but 
rhestinosis does not often result in death. Rhestinosis does 
send you for another procedure, but not often in death.
    Mr. RAMSTAD. I see my time is up. Thank you, Ms. Goodroe, 
and thank you to the rest of the panelists, too. We appreciate 
your input counsel.
    Chairman JOHNSON. I certainly take my colleague from 
Minnesota, Mr. Ramstad's, concerns very seriously. I do think 
if we had more time for dialog around this issue we could get a 
clearer public understanding of what has to be done to assure 
that physician choices aren't limited and that patients aren't 
denied access to the technology they need; while at the same 
time hospitals aren't compelled to stock devices that are 
roughly similar. I mean, there are now in the device group, 
like there are in the pharma area, medications that are very, 
very similar. It doesn't mean you might not want a different 
prescription drug than the one covered by your plan. You have 
to have access to that. But I think we are losing sight of the 
degree to which the environment of technology has changed, like 
the environment of pharmaceutical therapeutics has changed in 
the last five to 10 years. We do have to get a physician-
controlled process, just like in the physician payment system; 
the physicians control the clinical data that may be selected 
for their quality standards.
    So, this is a new world. We hope to work this in a way that 
you all are going to be at least relatively comfortable with 
the outcome. But it is a time of change. My point in asking the 
question of Mr. Emerson is that the change has happened. It is 
going on. We can't even see it, It is having some of the very 
effects that Mr. Ramstad is concerned about. So, to do nothing 
is to let it all happen pell-mell. To do something is to give 
some form and structure that results in public accountability 
and quality. This is actually not about money. It is about 
quality. It is about relationships. It is about a dynamic of 
quality that is parallel to what happens in continuous 
improvement in other parts of the economy and cannot by law 
happen in health care. So, we look forward to working with all 
of you, as well as Mr. Stark and his staff. He does have a 
different point of view. He certainly has legitimate concerns. 
But it is true, the world has changed. My hope is that we can 
help Medicare keep pace with the quality changes that the 
delivery system now has an opportunity to realize, for the sake 
of the patients. Thank you.
    [Whereupon, at 11:58 a.m., the hearing was adjourned.]
    [Submissions for the record follow:]
  Statement of Joane Goodroe, Goodroe Healthcare Solutions, Norcross, 
                                Georgia
Presentation Summary
    Drug-eluting stents quickly replaced bare-metal stents as the 
arterial revascularization device of choice because trials show that 
in-stent restenosis is markedly reduced with the new device. Most of 
the available data comparing drug-eluting stent (DES) to bare-metal 
stents (BMS) arises from randomized trials designed for the purposes of 
gaining FDA approval.\1\
    In our current outcomes analysis of nearly 17,000 bare-metal stent 
patients we found that, prior to DES release, population-level stent 
outcomes were markedly better than those reported in the control arms 
of the FDA-oriented randomized trials. Consequently, reliance on the 
trials results substantially overstates the magnitude of the clinical 
problem that DES are designed to reduce. The potential for improvement 
in post-stent outcomes with widespread DES use in our population is 
markedly smaller than reported by the randomized trials. We expect that 
the cost-effectiveness of new stent technology adoption in this 
population is much less attractive than the FDA-oriented trials would 
suggest.
    Reimbursement and policy decisions for technology adoption based on 
the outcomes reported in the FDA-oriented trials of emerging therapies 
may not align with decisions that would be made if population-level 
analyses were used to assess the opportunity for outcomes improvement.
    Our goal is to provide information and analyses that are useful to 
policymakers and to both clinical and reimbursement decision makers. We 
welcome your feedback and questions.
Background
    The major health and economic consequence of in-stent restenosis is 
symptom-driven repeat revascularization, usually treated with 
additional percutaneous coronary intervention (PCI).\2\ Rapid 
acceptance of drug-eluting stents (DES) was based on evidence that they 
reduce bare-metal stent restenosis by as much as 75%.\3,4\
    However, in-stent restenosis is just one cause of recurrent angina 
after stenting, and the proportion of all subsequent procedures that 
