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




 
                           PRICE TRANSPARENCY

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 18, 2006

                               __________

                           Serial No. 109-78

                               __________

         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           JOHN S. TANNER, Tennessee
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
JERRY WELLER, Illinois               LLOYD DOGGETT, Texas
KENNY C. HULSHOF, Missouri           EARL POMEROY, North Dakota
RON LEWIS, Kentucky                  STEPHANIE TUBBS JONES, Ohio
MARK FOLEY, Florida                  MIKE THOMPSON, California
KEVIN BRADY, Texas                   JOHN B. LARSON, Connecticut
THOMAS M. REYNOLDS, New York         RAHM EMANUEL, Illinois
PAUL RYAN, Wisconsin
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

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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of July 11, 2006 announcing the hearing.................     2

                               WITNESSES

Herzlinger, Regina E., Harvard Business School, Boston, 
  Massachusetts..................................................     6
Downey, Robin, Aetna, Middletown, Connecticut....................    17
Evans, Daniel F. Jr., Clarian Health Partners, Indianapolis, 
  Indiana........................................................    22
Brenton, Stephen, Wisconsin Hospital Association, Madison, 
  Wisconsin......................................................    26
Tu, Ha T., Center for Studying Health System Change..............    30

                       SUBMISSION FOR THE RECORD

Trachtman, Richard, American College of Physicians, statement....    58


                           PRICE TRANSPARENCY

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                         TUESDAY, JULY 18, 2006

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

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

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
July 11, 2006
HL-17

                      Johnson Announces Hearing on

                           Price Transparency

    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 price transparency in the health 
care sector. The hearing will take place on Tuesday, July 18, 2006, 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 the invited witnesses only. 
Witnesses will include representatives from the insurance industry, the 
health care provider community, and the academic community. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.

      

BACKGROUND:

      

    This hearing will focus on efforts to develop greater price 
transparency in the health care sector and follows on a prior 
Subcommittee hearing in December 2005 in Milwaukee, Wisconsin. That 
hearing focused on a report by the U.S. Government Accountability 
Office (GAO) on price variations for health services within the Federal 
Employees Health Benefits Program. The GAO found significant price 
differences for hospital inpatient and physician services in different 
areas around the country, and that areas with the least competition 
among health care providers had higher prices than areas with more 
competition.

      

    Congress needs to better understand the importance of increasing 
price transparency, its potential impact on slowing spending growth, 
and efforts undertaken to accomplish this goal. Health care is the only 
major sector of our economy where consumers and providers have 
virtually no useful information on the true costs of medical goods and 
services. Greater health care price transparency has the potential to 
increase competition and create pressures to contain or reduce health 
care costs. Some private health insurers and health care providers have 
recognized the importance of providing greater market-based information 
to their customers and the public, both on health care price and 
quality.

      

    In announcing the hearing, Chairman Johnson stated, ``Rising health 
care costs and greater transparency are two of the most important 
issues confronting Congress and the nation. Greater competition among 
health care plans and providers is an essential element in reducing 
costs. One tool that can promote competition involves greater price 
transparency for health care services, which will serve to provide 
valuable consumer information. As Congress struggles with increasing 
costs and demands in all of our health care programs, especially 
Medicare premium growth, it is essential that Congress continue to 
explore root causes and find ways to slow the growth in Medicare and 
overall health care spending.''

      

FOCUS OF THE HEARING:

      
    The hearing will focus on initiatives to develop greater price 
transparency in the health care sector and the impact and benefits of 
price transparency, including the potential for increased competition, 
lower costs, and lower spending growth.
      

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noted above.

                                 

    Chairman JOHNSON OF CONNECTICUT. This is an important 
hearing, and I appreciate your attendance and participation.
    It is always hard to move into a future that is unlike your 
past, and we have an entire health care system built on 
insurance coverage and not built on either price or consumer 
choice. So, today's hearing does focus on the development of 
greater price transparency which I see as simply a natural 
component of any modern health care system in the future.
    We did have a Subcommittee hearing in December in Wisconsin 
to review the Government Accountability Office (GAO) report and 
geographic price variations in the Federal Employees Health 
Benefits program and the effects of competition on prices in 
the Federal Employees Health Benefits program.
    One of the most interesting pieces of information to come 
out of that hearing was information presented by Richard 
Blomquist of Blomquist Benefits Consulting in Milwaukee. He had 
formerly run a health care plan, so he was familiar with what 
prices really are charged to insurance companies.
    In the course of his testimony, he pointed out that one of 
the by-products of this evolution away from prices was a 
significant difference in the cost of similar services at 
different hospitals. A $2,000 service in one hospital can cost 
$6,000 in another. A normal delivery ranged in the Milwaukee 
area from $4,681 at Waukesha Memorial to $9,045 in Aurora. A 
cardiac catheterization ranged from $60,000 at Waukesha 
Memorial to $146,000 at St. Joseph's. So, the examples that he 
gave and his testimony overall just reminded us how very 
important it is for people, individuals, plans, groups, to have 
access to information about what plans are charging customers.
    I have one hospital Chief Executive Officer (CEO) that 
says, ``I am tired of being the only one in the room that 
doesn't know what the other hospitals in the region are 
charging for a service and being told by the particular 
hospital I am negotiating with that they can get this service 
cheaper from everyone else, knowing full well that I run a very 
efficient outfit and I can't provide it cheaper.'' So, the 
negotiations that go on now in the system are not honest 
negotiations, because you don't know who really is charging 
what for what.
    Congress is interested in providing consumers with greater 
health care information and has begun taking steps to do so. 
For example, the Medicare Modernization Act of 2003 (MMA) (P.L. 
108-173) contained a provision that tied a hospital's annual 
Medicare update to the reporting of quality information, has 
led to the development of the Hospital Compare Web site, which 
publicly reports the collected data on the reported hospital 
quality measures.
    The Deficit Reduction Act (P.L. 109-171) passed just last 
year expanded this quality reporting system and is ultimately 
expected to result in the collection of more sophisticated and 
detailed hospital data. Other provider groups would similarly 
be expected to develop and report similar health care 
information.
    Since price is not the only thing to be considered, quality 
is to be considered; and there are lots of other things--
quality of communication with physicians and quality of 
services and so on. So, this is only one piece, never to be 
mistaken for the whole.
    We have heard much discussion about price transparency and 
what it can and can not provide; and we need to get a better 
grasp of how we talk to each other about providers, what it 
means when we talk to each other about price and how consumers 
and other buyers can have better understanding about price.
    Medicare recently disclosed payment information for certain 
procedures. Although this is a good first step, in my mind much 
of that information was already available. Many recognized the 
limited value of such information because the Government prices 
do represent a mandated price system with lots of adjustments, 
some of which are accurate and some of which are inaccurate. 
Various efforts are under way in the private sector and private 
insurance and provider sectors that are intended to help 
increase and provide the information available to health care 
consumers, and we will hear more about those efforts today.
    These voluntary efforts have been critical, but, to date, 
they have not resulted in a comprehensive system that provides 
adequate price and valuable information to the consumers of 
health care, many of whom are uninsured or those who take the 
responsibility to shoulder their own costs.
    I would also like to point out in my opening comments that 
the Health Care Financial Management Association has issued an 
interesting report on this issue of transparency, and their 
report does demonstrate how many systems will have to change to 
achieve that outcome we are looking for which is some honest 
knowledge on the part of those who seek it of the costs of 
medical care.
    Today, our experts will provide us with a review of price 
transparency and health care. We will hear testimony from 
academia, the hospital sectors and the insurance sector. They 
will provide information on private-sector efforts to increase 
the amount of meaningful information to consumers, and 
suggestions for what can be done to improve the system.
    Mr. Stark, would you comment, please.
    Mr. STARK. Thank you.
    The topic today is, in an academic sense, kind of 
interesting, but I think we have many more important issues we 
should be considering.
    Now the primary focus of this hearing is on hospitals, and 
that to me makes--I want to say the least sense. In other 
words, most hospital care isn't discretionary. You want to talk 
about should we be focusing on transparency on drug prices, 
physician fees, that makes some sense, but relatively few 
people admitted to hospitals--there are relatively few. Each 
year, 40 or 50 percent of them come into the emergency room. 
They don't have any choice. A cardiologist informed me recently 
that 70 percent of his patients are either emergencies or 
urgent cases in which the patient has little or no choice.
    Most people don't actually have a choice of hospitals 
anyway. In other words, they have to go to the hospital that is 
in their insurer's network or at which their physician has 
privileges or else they have to change doctors.
    Hospital costs are so high that most patients would go 
through their deductible, even a high-deductible plan, with one 
admission and might even hop over their catastrophic tap. So, 
it doesn't make any difference. You go to the lowest-priced 
hospital in town and you are still out of pocket a lot of 
money.
    Now, having said that, I would think as between insurance 
plans and providers and large companies this information would 
be useful in helping them reduce the costs of their insurance 
programs, but I want to urge the Committee not to think of this 
as doing anything for the consumers.
    I had fun with Mr. Evans last time he was here, and I spent 
almost an hour online last night, delightful company, Clarian 
Health Partners, and I couldn't get the price of a mammogram or 
a colonoscopy. Mr. Evans, last time he was here, didn't know 
the price of a colonoscopy, but I'm sure he knows that now. I 
am going to ask about mammograms today.
    I got a long issue about my responsibility to pay my bills 
to Clarian, two pages of that; and, in mammograms, I was told 
how old I had to be and where I could go and what the risks 
were. No money. I put up here it says ``search.'' I said, cost 
of mammogram. I couldn't get an answer. I said, charges for 
mammogram. I couldn't get an answer. Now he is going to hear 
them telling me I should know that and I can't get that out of 
his highly rated hospitals. I shouldn't have had a mammogram 
anyway.
    What I am suggesting is that if I were Blue Cross or Aetna, 
I think this would be important, but I think that we should 
focus on those areas in which the consumer could reasonably be 
expected
    The last thing is, if we want the consumer to take the 
lowest cost, we may be disadvantaging them in quality because 
they don't always equal. So, I hope we can focus on the 
importance of overall costs but not think that just to say, 
gee, if the consumer knows what the price list is, he or she 
will make better choices and save money. I think that is more 
than we can ask. Those of us who more fortunate than us, who 
have not had a spouse to go to medical school, how is that
    Chairman JOHNSON OF CONNECTICUT. I thank the gentleman. 
Both of your comments are certainly valid.
    As we move forward on this, I think we do have to keep in 
mind that the plans have an honest level playingfield to 
compete on is important to overall costs and will matter; and, 
furthermore, private-sector costs and public-sector costs I 
believe need to be more public to hold the public sector 
accountable for the level of under reimbursing that in many 
areas is perpetrating the system. So, I am not bound into where 
this is taking us, but I do think it is important knowledge 
that we have to know, and I appreciate the significance of the 
issues that you raise.
    Let us start today with Dr. Herzlinger. Welcome and thank 
you for being here.
    Ms. HERZLINGER. Thank you, Madam Chair.
    Chairman JOHNSON OF CONNECTICUT. I should mention for all 
of you that your entire testimony will be included in the 
record. Your opening statement time is 5 minutes, and then we 
will go to questions.

 STATEMENT OF REGINA E. HERZLINGER, PH.D., NANCY R. MCPHERSON 
PROFESSOR OF BUSINESS ADMINISTRATION, HARVARD BUSINESS SCHOOL, 
                     BOSTON, MASSACHUSETTS

    Ms. HERZLINGER. Madam Chairperson, Representative Stark, 
gentlemen, thank you for inviting me to testify.
    I am a professor at the Harvard Business School where I 
separately teach accounting and health care.
    Currently, many consumers here are injured by the absence 
of price transparency in health care. Although there is 
substantial variation in hospital and physician prices, as the 
GAO discovered at the behest of this Subcommittee, those who 
pay for their own health care expenses lack the price 
information they need. The consumers injured include the more 
than 40 million people who are uninsured, most of whom are 
poor. Hospitals have raised their charges substantially for the 
prices for self-paying consumers. While the number of 
hospitalizations by the uninsured remain the same, hospital 
charges to them increased by 55 percent since 2000. Small 
wonder that medical debt is the second leading cause of 
personal bankruptcy. The growth in high-deductible health 
insurance policies further increases the need for price 
information.
    Self-payers need information on the prices that others 
paid, not on charges. Even those who are fully insured are 
injured by the absence of price transparency and the 
improvement and efficiency that transparency typically causes. 
Employees are increasingly paid in health insurance benefits 
rather than wages.
    Now what happens when people have access to good 
information and freedom to choose health care plans and 
providers? They make good decisions. The Twin Cities employer 
coalition, the Buyers Health Care Action Group, helped to cause 
a nearly 20 percent drop in high-cost, low-satisfaction plans, 
each composed of a unique set of providers and a 50-percent 
increase in low-cost, high-satisfaction plans when it gave 
price and satisfaction data to consumers.
    Similarly, Aetna showed reports that have demonstrated 
cost-effective changes in behavior among those enrolled in 
high-deductible plans, decreased utilization of ERs and over-
the-counter medications and increased compliance with drugs for 
chronic diseases and yearly examinations.
    When McKinsey asked enrollees about these changes in 
behavior, they said, ``If I catch the issue early, I will save 
in the long run.'' In other words, when people have information 
and they have control, they change their behavior.
    Two ingredients are crucial to such changes. One is 
information and the second is an assertive group of people. 
These are the marginal consumers that you learned about in your 
dreary Economics 101 classes who equilibrate the market.
    Do marginal assertive consumers subsist in health care? A 
2005 report found that 95 million people use the Internet for 
health care information, 60 million of them daily. More than 70 
percent of them want on-line evaluations of physicians, and 
when they obtain this information they use it. Consumers are 
also willing to change hospitals in response to information.
    So, how can Congress help to make health care more 
transparent? In some other sectors of the economy, transparency 
did not occur until the Government required it. For example, 
accounting was discovered in the middle of the 15th century but 
transparency in the securities market did not occur until some 
500 years later.
    Many credit the transformation to Franklin Delano Roosevelt 
and his visionary creation of the Securities and Exchange 
Commission (SEC) which had the power to regulate information. 
The SEC is not perfect, but it serves as a worldwide model of 
how Government can help to achieve transparency.
    Thank you so much.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Dr. Herzlinger.

    [The prepared statement of Ms. Herzlinger follows:]

Statement of Regina E. Herzlinger, Ph.D., Nancy R. McPherson Professor 
     of Business Administration, Harvard Business School, Boston, 
                             Massachusetts

Summary
    Every day consumers use information to decrease costs, improve 
quality, and increase the range of choices even for complex financial 
services and high-tech products. They could achieve the same results in 
health care if price and other information about specific providers 
were more widely available. The SEC, which transformed the transparency 
of the world-class U.S. capital markets, provides a good model of how 
to make it happen. But the transformation will not be an easy one. Just 
as FDR bucked substantial business interests to create the SEC, the 
current government faces powerful, well-financed opposition by 
providers to transparency.

How the Absence of Price Transparency in Health Care Hurts Consumers
    Currently, many consumers are injured by the absence of price 
transparency in health care. Although there is substantial variation in 
hospital and physician prices, within geographic regions, \1\ those who 
pay for their own health care expenses lack the price information they 
need to obtain the best value for the money.
    The consumers injured by the absence of information include the 
more than 40 million uninsured. Hospitals have raised their charges--
their prices for self-paying customers--substantially: in 2003, as the 
number of hospitalizations by the uninsured remained the same, hospital 
charges to them increased by 55%, since 2000.\2\ While denying 
wrongdoing, Catholic Healthcare West agreed to pay estimated hundreds 
of million of dollars to settle a lawsuit about overcharges to the 
uninsured.\3\ Small wonder that medical debt is the second-leading 
cause of personal bankruptcy. The growth in high deductible health 
insurance policies further increases the need for price information.
    Even those who are fully insured are injured by the absence of 
price transparency and the improvement in efficiency that transparency 
typically causes. Insured employees are increasingly paid in health 
insurance benefits, rather than wages, because the growth in health 
care costs outstrips that of the economy. For example, ``In 2003, a 
major union group in the Milwaukee area needed additional money to 
cover the cost of the health benefits. The trustees of the benefit plan 
were forced to take 50 cents an hour out of . . . employee pay to cover 
those costs. In June, a $1.50 an hour raise was entirely dedicated to 
the health benefits. With that amount, each employee saw over $4,000 a 
year go to the health benefits instead of the pay envelope. These 
employees are purchasing fewer clothes, smaller cars and less expensive 
homes. . . .'' \4\

Is Health Care Information Good for Your Health?
    Consumers who have access to good information and the freedom to 
choose health care plans and providers, have optimized in classic 
Economics 101 fashion. For example, the price and satisfaction 
disclosure of the Twin Cities' employer coalition, the Buyers Health 
Care Action Group, helped to cause a nearly 20% drop in high-cost/low-
satisfaction plans, each composed of a unique set of providers, and a 
50% increase in low-cost/high-satisfaction plans.\5\ Even in 2006, 
early in the program's history, Medicare Part D has already illustrated 
the power of price transparency: enrollees have chosen plans with 
premiums of $24, rather than the $37 initially expected.\6\
    But, even in the absence of consumer choice and control, the 
compilation and dissemination of information exerts powerful effects on 
suppliers.\7\ In the accounting literature, this phenomenon is well-
known as the audit effect: \8\ firms improve their management in 
anticipation of an accounting audit. In health care, many of the 
reviews of the impact of published data on physicians, hospitals, and 
insurers have concluded that they resulted in improved outcomes and/or 
processes.\9\
    New York State's experience illustrates the results when government 
requires meaningful health care information. Three years after New York 
State's commissioner of public health requested data about the risk-
adjusted death rates of open-heart surgeries performed by different 
surgeons and hospitals, the state achieved the lowest risk-adjusted 
mortality rates in the country.\10\ Physicians and hospital executives 
with low-performance scores typically revamped their protocols in 
response to these data.\11\ Most studies found that the fears that 
surgeons would abandon sick patients to improve their performance 
ratings to be unfounded: To the contrary, the severity of illness among 
New York patients having coronary artery bypass graft (CABG) surgery 
increased.\12\ (Although one study concluded that the ratings led to 
``a decline in the severity of illness'' of CABG patients, it 
cautioned: ``Our results do not imply that report cards are harmful in 
general. . . . [R]eport cards could be constructive if designed in a 
way to minimize the incentives and opportunities for provider 
selection.'' \13\)
    Public performance disclosure is important. When Minnesota's state 
government required all insurers who served state employees to be 
evaluated by their enrollees in a report card, some plans restructured 
significantly to improve their quality ratings.\14\ Similarly, the 
Pennsylvania hospitals whose performance data were measured and 
disseminated by a public agency used the results to change their 
patient care and governance to a greater extent than neighboring New 
Jersey hospitals whose performance data were not released. The 
important changes included Board reviews of the data and reworkings of 
the patient care procedures.\15\ A study of obstetrics performance 
found that hospitals whose results were disclosed publicly had 
significantly greater improvement than those with private reports, 
while an equal percentage of those with no reports improved and 
declined significantly.\16\

The Impact of Information on How Markets Work
    How do consumers cause products to be better and cheaper?
    Paradoxically, although average buyers are not experts about most 
of their purchases, consumers can reshape entire industries, even those 
with complex, technical products, such as financial services, cars, or 
computers. The reason is that markets are guided not by average 
consumers but by the marginal, or last, customers who drive the 
toughest bargain. They are the show-me crowd, bloodlessly depicted on 
the bottom of the Economics 101 downward sloping demand curve. This 
relatively small group of demanding consumers reward suppliers who 
reduce price and improve quality. For example, a McKinsey study showed 
that only 100 investors ``significantly affect the share prices of most 
large companies.'' \17\
    Below I will illustrate how relatively few consumers, when they 
were armed with information, transformed the complex goods and services 
in the automobile and finance sectors.