might be averted with restenosis prevention is uncertain. Because 
coronary artery disease is progressive in nature, many patients require 
additional procedures to relieve symptoms caused by newly symptomatic 
lesions even when the initially-stented segment remains fully patent. 
Cutlip et al analyzed 5-year follow-up data for 1,288 randomized stent 
trial patients and observed that after the first follow-up year the 
hazard rate for target lesion events (including death, infarction, and 
revascularization) was 1.7% while that related to non-target lesions 
was 6.3%.\5\ Accordingly, we examined bare-metal stent outcomes in 
unselected patients during a period immediately prior to the market 
release of DES to identify the relative clinical importance of stented-
segment lesion recurrence (restenosis) and development of other 
arterial lesions.
Methods
    The data analyses described herein were conducted in compliance 
with the Privacy Rule contained in the Health Insurance Portability and 
Accountability Act of 1996, and with approval from the Stanford 
University Panel for Human Subjects in Medical Research.
    We examined combined data from 17 hospitals that use 
CathSourceTM Enterprise software (Goodroe Healthcare 
Solutions, LLC, Norcross Georgia) for cardiac catheterization 
laboratory data management. Contributing hospitals were geographically 
distributed throughout the United States and submitted all their 
cardiac catheterization records to the Goodroe Data Warehouse every 3 
months. To ensure accuracy, an automated rules engine validated the 
clinical and device usage data. We were able to observe patients who 
returned to the catheterization laboratory for any reason after initial 
stenting and the details for the procedures they received after the 
index procedure. The database does not include information about 
clinical events that occur outside of the catheterization laboratory, 
and so we cannot report the rates of stroke, out-of-lab mortality. Nor 
are we able to observe subsequent procedures done in laboratories that 
do not submit data to the Goodroe Healthcare Solutions Warehouse.
    Analysts at the Warehouse reviewed the procedural data collected 
for all patients who underwent PCI to identify patients who received 
bare-metal stents between December 1, 1998 and March 31, 2003. Patients 
who underwent atherectomy or brachytherapy were excluded. Patients 
whose PCI records did not include physician-entered data describing the 
stented arterial segment, or lesion type and severity were also 
excluded. We reviewed the data-harvesting pattern from all sites to 
ensure that the Warehouse received data from that site for at least 9 
months subsequent to each index procedure date. Unique patient 
identifiers were employed to search the database for evidence of repeat 
PCI or diagnostic catheterization up to 365 days following the index 
bare-metal stent procedure. Angiographic data from any subsequent 
catheterization laboratory procedures were examined to determine the 
anatomical targets of repeat PCI, or diagnostic catheterization results 
that advised coronary artery bypass surgery (CABG) referral.
    Angiographic data were collected in accordance with guidelines set 
forth by the American College of Cardiology National Cardiovascular 
Data Registry (ACC-NCDR).\6\ Recurrent coronary artery lesions were 
defined as those with  50% lumen diameter reduction at the time of 
subsequent diagnostic catheterization, or those in which repeat PCI was 
performed regardless of percent stenosis. The arterial segment in which 
a bare-metal stent was placed is called the target segment, or stented 
segment.
    The records for all stent procedures subsequent to the market 
release of DES were examined to illustrate the dissemination pattern of 
the new technology. We calculated the average device acquisition cost 
for single-vessel stent procedures in aid of observing the economic 
effect of DES adoption.
Results
    Of 16,950 patients, 63.5% were male and the average age was 64.3 ( 
12.2 years). Previously untreated (denovo) lesions were the sole 
therapeutic target of the index stent procedure in 94% of the patients, 
and 87% of the procedures were single-vessel treatments.
    Diagnostic catheterization was performed on 3,623 (21.4%) of the 
patients between 9- and 12-months follow up follow-up year, Table 1. 
One third of those angiograms resulted in medical management 
recommendations without further revascularization. Subsequent PCI was 
performed in 2,070 and CABG was recommended for 209, for a total of 
2,158 patients (12.7% of the cohort), including 144 patients who had 
both repeat PCI and subsequent CABG referral. The average time from the 
index stent procedure to the first (or only) repeat PCI was 114  91 
days.