The Impact of Information on the Automobile Sector
    Consider the purchase of a car. Most consumers have only the 
dimmest notion of how a car functions. After all, a car is a high-tech 
device, studded with microchips. When I see someone in an automobile 
showroom peering under the hood of a car, I think to myself, ``What the 
heck are you looking at?''
    My own notions of the mechanical compression and ignition of 
gasoline that lead to an explosion whose energy ultimately rotates the 
wheels of a car are as dated as my first car, the 1957 Dodge that I 
purchased in 1966. It got seven miles to the gallon, rivaled a stretch 
limo in length, and belched pollutants. Nevertheless, I can readily 
find the kind of car I want at a price I am willing to pay. My quality 
choices have increased substantially since 1966, while the cost of a 
car has decreased as a proportion of income: \18\ As a result, 48% of 
the poor own cars, and 14% own more than one.\19\
    How can an average consumer easily find cars that are better and 
cheaper?
    And, as only one person in a vast sea, why is she not pillaged in 
the automobile market?
    The answer to these questions illuminate how markets work so that 
even ignorant, weak, solo participant, are offered better and cheaper 
products. Two ingredients are crucial:
    One is information. It enables me to be an intelligent car shopper, 
despite my ignorance.
    I review the rating literature for a car that embodies the 
attributes I value: safety, reliability, environmental friendliness, 
and price. Objective, trustworthy information about these attributes is 
easily available to me. Thus, when I studied Consumer Reports for cars 
with these attributes, two brands caught my eye: Volvo and Buick. I 
skipped the earnest reviews of how the engines work, fuel-efficiency, 
comfort, handling, styling, etc. Safety, environmental quality, 
reliability, and price--these are what interests me.
    I opted for the Buick. Although it was not as reliable as the 
Volvo, it was cheaper and had more of the heft that I associate with 
safety.
    But many who shared my views of a car's desired characteristics 
opted for the Volvo. It grew from an obscure Swedish brand to sales 
of456,000 cars in 2004.\20\ Volvo's rivals saw that a meaningful number 
of customers were interested in safety and reliability and introduced 
these qualities into their cars. In the quest for safety, Ford, for 
example, acquired Volvo \21\ while other automobile manufacturers 
improved their reliability. By 2005,U.S. cars exceeded European ones in 
reliability and the Japanese cars had only a small edge.\22\ Quite a 
change from 1980 when U.S. cars were three times as unreliable as 
Japanese ones and twice as unreliable as European vehicles.\23\
    So that is how cars became better even when the consumer is not 
expert. Information makes them smart.
    But what stops the car manufacturers from refusing to cut their 
prices for only one person?
    The critical second ingredient to an effective market is a small 
group of tough-minded buyers. At a high price, there are only a few 
buyers who are more-or-less price insensitive. To attract more 
customers, suppliers reduce their prices. The increased volume of 
customers more than compensates for the reduction. Suppliers continue 
to cut prices until they hit a brick wall: the last picky, tough-minded 
customers who clear the market. At this price, the incremental revenue 
that providers generate from the hard-nosed bargain shoppers is roughly 
equal to their marginal cost. The rest of us benefit from the 
assertiveness of the last-to-buy crowd.
    The car market illustrates their impact. Currently, automobile 
prices are the lowest in two decades. In 1991, for example, the average 
family required 30 weeks of income for the purchase of a new vehicle; 
but by 2005, a new vehicle required only 26.2 weeks of their income--a 
14% decline.\24\ Simultaneously, automobile quality is at an all-time 
high.\25\ The range of choices is better too, as the quality 
differences between the best and worst manufacturers have declined.\26\
``Efficient'' Capital Markets
    The securities markets are fabled for their efficiency.\27\ But how 
can security prices reflect the impact of all the complex publicly 
available information about the performance of each listed firm? As an 
old accounting teacher, I know that many individuals cannot fully 
comprehend this complex information.
    There are at least two possible explanations. A group's consensus 
estimate is generally better than that of individuals; as one example, 
one group of 47 correctly predicted most of the 2006 Oscar winners, 
including those in obscure categories such as Art Direction, but only 
one of them matched the consensus for accuracy.\28\ Further, expert 
analysts help investors to evaluate prices, through information freely 
available in the mass media, on the web, and to clients of brokerage 
houses. The experts themselves are rated, as in The Wall Street Journal 
``All-Star Analysts''' list. Investors in mutual fund can evaluate 
their performance in publications such as Forbes, Money, and Consumer 
Reports, or the Morningstar and Value Line newsletters.
    Investors use these assessments to reward recent good performers, 
by allocating more money to them.\29\ For example, Morningstar's 
ratings of mutual funds are well correlated with their performance.\30\ 
The growth in information retrieval services--especially in their 
electronic component--supports the market's continued efficiency.
    Competition among sellers of securities also increases the fairness 
of market prices.\31\ For example, when E*Trade first established its 
own Web site for on-line stock trading, its low commission quickly 
attracted millions of trades. But, E*Trade's on-line competitors 
continually bettered its prices, leading to intense competition. As the 
profit margins of traditional market makers plunged, investors saved 
billions.\32\ Such competition is spurred by comprehensive, easily 
available evaluations of transaction costs through sites such as 
SmartMoney.
    The vast amount of public information about the security markets 
enables the intensive scrutiny that also improves their efficiency. For 
example, a critical academic analysis of the bid-ask price spread on 
the NASDAQ prompted an SEC investigation and ultimately findings of 
price rigging. In response, the NASDAQ agreed to spend $100 million to 
improve its regulation \33\ and investors are likely to reap more than 
$1 billion in settlement of a class-action suit.\34\
    The information helps Congress to monitor the markets. But the 
best, and most important, monitor is the public. As the New York Times 
noted, ``. . . It is the rising power of [average amateur American 
investors pouring their money into mutual funds and retirement accounts 
that have made] the fairness of stock trading systems a populist 
political issue. . . . Advances in technology have made it far easier 
for regulators, professional investors, and even amateurs to figure out 
who is getting a fair shake.'' \35\
    The impact of information on these favorable market characteristics 
is highlighted by security markets in developing countries: in early 
stages of market development, improvements in information convinced 
creditors to lend more; as the markets matures, firms substituted 
equity for debt financing. Overall, information lowers the cost of both 
debt and equity capital.\36\

Health Care Consumers of Information
    When it comes to health care, some worry that average consumers 
will be stymied by the process of selecting relevant information.\37\
    Although these analysts fail to appreciate the impact of marginal 
consumers on a market, they, nevertheless, raise a question: Does a 
marginal group of tough-nosed, market-clearing consumer not exist in 
health care?
    To explore this, consider the characteristics of American 
consumers. Current generations are much better educated: In 2004, 27.7% 
of the population had attained a college education or more and 85.2% 
were high school graduates.\38\ In 1960, in contrast, fewer than half 
the people were high school graduates and only 7% had a college 
education.\39\
    The former Federal Reserve's chairman, Alan Greenspan, attributed 
the surge in the U.S. economy's productivity to Americans' interest in 
education: ``The average age of undergraduates in school full time has 
gone up several years. Community colleges have burgeoned in size and 
on-the-job training has gone up very substantially. They are pressing 
very hard for higher levels of education and capacity and ability. 
(Education) has induced a significant increase in their real incomes.'' 
\40\
    Higher levels of educational attainment increase not only income 
and ability but also self-confidence (referred to as ``self-efficacy'' 
in the health policy literature \41\). Affluent web surfers embody 
these characteristics--they spend more time than others searching for 
information on the net before making a purchase and are much more 
likely to buy, once they have found a good value for the money.\42\ 
Those who focus on their affluence miss the point: Affluent or not, 
they eat the same bread, buy the same appliances, and wear the same 
jeans. The same Toyota is sold in poor inner city areas and affluent 
suburbs. Their activism improves these products for the rest of us.
    Consumers surf the web for health care information too. A 2005 
report found that 95 million people used the Internet for health 
information,\43\ 6 million of them daily.\44\ Some even study medical 
information, such as the 1.8 million people who spent an average of 20 
minutes at the government's National Institute of Health web site, 
studded with arcane medical journal articles.\45\ A few even express 
their activism directly by mastering medical skills, such as CPR and 
the use of external defibrillators.\46\
    The assertiveness and self-confidence that typify marginal 
consumers are evident in these health care Internet users. They agree 
more than average U.S. adults with the following statements: ``I like 
to investigate all options, rather than just ask for a doctor's 
advice'' and ``people should take primary responsibility and not rely 
so much on doctors.'' \47\ Their pragmatism is apparent too. They do 
not search idly. More than 70% want online evaluations of 
physicians,\48\ and when they obtain the information, they use it.\49\ 
Consumers are also willing to change hospitals in response to 
information.\50\

How to Make Health Care Transparency Happen--The SEC
    Many knowledgeable observers contend the U.S. Securities and 
Exchange Commission (SEC) is a critical element of the efficiency of 
the securities markets.\51\ The SEC was created in 1934, during the 
administration of U.S. President Franklin Delano Roosevelt (FDR), to 
correct the woeful abuses of small investors in the markets: insider 
trading, stock watering, nonexistent or misleading information, and 
outright fraud.\52\ FDR had to buck substantial opposition from 
businesses and state regulators to enact the SEC legislation. His hope 
was that the SEC would restore public confidence in the markets and 
succeed where lax, inconsistent, inadequately funded state ``blue sky'' 
regulations--meant to check promoters who would sell ``building lots in 
the blue sky''--had failed.\53\
    Regulation of securities was not a new idea. As early as 1285, 
England's King Edward I required licensure of London brokers.\54\ Much 
of this early regulation relied on authorities to evaluate the 
worthiness of a security before permitting its public sale.\55\ But, 
from its inception, the SEC, unlike its predecessors, was not a 
``merit'' agency. As Roosevelt noted: ``The Federal Government cannot 
and should not take any action that might be construed as approving or 
guaranteeing that . . . securities are sound. . . .'' Rather, the SEC 
was to insure full disclosure of all material facts about the 
securities. In Roosevelt's words, ``It puts the burden of telling the 
truth on the seller.'' \56\
    There was plenty of truth waiting to be told. At the time of the 
SEC's creation, there were minimal requirements for listing of 
securities on the stock exchange and no source of generally accepted 
accounting principles. Information disclosure was limited and not 
subject to oversight. In 1923, only 25% of the New York Stock Exchange 
firms provided reports to their shareholders.
    Sound familiar?
    To put teeth in its mission, the SEC was given the power to enforce 
``truth in securities'' (the Securities Act of 1933) and to regulate 
the trading of securities in markets through brokers and exchanges (the 
Securities Exchange Act of 1934). Firms that trade their securities in 
inter-state markets must register with the SEC and file regular 
information reports. Exchanges and inter-state brokers must also be 
registered. The SEC also reviews the rules for market operations and 
requires that brokers meet minimum capital requirements and submit 
information about their transactions. The 1934 act also protects 
investors against deceptive practices.\57\
    The SEC's powers to regulate information and the functioning of the 
securities markets are key elements of the efficient U.S. markets.
The Private Sector Sources of Information
    The information that lies at the heart of the efficiency of the 
markets wells from the delicately balanced interaction among three 
private sector groups: the firms, the FASB (Financial Accounting 
Standards Board), the accounting information standards promulgator, and 
the accounting profession.
    The presence of three different groups provides checks and balances 
and fuller consideration of diverse points of view. Unlike a government 
agency, this troika does not sing out of one hymnal. And their private-
sector nature requires political and financial support for their 
continued existence. If they hit a sour note with their diverse 
supporters, they can, and have been, forced to change their ways. (For 
more, see Appendix A.)
    The firms that prepare information disclosures are subject to many 
checks and balances. On the one hand, they must prepare financial 
statements and other information disclosures that reflect their 
distinctive economic circumstances. Although they must use FASB 
standards, these are typically not straitjackets: Similar firms may 
account for similar circumstances in substantially different ways.\58\ 
On the other hand, corporate executives face substantial legal 
liabilities and the wrath of the SEC for failure to disclose material 
events. And if their auditor decides to resign or they decide to switch 
auditing firms, the SEC requires a public filing and explanation of the 
reason for the change.\59\ The SEC is not perfect. Lax enforcement 
exacerbated the financial scandals of the 1990's. But our financial 
markets are widely viewed as world-class in transparency.
    Two characteristics are central to its success of the process.\60\ 
First, all the private sector organizations involved must satisfy their 
constituencies or, like the FASB's predecessors, they will cease to 
exist. Second, the many participants in the process serve to promote 
the perspectives of diverse interest groups that are essential for fair 
and complete information disclosure.

A Health Care SEC
    Societal Consequence of SEC-like Health Care Regulation
    The U.S. securities markets contain the characteristics desired for 
the health care:

      Prices are fair in the sense that they reflect all 
publicly available information, despite the inability or unwillingness 
of many buyers to avail themselves of this information.
      Buyers use this information to redirect capital so that 
it rewards productive firms and penalizes unproductive ones.
      Information and competition continually reduce 
transaction costs.

    The presence of these characteristics in health care would achieve 
two important social goals:
    First, they would help the uninsured and the underinsured.
    Second, they would divert money from health providers that offer a 
bad buy to those that offer a good one. The bad buy providers would 
shrink or improve. The good buy providers would flourish.
How to Make it Happen
    The key to achieving these desirable characteristics in health care 
is legislation for a health care SEC that replicates these essential 
elements of the SEC model.

    1.  An Independent Agency with Singular Focus. The SEC is an 
independent agency charged solely with overseeing the integrity of 
securities and the markets in which they are purchased. Because of 
these organizational characteristics, the SEC's mission is not 
muddied--it is squarely lined up with the consumer--and it can be held 
clearly accountable for is performance.
    2.  Penalties. The SEC is armed with powerful penalties for 
undercapitalized and unethical market participants, including 
imprisonment, civil money penalties, and the disgorgement of illegal 
profits. A corresponding health care agency would oversee the integrity 
and require public disclosure of information for health care.
    3.  Private Sector Disclosure and Auditing. The SEC relies heavily 
on private sector organizations, which contain no governmental 
representation. The new health care agency should similarly delegate 
the powers to derive the principles used to measure health care 
performance to an independent, private, nonprofit organization that, 
like the FASB, represents a broad nongovernmental constituency. The 
agency would require auditing of the information by independent 
professionals, who would render an opinion of the information and bear 
legal liability for failure to disclose fairly and fully.
    4.  Private Sector Analysis. The evaluation process is primarily 
conducted by private sector analysts, who disseminate their frequently 
divergent ratings. To encourage similar private sector health care 
analysts, the new agency should require public dissemination of all 
outcomes for providers, including clinical measures of quality, and 
related transaction costs.
    5.  Focus on Outcomes, Not Processes. The SEC and FASB focus on 
measuring the financial performance of organizations. FDR firmly 
rejected dictating business processes or rating businesses as 
appropriate roles for the SEC.

    The SEC is essentially a profit center, generating a substantial 
surplus from its filing and penalty fees, which offset its billion 
dollar budget.

How Not to Make It Happen
    Unfortunately, some of the well-intended proposals to achieve 
transparency in health care undermine one or more of these essential 
characteristics. All too often, they request that the health care 
regulator(s) evaluate and micromanage health providers and the markets 
in which they operate. They would grant the government regulator 
substantially greater powers than those exercised by the SEC.

      Government-Controlled Disclosure: Disclosure requirements 
would be prepared by governments, not the private sector.

    The open FASB process that incorporates professional criteria and 
the perspectives of many different interest groups would likely be 
compromised with government promulgation of the measurement yardsticks. 
After all, while the FASB's private sector status requires the respect 
and financial support of many constituencies for its continued 
survival, these are much weaker motivational forces for a monopolisitic 
agency.

      Government-Controlled Analysis: Many proposals require a 
government agency to prepare benchmarks or standards of achievement, 
sometimes even a report card.

    When health providers are thus required to sing out of the same 
hymnal, innovations in health care may not be recognized and may well 
be discouraged. Peer reviewers have delayed the introduction of many 
important innovations including Barry Marshall's identification of the 
role of bacteria in ulcers and Judah Falkman's angiogensis theories of 
tumor growth, by suppressing publication in journals and research 
funds.
     Further, the important role that analysts now play by delineating 
their many different opinions will be eliminated.

      Government Micro-management: Many proposals require 
health care providers to comply with enormously detailed managerial 
process requirements.

    The likely result? Lack of innovation. Government should disclose 
prices and outcome, not micro-manage providers.

Role of the Government
    This is not to say that government action is not required. To the 
contrary, the much-abused U.S. health care consumer needs, and wants, 
government protection. Powerful provider interests oppose transparency, 
however, and they have powerful political allies. The American Hospital 
Association, for example, moved its headquarters to Washington, DC, and 
vastly increased the political contributions of the sector because, as 
its recently retired head noted, ``Of course, the common denominator is 
money. You're always fighting to protect payment . . .'' \61\
    But overly zealous governmental intrusion into health care 
transparency is unlikely to fully achieve the results in care health 
that the SEC legislation achieved in the securities markets. Indeed, it 
may inadvertently cause government protection to cross the line from 
providing helpful information and oversight to causing paralyzing 
evaluation and micromanagement.\62\
                                 ______
                                 
Appendix A

The Three Private Sector Legs of the Financial Transparency Stool

The Firms

    Much of the information emanates from the firm itself: 
Organizations registered with the SEC must disclose both financial and 
nonfinancial information in routine reports, including the firm's 
financial statements; management's discussion and analysis of 
performance; disclosure of the top executives' compensation; and 
evaluation of the firm's various lines of business.
    Although the firm's managers prepare this information, they must 
use the methods promulgated by the FASB and its predecessors to measure 
some financial statement items. (The SEC had legal authority to specify 
these accounting standards but, with active oversight, it generally 
relies on the FASB to do so.) \63\ The managers hire an independent 
accounting firm to audit whether the financial statements have been 
prepared in accordance with the generally accepted accounting 
principles (GAAP) as defined by the FASB and others. The generally 
accepted auditing standards that guide the process have been defined by 
the American Institute of Certified Public Accountants' Auditing 
Standards Board.\64\ The auditors render a formal opinion of the firm's 
financial statements. If the information deviates from GAAP, or if the 
auditor cannot issue a clean opinion for other reasons, the SEC may 
well suspend trading in the stock and thus bar the firm from access to 
the capital markets.