    Table 1. Follow-up diagnostic catheterization recommendations


                                                    n        % of cohort

Diagnostic catheterization within--365 days         3,623          21.4
Unique patients with repeat PCI
Subsequent PCI performed                            2,070          12.2
PCI referral but procedure not observed in            118           0.7
 databank
Unique patients with any CABG recommendation          209           1.2
Medical management or non-cardiac                   1,253           7.4
 recommendation



    Diabetes (28.1%) and hypercholesterolemia (with or without statins, 
47.3%) were more common, and the average number of lesions  50% was 
higher (2.24) in patients who required follow-up PCI than in patients 
for whom we observed only one stent procedure (23.2% diabetes, 44.3% 
hypercholesterolemia, 1.78 lesions  50%). The rate of subsequent PCI 
was lowest, 8.2%, for patients with single-segment disease who 
underwent single-segment stenting at the initial procedure and highest, 
15.3%, for patients with multi-segment disease and who underwent 
initial multi-segment stenting, Table 2.

Table 2. Subsequent PCI rate by disease burden and extent of index 
stenting

                              Disease burden at time of index procedure


                                                 Single-       Multi-
                                                 segment       segment

Segments stented
Single                                               8.2%         14.4%
Multiple                                            13.9%         15.3%



Patient-level analysis of follow-up procedures

    We examined the anatomical target of repeat revascularization for 
2,158 patients with observed follow-up PCI or diagnostic 
catheterization that resulted in CABG referral, Table 3. Target vessel 
revascularization (TVR) was documented in 1,584 patients (9.3% of the 
cohort). However, 624 (39.3%) of the patients who required TVR also 
underwent PCI to relieve lesions in previously unstented arteries or 
had other lesions identified for CABG. Stented-segment (stent plus 
peri-stent margins) revascularization, with or without treatment of 
other lesions, was documented in 1,194 patients (7.0% of the cohort). 
Of the patients who required target-segment revascularization 65.7% 
also underwent either PCI or were referred to CABG with lesions ( 50%) 
in previously untreated arterial segments. Target-segment 
revascularization was the sole indication for repeat revascularization 
in 409 patients, or 2.4% of the cohort. Almost half (964, or 44.7%) of 
the patients who required subsequent revascularization did not have 
recurrent lesions within previously-stented segments at the time of 
their follow-up procedure.

Table 3. Anatomical site of subsequent revascularization, patient level


                                                    n             %

Patients with repeat PCI data or CABG               2,158          12.7
 recommendation
Patients with any target-vessel                     1,584           9.3
 revascularization
                    PCI                             1,375           8.1
                    CABG                              209           1.2
Revascularization limited to target vessel            960           5.7
Combined target and non-target vessel                 624           3.7
 revascularization
Revascularization limited to non-target               574           3.4
 vessel
Patients with any target-segment                    1,194           7.0
 revascularization
                    PCI                             1,037           6.1
                    CABG                              157           1.0
Revascularization limited to target segment           409           2.4
Combined target and non-target segment                785           4.6
 revascularization
Revascularization limited to non-target               964           5.7
 segment



Anatomical analysis of follow-up PCI procedures

    Within 1-year follow up after index stenting 2,070 (12.2% of the 
cohort) patients underwent further PCI. One additional PCI procedure 
was observed for the majority of the returning patients (1,741, 84%), 
while 329 patients returned to the catheterization laboratory for 
further intervention more than once (2x 255 patients, 3x 58 patients, 
4x 11 patients, 5x 5 patients). In sum, we observed 2,494 subsequent 
PCI for the 2,070 returning patients. For the 2,494 subsequent PCI 
procedures, the anatomical revascularization target was the initially 
stented segment in 31%, other arterial segments not treated at the 
index procedure in 54%, and both the stented segment and other arterial 
segments in 15%. Hence, 46% of the follow-up PCI procedures included 
any intervention to the initially stented arterial segment.
    We observed a concentration of non-stented segment PCI within 8 
weeks after the index stent procedure, constituting 18% of all follow-
up procedures, Figure 1. Same segment PCI within the first follow-up 
month accounted for 3.4% of all comeback procedures and 10.9% of all 
same-segment reinterventions.



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    OS = arterial segment other than that stented at the index 
admission
    SS = the same arterial segment that was stented at the index 
admission
    Both = both the stented segment and other arterial segments treated 
at comeback PCI
    In April of 2003, the first DES was FDA approved and within a few 
weeks 50% of all stent procedures performed in the Goodroe network 
involved DES. With approval of a second brand of DES in March of 2004 
the dissemination of this technology proceeded further. In this network 
more than 90% of all stent procedures currently involve DES use and 
approximately 80% of all stent devices used are DES, Figure 2.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Figure 2. Drug eluting stent adoption from March 31, 2003 to December 
31, 2004.