    The FASB

    Because the FASB is a private, nonprofit organization, it lacks the 
stability of tax-financed government organizations. To survive, it must 
earn sufficient revenues to cover its expenses and the respect of its 
constituency. These results are not so easily achieved: Two predecessor 
organizations to the FASB folded in part because they could not reach a 
politically acceptable consensus on specific accounting standards.\65\
    The FASB was designed to remedy some of the structural problems of 
its predecessors.\66\ Unlike them, it was an independent, well-funded 
organization, sponsored by a nonprofit foundation whose board 
represents auditors, businesses, users, and the public.\67\ To provide 
independence, the FASB's board members serve a full-time, five-year 
term at handsome rates of pay.\68\ Although they are all well-versed in 
accounting, they come from diverse backgrounds, including partners in 
large and small accounting firms, financial analysts, accounting 
academics, and industry.\69\
    In recognition of the political, consensus-building nature of its 
mandate, the FASB's process for issuing an accounting standard elicits 
widespread, thoughtful responses. The process is completely public. 
Repeated rounds of exposure drafts encourage wide participation.
    As a result of the open, elaborate standard-setting process, FASB's 
standards incorporate diverse points of view in an acceptable political 
consensus. This process is crucial to the FASB's success. Although 
accounting techniques were codified in 1494 by the mathematician Luca 
Pacioli,\70\ as in health care, a conceptual foundation that can 
clearly adjudicate all measurement disputes still does not exist.\71\ 
As a FASB chairman noted, ``Accounting, like law, is an art whose rules 
are not susceptible to . . . tests of validity . . . Accounting is 
rather a convention supported by general acceptance, consensus.'' \72\

    The Accounting Profession

    The independent accountants who audit the financial statements 
represent yet another important check and balance in the process of 
providing information.
    Certified accountants are professionals who must fulfill stringent 
examinations and educational requirements.\73\ They frequently work in 
one of the Big Four accounting firms. Accounting firms can be held 
legally liable for negligence, fraud, and breach of contract.\74\ 
Accountants have been found criminally liable for misstatements in 
cases even where they did not directly benefit from them.\75\
    Accountants are thus subject to three powerful pressures: Their 
profession's standards of ethics,\76\ the marketplace (accountants must 
satisfy their clients, the corporations that hire them), and their 
legal liability.
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    \27\ Eugene Fama first proposed three definitions or standards to 
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Market Snarks,'' Sloan Management Review, 3:28 (Spring 1987): 22.) 
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    \28\ ``Here's How Our Staff Picks 'em,'' Chicago Daily News 
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    \33\ Laura Holson and Diana Henriques, op. cit., p. A1.
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    \37\ J. M. Lambrew, ``Choice in Health Care: What do People Really 
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2004). But markets typically solve this problem: suppliers narrow down 
choices to those that generate the best consumer response.
    \38\ U.S. Census Bureau, Statistical Abstract of the United States: 
2006 (Washington, DC: Government Printing Office, 2006): 147.
    \39\ U.S. Census Bureau, Statistical Abstract of the United States: 
2001 (Washington, DC: Government Printing Office, 2002): 139, Table No. 
215.
    \40\ ``State of the Economy,'' Federal News Service (January 20, 
1999).
    \41\ J. H. Hibbard, E. M. Peters, P. Slovic, and M. Tusler, ``Can 
Patients Be Part of the Solution? Views on Their Role in Preventing 
Medical Errors,'' Medical Care Research and Review, 62:5 (October 
2005): 601-616.
    \42\ Forrester Research, ``The Millionaire Online'' (Cambridge, MA: 
Forrester Research, May 2000): 11.
    \43\ Health Information Online, Pew/Internet and American Life 
Project (May 2005): ii.
    \44\ S. Fox and L. Rainie, How Internet Users Decide What 
Information to Trust, www.perInternet.org/reports/pdfs (May 2002).
    \45\ PricewaterhouseCoopers, HealthCast 2010 (New York, NY: 
PricewaterhouseCoopers, November 2000), 22; S. Reents, Impact of the 
Internet on the Doctor-Patient Relationship: The Rise of the Internet 
Health Consumer (New York, NY: Cyber Dialogue, 1999): 4, http://
www.cyberdialogue.com/ pdfs/wp/wp-cch-1999-doctors.pdf.
    \46\ ``Just Another Day at the Office,'' USA Today (April 16, 
2001): 1-2b.
    \47\ S. Reents, Impact of the Internet on the Doctor-Patient 
Relationship, op. cit., p. 4.
    \48\ Ibid., p. 2.
    \49\ T.E. Miller and Scott Reents, The Health Care Industry in 
Transition: The Online Mandate to Change (New York: Cyber Dialogue, 
1998), www.cyberdialogue.com.
    \50\ S. Sofaer, C. Crofton, E. Goldstein, E. Hoy, and J. Crabb, 
``What Do Consumers Want to Know about the Quality of Care in 
Hospitals?'' Health Serv Res., 40:6 (Pt 2) (December 2005): 2018-2036.
    \51\ See, for example, Joel Seligman, The Transformation of Wall 
Street (Boston, MA: Northeastern University Press, 1995): 561-568.
    \52\ Fred Skousen, An Introduction to the SEC (Cincinnati, Ohio: 
South-Western Publishing, 1991): 118. U.S. Securities and Exchange 
Commission, ``Good People, Important Problems and Workable Laws: 50 
Years of the Securities and Exchange Commission'' (Washington, D.C.: 
The Commission, 1984).
    \53\ Joel Seligman, op. cit., pp. 44-46.
    \54\ Fred Skousen, op. cit., p. 2.
    \55\ Arguably the most famous, or notorious, of this kind of 
regulation was the 1720 Bubble Act that required the personal approval 
of the English monarch for all corporate charters. The act resulted 
from the financial panic induced by the pricking of a speculative 
bubble that had buoyed the stocks of many newly incorporated English 
firms. In 1720, the South Sea Company's stock, for example, rose from 
₤130 to more than ₤1,000, only to collapse when the 
company's directors began to sell their shares (Burton G. Malkiel, op. 
cit., pp.40 44).
    \56\ Joel Seligman, op. cit., pp. 54-55.
    \57\ Fred Skousen, op. cit. pp. 22-28.
    \58\ See, for example, ``The Firm's Selection of Alternative 
Accounting Principles,'' in Clyde P. Stickney, Roman L. Weil, and 
Sidney Davidson, Financial Accounting (Orlando, Florida: Harcourt Brace 
Jovanovich, 1991): 800-802.
    \59\ GAO, op. cit., pp. 44-45.
    \60\ To the contrary, critics abound. Some complain about the 
excessive amount of information disclosed and urge adoption of the more 
Spartan disclosure policies used abroad (See, for example, Ray J. 
Groves, ``Financial Disclosure: When More Is Not Better,'' Financial 
Executive, 10:3, (May 1994): 11). Others note the paucity of disclosure 
abroad and complain that, even in the United States, disclosure is 
hobbled. They contend that the SEC's choice to focus on preventing 
misleading financial statements, rather than informative disclosure, 
has created a ``climate of conformity'' that inhibits experiments in 
financial accounting (Stephen A. Zeff, ``A Perspective on the U.S. 
Public/Private Sector Approach to the Regulation of Financial 
Reporting,'' Accounting Horizons, 9:1 (March 1995): 52-70).
    \61\ ``Davidson set AHA on New Path: Association Became Focused on 
Lobbying Congress,'' Modern Healthcare (April 17, 2006): 7.
    \62\ This testimony is partially based on ``Protection of the 
Health Care Consumer: The `Truth' Agency.'' (Washington, D.C.: 
Progressive Policy Institute, March 1999), and U.S. Congress, House 
Committee on Ways and Means, Oversight Subcommittee, Hearing on Pricing 
Practices of Hospitals, Testimony, June 22, 2004.
    \63\ Paul W. Miller, Rodney J. Redding, and Paul R. Bahnson, The 
FASB: The People, the Process, and the Politics (Burr Ridge, Ill.: 
Richard D. Irwin, 1994): 20-21.
    \64\ Coopers & Lybrand, ``Independence Standards Board,'' Audit 
Committee Update 1998 (Jersey City: Coopers & Lybrand, 1998): 20-21.
    \65\ The Accounting Principles Board (APB), the FASB's immediate 
predecessor, collapsed in 1973, in some measure because of disagreement 
with its proposed accounting treatment for business combinations and an 
earlier opinion on tax credits. In the latter case, the APB proposed to 
defer recognition of some of the benefits of the credit. Although the 
APB's standard conformed with accounting theory, three accounting firms 
announced they would not comply with the opinion. Even the SEC decided 
that its registrants need not follow it. Absent the support of 
business, the accounting community, and the SEC, the APB found its 
authority to set accounting standards severely eroded (Gary John 
Previts and Barbara Dubis Marino, A History of Accounting in America 
(New York: John Wiley, 1979): 290-291). Some also worried about the 
APB's excessively close ties to the accounting institute; its sponsors; 
its large, 17-member board; and the continued allegiance of its part-
time board members to their employers or clients (Paul W. Miller, 
Rodney J. Redding, and Paul R. Bahnson, The FASB (Burr Ridge, Ill.: 
Richard D. Irwin, 1994): 56. Marshall S. Armstrong, ``The Politics of 
Establishing Accounting Standards,'' The Government Accountants 
Journal, 25:2 (Summer 1976): 8-13.
    \66\ Paul W. Miller et. al., op. cit., pp. 30-58.
    \67\ Paul W. Miller et al., op. cit., p. 35.
    \68\ Financial Accounting Foundation, op. cit., p. 24.
    \69\ Stephen Barr, op. cit.
    \70\ Gary John Previts and Barbara Dubis Merino, A History of 
Accounting in America: An Historical Interpretation of the Cultural 
Significance of Accounting (New York: Wiley, 1979): 6.
    \71\ Although such a conceptual foundation theoretically exists--
currently, it takes the form of six concept statements that cover 
issues such as the Elements of Financial Statements (Cheri L. Reither, 
``How the FASB Approaches a Standard-Setting Issue,'' Accounting 
Horizons , 11:4 (December 1997): 91-104) in practice, debates about 
fundamental accounting issues--such as current vs. historical costs 
value or capitalization vs. expensing--continue to roil the profession 
(Miller, op. cit., ``Some Recurring Accounting Controversies,'' pp. 
114-127).
    \72\ Marshall Armstrong, op. cit., p. 10.
    \73\ U.S. General Accounting Office (GAO), The Accounting 
Profession (Washington, D.C.: Government Printing Office, September 
1996): 89-90.
    \74\ Gary Previts and Barbara Marino, op. cit., p. 204.
    \75\ Fred Skousen, An Introduction to the SEC (Cincinnati, OH: 
South-Western Publishing, 1991): 128.
    \76\ Gary Previts and Barbara Marino, op. cit., pp. 314-315.

                                 

    Chairman JOHNSON OF CONNECTICUT. Ms. Downey, welcome.

  STATEMENT OF ROBIN DOWNEY, PRODUCT DEVELOPMENT HEAD, AETNA, 
                    MIDDLETOWN, CONNECTICUT

    Ms. DOWNEY. Good morning, Madam Chairman and Members of the 
Committee. My name is Robin Downey. I am Vice President and 
Head of Product Development for Aetna.
    As one of the Nation's leading health care companies, we 
include about 15 and a half million health care members in our 
plans today; and I am very pleased to be here to be able to 
talk to you about transparency in health care.
    Nearly 5 years ago, Aetna was the first health insurer to 
offer a consumer-directed product which fully integrated health 
plans with Health Reimbursement Arrangements. By the 
authorization of Health Savings Accounts (HSAs) by Congress at 
the end of 2003, we were again the first to announce our HSA 
offering. Today, our membership in HSA and Health Reimbursement 
Arrangement (HRA)-style plans is nearly 600,000 Americans. That 
experience gave us early insight into consumers' need for 
information necessary to manage their health care.
    Today, I would like the share with you our experience in 
introducing both price and quality transparency to our members 
but not just those in a consumer-driven health plan, a consumer 
direct HRA or HSA. Points-of-service, Health Maintenance 
Organization (HMO), and Preferred Provider Organization (PPO) 
plan members also share in the cost of their health care 
through deductible and coinsurance.
    I am sure many of you are aware that many consumers today 
think that office visits cost $15 and drugs cost $2 and $5. In 
a recent survey that we did with members of Aetna, members in 
one community, 95 percent of them responded that information on 
price would be very useful. Seventy percent of the physicians 
we surveyed in the same community didn't understand why that 
information would be helpful to their patients. These responses 
reflect a significant gap in understanding the impact that 
today's health benefit plans have on consumers' need for 
information to help manage their health care spending.
    For a number of years, health plans like Aetna have been 
providing members with ranges of physician costs and hospital 
costs by geographic area showing the differences between in and 
out of network. We also reflect episodic costs, how much might 
it cost if I had a baby, much how much might it cost if I had 
asthma or diabetes in a total year. This was important to help 
consumers plan for their health care costs. How much money to 
put in HSA, how much to put in Flexible Spending Account (FSA), 
allowing them to make plans for things they had not been able 
to plan for in the past.
    As more members began to be engaged in moving to consumer 
direct plans, it became apparent that they should have more 
information on costs. Our CEO felt it was time to open up the 
black box and provide physician-specific unit price detail, not 
just ranges or averages but what the health plan actually 
negotiates and pays to the providers so that the members can 
have that information before they go for their visit.
    So, in August of 2005, Aetna announced that we would be the 
first health plan to provide our members with the on-line 
access to the actual discounted rates for the most common 
office-based procedures provided to primary care and specialist 
physicians.
    The physician costs were selected first as they were they 
really impact more consumers than hospitals, and they are 
easier to understand, but it is just the first piece of what we 
need to do.
    The greater Cincinnati market that was chosen as the pilot 
and collaboration with the medical community, was very 
important. We began meeting with large physician groups and 
medical societies. We also conducted more than 20 focus groups 
with physicians and office staff and incorporated their 
feedback from these meetings into the program. So, via our 
password protected Web site, we provided rates for office 
visits and other services, up to 25 by specialty.
    Since the launch of transparency in Cincinnati, between 600 
and a thousand consumers a month have visited the Web site. As 
we met with physicians that we surveyed, they were clear that 
patients needed enough information to make decisions based on 
overall value, not simply price alone. So, based on their 
feedback, we felt it was important to expand our transparency 
efforts to provide consumers with information on quality and 
cost efficiency. Since we have been designating specialists 
into our High Performance Network based on clinical performance 
and cost efficiency since 2004, the integration of this 
information along with unit price transparency was a logical 
next step.
    Last month, we announced that we would be expanding our 
health transparency initiatives to include price, clinical 
quality and efficiency transparency in all or parts of seven 
States and the District of Columbia. We will also expand unit 
price transparency alone in three markets. The resulting 
clinical quality and efficiency information will be available 
to nearly 15,000 specialists, and specific pricing will be 
available on more than 70,000 physicians.
    Aetna will continue to work with employers, providers and 
legislators to push the envelope on health care transparency. 
We expect to expand the program by the fall of 2007 to 
additional markets and enhance it with new information, 
including hospitals and ancillary providers over time.
    Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Ms. 
Downey.

    [The prepared statement of Ms. Downey follows:]

Statement of Robin Downey, Product Development Head, Aetna, Middletown, 
                              Connecticut

    Good afternoon, Madam Chairwoman and members of the Committee. I am 
Robin Downey, Vice President and Head of Product Development for Aetna. 
I'm very pleased to be here today, and to describe to you Aetna's 
experiences with transparency in health care.
    As one of the nation's leading diversified health care benefits 
companies, Aetna is proud to serve approximately 28.3 million people, 
including 15.4 million medical members. Aetna offers a broad range of 
traditional and consumer-directed health insurance products and related 
services. Our customers include employer groups, individuals, college 
students, part-time and hourly workers, health plans and government-
sponsored plans.
    Nearly five years ago, Aetna was the first national health insurer 
to offer a consumer-directed product which fully integrated health 
plans with Health Reimbursement Arrangements (HRAs). The authorization 
of Health Savings Accounts (HSAs) by Congress at the end of 2003 
provided a critical extension of this concept, permitting employees to 
defer their own money into a similar, tax-advantaged health spending 
account that was also portable. Aetna's membership in HRA and HSA-
compatible High-Deductible Health Plans currently includes nearly 
600,000 Americans.
    Today, I plan to share with you Aetna's experiences in introducing 
price and quality transparency in the health care sector--a topic that 
is particularly relevant as more and more Americans join consumer-
directed plans.
    As you are all aware, consumers have long been shielded from the 
actual cost of health care. Many consumers think office visits cost 
$15. However, this is beginning to change as consumers begin to share 
more of the cost through deductibles and co-insurance. As a result, 
they want information to educate and help them manage the cost.
    As reported in the Wall Street Journal in February \1\ and June \2\ 
of 2005, knowing the cost of a doctor's visit has long been a missing 
piece of the health care decision-making process. More recently, 84 
percent of Americans agreed that hospitals, doctors and pharmacies 
should publish their prices for all goods and services.\3\ And, in a 
recent Aetna survey in Cincinnati, 95 percent of members surveyed 
responded that information on price would be useful, but 70 percent of 
physicians felt it wasn't useful for their patients. These responses 
reflect a significant gap in understanding the impact that today's 
health benefits plans have on a consumer's need for information to help 
manage their health care spending.
---------------------------------------------------------------------------
    \1\ Patients paying for medical care struggle to divine the costs, 
Wall Street Journal Online, 2.16.05
    \2\ Patients Give New Insurance Mixed Reviews--Consumer-Directed 
Health Plans Can Cut Costs, but Early Users Cite Problems Comparing 
Prices, Wall Street Journal, 6.14.05
    \3\ Council for Affordable Health Insurance, 5.06
---------------------------------------------------------------------------
    Enter an emerging health care trend known within the industry as 
``price transparency.'' Through price transparency, consumers know what 
they can expect to pay at their physician's office before the visit. 
While this approach sounds sensible, no health insurer had ever 
provided physician specific unit price detail to its members. The 
reasons for this were varied--contractual issues, competition and 
complexities in the rates physicians agree to accept from insurers, 
concerns about consumers shopping for health care on price alone.
    That changed in August of 2005, when Aetna announced that we would 
be the first health plan to provide our members with online access to 
the actual discounted rates for the most common office-based procedures 
provided by primary care and specialist physicians.