    For patients who underwent elective single-segment stenting (as 
seen in 82% of this cohort), the catheterization laboratory acquisition 
costs for devices used in single-segment stent procedures (including 
guidewires, catheters and stents) increased 27% between the second 
quarter of 2003 and the end of 2004, Figure 3.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Figure 3. Device acquisition costs for single-segment, non AMI setting 
stent procedures
    Stented segment revascularization was indicated in 55% of the 
patients who underwent additional PCI or who were referred to CABG. 
However, improved restenosis prevention with use of DES would have 
averted only some of those repeat procedures because 65.7% of the 
patients who required target-segment revascularization also had 
intervention in lesions in non-stented arterial segments. Just 7% of 
this bare-metal stent population returned to the catheterization 
laboratory for any repeat PCI to treat an arterial segment that had 
been previously stented with a bare-metal stent.
    The randomized DES trials report substantially higher event rates 
subsequent to bare-metal stenting than those in this longitudinal 
study. In the Sirolimus-Eluting Balloon Expandable Stent in the 
Treatment of Patients With De Novo Native Coronary Artery Lesions 
(SIRIUS) trial, the target-lesion revascularization (TLR) rate for the 
bare-metal stent subset was 20.0%,\4\ compared with 7% target-segment 
revascularization in our bare-metal stent cohort. In one of Boston 
Scientific's paclitaxel-eluting stent trials, TAXUS IV, the one-year 
TLR rate was 15.1%.\5\ This rate is also substantially higher than the 
rate for observed target-segment reintervention in our series. Routine 
angiography is known to result in higher follow-up PCI rates than are 
observed in patient cohorts without angiographic follow-up 
assessment.\7\ Because the DES trials performed for FDA approval 
incorporated mandatory angiographic follow up, we would logically 
expect the subsequent PCI rates to be higher than would be the case in 
practice settings in which follow-up events are symptom driven.
    Kimmel reported a 6-month repeat PCI rate of 9.9% in 1,240 
consecutive patients who received stents in the later part of 1995.\8\ 
Based on chart review, Kimmel estimated that 85% of those follow-up PCI 
procedures were performed to treat restenosis. Recently Clark et al 
reviewed 1998 Medicare claims data in 9,868 PCI patients predominantly 
treated with stents, but including other forms of PCI. Compared to the 
Goodroe cohort, the Medicare patients were older (73.4 versus 64.3 
years) \9\ and contained a larger proportion of diabetics (33.8% versus 
24.1%). The one-year repeat revascularization rate in the Medicare 
population was 16.9%, compared to 12.7% for the stent patients 
described here. Clark applied the 85% finding from Kimmel's work to 
their observed revascularization rate to derive an estimated clinical 
restenosis rate of 14.4%. However, since 1998 stent design evolution 
has resulted in improved stent patency rates, and those improvements 
could be reflected in the lower follow-up event rates in our study. In 
two trials of bare-metal stents, Baim et al \10\ reported 9-month TLR 
rate of 7.7% and Serruys et al \11\ observed that 7.0% of the patients 
underwent 9-month TVR. Our angiographically based findings are more 
aligned with these more recent stent trials: The one-year target-
segment revascularization rate was 7.0% and the TVR rate was 9.3% in 
our cohort.
    Clinical progression of coronary lesions accounted for repeat 
procedures in 5.8% of the PCI patients studied in a recently published 
report from the National Heart, Lung, and Blood Institute Dynamic 
Registry.\13\ We observed that 5.7% of the patients in this series 
underwent subsequent PCI solely to treat lesions other than those 
stented at the time of the initial PCI. Additionally, 4.6% of the 
cohort received subsequent PCI to treat both the initially stented 
segment and lesions in other portions of the coronary anatomy and 69% 
of the follow-up PCI procedures included treatment of arterial segments 
not treated during the index stent admission.
    Conversely, only 2.4% of the cohort returned for subsequent PCI 
solely to relieve symptoms related to the initially-stented segment.
    Notably, 34% of all subsequent PCI procedures were performed on 
non-stented arterial segments within the first 8 weeks of follow-up 
after index stenting. These procedures reflect either intentionally 
staged treatment for multi-segment coronary disease or rapid clinical 
progression of lesions that were not responsible for symptoms at the 
time of index stenting.
    Within the first follow-up month 20% of all comeback procedures 
were performed on non-stented lesions.
    In another recently published study, Aegma et al reported on a 
series of 3,146 bare-metal stent patients with 9-month follow up.\12\ 
The TVR rate was 10.3%, which compares favorably to 9.3% in this 
Goodroe patient cohort. An additional 66 patients (2.1%) in the Aegma 
study suffered cardiac death or acute myocardial infarction that may be 
attributable to clinical restenosis (events that we were unable to 
observe in the databank). These authors also reported that same-segment 
reintervention within one month of successful stenting was due to sub 
acute thrombosis and other sub-acute stent placement issues.\13\ Of the 
same-segment reinterventions in this cohort, 10% occurred within the 
first month which would indicate a sub-acute in-stent event rate of 
less than one percent. Once we exclude all one-month reinterventions 
and any subsequent PCI procedures that solely targeted non-stented 
segments, 1,049 follow-up PCI procedures remain that included any same-
segment reintervention and could potentially be restenosis-related. 
Hence we estimate that, at most, 42% of the PCI procedures done in 
follow-up could be associated with in-stent restenosis, and that these 
events affected 6.2% of the cohort.
    The majority of repeat PCI procedures in this population were 