Price Transparency in Cincinnati
    Aetna's price transparency initiative responded to a call for help. 
The employer and broker communities asked us for our help in educating 
consumers about the actual costs of medical care. Despite the fact that 
we already offered our members a wide variety of information on health 
issues, health care quality, and average pricing within specific 
geographies, the increase in adoption of consumer-directed plans 
necessitated more detailed information.
    After considering a variety of options, we determined that the time 
was right to offer physician-specific price information. The question 
was, how to do it in a way that was meaningful to consumers and 
respectful to the medical community?
    One of the keys to successful implementation was testing the 
program on a limited pilot basis, allowing us to solicit feedback and 
expand and enhance the initiative over time. The greater Cincinnati 
market was chosen as the test market for a variety of reasons.
    Collaboration also would be key. As the pricing tool was built, our 
medical directors and network professionals in the Cincinnati market 
began meeting with large physician groups and medical societies. We 
also conducted more than 20 focus groups with physicians and office 
staff. Feedback from these meetings and focus groups--including changes 
in the terminology used with members, intense member education, and 
intense physician communication--were incorporated into the program.

The Launch
    On August 18, 2005, Aetna launched price transparency. The 
initiative was well-publicized in the media, receiving significant 
attention from the Wall Street Journal, ABC World News Tonight, and 
National Public Radio. These media stories helped educate consumers, 
employers and physicians about not only Aetna's efforts, but the trend 
towards transparent pricing in health care. 
    With the launch of our pilot, consumers could research what they 
could expect to pay at the doctor's office before going in for a visit. 
Available via the Aetna Navigator password-protected member website 
(www.aetna.com), the tool includes rates for 5,000 physicians and 
physician groups.
    Members access pricing via our ``DocFind'' physician search engine. 
Rates are currently provided for office visits, diagnostic tests, minor 
procedures and other services. In all, rates are offered for up to 25 
services by specialty and, considering the variations in services among 
specialties, the tool contains rates for 600 services in all.

The Results
    Since the launch of price transparency in Cincinnati, between 600 
and 1,000 consumers a month have visited the price information. 
Increased usage happens at two specific times--as consumers choose 
their new benefits for the year ahead (typically in the fall) and as 
consumers begin to use their new benefits (typically in January). While 
it's too early to say whether consumer behaviors have changed in 
Cincinnati, we believe that simply raising awareness about the costs of 
care is one more step in creating a marketplace for consumers as health 
care decision-makers.
    Beyond consumers, we have spent months soliciting feedback from 
physicians, employers and policy-makers. Physician research was 
conducted in Ohio, Connecticut, Washington, D.C. and Florida. Overall, 
physicians have provided constructive comments on improvements to the 
program, employers have been keenly interested in our plans to expand 
the program to their employees, and policymakers have asked to learn 
more about our experiences. In addition, Aetna's move towards price 
transparency has been hailed by the media as a ``watershed in the 
evolution of a health care policy in the U.S.'' \4\
---------------------------------------------------------------------------
    \4\ A Worthy Experiment, The Cincinnati Post, 8.22.05
---------------------------------------------------------------------------
The Evolution of Health Care Transparency
    Clearly price transparency is only the beginning. As we met with 
and surveyed physicians across the country, they were very clear that 
their patients needed enough information to make decisions based on 
overall value, not simply price alone. Based on their feedback, we felt 
it was very important to expand our transparency efforts to provide 
consumers with information on quality and cost efficiency. Since we 
have been designating specialists into our High Performance Network 
based on clinical performance and cost efficiency since 2004, the 
integration of this information along with unit price transparency was 
the logical next step.

Aetna's High Peformance Network: Aexcel
    Let me provide some brief background on our Aexcel High Performance 
Network Option. On January 1, 2004, Aetna launched its High Performance 
Network, featuring Aexcel-designated specialists, in three markets. 
Health care costs were continuing to rise, and employers were asking 
for solutions to help mitigate costs while maintaining access to 
quality care. In addition, consumers often have little access to 
independent, objective information when they choose specialists. Aetna 
worked closely with some of its largest customers to create a network 
option that would meet their needs and also offer consumers information 
to help them make more informed health care decisions. The result is 
Aetna's High Performance Network which focuses on medical specialties 
that represent a high percentage of medical services and costs.
    Aexcel-designated specialists have met established thresholds for 
certain clinical performance and cost-effectiveness measures. 
Currently, the Aexcel-designation process applies to 12 medical 
specialties. Doctors within these specialties are evaluated against 
measures that include the number of Aetna patients treated, clinical 
performance, efficient use of health care resources and, finally, 
access to care. Measures include unexpected adverse health events and a 
specialist's rate of his or her patients' hospital readmissions over a 
30-day period.
    Aetna's High Performance Network has been very well-received. Based 
on employer interest, we expanded its availability to include a total 
of 20 markets this year, with 7 additional markets recently announced 
to be effective 1/1/07. We currently have 35 customers with 483,000 
members enrolled in Aexcel and fully expect continued growth.

Next Steps
    Just last month, Aetna announced that we would be expanding our 
health transparency initiatives to include price, clinical quality and 
efficiency transparency in all or parts of 7 states and the District of 
Columbia, and price transparency alone in an additional 3 states. The 
clinical quality and efficiency information is based on the Aexcel 
designation. Marrying unit price with Aexcel data helps consumers and 
employers make decisions based on overall value.
    When these enhancements go live on August 18 of this year, clinical 
quality and efficiency information will be available for nearly 15,000 
specialist physicians, and specific pricing will be available for more 
than 70,000 physicians. In addition, we will be expanding our pricing 
tool to include up to 30 procedures per physician with the addition of 
major procedures to the list of available services.
    Aetna will continue to work with employers, providers and 
legislators to push the envelope on health care transparency. We expect 
to expand the program to additional markets and enhance it with new 
information, including hospitals and ancillary providers over time.

                                 

    Chairman JOHNSON OF CONNECTICUT. Mr. Evans.

    STATEMENT OF DANIEL F. EVANS, JR., PRESIDENT AND CHIEF 
   EXECUTIVE OFFICER, CLARIAN HEALTH PARTNERS, INDIANAPOLIS, 
                            INDIANA

    Mr. EVANS. Thank you, Madam Chairwoman.
    I appreciate the opportunity to appear again before the 
Committee, and I am looking forward to the questions after the 
principal statements.
    Thank God for Blackberries. I think I might have answered 
one in the last 2 minutes, but I am not a hundred percent sure.
    As I said before in March and later, I am at the retail end 
of the business, so I deal with the customer and his or her 
family, the patient, every day. So, the issue of transparency 
when you work in a building in which you were born and your 
friends and neighbors call you and ask the very questions this 
Committee has asked are not academic to me at all. They are 
serious, very serious.
    So, how do I define transparency and value? To what end do 
we do it? I am eager for the Committee's reaction to this 
either now or, of course, later.
    I define quality as a value, as cost divided by quality. 
So, I don't think the patient, regardless of the level of 
transparency, can factor into a decision-making process an 
important decision about health care as long as they are not 
being hauled into the ER, as Mr. Stark said, without knowing 
both of those things. So, transparency has to have both data 
points in it, both the cost and quality.
    Our challenge is, as Mr. Stark saw on the Internet site, we 
serve multiple constituencies, from people who pay for a 
mammogram, who go to the clinic that is run by our university, 
to people that are fully insured, like our own employees who 
pay, by the way, nothing for the mammogram, to the woman who 
walks in the off the street and pays $146 for that mammogram.
    So, what would we put on our Internet site? Fair question. 
Then the question is, if I am the customer, when will it be 
read? By whom? What is the follow-up procedure if there is an 
abnormality?
    As the son of a cancer survivor, I take this breast cancer 
survivor--I take this beyond seriously, because I know what 
happens in the home when there is an abnormality in the first 
reading. Since those are the friends that call me and want to 
know when it is going to be read by somebody else later on in 
the day; and, the tenure of the conversation changes. At that 
point, as Mr. Stark said, choice becomes less important, but, 
believe me, quality becomes a lot more important. The number of 
false positives, for instance, is not a good thing in health 
care and drives down quality and increases cost.
    So, we are trying to develop the program that I had in my 
written testimony where we can give people choice based upon 
the value proposition and quote them a price that is adjusted 
to their own situation, such as high blood pressure. What is 
going to be the cost for you and post that kind of data.
    So, we are working on an experiment right now to make the 
data--I think as the Committee would agree and as an old lawyer 
would say--used and useful. Will the data on the Internet and 
elsewhere be used and will it be useful?
    When I came in, we had just thrown up some quality data on 
the Internet site, very serious operations. The patients that 
look at that data are highly motivated, and what we found out 
was that we got 4,000 to 5,000 hits per day of people that 
stayed an average of 27 minutes each. So, these were people who 
were deep into the data and wanted to know what the facts were 
for mortality data at our institution. Well, this is not easy, 
and we need the help of Congress and the regulator to do this.
    Here is my exemplar of that, anticipating the wrong 
question from Mr. Stark, of course. When I left my office last 
night, I called the chief gastroenterologist, asked him to come 
to my office. He runs a staff of hundreds, has endoscopic 
suites all over central Indiana. I pulled out my card from my 
wallet, put it on my desk and said, John, how much is this 
colonoscopy I am going to get at your office tomorrow going to 
cost? He laughed. He said, you tell me. So, we put his office 
manager on the speaker phone because his office manager didn't 
know what was going on; and he said, what part of the 
colonoscopy? I said, the whole thing.
    So, Mr. Stark, here was his answer. He said, well, we got 
the doc, who bills on form 1500, whatever that is. I have since 
found out what it is. It is some mandated bureaucratic form 
that docs bill on. Then you have got the endoscopic suite, the 
building where it actually occurs. Then you have got the lab, 
for God's sake, because you might find a polyp and do a 
polypectomy; and then you got the lab doc, the pathologist who 
reads it. So, there are at least four pieces.
    Now at Clarian, in our outpatient place, I bet we are not 
different than everybody else here. We send you the bill that 
says that is not a bill; then the insurance sends you a bill, 
says this is not a bill, an Explanation of Benefits statement. 
Then, by the time you get to third piece of paper, you might 
get a bill that is netted out, but you probably get a fourth 
that will have the true net bill on it. So, four times four is 
sixteen. So, what we would like to do in the program that I put 
in my written testimony is to see if we can combine those.
    So, if Mr. Smith calls from Washington and says, I want to 
know what a colonoscopy in Indiana is going to cost, I am 
having a speech there, I am having some problems, I will be 
there tomorrow, we are able to say two grand, Mr. Smith, unless 
there are--you have got other comorbidities we identify.
    What we are trying to do is say, normal vaginal delivery, 
this is what it is going to cost; 3 days most acute care for 
the baby, this is what it's going to cost, and this is a 
revolution.
    As you know, what I am finding out and it has humbled me, 
frankly is how hard this is and how much the industry and 
others use the regulatory network and scheme to actually retard 
our ability to bring things together.
    So, I hope you see in here that when Mr. Stark gets on at 
the end of the year, and I know he will, now I know he will, so 
I am going to be sure it is done, that by January or February 
somebody could enter into the Web site ``colonoscopy charges, 
normal, healthy, adult male, give me an estimate here.'' So, 
that is what we are trying to do, and I am asking for support 
and comfort as we try to blend those streams of paperwork 
together.
    Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you, Mr. Evans.

    [The prepared statement of Mr. Evans follows:]
   Statement of Daniel F. Evans, Jr., President and Chief Executive 
        Officer, Clarian Health Partners, Indianapolis, Indiana

    Madam Chairman and distinguished members of the Committee, good 
afternoon, and thank you for the opportunity to comment on price and 
quality transparency in the health care sector. I am Dan Evans, CEO of 
Indianapolis-based Clarian Health Partners, a private, non-profit 
health center serving patients from across the state of Indiana through 
more than 73,000 annual admissions and over 1.3 million outpatient 
visits. Clarian is the state's only academic medical center, and is 
currently conducting 4,000 peer-reviewed research projects.
    Clarian is Indiana's largest and most comprehensive health center 
and is one of the busiest hospital systems in the nation. Clarian 
employs nearly 13,000 people, and owns or is affiliated with 15 
hospitals and health centers throughout Indiana. The Clarian-affiliated 
Indiana University School of Medicine educates the second largest 
medical student body in the United States. We have been ranked as one 
of the top American hospitals by U.S. News & World Report for the past 
eight years, and last year led the nation in solid organ transplant 
volume. Additionally, we operate one of the nation's top children's 
hospitals, and are one of only nine hospital systems nationwide to 
receive the coveted Magnet designation.
    Most would agree that an increase in the efficiency of the health 
care delivery system would go a long way toward an overall decrease in 
cost. Legislators, insurers, and hospital providers must work together 
to find new and innovative ways to address efficiency and the larger 
health care issues of access and affordability. I support efforts by 
the government to reward providers that are agile and innovative; that 
address accessibility in health care; that empower consumers; that 
stress preventive treatment; that focus their efforts on quality and 
transparency; and that invest in technologies that maximize medical and 
information efficiencies, eliminate redundant processes and procedures, 
and minimize errors in medical diagnostics and information management.
    I believe very strongly that an emphasis on quality, transparency, 
and consumer empowerment in health care can reduce costs, thereby 
aiding the federal government as it struggles to ration scarce dollars 
and remain accountable to taxpayers.
    I am here today to support the issue of developing greater price 
and quality transparency in the health care sector. Speaking as a 
consumer of healthcare, the technicalities of the hospital bill 
(technical fees) alone can leave one quite perplexed (redundant bills, 
inaccurate bills and statements titled ``This is not a Bill''). Now add 
to that array of mail the bill(s) received from the physicians 
(professional fees), and you can understand the customer's need for 
price transparency from both the hospital and the physician.

A typical billing scenario:
    A patient is diagnosed with lung cancer and comes to the hospital 
to have a biopsy performed. The patient will receive a bill from the 
hospital for the time spent in the OR, time spent in recovery, the 
anesthesia that was administered, and any ancillary services performed/
items used while the patient was in the hospital (radiology exams, lab 
tests, drugs, supplies, etc.) The patient will also receive individual 
bills from the surgeon, the anesthesiologist, the pathologist, and the 
radiologist for the services they provided as part of the biopsy. In 
the worst case, each of the physicians and the hospital could have 
their billing handled by separate business offices. These business 
offices all have to gather the demographic and insurance information 
for their personal use, and independently code the diagnosis and 
procedure information for their specific billing. Some business offices 
will be more efficient than others in compiling this data and 
generating their invoice, and as a result the bills will be submitted 
to the insurance company/patient at different times. During the 
insurance billing process the patient will receive correspondence from 
each business office notifying the patient that ``this is not a bill,'' 
but providing basic information on the services being billed to 
insurance. Once each bill is paid by insurance, the patient will 
receive a series of billing statements from each business office to 
collect on the co-pay/deductible amount. Depending on how quickly the 
insurance company processes the bills, the co-pay/deductible invoices 
will reach the patient at varying times. If different claim 
administration vendors process the Part-A and Part-B components of an 
insurance company's coverage (not a rare occurrence) the time until 
insurance pays for the hospital's and the physicians' claims could be 
very different. The patient will continue to receive regular statements 
(usually bi-weekly or monthly) from each physician and hospital 
business office until the invoices are paid. In this particular 
scenario the patient could receive 10-20 statements from as many as 
five business offices in the resolution of a single clinical 
occurrence.
    Along with price, quality is the other major concern for health 
care consumers. While quality data is beginning to be standardized and 
disseminated to the public, it is not being displayed in an integrated 
manner with price information. It is a concern to Clarian that focusing 
on price alone treats health care as a commodity service rather than 
one with highly variable quality.
    Clarian has already launched a quality website (www.clarian.org/
quality) to aid consumers in their decisions, but it is our vision in 
the near future for Clarian to be able to quote our patients a price 
for a particular procedure and align that price with our quality data 
to give our customers a true picture of the value proposition for the 
services we provide. Our goal is to produce a predictable charging and 
pricing model for both inpatient and outpatient hospital services 
provided at Clarian, scaleable by weight (acuity of care and resources 
required). Our intent is to provide more than just price information so 
that we better support our customers' need to make a complete 
purchasing decision. ``Here is what you're getting for your money.''
    From a billing perspective, a single case rate charge would be 
applied at the time of finalized coding, thus providing the patient 
with a much more simplified and easier to understand bill.
    The model described above is achievable, but it is also fairly high 
risk to Clarian. The model should satisfy current public demand for 
improved access to pricing information but may also shift risk back to 
Clarian in regard to quality and efficiency of patient care. We are 
pushing forward with this endeavor because it is the right thing to do 
for our customers and for the health care industry.
    It is our opinion that this model will not be truly used and useful 
to the customer until the health care industry is able to provide both 
the hospital's prices/quality data as well as the physicians' prices/
quality data to the patient prior to services being delivered.
    By empowering people to make decisions about their own health care, 
and by creating a transparent delivery system, we provide consumers 
with an incentive to become accountable and responsible health care 
purchasers. Consumers will reduce costs by seeking out and choosing 
qualified doctors and hospitals.
    Consumers should demand and expect the same value proposition 
information (Value = Quality / Cost) from the health care market that 
they receive from other private sector businesses. When purchasing an 
automobile it is not knowing the price alone that entices most buyers 
(since many makes and models are of similar price) but knowing the 
safety and quality data. I would pay more for a car with a better 
safety record or pay more for a brand that has a good track record of 
not needing to be repaired all of the time. Personally, it is worth it 
to me to avoid the hassle of frequently bringing my car to the repair 
shop. Similarly, employers may be willing to pay more for higher health 
care quality outcomes for their employees. For example, employers may 
find it worthwhile to steer their employees to a high quality provider 
so that in the event their employee does need to be hospitalized, that 
provider has lower shorter of stay outcomes, thus enabling the employee 
to return to work faster.
    Some employers are very active in this area by requiring preventive 
screenings. Thus far Clarian has encouraged our employees to 
participate in Health Risk Appraisals and through education and 
coaching we have directed employees to preventive care. Our health 
plans include preventive coverage. In next year's plan design 
recommendations we are introducing stronger economic incentives for 
healthy behaviors.
    The Centers for Medicare and Medicaid Services (CMS) recently 
proposed a rule related to the fiscal year 2007 inpatient hospital 
prospective payment system. As a hospital system dedicated to 
transforming and improving the efficiency and quality of health care, 
we are pleased that CMS is working toward improving and refining the 
current diagnostic related groups (DRG) system. We believe it is 
critical that any refinements to the DRG methodology be accomplished in 
a manner that is transparent to all affected individuals and entities, 
and that any revised methodology be fully available in a timely manner 
to allow affected parties to comply. We will need immediate and 
unfettered access to information that will enable us to code and bill 
for inpatient hospital services. Transparency in this regard is equally 
essential to achieving quality and affordability in our nation's health 
care system.
    Madam Chairman, we believe that there is a tremendous opportunity 
for change. We ask that Congress join us in our efforts to address 
rewarding those focused on providing transparency of quality and price 
by focusing additional federal resources on investments in technology 
and consumer-driven care, thereby enabling providers such as Clarian to 
become more transparent, to empower their customers, and to work with 
other willing partners to reduce the costs associated with care.
    Thank you very much for your time.