performed to treat lesions other than those stented in the index 
procedure, and so would have been required even if drug-eluting stents 
had been used as the initial therapy. The opportunity to improve stent 
outcomes by reducing in-stent restenosis in this group of unselected 
stent patients would be much smaller than is suggested by results of 
the randomized DES trials. Because the cost-effectiveness of any new 
therapy depends on its effectiveness relative to the existing therapy 
and the in-stent clinical restenosis rate in this cohort is 
considerably less than the control arms of the DES trials, we would 
expect that DES use in this cohort would be substantially less cost 
effective than is suggested by analysis of the DES trial results.\2\
    Drug-eluting stents are intended to reduce in-stent restenosis, and 
while a small proportion of all stent patients suffer events related to 
restenosis we observe that DES are currently used in more than 90% of 
the stent procedures done in Goodroe participating hospitals. This new 
technology disseminated quickly after its market release and the costs 
related to stent procedures grew. The global market for drug-eluting 
stents is estimated at $5 billion and there is intense competition for 
market share among stent manufacturers. However, one effect of the 
promotion of drug-eluting stents may be costly overuse of this new 
technology in low clinical value situations. Concerns persist about the 
sub-acute complications related to DES use, and more study is required 
to see if widespread dissemination of this new therapy includes a 
tradeoff between restenosis-related events and stent-related 
complications.
Limitations
    The stent-related clinical event rate in this study population may 
be affected by a variety of factors that we did not study and are 
unable to observe given the nature of the databank. Stent patients who 
suffered out-of-lab death, stroke, or recurrent cardiac symptoms may 
have returned to cardiologists or hospitals other than their original 
provider, and those subsequent events would not have been captured in 
the Data Warehouse. We did not survey the contributing hospitals to see 
how their interventional case complexity and volume compares to other 
centers.
References
    1. Yock CA, Yock PG. The drug-eluting stent information gap. Am 
Heart Hosp J. 2004;2:21-5.
    2. Cohen DJ, Bakhai A, Shi C, Githiora L, Lavelle T, Berezin RH, 
Leon MB, Moses JW, Carrozza JP, Jr., Zidar JP, Kuntz RE. Cost-
Effectiveness of Sirolimus-Eluting Stents for Treatment of Complex 
Coronary Stenoses: Results From the Sirolimus-Eluting Balloon 
Expandable Stent in the Treatment of Patients With De Novo Native 
Coronary Artery Lesions (SIRIUS) Trial. Circulation. 2004;110:508-514.
    3.  Stone GW, Ellis SG, Cox DA, Hermiller J, O'Shaughnessy C, Mann 
JT, Turco M, Caputo R, Bergin P, Greenberg J, Popma JJ, Russell ME. A 
polymer-based, paclitaxel-eluting stent in patients with coronary 
artery disease. N Engl J Med. 2004;350:221-31.
    4. Moses JW, Leon MB, Popma JJ, Fitzgerald PJ, Holmes DR, 
O'Shaughnessy C, Caputo RP, Kereiakes DJ, Williams DO, Teirstein PS, 
Jaeger JL, Kuntz RE. Sirolimus-eluting stents versus standard stents in 
patients with stenosis in a native coronary artery. N Engl J Med. 
2003;349:1315-23.
    5. Cutlip DE, Chabra AG, Baim DS, Chauhan MS, Marulkar S, Massaro 
J, Bakhai A, Cohen DJ, Kuntz RE, Ho KK. Beyond restenosis: five-year 
clinical outcomes from second-generation coronary stent trials. 
Circulation. 2004;110:1226-30.
    6. Scanlon PJ, Faxon DP, Audet AM, Carabello B, Dehmer GJ, Eagle 
KA, Legako RD, Leon DF, Murray JA, Nissen SE, Pepine CJ, Watson RM, 
Ritchie JL, Gibbons RJ, Cheitlin MD, Gardner TJ, Garson A, Jr., Russell 
RO, Jr., Ryan TJ, Smith SC, Jr. ACC/AHA guidelines for coronary 
angiography. A report of the American College of Cardiology/American 
Heart Association Task Force on practice guidelines (Committee on 
Coronary Angiography). Developed in collaboration with the Society for 
Cardiac Angiography and Interventions. J Am Coll Cardiol. 1999;33:1756-
824.
    7. Ruygrok PN, Webster MW, de Valk V, van Es GA, Ormiston JA, Morel 
MA, Serruys PW. Clinical and angiographic factors associated with 
asymptomatic restenosis after percutaneous coronary intervention. 
Circulation. 2001;104:2289-94.
    8. Kimmel SE, Localio AR, Krone RJ, Laskey WK. The effects of 
contemporary use of coronary stents on in-hospital mortality. Registry 
Committee of the Society for Cardiac Angiography and Interventions. J 
Am Coll Cardiol. 2001;37:499-504.
    9. Clark MA, Bakhai A, Lacey MJ, Pelletier EM, Cohen DJ. Clinical 
and economic outcomes of percutaneous coronary interventions in the 
elderly. An analysis of Medicare claims data. Circulation. 
2004;110:259--264.
    10. Baim DS, Cutlip DE, Midei M, Linnemeier TJ, Schreiber T, Cox D, 
Kereiakes D, Popma JJ, Robertson L, Prince R, Lansky AJ, Ho KK, Kuntz 
RE. Final results of a randomized trial comparing the MULTI-LINK stent 
with the Palmaz-Schatz stent for narrowings in native coronary 
arteries. Am J Cardiol. 2001;87:157-62.
    11. Serruys PW, S IJ, Hout B, Vermeersch P, Bramucci E, Legrand V, 
Pieper M, Antoniucci D, Gomes RS, Macaya C, Boekstegers P, Lindeboom W. 
Direct stenting with the Bx VELOCITY balloon-expandable stent mounted 
on the Raptor rapid exchange delivery system versus predilatation in a 
European randomized Trial: the VELVET trial. Int J Cardiovasc 
Intervent. 2003;5:17-26.
    12. Agema WR, Monraats PS, Zwinderman AH, De Winter RJ, Tio RA, 
Doevendans PA, Waltenberger J, De Maat MP, Frants RR, Atsma DE, Van Der 
Laarse A, Van Der Wall EE, Jukema JW. Current PTCA practice and 
clinical outcomes in The Netherlands: the real world in the pre-drug-
eluting stent era. Eur Heart J. 2004;25:1163-70.
    13. Glaser R, Selzer F, Faxon DP, Laskey WK, Cohen HA, Slater J, 
Detre KM, Wilensky RL. Clinical progression of incidental, asymptomatic 
lesions discovered during culprit vessel coronary intervention. 
Circulation. 2005;111:143-9.