                                 

    Chairman JOHNSON OF CONNECTICUT. Mr. Brenton.

  STATEMENT OF STEPHEN BRENTON, PRESIDENT, WISCONSIN HOSPITAL 
                ASSOCIATION, MADISON, WISCONSIN

    Mr. BRENTON. Good morning. I am Steve Brenton, President of 
the Madison, Wisconsin-based Wisconsin Hospital Association. My 
written statement describes our initiative and also includes 
four screen shots taken off of our Web site.
    As we grappled with the definition of transparency, our 
Association felt that it was all about important information 
needed to facilitate a better understanding about health care 
quality and health care costs and to provide help in 
facilitating purchaser decision making. We think that 
transparency is essential to facilitate enhanced health care 
literacy to facilitate provider accountability and consumer 
purchasing decisions.
    Our PricePoint initiative is a key part of that larger 
transparency picture. Our initiative includes hospital-specific 
information about retail prices, about utilization, about payer 
mix and about charity and uncompensated care on a hospital-
specific basis.
    We believe that our PricePoint Web site and initiative is 
the most comprehensive statewide private sector initiative in 
the Nation. We are also working right now with seven other 
States to help them brand similar programs.
    We also link our PricePoint initiative to our quality and 
safety Web site called CheckPoint, which is somewhat similar to 
the Hospital Compare Web site, although it does contain 
information above and beyond that nationwide Web site.
    In the future, we intend to add high-volume out-patient 
procedures, we intend to facilitate better hospital 
comparisons, and we also intend to provide a consumer focus on 
hospital billing policies ideally by having a hospital-specific 
link where uninsured patients can access specific hospital 
billing guidelines.
    We intend to do all of that or begin doing all of that 
within the next 12 months.
    As we looked at the transparency issue--and my written 
testimony gets into this--we described three basic audiences 
that need the information; and our PricePoint initiative is 
designed to meet that public policy audience--the news media, 
lawmakers and regulators, and the curious public--by way of 
providing retail price information and the other financial and 
utilization data found on that Web site.
    We believe that insured consumers with high-deductible 
health plans need to access information from the health plans 
that sold them those policies. Much as that is doing in 
Wisconsin, much as Humana is going to do, some other 
organizations need to step up and provide information to help 
purchasers know beforehand about potential out-of-pocket 
expenses associated with their health care coverage.
    The third audience is the audience of uninsured. In 
Wisconsin, hospitals have pretty aggressive and proactive 
billing guidelines associated with the uninsured. I think we 
need to make those guidelines more transparent, and we intend 
to do that through our PricePoint initiative.
    In conclusion, as we look at the pricing transparency 
issue, I think we are in the top of the second inning of what 
will be an extra inning ball game, and what is available today 
clearly is different than what should be available tomorrow.
    Our organization is committed to growing and evolving our 
private initiative to make it more meaningful, but, overall, to 
be successful, we think that we need to have the engagement of 
providers and payers fully addressing the needs of the three 
audiences that I attempted to briefly describe.
    Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much.

    [The prepared statement of Mr. Brenton follows:]

      Statement of Stephen Brenton, President, Wisconsin Hospital 
                    Association, Madison, Wisconsin

    Good morning.
    I am Steve Brenton, president of the Wisconsin Hospital Association 
(WHA). WHA is a trade association representing all of Wisconsin's 
community hospitals and health systems, many of which are integrated 
delivery organizations that provide a continuum of services, employ 
physicians and own health plans.
    Our association committed to a proactive price transparency 
initiative three years ago when Wisconsin's statutorily mandated 
hospital data collection program was transferred to WHA through a 
contract with the state. Under WHA's leadership, the program has been 
completely transformed and is now a reliable and timely consumer-
focused information tool aimed at helping employers and employees make 
informed decisions about their health care.
    The highlight of this effort is the interactive PricePoint 
(www.wipricepoint.org) Web site:

1) What is on the PricePoint Web site?
      Hospital-specific inpatient prices for all DRGs updated 
quarterly.
      Hospital-specific aggregate reduced prices taken by 
Medicare, Medicaid and commercial payers.
      Inpatient, service-specific utilization information.
      Hospital-specific annual charity care and uncompensated 
care totals.
      A link to hospital-specific quality and patient safety 
information.

2) Data Source for PricePoint.
      Hospital inpatient claims data submitted quarterly.
      Hospital-specific annual fiscal survey data.

3) Future Plans to Enhance PricePoint.
      High-volume outpatient procedures to be added by yearend 
and other outpatient services in the next phase (see slide with 
description)
      Web site reconfiguration to facilitate hospital 
comparisons.
      Consumer information to help patients navigate their way 
through the health care system.

A Leading National Initiative
    We believe that today, PricePoint is the most comprehensive 
private-sector price transparency initiative in the nation. Our 
Information Center is currently working with seven states to brand 
similar programs. Our commitment to expand the amount of information 
and comparability of information will significantly enhance this price 
transparency initiative.

Audiences Requiring Price Transparency
    1) Public Policy--The public policy audience, which includes the 
news media, legislators, regulators and the ``interested'' public, can 
best be served by providing timely access to ``retail'' charge 
information on inpatient and outpatient services and procedures. This 
is what PricePoint currently facilitates, including the provision of 
reduced price information by payer type in aggregate.
    2) Insured Consumers--Insured consumers (shoppers) require timely 
access to information about potential out-of-pocket expenses to enable 
them to ``shop'' for elective services and procedures. This necessary 
information should be provided by the health plan that sold the policy 
to the insured consumer in order to facilitate purchase decisions.
    3) Uninsured Consumers--Hospitalsshould be willing to counsel 
uninsured patients consistent with established billing and collection 
guidelines that should be transparent to these consumers. In June 2004, 
the WHA Board of Directors adopted guideline recommendations for 
hospitals that are widely in place in Wisconsin.

Conclusion
    PricePoint is an important and significant pricing transparency 
initiative. Standing alone, however, our initiative is not the total 
answer to fully addressing the needs of the three audiences identified 
above. That's why we believe that health plans currently involved in 
marketing HSAs and high-deductible products must offer up information 
to their consumers as an essential, value-added service. Similarly, a 
focus totally on hospitals fails to generate necessary information from 
physician offices, freestanding diagnostic centers and pharmacies.
    We also believe that informed consumers must have information about 
quality and patient safety to better understand their health care 
choices and decisions. That's why we also have made a commitment to a 
quality and safety measurement Web site . . . http://wicheckpoint.org. 
. . . .that facilitates and improves consumer literacy. The CheckPoint 
Web site is designed to align with and in fact stay one step ahead of 
the national initiative . . . Hospital Compare. Currently, all 
Wisconsin hospitals participate in our CheckPoint initiative.

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    Chairman JOHNSON OF CONNECTICUT. Ms. Tu.

  STATEMENT OF HA T. TU, SENIOR HEALTH RESEARCHER, CENTER FOR 
                 STUDYING HEALTH SYSTEM CHANGE

    Ms. TU. Good morning, Madam Chairman, Representative Stark 
and Members of the Subcommittee. Thank you for the invitation 
to testify.
    My name the Ha Tu. I am a senior health researcher at the 
Center for Studying Health System Change, HSC. The HSC is an 
independent, nonpartisan health policy research organization 
funded principally by the Robert Wood Johnson Foundation and 
affiliated with Mathematical Policy Research.
    With funding from the California HealthCare Foundation, HSC 
has conducted research on consumer shopping for health 
services, focusing on self-pay services such as LASIK. These 
self-pay markets are often held up as models for all health 
care markets. However, our research findings suggest that even 
for the simplest self-pay services there are important barriers 
to price and quality transparency and the extent of consumer 
shopping is quite limited.
    That is a point I would like to briefly summarize, our 
findings related to LASIK. These findings are laid out in 
greater detail in my written testimony.
    LASIK is a procedure that offers ideal conditions for price 
shopping for several reasons.
    First, LASIK is an elective and nonurgent procedure so that 
consumers have the time and the ability to comparison shop. 
Second, consumers can gather initial price quotes for LASIK by 
phone at no cost and little inconvenience. In this respect, 
LASIK is unlike many other services that require in-person 
exams before any price quotes can be given. Finally, easy entry 
into this market by ophthalmologists has helped to encourage 
price competition.
    Our research found that competition has helped to keep 
prices down in the LASIK market. The average price for the 
conventional LASIK procedure has declined by nearly 30 percent 
in the past decade after adjustment for inflation. However, 
this price decline has been much less steep than a casual 
observer would expect, given the pervasive ads that most of us 
have seen for LASIK for $299. In fact, the average price of 
LASIK in the past year was about $2,000 per eye; and only about 
3 percent of LASIK procedures actually cost less than a 
thousand dollars an eye.
    We find that most consumers, in choosing a LASIK provider, 
rely heavily on word-of-mouth recommendation from previous 
patients. This is true of consumers in all price segments of 
the market. While consumers of premium-priced practices tend to 
focus on quality and consumers of discount-priced practices 
tend to focus on price, word of mouth is the primary way 
consumers choose the LASIK surgeon whatever the price segment 
of the market.
    We identify three major challenges facing LASIK consumers.
    First, LASIK providers don't package their services in any 
consistent way when they quote their fees to consumers; and, as 
a result of this, it is extremely difficult for consumers to 
make accurate apples-to-apples price comparisons across 
providers.
    Second, some LASIK providers have engaged in misleading 
advertising by making price and quality claims that regulators 
have found to be unfounded. Both Federal and State regulators 
have taken action against misleading advertisers, but 
violations have persisted in this industry, and regulators 
acknowledge that they don't have the resources to monitor all 
of the violations.
    The final challenge for LASIK shoppers is that substantial 
quality differences do exist across providers. There are large 
variations in how thoroughly providers screen patients, what 
kind of technology they use, and what their outcomes are, 
including success rates and complication rates. These 
variations are all evidence that LASIK is not a commodity, 
although it is often talked about as a commodity.
    To summarize, we find there are barriers to price and 
quality transparency in the LASIK market, and these help to 
limit shopping.
    When we turn to other self-pay services such as in-vitro 
fertilization, cosmetic rhinoplasty and dental crowns, we find 
even less shopping taking place in those markets because of 
additional barriers such as the cost and effort involved in 
getting price quotes, and in some IVF and dental crown cases, 
there is urgency involved which precludes comparison shopping.
    Thank you.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Ms. 
Tu.

    [The prepared statement of Ms. Tu follows:]

 Statement of Ha T. Tu, Senior Health Researcher, Center for Studying 
                          Health System Change

    Madame Chairman, Representative Stark and members of the 
Subcommittee, thank you for the invitation to testify. My name is Ha T. 
Tu, and I am a senior health researcher at the Center for Studying 
Health System Change (HSC). HSC is an independent, nonpartisan health 
policy research organization funded principally by The Robert Wood 
Johnson Foundation and affiliated with Mathematica Policy Research.
    HSC's main research tool is the Community Tracking Study, which 
consists of national surveys of households and physicians in 60 
nationally representatives communities across the country and intensive 
site visits to 12 of these communities. We also monitor secondary data 
and general health system trends. Our goal is to provide members of 
Congress and other policy makers with high-quality, objective and 
timely research on developments in health care markets and their impact 
on people. Our various research and communication activities may be 
found on our Web site at www.hschange.org.
    With funding from the California HealthCare Foundation, HSC has 
conducted research on consumer price shopping for health services, 
focusing both on self-pay services, such as LASIK, and analyzing the 
issue of price transparency for medical services that tend to be 
insured.\1\
---------------------------------------------------------------------------
    \1\ Two working papers from this project, ``Shopping for Price in 
Medical Care,'' by Paul B. Ginsburg, and ``How Consumers Shop for 
Health Care When They Pay Out of Pocket: Evidence From Selected Self-
Pay Markets,'' by Ha Tu and Jessica H. May, are available by request by 
contacting HSC.
---------------------------------------------------------------------------
    My testimony today will focus on three key points:

      Consumers' experiences with markets for self-pay 
services, such as LASIK, are often held up as model for the entire 
health care system. Consumer shopping in self-pay markets has been 
mythologized with little investigation into how well these markets 
actually work for patients. Our research findings indicate self-pay 
markets are unlikely to be a workable model of effective shopping for 
health care services without either a large role for insurers or 
regulatory oversight.
      Insurers' buying power, or ability to negotiate 
significant discounts from hospitals, physicians and other providers, 
eclipses what patients can negotiate individually. And insurers 
potentially can become even more effective agents as they develop more 
sophisticated benefit structures and information tools to support 
consumers in choosing effective treatments from higher-quality, lower-
cost providers.
      Encouraging greater consumer awareness about the costs of 
health services--i.e. consumer price shopping--does have potential to 
help contain costs without sacrificing quality--but some are 
overselling the magnitude of this potential.

SELF-PAY MARKETS
    Whether they belong to conventional health plans with rising cost-
sharing requirements or enroll in consumer-driven health plans with 
high deductibles and a spending account, consumers are facing more 
incentives to make cost-conscious decisions about medical services. 
Consumer-oriented approaches to health care emphasize price shopping as 
a tool for individual consumers to obtain better value and for the 
health system as a whole to curb rising costs and improve quality 
through increased competition. Until recently, most insured consumers 
have been sheltered from rising health care costs and have had few 
incentives to shop for the best deal. The extent to which consumers 
actually can become effective shoppers in the health care marketplace 
remains largely unexplored.
    Self-pay markets in health care--those markets in which consumers 
largely pay out of pocket for services because of little or no 
insurance coverage--provide insights into how markets work when 
consumers must pay the total costs of services without the benefit of 
discounted rates negotiated by health plans or the restrictions of a 
provider network chosen by insuers.
    Our research examines several self-pay markets in health care, 
focusing on one in particular--laser assisted in-situ keratomileusis 
(LASIK), a type of vision-correction surgery. LASIK was chosen for in-
depth analysis largely because it is widely regarded as the self-pay 
market with the most favorable conditions for consumer shopping: it is 
an elective, non-urgent, simple procedure, giving consumers time and 
ability to shop; screening exams are not required to obtain initial 
price quotes, keeping the dollar and time costs of shopping reasonable; 
and easy entry of providers (ophthalmologists) into the market has 
stimulated competition and kept prices down.
    While LASIK is a good procedure to evaluate for price shopping for 
these reasons, it is important to note that patients are rarely in a 
position to shop for completely elective, non-time-sensitive 
procedures, even if good price and quality information were available.
    In addition to the in-depth look at LASIK, we've also examined 
other self-pay markets--in vitro fertilization (IVF), cosmetic 
rhinoplasty and dental crowns--to highlight how additional complexities 
and barriers to price and quality transparency affect consumer shopping 
behavior.