                                 

                           Medical Device Manufacturers Association
                                               Washington, DC 20006
                                                    October 7, 2005
    The Medical Device Manufacturers Association (MDMA) and its member 
companies would like to thank the Subcommittee for holding this hearing 
on Gainsharing and for beginning the discussion on this critical public 
policy debate. It is important that all stakeholders (patients, 
hospitals, physicians and manufacturers) engage in a broad discussion 
and that a thorough review of all the possible ramifications is 
assessed before Congress enacts legislation.
    MDMA is a national trade association representing the innovative 
and entrepreneurial sector of the medical device industry. Our 
membership is comprised of over 200 device manufacturers, including 
makers of medical devices, diagnostic products, and health care 
information systems. MDMA seeks to improve the quality of patient care 
by encouraging the development of new medical technology and fostering 
the availability of innovative products in the marketplace.
    Attempting to make the health care system more effective and 
efficient is a worthwhile goal shared by many and there has been much 
progress made in the area of ``pay for performance'' (P4P) initiatives. 
P4P initiatives are programs that create financial incentives for 
physicians to collect better data or deliver better outcomes and they 
are consistent with the evidence-based medicine movement that has 
generated broad-based support in the medical community as well as in 
Washington. However, ``device contract gainsharing'' (DCG) is separate 
and distinct from P4P initiatives. DCG provides physicians with 
incentives to limit care by using the cheapest alternative or through 
using only one device vendor.
    Because the term gainsharing does not have a uniform definition 
there is much confusion surrounding the term. The U.S. Department of 
Health and Human Services' Office of the Inspector General (OIG) has 
defined the term as ``an arrangement in which a hospital gives 
physicians a share of any reduction in the hospital's costs 
attributable in part to the physicians' efforts.'' This aligning of 
incentives can include giving a physician a financial incentive to 
``reduce the use of specific medical devices and supplies and to switch 
to specific products that are less expensive.'' Gainsharing, as defined 
by the OIG, is very concerning to many in the medical device industry 
as it is inferred to mean that a physician will receive a kickback for 
using cheaper and less advanced medical technology.
    Currently illegal, gainsharing arrangements violate the Civil 
Monetary Penalty (CMP) law, federal anti-kickback statutes; and the 
Stark, physician self-referral law. Legalizing gainsharing could have 
long lasting ramifications that are detrimental to patient care, 
medical device innovation and the long term cost of health care.
    MDMA defines DCG, one element within the broader discussion of 
gainsharing, as an attempt to cut health care costs by offering 
financial incentives to doctors who reduce expenditures through using 
cheaper medical devices or by limiting physician choice for clinical 
preference products. Device contract gainsharing forces doctors to make 
unacceptable choices between patient care and larger paychecks. MDMA 
believes that in order to protect patient quality of care and medical 
technology innovation, it is essential that doctors do not have a 
conflict of interest in providing patient care.
DCG Conflicts With Personalized Patient Care
    Proponents of DCG argue that hospitals may achieve cost savings by 
offering ``different'' forms of care. Certainly, reducing hospital 
over-treatment, if it exists, by more carefully examining medical 
necessity and lowering supply costs through simple administrative 
changes are worthwhile goals. However, these cost-saving mechanisms do 
not justify the implementation of DCG arrangements.

      Any hospital may make adjustments to protocol, such as 
changing the packaging of surgical tools, in order to reduce costs. 
Hospital administrators and doctors can and should look for creative 
ways to make health care more efficient. However, offering financial 
incentives to doctors to ``create efficiencies'' presents a troubling 
conflict of interest; doctors are forced to choose between personal 
financial gain and a potential reduction in patient care. The personal 
financial conflict undermines a physician's responsibility to focus 
exclusively on patient outcomes.
      ADMA supports attempts to better align physician payments 
with improved data collection and better outcomes. These types of ``pay 
for performance'' initiatives are worthwhile since they focus on 
financial incentives for enhanced clinical practices that improve 
patient outcomes. However, MDMA is opposed to any programs that would 
create a financial incentive for doctors to limit patient access to 
medical technologies. These device contract gainsharing arrangements 
will negatively affect personalized patient care, stifle medical device 
innovation and may ultimately result in higher long-term costs to the 
health care system.

    DCG arrangements threaten personalized patient care initiatives by 
creating a ``one size fits all'' approach to medicine. The Centers for 
Medicare and Medicaid Services (CMS) has recognized the value of moving 
towards patient centered care as the best way to improve the quality of 
care and reduce costs. Gainsharing will prevent this goal from being 
realized because it penalizes physician choice.

      No single brand of medical device is superior for all 
patients and physicians, as each device has unique features and 
functionalities. An artificial hip or pacemaker that produces an 
optimal clinical outcome for one person may pose a serious health risk 
to another patient. Similarly, a device that one physician may use with 
complete confidence and familiarity may pose serious concerns for 
another doctor. Many companies produce an array of devices that 
accommodate the hand size, eyesight, and individual preference of 
surgeons. Proposed DCG arrangements, by demanding a ``one size fits 
all'' approach to medicine, would jeopardize patient safety by denying 
patients and physicians access to necessary technologies.
      In Iowa, doctors constrained by a hospital's agreement 
have reported having to transfer patients to other hospitals in order 
to get them the brand of medical device that they need. In 
Pennsylvania, a physician has sued his hospital for using a 
standardization contract as a facade for receiving illegal kickbacks 
from a major manufacturer. This type of financial pressure to 
standardize medical devices can reduce a physician's ability to offer 
the most effective and appropriate medical care.
      DCG will require doctors to undergo a retraining and 
education period to learn how to properly use and monitor devices they 
are required to use. This training period will be costly, and medical 
mistakes and patient injuries are inevitable during this learning 
period. Any possible efficiency benefits of DCG may be substantially 
offset by the costs, in terms of money, patient safety, and device 
innovation that standardization of medical devices entails.
DCG Standardization Stifles Innovation:
    Standardization of medical devices, in addition to posing immediate 
concerns regarding patient care, also may have the unintended effect of 
reducing medical device innovation. Exclusive contracts and the 
incentive structure of DCG discourage medical device innovation, hurt 
small businesses, and create anticompetitive market forces.