LASIK
    Study Methodology. Initial research included a review of existing 
literature and news stories; informational material published by 
professional associations and government regulators; and industry 
consultants' market reports. In addition, researchers reviewed online 
patient forums and examined LASIK providers' Web sites and print 
advertisements. Interviews included LASIK providers, industry 
consultants, laser equipment manufacturers, government regulators, and 
professional associations' management and senior staffs. Respondents 
were asked about the overall nature of the LASIK market--for example, 
to discuss price and quality information available to consumers and to 
describe typical consumer shopping behavior. Respondents also were 
asked specific questions based on their expertise and position in the 
market--for example, industry consultants discussed overall market 
trends and government regulators discussed misleading advertising and 
regulatory oversight of LASIK. In addition, the industry's professional 
association and a consulting company that specializes in providing 
LASIK price and volume data provided supplementary data on the LASIK 
market.
    The Procedure. LASIK is an outpatient surgical procedure performed 
by an ophthalmologist that permanently reshapes corneal tissue to 
reduce light-refraction error and improve vision. A surgical blade 
creates a flap in the outer layer of the cornea. After the flap is 
folded back, a laser is used to reshape the underlying corneal tissue, 
and the flap is replaced. The surgery takes 10--15 minutes per eye, and 
the only anesthetic is an eye drop that numbs the eye's surface. LASIK 
was first performed in the United States in clinical trials in 1995.
    Complications of LASIK include infection, dry eye, the flap failing 
to adhere correctly after surgery, less-than-perfect vision correction, 
and visual disturbances, such as seeing glare and halos, especially at 
night. Experts estimate that complications occur in 5 to 7 percent of 
all procedures. The complication rate has decreased over time with 
greater surgical experience and technological advances. The rate of 
severe complications, such as those that threaten long-term vision, is 
estimated to be less than.01 percent. In 5 to 18 percent of procedures, 
a second operation--called enhancement surgery--is needed to correct 
refractive error that was either not corrected in the first procedure 
or caused by the first procedure. The higher a patient's refractive 
error to start with, the greater the likelihood that enhancement 
surgery will be needed.
    In the past few years, two new technologies have emerged in the 
LASIK industry. The first, custom wavefront-guided LASIK, uses 
wavefront technology to measure precisely how each eye refracts light 
and then guide the laser in customizing the corneal reshaping. Unlike 
conventional LASIK, custom LASIK can treat higher-order aberrations and 
is more likely to produce 20/20 or better vision and is less likely to 
result in visual distortions. Providers have widely adopted custom 
LASIK: 80 percent of providers now offer this technology, and the 
procedure accounted for nearly half of all LASIK procedures in 2005, 
according to MarketScope, LLC data.
    The second refinement, blade-free or all-laser LASIK, involves the 
use of a laser instead of a surgical blade to create the corneal flap 
and is usually referred to as IntraLase. Many surgeons believe that 
IntraLase creates a more precise flap and results in fewer 
complications. Compared to custom LASIK, however, IntraLase market 
penetration has not been nearly as high: The technology was used in one 
in 10 LASIK procedures in 2005, according to MarketScope, LLC data.
    Market Structure and Pricing. Market insiders describe the LASIK 
market as having three pricing tiers: discount, mid-priced and premium-
priced providers. Discounters tend to market aggressively based on 
price. They typically handle a high volume of procedures, and patients 
often have little or no contact with the surgeon before or after 
surgery.
    While discount providers are almost always high volume, experts 
note higher pricing does not necessarily equate to lower volume. What 
all premium providers tend to have in common is that they are surgeons 
whose credentials (such as research publications, affiliations with 
teaching hospitals and participation in clinical trials) enable them to 
command top dollar. Beyond this common trait, however, it is harder to 
generalize about these practices. Many premium providers run relatively 
low-volume LASIK practices that offer patients personalized care from 
the surgeon, both before and after surgery. Other premium-priced 
providers operate on a different business model: marketing themselves 
heavily, performing high volumes of LASIK procedures, and often relying 
on optometrists to conduct pre- and post-operative exams.
    Many mid-priced providers are somewhat like the premium providers 
but without the top-notch credentials or surgical experience to command 
higher prices. Other mid-priced providers are large chains that may 
have started out as discount providers but moved to the mid-price 
segment through an emphasis on customer service, celebrity endorsements 
or other means.
    In 2005 the price of LASIK averaged approximately $1,680 per eye 
for the conventional procedure and $2,030 for the custom procedure (see 
Exhibit 1). Premium-priced providers currently charge about $2,200 per 
eye for conventional LASIK and $2,700-$2,800 for the most advanced 
technology (custom LASIK with IntraLase).
    Although discount providers often advertise that LASIK is available 
for only a few hundred dollars, market experts note that the actual 
price of LASIK from a discounter averages $1,100-$1,200 per eye for the 
conventional procedure and $1,500-$1,600 per eye for custom LASIK, both 
with a surgical blade. (Most discounters have yet to adopt IntraLase 
technology.) This substantial discrepancy between actual and advertised 
prices exists largely because very few LASIK patients are medically 
eligible for the lowest prices. Indeed, it has been estimated that only 
3 percent of LASIK procedures are performed for less than $1,000 per 
eye.\2\
---------------------------------------------------------------------------
    \2\ David Harmon, MarketScope president, as quoted in: K. Garloch, 
``LASIK: Reward of Clear Vision Not Without Risk,'' The Charlotte 
Observer, January 18, 2004.
---------------------------------------------------------------------------
    In the decade that LASIK has been performed in the U.S., price and 
volume have fluctuated somewhat, but overall the average price for 
conventional LASIK has declined nearly 30 percent in inflation-adjusted 
terms. Two factors appear to be largely responsible for this market's 
price competitiveness: on the provider side, a large number of 
providers (ophthalmologists) can enter the market relatively easily; 
and on the consumer side, price quotes can be obtained at little cost 
and inconvenience. However, the decline in LASIK price is much less 
steep than what a casual observer might infer, given the pervasive 
advertisements of LASIK for only a few hundred dollars per eye.
    There is no consistent bundling of LASIK services across providers. 
A high-end LASIK surgeon's fee might include a thorough screening exam, 
the procedure itself, and several post-operative exams, all conducted 
by the surgeon. If enhancement surgery is needed, a premium-priced 
surgeon might charge the patient nothing at all or only the procedure 
fee charged by the laser manufacturer. At the other extreme, some 
discount providers charge patients a nonrefundable fee for the 
screening exam, include little post-operative care and require full 
payment for enhancement surgery.
    Information Available to Consumers. Reliable consumer information 
about LASIK is available from several sources, including the Federal 
Trade Commission (FTC) and the American Academy of Ophthalmology (AAO), 
which jointly produced a free consumer brochure, Basik Lasik.\3\ This 
consumer resource discusses the procedure, its risks and possible 
complications; how to locate a surgeon; and what to expect before, 
during and after surgery. To help consumers find a surgeon, the AAO Web 
site lists all AAO members performing refractive surgery.
---------------------------------------------------------------------------
    \3\ Other reliable Web sources of information about LASIK include 
www.lasikinstitute.org (sponsored by the Eye Surgery Education Council, 
an initiative of the American Society for Cataract and Refractive 
Surgery) and www.usaeyes.org (sponsored by the Council for Refractive 
Surgery Quality Assurance).
---------------------------------------------------------------------------
    Basik Lasik and similar sources provide guidance to consumers on 
questions to ask of surgeons, but consumers still must gather this 
information from each provider. No centralized source is available for 
information such as number of procedures performed, success rates or 
enhancement rates for each surgeon, so consumers seeking to compare 
such quality-related measures across providers must invest considerable 
effort to gather this information.
    Consumer Shopping Behavior. Although LASIK consumers are a 
heterogeneous group, the majority shares one trait, according to 
industry experts:Word-of-mouth recommendation from a previous LASIK 
patient is the most common way to select a LASIK surgeon. This holds 
true for all market segments, from discount to premium-priced 
providers. Practices that advertise heavily do draw many new patients 
through marketing efforts, but word-of-mouth still plays an important 
role--accounting for perhaps half of most discount providers' LASIK 
customers, according to industry observers.\4\
---------------------------------------------------------------------------
    \4\ The different ways that consumers have of choosing LASIK 
providers are not mutually exclusive. For example, a consumer 
considering LASIK may see an advertisement promoting low prices, then 
talk to someone who had satisfactory surgery with that provider--which 
would reinforce that consumer's inclination to choose that provider.
---------------------------------------------------------------------------
    According to premium-priced surgeons, well over half of their 
patients tend to be focused on quality considerations. These patients 
are likely to ask prospective providers about LASIK technology, safety 
and outcomes, and a subset of these patients has done extensive 
research before contacting a provider. Among discount practices, not 
surprisingly, price tends to be the most important priority, and 
patients are much less inclined to focus on quality or to have done 
research. Industry experts estimate that perhaps one in five LASIK 
consumers overall--and a much larger proportion of discount providers' 
customers--tend to shop intensively for the lowest price (often by 
telephone) and base their purchasing decision solely on price.
    In the LASIK market--in contrast to other self-pay markets--it is 
possible for a consumer to obtain telephone price quotes if they have 
their vision prescription.\5\ An in-person exam is still needed, 
however, before the provider can assess the patient's eligibility for 
surgery, the likelihood of complications and the potential benefits of 
custom LASIK over conventional LASIK.
---------------------------------------------------------------------------
    \5\ A prescription may not even be necessary to obtain a price 
quote, if the provider does not use tiered pricing based on strength of 
prescription.
---------------------------------------------------------------------------
    Consumer Satisfaction. Satisfaction rates among LASIK patients are 
high--about 90 percent industry-wide. Among premium-priced practices, 
especially those that emphasize careful screening and patient 
preparation, satisfaction rates can reach the high 90s. Even among 
high-volume discounters, some of which have received negative publicity 
for questionable business practices and some bad outcomes, satisfaction 
rates still appear to range in the 80s.

Issues Facing LASIK Consumers
    Lack of Consistent Bundling. Because the package of services that 
are included in LASIK procedure fees varies across providers, consumers 
shopping in this market are confronted with ``apples vs. oranges'' 
comparisons. One critical factor when comparing providers' fees is to 
consider whether the provider includes the cost of enhancement surgery 
in the quote. A price quote that appears to be the best deal but does 
not cover follow-up operations may end up being the highest-cost option 
if enhancement surgery is needed. Whether thorough screening exams are 
included and how much post-operative care is included in the procedure 
fee also varies.
    Misleading Advertising. Misleading advertisements have been a 
recurring problem with some LASIK providers, most notably discounters; 
federal and state regulators have taken action against some providers--
and investigated many more--for making claims about price and quality 
that were found to be unwarranted.
    In 2003, for instance, the FTC issued a consent order against LASIK 
Vision Institute (LVI) after finding that the national chain falsely 
claimed that consumers would receive a free consultation to determine 
their LASIK eligibility. Instead, consumers, after an initial meeting 
with a salesperson, were required to pay a $300 deposit before they 
could meet with an optometrist to be told of risks, possible 
complications and medical eligibility. If the consumer decided not to 
proceed with surgery, the entire deposit was nonrefundable. If the 
consumer chose to undergo surgery but was rejected for medical reasons, 
only a portion of the deposit was refunded. Although LVI signed an FTC 
consent decree, the practice of advertising but not providing a free 
screening has persisted in some markets. In November 2005, the Illinois 
Attorney General took action against LVI for this same violation, along 
with other misleading practices.
    Advertisements run by discount providers touting very low LASIK 
prices are another important source of consumer misinformation. LVI, 
for example, runs advertisements promising ``LASIK for $299.'' On LVI's 
Web site, the fine print states the offer is for surgery on one eye and 
applies only to those with no astigmatism and very low myopia, 
conditions that apply to a small portion of the LASIK patient base. 
Similar problems have occurred with print advertisements, leading at 
least two state attorneys general, in Illinois and Florida, to take 
action against LVI in 2005.
    Consumers can be misled on quality issues as well by some 
advertisements. The 2003 FTC consent decree against LVI cited the 
provider for making unsubstantiated claims that LASIK would eliminate 
the need for glasses and contact lenses for life. Another national 
provider, LasikPlus, also was cited for making this claim, as well as 
additional unfounded claims that the procedure posed less risk to 
patients' eyes health than wearing glasses or contacts and that the 
procedure carried no risk of side effects.
    In many cases questionable practices have persisted despite the 
settlements. And, regulators note that for the FTC to take official 
enforcement action against a provider, a practice must be ``egregious'' 
and ``widespread;'' they concede that consumers can also be misled by 
many questionable practices that fall short of these criteria. For 
example, local LASIK providers engaging in some of the same advertising 
practices as LVI would not be targets of FTC action, since their 
practices are not national in scope. Policing such providers generally 
would be left to state and local regulators, which vary greatly in the 
extent to which they enforce consumer protection.
    Quality Issues. Many industry observers express concern that LASIK 
is regarded as a commodity by some consumers--leading them to shop only 
on price--when provider quality, in their opinion, varies considerably. 
Quality differences may be obscured by the fact that LASIK is 
relatively simple surgery with low complication rates, but for patients 
whose eyes have certain ``problem'' characteristics (e.g., abnormal 
topography, large pupils, thin corneas), quality differences may be 
critical.
    Screening is the first step where provider quality differences 
matter: Industry insiders note that some providers--especially high-
volume discount providers--may not adequately screen out patients who 
are not good LASIK candidates. When such patients are accepted for 
surgery, whether through revenue pressures or less-experienced or 
skilled screening staff, they suffer serious complications at much 
higher rates than average.
    Investments in technology are another area where providers differ: 
The lower the price charged by providers, the less likely they are to 
use state-of-the-art technology that may provide better results. 
According to experts, the very low prices quoted by discount providers 
assume the use of older, less expensive laser technology that may 
produce an acceptable result (for example, 20/40 vision with visual 
aberrations) when a newer, more expensive technology might have 
produced a better outcome (better than 20/20 vision with no 
aberrations).
    Poor quality outcomes, including severe pain, loss of best-
corrected vision, or persistent double vision have been well documented 
in media accounts, online health forums and other sources. Such 
outcomes can result not only from poor screening but also from 
inadequate skill or experience from the surgeon, providing further 
evidence that LASIK is not a commodity and that quality differences can 
be substantial across providers.

Other Self-Pay Markets
    While I have focused on the LASIK market, as I mentioned earlier, 
we also looked at self-pay markets for in vitro fertilization (IVF), 
cosmetic rhinoplasty and dental crowns. Consumers engage in little 
price shopping for IVF, rhinoplasty and dental crown services, 
according to experts in these markets. For IVF and rhinoplasty, most 
consumers choose providers based on previous patients' recommendations 
or physician referrals. For dental crowns, virtually all patients 
choose to stay with their regular dentist rather than shop around.
    One important reason why shopping takes place so infrequently for 
these procedures is that accurate price quotes can only be obtained 
after undergoing in-person screening exams, since costs vary according 
to patient characteristics and medical needs as assessed by each 
provider. In some markets (cosmetic surgery) it is customary for some 
providers to offer free screenings, while in other markets (IVF and 
dental procedures), providers always charge for the exam. In the latter 
case, any potential benefit of identifying a low-cost provider would 
likely be negated by the costs of obtaining price quotes. But even when 
screenings are provided free of charge, consumers must still invest 
considerable effort in gathering price quotes.
    Urgency is another factor precluding some consumers from shopping 
for IVF and dental crown services. Since one of the indications for a 
crown is that a portion of a tooth is missing, some patients may be in 
pain while shopping. Although IVF treatment may not qualify as 
medically urgent, industry experts note that consumers' sense of 
urgency about starting the procedure makes them unlikely to spend time 
price-shopping.
    In the dental crown market, there are also important psychological 
barriers to shopping around. Surveys suggest that a large majority of 
consumers trust their own dentists, but at the same time, many express 
some fear or anxiety about major dental procedures. Thus, most 
consumers, when faced with the prospect of undergoing a major dental 
procedure, would be highly unlikely to switch from a regular provider 
they already know and trust to an unknown dentist solely to save on 
costs.

Implications for Price Shopping
    Consumer-oriented approaches to health care sometimes focus on 
price shopping, without giving adequate priority to comparing quality 
across providers. Yet, widespread reliance on word-of-mouth 
recommendation in self-pay markets suggests that many consumers place a 
high priority on quality but may be using referrals from physicians or 
previous patients as a proxy for quality, given the absence of or 
shortcomings in concrete quality measures.
    Concerns about quality disparities across providers appear to be 
warranted: Even for the relatively simple LASIK procedure--sometimes 
considered a commodity--quality differences across providers can be 
marked and can prove critical, particularly for the significant 
minority of consumers who have ``problem'' characteristics that put 
them at greater risk for complications or unsatisfactory outcomes. 
Consumers who consider only price when shopping for LASIK may end up 
with providers they would not have chosen if they had been aware of 
quality disparity issues. These consumers may not receive the best 
value for their money, even if they obtained the lowest price.
    For consumers who do take quality into account when shopping, 
comparing quality across providers can be challenging. For LASIK, 
consumers must gather data on success and re-operation rates from 
individual providers. Along with a need for centralized quality 
information, there is also a need to adjust outcomes data for patient 
mix--something not yet available in any of the self-pay markets we 
examined.
    Educating consumers--providing information such as what credentials 
to look for in providers, how to compare prices and quality across 
providers, and what misleading claims to look out for--is essential if 
consumers are to act as their own agents in the marketplace. Government 
and professional associations can jointly take on consumer education, 
as they have done in the LASIK market. Monitoring of and enforcement 
against providers who engage in misleading advertising are also key 
elements of consumer protection. As the number and complexity of health 
care markets in which consumers are expected to shop on their own 
behalf expand, resources devoted to consumer protection will need to be 
increased substantially.
    If all the tools discussed here were implemented, many consumers 
would benefit from improved price and quality transparency, but the 
benefits would not accrue to all consumers equally. Previous research 
has found that consumers with more education are much more inclined to 
seek health information on their own behalf,\6\ so they are the most 
likely to benefit directly from any measures that improve price and 
quality transparency.
---------------------------------------------------------------------------
    \6\ L. Baker et al., ``Use of the Internet and E-Mail for Health 
Care Information: Results From a National Survey,'' Journal of the 
American Medical Association, Vol. 289, No. 18 (May 14, 2003). H.T. Tu 
and J.L. Hargraves, Seeking Health Care Information: Consumers Still on 
the Sidelines, Issue Brief No. 61, Center for Studying Health System 
Change, Washington, D.C. (March 2003).
---------------------------------------------------------------------------
    In applying lessons learned from self-pay markets to services 
covered by health insurance, it should be noted that many covered 
services are more urgent and more complex than the procedures we have 
analyzed--factors that would greatly reduce consumer inclination and 
ability to comparison shop. In addition, the fact that insurance will 
cover part of the cost reduces the financial incentive for the consumer 
to shop vigorously. Given that consumer shopping is not prevalent or 
active in most self-pay markets, we would expect the extent of shopping 
to be even more limited for many insured services.

ROLE OF INSURERS IN PRICE TRANSPARENCY
    Moving from self-pay markets where consumers are responsible for 
paying the total bill to covered health care services, where consumers 
have less of a financial stake in care decisions, it's important to 
keep in mind the role of insurers. Much of the policy discussion about 
price transparency has neglected the important role that insurers play 
as agents for consumers and purchasers of health insurance in obtaining 
favorable prices from providers, as HSC President Paul B. Ginsburg, 
Ph.D., testified earlier this year before Congress.\7\ Even though 
insurers have lost some clout in negotiating with providers in recent 
years, they still obtain sharply discounted prices from contracted 
providers.
---------------------------------------------------------------------------
    \7\ Statement of Paul B. Ginsburg, Ph.D., president, Center for 
Studying Health System Change, Consumer Price Shopping in Health Care, 
Before the U.S. House of Representatives, Committee on Energy and 
Commerce, Subcommittee on Health, Washington, D.C. (March 15, 2006).
---------------------------------------------------------------------------
    Insurers are in a strong position to further support their 
enrollees who have significant financial incentives, especially those 
in consumer-driven products. Insurers have the ability to analyze 
complex data and present it to consumers as simple choices. For 
example, they can analyze data on costs and quality of care in a 
specialty and then offer their enrollees an incentive to choose 
providers in the high-performance network. Insurers also have the 
potential to innovate in benefit design to further support effective 
shopping by consumers, such as increasing cost sharing for services 
that are more discretionary and reducing cost sharing for services that 
research shows are highly effective.
    Insurers certainly are motivated to support effective price 
shopping by their enrollees. Employers who are moving cautiously to 
offer consumer-driven plans want to choose products that offer useful 
tools to inform enrollees about provider price and quality. When 
enrollees become more sensitive to price differences among providers, 
this increases health plan bargaining power with providers. Negotiating 
lower rates further improves a health plan's competitive position. One 
thing that insurers could do that they are not doing today is to assist 
enrollees in making choices between network providers and those outside 
of the network by providing data on likely out-of-pocket costs for 
using non-network providers.

PRICE TRANSPARENCY CAN LEAD TO HIGHER PRICES IN SOME CASES
    The Administration has recently been pushing hospitals and 
physicians to provide more information on prices to the public. If this 
is limited to prices paid by those who are not insured or those who are 
insured but are opting to use a non-network provider, additional price 
information for the public is may be a positive. But if hospitals and 
insurers are precluded from continuing their current practice of 
keeping their contracts confidential, this could damage the interests 
of those who pay for services, especially hospital care.
    Antitrust authorities throughout the world have recognized that 
posting of contracted prices tends to lead to higher prices. In highly 
concentrated markets, posting of prices facilitates collusion. Even in 
the absence of collusion, posting would mean that a hospital offering 
an extra discount to an insurer would gain less market share because 
their competitors would seek to match it. Of course, this works on both 
the buying and selling side of the market, but if hospitals tend to be 
more concentrated than insurers, disclosure will raise rather than 
lower prices.
    The experience in Denmark, where the government, in a misguided 
attempt to foster more competition in a concentrated market, posted 
contracted prices in the ready-mix concrete industry is instructive. 
Within six months of this policy change, prices increased by 15-20 
percent, despite falling input prices.\8\
---------------------------------------------------------------------------
    \8\ Albaek, Svend, Peter Mollgaard, and Per B Overgaard, 
``Government-Assisted Oligopoly Coordination? A Concrete Case,'' 
Journal of Industrial Economics, Vol. 45 (1997): 429-43.
---------------------------------------------------------------------------
POTENTIAL FOR MORE EFFECTIVE PRICE SHOPPING
    Unfortunately, much of the recent policy discussion about price 
transparency downplays the complexity of decisions about medical care 
and the dependence of consumers on physicians for guidance about what 
services are appropriate. It also ignores the role of health insurers 
as agents for consumers and purchasers in shopping for lower prices. 
Well-intentioned but ill-conceived policies to force extensive 
disclosure of contracts between managed care plans and providers may 
backfire by leading to higher prices.
    We need to be realistic about the magnitudes of potential gains 
from more effective shopping by consumers. For one thing, a large 
portion of medical care may be beyond the reach of patient financial 
incentives. Most patients who are hospitalized will not be subject to 
the financial incentives of either a consumer-driven health plan or a 
more traditional plan with extensive patient cost sharing. They will 
have exceeded their annual deductible and often their maximum on out-
of-pocket spending. Recall that in any year, 10 percent of people 
account for 70 percent of health spending.
    When services are covered by health insurance, the value of price 
information to consumers depends a great deal on the type of benefit 
structure. For example, if the consumer has to pay $15 for a physician 
visit or $100 per day in the hospital, then information on the price 
for these services is not relevant. If the consumer pays 20 percent of 
the bill, price information is more relevant, but still the consumer 
gets only 20 percent of any savings from using lower-priced providers. 
And the savings to the consumer end once limits on out-of-pocket 
spending are reached.
    In addition to those with the largest expenses not being subject to 
financial incentives, much care does not lend itself to effective 
shopping. Many patients' health care needs are too urgent to price 
shop. Some illnesses are so complex that significant diagnostic 
resources are needed before determining treatment alternatives. By this 
time, the patient is unlikely to consider shopping for a different 
provider.
    Some of these constraints could be addressed by consumers' 
committing themselves, either formally or informally, to providers. 
Many consumers have chosen a primary care physician as their initial 
point of contact for medical problems that may arise, and choice of 
physician often drives choice of hospitals. Patients served by a multi-
specialty group practice informally commit themselves to this group of 
specialists--and the hospitals that they practice in--as well. So 
shopping has been done in advance and can be applied to new medical 
problems that require urgent care. This is a key concept behind the 
high-performance networks that are being developed by some large 
insurers.

CONCLUSION
    The need for consumers to compare prices of providers and treatment 
alternatives is increasing and has the potential to improve the value 
equation in health care. But we need to be realistic about the 
magnitude of the potential for improvement if consumers become more 
effective shoppers for health care.

[GRAPHIC] [TIFF OMITTED] T0452A.005

                                 