      DCG offers doctors strong financial incentives to 
maintain the status quo and avoid upgrading to those new and innovative 
medical technologies that could enhance patient outcomes. Doctors in 
DCG arrangements are encouraged to cut costs by using the cheapest 
medical devices, not to improve care by using the newest and most 
effective medical devices.
      DCG encourages doctors to ignore or reject the medical 
benefits of new technologies in exchange for personal income. DCG 
encourages doctors to purchase exclusively from large companies, which 
negotiate with GPOs to provide low-priced, exclusive and bundled 
contracts. However, innovation in the medical device market is driven 
by small and new companies; entrepreneurial companies are responsible 
for the overwhelming majority of medical device breakthroughs. They 
have revolutionized patient care, but they cannot be expected to 
compete and innovate if doctors are offered substantial financial 
incentive to accept exclusive contracts from large producers.
      Important and lifesaving medical devices such as the 
drug-eluting stent may never have been developed if DCG had been in 
place ten years ago. DCG arrangements encourage stagnation in the 
medical device industry by financially penalizing doctors for buying 
new and innovative medical devices.
The Potential for Overall Cost-reduction Under DCG is Small and 
        Uncertain:
    Doctors and health care professionals have expressed concern that 
DCG may not offer substantial and sustainable health care cost 
reductions. Current profit-sharing hospital models have failed to 
produce tangible cost savings, and the potential for increased long-
term costs reduces the feasibility of controlling health care expenses 
through DCG.

      Over the last three years, the Senate, the New York 
Times, Los Angeles Times, Government Accountability Office, the OIG, 
and Department of Justice all have launched investigations about the 
potential inefficiencies of GPOs and their drive to standardize devices 
within their member hospitals. Evidence does not support the assertion 
that standardization reduces contract prices, and GPOs, in many cases, 
increase health care costs. The financial justification for 
standardization, therefore, is based primarily on the suspect 
assertions of GPOs.
      MedPAC has indicated that physician owned hospitals, for-
profit ventures that specialize in cutting costs to increase physician 
payments, have not succeeded in reducing per-procedure health care 
costs. Despite that fact that the interests of physicians and the 
hospital are perfectly aligned in the physician-owned hospital model, 
cost savings have not been achieved. The success of DCG arrangements, 
which are predicated on the same incentive-based theory as physician-
owned hospitals, thus is substantially in doubt.
      The long-term cost-effectiveness of DCG agreements is 
also mitigated by the possibility that cheaper medical devices and 
fewer medical procedures will result in higher rates of medical 
complications, malpractice liability, and hospital re-admittance. While 
these decisions may result in reductions in immediate health care 
costs, the decreased durability of lower-cost medical devices may cause 
higher rates of medical complications and follow-up surgeries. Cheaper 
devices and cheaper medical procedures may cut short-term costs, but 
the likelihood of hospital re-admittance make DCG an unstable mechanism 
for producing long-term health care price reductions.
MDMA urges Congress to prohibit DCG
    MDMA recognizes that rising hospital costs are a drain on health 
care resources, and reducing health care costs is necessary to ensure 
that health care is affordable. However, DCG is not an effective or 
adequate way to achieve these results. Containing the rising cost of 
health care by better aligning incentives of physicians and hospitals 
should be a priority and we hope Congress will recognize that the P4P 
model rewarding quality and appropriate care is the correct approach. 
Device contract gainsharing will simply create a race to the bottom, 
adversely impacting patient care, innovation, and the long-term cost of 
health care. MDMA urges Congress to oppose any legislation which would 
legalize DCG agreements.
    Again, we thank Chairman Johnson and the Subcommittee for providing 
us the opportunity to express the gainsharing perspective of the 
entrepreneurial, innovative medical technology sector. We are 
encouraged by the prospect of working together to achieve reductions in 
the cost of health care without jeopardizing patient safety, curtailing 
device innovation or limiting physician choice.
    Thank you.
            Sincerely,
                                                        Mark Leahey
                                                 Executive Director

                                 
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