    Chairman JOHNSON OF CONNECTICUT. Let me just ask you, Mr. 
Brenton, my understanding of your tool is that you quote the 
average charges. Is that not as opposed to prices? You used 
prices in your testimony. On your example here you use the 
board average charge. Now we all know there is a difference 
between charges and prices.
    Mr. BRENTON. Well, actually, there is a big difference 
between charges and what providers actually receive. I would 
argue that charges and prices are pretty much the same thing.
    In order--but I think that what you are getting at is the 
charges alone aren't necessarily a good indication of what 
people are paying, what they would be expected to pay. I agree.
    That is why one of the things we have tried to do on our 
Web site is to show this charge and then also to show 
PricePoint on average, in aggregate, what the Medicare Program 
pays based on charges, what the Medicaid program in Wisconsin 
pays and then on average what commercial payers are paying.
    It is a way--it is a rudimentary way of demonstrating the 
issue that you are getting at.
    Chairman JOHNSON OF CONNECTICUT. If you report what 
Medicaid pays, you are reporting an actual price that the State 
Government gives us for care of Medicaid patients. If you 
report the average of the prices that the private payers pay 
you, you are reporting an average price.
    Mr. BRENTON. That's right.
    Chairman JOHNSON OF CONNECTICUT. Both of those will be 
considerably lower than the charges?
    Mr. BRENTON. In fact, our Web site shows that. It shows 
that on average, without question, the worst payer in Wisconsin 
is the Medicaid program; the second worst is Medicare; and then 
it shows that commercial payers quite frankly, it makes our 
advocacies that one of the reasons that charges are so high, 
one of the cost drivers associated with rising health care 
costs, is the failure of the Government programs to pay 
anywhere near--especially the Medicaid programs--the costs 
associated with providing that care.
    Quite frankly, we thought it was innovative to have a Web 
site that actually shows or gives someone a taste of what, on 
average, commercial payers--what the average commercial 
discount is. I know of no other Web site in the country that 
begins to try to talk about that story.
    Chairman JOHNSON OF CONNECTICUT. You do do that and very 
well. On average, where your individual prices for individual 
services, they are all about charges and not about prices; 
isn't that correct?
    Mr. BRENTON. That's correct. It is because of the data tool 
that we use to run this Web site. We use administrative claims 
data which allows us to show a specific price for a specific in 
patient service, but we use an annual fiscal survey to get to 
that gross discount.
    Chairman JOHNSON OF CONNECTICUT. I am conscious of my time, 
but I want to get to one bigger question for all of you. I want 
to ask Ms. Downey, you mentioned running focus groups in a 
pilot with our physicians. What were their major concerns and 
how did you meet them, briefly?
    Ms. DOWNEY. Their biggest concern was that their patients 
would price shop and that they needed information on quality. 
We did the Cincinnati pilot it was really not for the consumer. 
It was really to see the physician reaction.
    So, we already knew what the consumers were looking for. We 
wanted to engage and collaborate with the physician community 
to make sure we were going to be able to expect what we were 
going to be doing.
    So, quality was the biggest piece, and some of the things 
like the tools said the negotiated rate. They said you don't 
negotiate with this. You tell us what you are going to pay, so 
don't use the word negotiated. We actually used CPT codes, 
which describe an office visit of 15 minutes or less, and that 
is the actual description. They said please take the time off. 
Since the patient is going to come into my office, they are 
going to look at your Web site and say, I get 15 minutes. You 
are asking me to leave in 10. So, I want my 5 minutes more. So, 
can you take that into consideration.
    So, they gave us feedback like that. We incorporated all of 
that feedback in and as soon as the pilot was over and we knew 
that the physicians would work with us on that. When we got to 
our major release, which we just announced, we knew we wanted 
to incorporate the quality piece of it. So, that is going out 
with our next market so we could answer that.
    Chairman JOHNSON OF CONNECTICUT. Let me ask both of you, 
the whole panel, about two questions raised by the Healthcare 
Financial Management Association discussion of this issue. I 
urge your attention to it because it represents a lot of 
discussion among providers trying to think this through.
    They make some recommendations, but clearly, at the 
beginning of the discussion, as you all pointed out, but they 
make two very important points. One is, patients need to know 
what the cost is going to be. So, I appreciate, Mr. Evans, 
Clarian's effort to accommodate the sort of severity of patient 
illness in estimating costs.
    Clearly, if you go to the hospital, the hospital charges 
you, the doctor charges you, the anesthesiologist charges you, 
the lab charges you. So, there is a way and this is what 
interests me. There is a way that might be very fruitful to the 
whole system to look at preservice cost estimates, what the 
hospital is likely to charge you under these circumstances, 
given the rough cuts that we are capable of doing in today's 
world.
    What would the anesthesiologist's bill likely be? What 
would the doctor's bill be? What would the tests likely be 
going to the doctor's office? What is the normal package of 
tests that goes along with an annual physical? Since the 
insurance company might not cover the test, only the office 
visit. So, I think we need to look at how do we give people a 
sense an integrated estimate of what their costs would be.
    One of the things that this report demonstrates is, if you 
do a better job at the beginning, then all you have to do in 
the billing system is adjust that estimate for that particular 
patient's circumstances and need and what they actually 
consumed; and, therefore, it can lead to a far simpler billing. 
A lot of the basic information is input, every agent involved 
with that case has that information, and it will enable us to 
take great advantage of the health information technology 
system. We know that has to be there to service in the future.
    So, instead of having a pyramid like this, where you know 
practically nothing price wise or cost wise or even what is 
going to be consumed and it all builds up and broadens out and 
you get all of these ridiculous bills because, remember, at the 
end, you never get an integrated bill that say this is the 
hospital's charges, this is the doc's, this is the labs' and so 
on. So, you never see the whole picture.
    Having just gone through this with two family members, I 
can tell you I couldn't afford the hours it would have taken to 
figure out whether I was being charged correctly or not. I 
simply couldn't do that. It was worth it to me to just pay.
    So, this is ridiculous. I am Chairman of the Committee, and 
I can't figure it out. So, integrated billing is one issue.
    This second thing is the reference price method. In the 
hospital's price, Medicare pays me this price minus. Medicaid 
pays me this price minus. Private sector pays me this price 
plus. So, otherwise, we do have to or at least I would think--I 
am interested that Mr. Brenton does this. People have to see 
that Medicaid is shifting cost, that Medicare in some States is 
shifting costs and other States it is overpaying because of 
other cost shifters.
    So, then, lastly, Dr. Herzlinger, throwing into this 
integrated pricing structure that we really need from the 
consumers' point of view and the variety of payers that we need 
to help people see how dishonest and chaotic this system is and 
why they are paying for it, what gives you confidence that an 
SEC-type group will take on the interest and require prices, 
require private-sector prices as well as public-sector prices 
and so on when the system has protected its ethics 
extraordinarily well to this point?
    Ms. HERZLINGER. Would you like me to respond?
    Chairman JOHNSON OF CONNECTICUT. Yes.
    Ms. HERZLINGER. The SEC did do it in 1934 when Franklin 
Delano Roosevelt got the SEC bills passed. There was no 
transparency, and he faced massive opposition from the business 
community. In fact, George Westinghouse, who was the head of 
the Westinghouse Company at the time, said, ``Why don't you 
trust me? I am so palpably wonderful. Why do you insist on 
finding out what I actually earn.''
    Chairman JOHNSON OF CONNECTICUT. We have a different 
problem. We think we only have some that think only the 
Government can put out good pricing information that would be 
equitable and others your proposal is that the SEC in an 
objective manner can lay out the criteria. Measurement of 
quality is all over the place, and I don't know who I want to 
be able to
    Ms. HERZLINGER. The SEC has a very good model; and that is 
the SEC does not, by and large, specify the measures, but it 
permits the Financial Accounting Standards Board, which is a 
broad-based coalition of experts who represent the diverse 
interest groups that are involved in our huge and very 
successful business community, to promulgate those standards. 
So, the Government is the iron fist in the velvet glove, but it 
is the private sector that comes up with the measurement 
standards, and it works.
    Chairman JOHNSON OF CONNECTICUT. I think it is a very 
thoughtful proposal.
    I would like the rest of you to comment on the idea of an 
independent body like SEC that would not only--as Ms. Tu 
pointed out--set the standard, but it would enforce them as 
well, but to this issue of integrated price and reference 
prices.
    Mr. EVANS. I personally believe there needs to be a third 
leg in the stool, and either it is an SEC leg or regulatory 
leg. It is either negotiator or policy regulation 
pronouncements that can be relied upon to make us act in a more 
holistic way.
    When I referred to this form, it is someplace buried in the 
regs that the doctors use and why they can't bill for an 
independent person. When I call Sears, they send the furnace 
guy out. I didn't know they worked for Sears.
    That is overly simplistic. I understand that and trivialize 
the seriousness of this. In the last 5 minutes I am told the 
price of mammograms just went up at Clarian when the--if the 
patient wants to know what I said, is this any good. So, a 
diagnostic mammogram is 300 and some dollars and a mammogram is 
146.
    Now, what do you want? You want the diagnostic mammogram, 
and you want it now. If you have a thousand dollar deductible, 
the equipment that does the mammogram is generic. So, you can 
call around and get prices on the equipment, but what you want 
to know is the package.
    I think the reason it took 500 years for accounting to 
morph into the SEC after the tulip crisis in Holland because it 
wasn't simple. This is the same thing. There are huge vested 
interests in the status quo, and we are asking ourselves to 
take risks on the money end of it. You can bet that if our 
underwriters handicap our quality and transparency, we would 
change our practices, but they don't. It's not measured. What 
is measured is our day's cash on hand. That is what is 
measured. So, we will respond to what is measured as an 
industry.
    Then I say to you and also to the study that you cited, how 
do you align the incentive so it crosses those silos? What 
Aetna's real-world experience told them that patients--the 
customer--reads the Web site. They didn't think they are being 
gypped out of 5 minutes of time. You know what the next 
question is? Can you give me one-third of the money I just paid 
you back?
    So, the customer needs not only to be empowered but, as I 
said earlier, with used and useful data, not just a blizzard of 
data. I think we might want to use the instrument that was 
invented over 130 years ago, the telephone, so you can call, 
have a real conversation with a real person, describe your 
situation and get some rough idea, if not a pretty good idea, 
of what it is going to cost. Otherwise, we are going to have 
people at midnight on the Internet researching before they go 
the doctor's office at 7:00 a.m., and that is not----
    Chairman JOHNSON OF CONNECTICUT. Ms. Downey.
    Thank you that was very helpful.
    Ms. DOWNEY. I think it is very complicated. Consumers have 
no idea. If you go to the outpatient or free-standing facility, 
you may be able to get a test for a procedure much cheaper than 
you can get at a hospital. So, they don't have any idea of 
that. They don't know that someone takes your films and someone 
else reads your films.
    The average consumer on health care is very uneducated. It 
is a very sad state of affairs, but it should be one of the 
most important things. The average consumer doesn't want to 
take the time to do that. They don't want to make a phone call. 
You have to get to the consumers where they are, maybe Web site 
or mail. So, we have to get to them, and I think to have 
standards would be very appropriate.
    I think we have to be careful about mandating so much that 
the health plans who are brandnew, trying to be very innovative 
and providing consumers with a lot of information, if they 
focus all of their time with trying to reach mandates so 
something gets presented in a certain way, you will lose all of 
the innovation in getting the information out.
    I think there are if you look at 2 years ago, you wouldn't 
have a hearing like this. You wouldn't be having all of this 
conversation. This is an excellent thing to be able to do this, 
to be able to bring all of this out, and many parties have to 
participate in it.
    Chairman JOHNSON OF CONNECTICUT. Mr. Brenton, did you----
    Mr. BRENTON. I think she has made an excellent point. 
Although I personally believe that health plans, as opposed to 
the hospital business office or the clinic business office or 
the diagnostic center office, ought to be the one coordinating 
this billing estimate. I think mandates--I would not support 
mandates right now for the very issue or for the very reasons 
that were just outlined. I think the health plans that do it 
well will flourish in the marketplace. We don't need mandates 
to regulate the success of those organizations; and I think 
over the next 2 or 3 years in fact you are going to see a lot 
of innovation in this area because of the need that this 
population has.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much.
    Mr. Stark.
    Mr. STARK. Thank you, Madam Chair.
    Just a couple of questions. Then I want to come to a 
different solution.
    Mr. Evans, Mr. Brenton, perhaps each of you could give me a 
range here, but if you took and I am just reading the benefit 
news chart if you took Aetna, Signa, Humana, Pacific Health 
Care you probably don't have United, WellPoint, which is now 
part of somebody else those payers, could you give me Mr. 
Evans, what is the widest range between the cost per procedure 
that those plans have been negotiated in your hospital? Five 
percent? Ten percent? How wide a variance in what you charge 
the different plans maybe through volumes or other reasons, 
what is the widest variations in percentage points?
    Mr. EVANS. Among the commercial plants, it is pretty high--
I am just guessing, Mr. Stark--5, 6 percent.
    Mr. STARK. What would you say, Mr. Brenton?
    Mr. BRENTON. I think in many ways it is higher. We have a 
more pluralistic 10 to 30 percent.
    Mr. STARK. Thirty percent difference.
    Mr. BRENTON. There can be, yes.
    Mr. STARK. That would be the high would be the low-volume 
customers.
    Mr. BRENTON. The lowest discount would be the low-volume 
customers, the ones that would have nothing to offer.
    Mr. STARK. Ten percent as an average then.
    Mr. BRENTON. Ten to fifteen percent.
    Mr. STARK. Then let me ask Ms. Downey the reverse of the 
flip side of this. In a market--where do you see--what would 
you say is the widest range that Aetna can negotiate with 
hospitalwith a market with a lot of major hospitals? D.C.'s, 
for instance. What would be the range, would you guess, of the 
difference in prices that your plan could negotiate with 
hospitals?
    Ms. DOWNEY. That is not my area of expertise, but I would 
say it probably could be if we have a lot of volume, their 
large plan sponsors there, then you could probably see a 15, 20 
percent differential. You know, there could be, based on what 
we are able to bring to the table.
    Mr. STARK. Maybe it is fair to say that somewhere between 5 
and 15 percent is what the difference would be among major 
negotiators, major customers, if you will, who can direct 
business to your hospitals.
    I guess what I am getting at is that as an old fan of the 
Maryland plan, and I am going to ask you just parenthetically, 
Ms. Downey, if you could separately send me a note or some idea 
of how you fare in Maryland where we have an all-payer system.
    Dick Davidson negotiated--Ben Cardin, my colleague, was 
then in the Maryland State Senate Assembly; and it is a plan 
wherein every patient who walks through the door of a hospital 
pays the same rate. Their hospital-specific rates, which are 
negotiated by a public-private trust in Maryland and no 
hospital ever goes broke, they are designed--if you merge and 
take on another hospital, they give you a little higher rate. 
You are trying to start a separate, stand-alone specialty 
hospital. They ain't going to give you a higher rate. So, it 
may not be economic.
    What I think I am getting to is that they have to come in 
on a 3-year average at 10 percent under the Medicare costs to 
get the Medicare waiver.
    Think about that, guys. Ten percent under what Medicare 
pays in Wisconsin or Indiana, compared to your present rates 
now for Aetna. That means you couldn't bargain. If you went to 
Johns Hopkins, you would have to pay the same rate that 
everybody else, whether it was Humana or whomever.
    Then in Maryland, as a consumer, I pick on quality. Since 
if I go to Hopkins, I am going to get the same rate that Aetna 
gets at Hopkins or Medicare gets at Hopkins or that the county 
pays for an indigent. That seems to me something I am more 
comfortable with. I am not getting gypped.
    I know my brother-in-law did get a lower price on a car 
than I did because he could negotiate better with the salesman, 
and I feel like a schmuck because he got it for a thousand 
bucks less.
    I go in. I know the rate is set. Hopkins fought this. They 
wouldn't have this any other way. So, I just commend that to 
you as a thought, because I think maybe doctors aren't going to 
like this plan any better.
    I am suggesting that you are going to negotiate with 
somebody, whether it is Aetna, Mr. Evans, or whether it is 
Medicare, or whether it is whoever. Wouldn't you be as well off 
in your respective States--Wisconsin, Mr. Brentonif you chaired 
a group of both physicians, hospital executives, public policy 
people and you negotiated for each hospital so that the Day 
Marshal Clinic would get the same rate for everybody who came 
in in Milwaukee, but you know those hospitals were secure in 
providing care in their areas and they were getting a margin 
that would allow them to expand and grow and serve. Then I 
could pick--as a patient, based on the quality issues--I would 
go to U.S. News World Reports and find out where I should go or 
somebody else that I thought or my doctor who would give me the 
information.
    So, as far as I am concerned, this would not be a Federal 
program. This could be State By State; it would then resolve 
many problems that the hospital industry worries about, and I 
think would go a long way.
    So, Madam Chair, that is the Stark solution or some 
iteration of it. Well, I will take a second round. You have got 
a lot of----
    Chairman JOHNSON OF CONNECTICUT. I think we should let the 
panel respond because you raised a very interesting issue, if 
you would care to.
    Mr. BRENTON. Well, I am not an expert on the Maryland 
system. I know they have had a Federal waiver for 20 years, and 
I have a hard time believing they are getting the type of level 
of payments that we are getting in Wisconsin and running their 
excellent facilities and retaining docs in that kind of 
environment, so I would probably, first of all, have to be 
convinced that it is apples to apples.
    Mr. STARK. Oh, I will get you--yes, it is.
    Mr. BRENTON. If I went to Marshfield and told the 
physicians that they would be getting across the board----
    Mr. STARK. No, not physicians, Mr. Brenton. This is only 
hospitals. The physicians fought it and stayed out.
    Mr. BRENTON. Medicare payment in Wisconsin would create a 
hugely problematic problem with the--with our current 
marketplace in that our hospitals probably on average are 
getting about 85 percent of their costs through Medicare 
payment. So, it would create quite a series of issues as it 
relates to the current workforce and being able to
    Mr. STARK. You as the head of this would set the rates so 
that each hospital would survive, and you wouldit would be 
hospital-specific rates. All you would have to do in the 
aggregate in Wisconsin is come in with your Medicare charges 
being 10 percent under the national average.
    Mr. BRENTON. Well, I would certainly take a look at it.
    Mr. STARK. Take a look at it.
    Mr. BRENTON. There has to be reasons why other States 
haven't gone that route in the last 20 years. I think there 
probably are a unique set of circumstances that make it work in 
that State, and it does work in that State.
    Chairman JOHNSON OF CONNECTICUT. Mr. McCrery.
    Mr. MCCRERY. This is an excellent hearing, Madam Chair, and 
I commend you for putting this panel together.
    Ms. Tu, your research indicates, as you note in your 
summary, that encouraging greater awareness about the costs or 
the health or the price of health services can indeed contain 
costs without sacrificing quality, but you say some oversell 
the magnitude of the potential for that. There probably are 
some who oversell that, and we certainly don't want to be 
guilty of overselling it, but on the other hand, we do not want 
to say--and you have said in your testimony--that there is no 
value in getting transparency in the costs and prices in the 
health care marketplace; is that right?
    Ms. TU. Yes, that is right. Our research showed that having 
consumers free to shop and having consumers have the total 
financial incentive because they are paying completely out of 
pocket to the LASIK market has helped to keep prices down, but 
we also saw that prices are not as low as those advertised 
prices we have all seen on highway billboards and radio ads.
    Mr. MCCRERY. The other element in overall cost is not just 
price, but it is utilization, isn't it?
    Ms. TU. Yes.
    Mr. MCCRERY. Well, you don't talk too much about consumers 
seeing the cost, the real cost, and choosing not to take 
advantage of some voluntary health procedure; is that right?
    Ms. TU. Well, that is right. Since LASIK is a completely 
elective procedure, there are people who after looking at 
actual prices for LASIK----
    Mr. MCCRERY. Decide.
    Ms. TU. --decide they don't need the procedure.
    Mr. MCCRERY. Right. So, the anecdotal evidence that we have 
heard even before this Committee and testimony, and we have 
read about in various news publications around the country of 
companies that are self-insured, for example, going to a high-
deductible plan have saved or at least reduced tremendously the 
rate of increase and the cost of their plans; is that correct? 
Have you read those anecdotal reports of companies that have 
experienced those kinds of savings?
    Ms. TU. Yes. With consumers who are in high-deductible 
plans and are responsible for most of the costs of their care. 
There are people who reduce their use because they have more at 
stake financially. In that situation, I think a lot of those 
services that are whose utilization is reduced is not directly 
comparable to LASIK
    Mr. MCCRERY. Right.
    Ms. TU. because there is appropriate use that is also 
reduced in some cases.
    Mr. MCCRERY. Absolutely. Is there any evidence that the 
health outcomes in those cases have suffered?
    Ms. TU. That is not an area of research that I have worked 
on, so I can't speak to that.
    Mr. MCCRERY. Dr. Herzlinger, do you have any research on 
that?
    Ms. HERZLINGER. I can cite the research on that. In fact, 
health outcomes have improved. Health care is 80/20; 20 percent 
of the people account for 80 percent of the cost, and they are 
typically chronically ill. One of the problems in management of 
chronic illness has been that people don't comply with their 
medication, but people who are in high-deductible plans, 
diabetics, asthmatics, they comply much more with their 
medication, and they have much more in the way of annual 
checkups. If we believe that that is good, then certainly 
health care outcomes will improve.
    Mr. MCCRERY. Exactly. In fact, it should be 
counterintuitive that health outcomes go down if, in fact, the 
savings are real for the company or the plan, because as we 
know, if people avoid health care that is necessary for their 
health, they are going to wind up in the hospital in the 
emergency room, and that means the costs go up, not down.
    Ms. Downey, you are with Aetna. I happen to have an Aetna 
HSA through the Federal Employees Health Benefits (FEHB) plan. 
This is my second year in your plan. I love it. Last year Aetna 
contributed $2,500 to my HSA, and I put in the other $2,500. 
This year you put in $3,000 in my HSA, so I only have to put in 
$2,000. Why is that? Why were you able to give $500 more in my 
HSA this year than last year? Do you have any idea? I know that 
is not your area of expertise, but maybe you have some hint.
    Ms. DOWNEY. Well, I think if the costs and the utilization 
is not increasing at the same level as some other plans, then 
employers or plan sponsors have more money to be able to 
utilize to put into the HSA account on behalf of their 
employees.
    We see large national employers who want to be able to do 
that for their employees. We also see that in studies that 
Aetna has done, studying the population that we have in both 
HRA and HSA plans, that, in fact, people are not getting less 
care; if you are a diabetic, if you are an asthmatic, if you 
have cardiac conditions, you are still getting the same level 
of care that you got prior. So, we are actually looking at the 
experience of individuals who are in these consumer-directed 
plans, comparing it to when they were in HMO and PPO plans, and 
they are not having any deterioration of the services that they 
really needed. So, we are seeing that that is really happening, 
and we are seeing that when people have a stake in it, then 
they ask questions more than they did before, which is 
extremely important.
    Mr. MCCRERY. Thank you very much.
    Ms. HERZLINGER. They value it.
    Mr. MCCRERY. Thank you, Madam Chair. Excellent panel.
    Chairman JOHNSON OF CONNECTICUT. Mr. Camp.
    Mr. CAMP. Thank you, Madam Chair. I agree, this is an 
excellent panel. I appreciate you all being here.
    I still don't fully understand why we don't have integrated 
billing, why there is a lack of that. It is something that has 
been talked about for years, and we have all had anecdotally of 
us go to the hospital have an experience, seven bills come, and 
some are for $1.50, and some are from $2,000, and from people 
you never met or heard of or didn't even know were involved in 
the process. I guess I am looking at Mr. Evans. Please feel 
free to answer.
    Mr. EVANS. I am going to try to make this short because it 
really is short. The reason you don't get a unified bill is 
because you didn't receive services from one vendor. You 
received services from many vendors who happen to have rooms in 
the same hotel. That is their only point of commonality. So, if 
you went in for surgery, the anesthesiologist, the surgeon, any 
extras they consulted with; let's say you had a stroke, a 
neurologist or a neurosurgeon, those are independent 
contractors. They do not work for Georgetown Medical 
University. So, you are going to get a separate bill from them, 
period, end of statement. That is the history of it.
    Secondly, it is institutionalized in some rules and 
regulations. Corporations don't bill physician fees except in 
some specific exceptions because the corporations don't employ 
the physicians, so there is a separate form I referred to 
earlier, but you, the consumer/patient, go to the same hotel, 
right, and you order room service, all those sorts of things, 
and you don't see the differences between the two until you get 
this blizzard of paperwork.
    What I can't figure out, and my colleagues can maybe 
comment on, what is the incentive to be separate? I see the 
incentive to be together. I don't see the incentive to be 
separate, other than what I call psychobabble, we all get to be 
independent and all that. I am a business guy. I think I can do 
a better job billing you if the people who run the various 
elevators in our hospital send you one bill, but I can't 
convince my colleagues of that. I can't convince every 
physician--we have a staff of 3,000--they would be better off. 
They want to bill you. They don't want the big mothership to 
bill you. So, that is why you get a half dozen bills. You have 
a half dozen different employers involved in that transaction.
    Ms. DOWNEY. Can I comment on that?
    Mr. CAMP. Yes.
    Ms. DOWNEY. I would say that the question you just asked 
is, you are a consumer, and you are getting these bills now, 
and you are seeing them. Before, behind the scenes, your health 
plan was taking care of doing all that, you weren't paying most 
of it, you really didn't care, but now all of a sudden it is 
paperwork, you are having to pay for it, you don't know what to 
pay, and I think you, as a consumer, just like all of us here, 
and the reason we are having all of these discussions, will 
begin to change that because you, as a consumer, will demand 
that this has to change. We are going to start to talk together 
and figure out how we make this better because it is in our 
best interest to make it better for the consumer.
    Mr. CAMP. Yes. I wonder to what extent the rise of these 
boutique offices, where you actually have a physician who will 
manage the medical bureaucracy for you in terms of setting up 
appointments, billing--I know that in Florida and in some 
States these are pretty popular, and it is really an attempt to 
get at this compartmentalization that you describe. Why is that 
not catching on? I think it is in some areas, and among certain 
affluent folks, but that seems to me to be a real attempt to 
get around this because you almost need an advocate when you go 
into a large medical system just to wedge your way through it.
    Yes, Doctor.
    Ms. HERZLINGER. There is a wonderful physician in the State 
of Washington, Garrison Bliss, who is starting these are called 
concierge medicine.
    Mr. CAMP. Yes, that is right.
    Ms. HERZLINGER. I think it is a somewhat belittling term 
about their purpose, which is to integrate health care and make 
it better for the consumer. Garrison Bliss has a plan to 
provide concierge medicine for low-income and middle-income 
people at a cost per month of about $55. That is less than the 
average consumer pays for their automobile insurance. So, this 
is an industry in early stages and this is a very laudable 
attempt to make it available not just to wealthy people, but to 
low-income and middle-income Americans.
    Mr. CAMP. Good. Thank you.
    Thank you very much, Madam Chairman.
    Chairman JOHNSON OF CONNECTICUT. Thank you very much, Mr. 
Camp.
    Mr. Hulshof.
    Mr. HULSHOF. Thank you, Madam Chair.
    I want to follow up. Mr. Brenton, you were given the 
opportunity to respond to Mr. Stark. In his interesting 
proposal regarding what sounded to me very much like a single-
payer system actually, and wanted to give anybody else the 
chance Mr. Evans, any comment or thoughts as far as Mr. Stark? 
Or, Mr. Brenton, any follow-up?
    Mr. BRENTON. Well, if--and again, my comments are based on 
experiences of working in West Virginia and Iowa and Wisconsin, 
not in Maryland. What works in Maryland very well may work well 
in Maryland. I am not sure that Wisconsin would ever get a 
Medicare waiver, and I guess despite the problems of the 
current system, I prefer the pluralism that is associated and 
innovation associated with having more than one payer. I think 
the success of HSAs and we, Wisconsin Hospital Association, 
have an HSA that is now 2 years old, and I am coming from a 
provider, not a payer, perspective. It has worked very, very 
well. We provide an annual physical on top of the HSA in order 
to deal with this issue of our employees not seeing a physician 
for a basic office visit to save money. We provide that on top. 
We have seen a significant anecdotal reduction in diagnostic 
testing, quite frankly, for things like a sprained knee playing 
tennis, and all of a sudden it is going to cost $800 as opposed 
to being free or $100.
    You know, the skin in the game has an impact. So, I, 
despite--let me say it in a positive way. I think the 
innovation of having a variety of payers competing in the 
marketplace is preferable to a single-payer system.
    Mr. HULSHOF. Dr. Herzlinger, you are nodding along. Do you 
want to chime in?
    Ms. HERZLINGER. Well, I think generally economists think 
the problem with single-payer systems is that they stop price 
elasticity on the part of the consumers. That is, to the extent 
that the consumer is price-sensitive, and certainly since two-
thirds of the uninsured are poor, they are highly price-
sensitive, they would go to low-priced providers if there were 
price and quality data available, or the best value for the 
money kinds of providers. Having one price stops that kind of 
price elasticity and the rewards that accrue to the Toyotas in 
the health service business.
    The other problem with a single-payer rate setting is 
setting the rate and I don't know that many entrepreneurs would 
be eager to join an industry where the Government sets the 
rates, because if they have a new way of providing services, 
they now have to persuade the Government bureaucracy to 
compensate to set up a rate category and compensate them freely 
for that.
    So, those are the classic economist thinking about why 
single-payer kinds of environments in health care or elsewhere 
do not work.
    Mr. HULSHOF. Mr. Evans, are you persuaded?
    Mr. EVANS. Yes, well, it is--I have actually looked at the 
Maryland system because we don't view our competition as the 
hospitals up the street. We view our competition as an academic 
medical center, the 90th percentile on a qualitative measure of 
hospitals all over the country. So, Johns Hopkins and the 
University of Maryland we consider fertile recruiting grounds 
for staff and researchers, and we have hired Linda Malkas, the 
University of Maryland, and Keith Lillemoe from Johns Hopkins.
    I am very familiar with their quality and their pricing 
structure. I wouldn't call it single payer in Maryland. I would 
call it a common method of negotiating. So, I have looked 
through Johns Hopkins, I have compared Johns Hopkins to us, and 
the big difference as far as I can see on the money end of it 
is the denominator is less from which they calculate discounts, 
because they don't need to go up like this and then start like 
the rest of us do because of this system. Whether at the end of 
the day it is any more rational in pricing to the end consumer 
is unclear. I have tried to find out in fact, I have family 
here, as you may know, and we use Johns Hopkins on a regular 
basis, University of Maryland, and the pricing doesn't appear 
to be a whole lot different than it is 565 miles away in 
Indianapolis for the high-end stuff, but what is different is 
the denominator. So, that is when you compare Johns Hopkins' 
charges to the rest of the country, they look a whole lot less 
because they start out with a lower charge master, if you will.
    Mr. HULSHOF. Ms. Downey, if the Chair will so----
    Ms. DOWNEY. I think you also have to look at the 
efficiency. If you have transparency, it is not just consumer 
behavior that we are trying to change. We are also trying to 
change the behavior of the provider community. So, if you look 
at it, a very large multispecialty group in Seattle that has a 
hospital, and we were able to show them transparent data, how 
they compared to other facilities in their area and how they 
were much higher on low back pain, and looking at that and 
taking a very integrated approach, they were able to take out a 
lot of inefficiencies. What they ended up doing instead of 
giving everyone an MRI that came in, they ended up getting 
people to the physical therapist faster, they shortened their 
time of treatment by about a month, but they were making a lot 
of margin on the MRI.
    What we ended up doing was starting to pay them more for 
physical therapy because they were losing money by not having 
people go in for the MRI. As a result, patient satisfaction 
went up, plan sponsors in the area were much happier because 
their patients their employees were now getting back to work 
faster, and they were able to do that with transparent data 
that we were able to provide to them so they could see how they 
compared to their peer group. So, there is a lot of 
inefficiency and it is not just a cost issue.
    Mr. HULSHOF. Thank you.
    Chairman JOHNSON OF CONNECTICUT. Mr. Ryan, a Member of the 
full Committee, not a Member of the Subcommittee, but a person 
who has been particularly interested in this issue, and I am 
glad he was able to join us.
    Mr. RYAN. Thanks. A wannabe Member of the Subcommittee.
    A lot of questions, but with the 5 minutes, Dr. Herzlinger, 
I want to explore the whole sort of SEC FASB model of price and 
quality transparency. You know, we are here in the top of the 
second inning of price and quality transparency, a long ways to 
go, and it is an extra inning with a nine-inning game, right, 
Steve, I think that is what you said. We are wrestling with 
should the Sovernment decide how to measure price quality? 
Should the Government decide how to measure quality metrics? We 
hear from the thoracic surgeons, we hear from the orthopedics, 
we hear from the cardiologists, we hear from the internists. 
Measure quality this way, measure it that way, do this this 
way, do it that way. We hear from this hospital it is this 
price, we hear from that hospital it is that price. Government, 
you figure it out.
    My fear with that is, if we sit here in Ways and Means and 
try to come up with some mousetrap on how to measure these 
things, then we will miss the market, and it will be clumsy and 
dictatorial and bureaucratic. So, how do we have some kind of 
objective, recognized third-party system that everyone 
recognizes, it is what it is; this is an apple, and that is an 
apple, and it sticks with the market? How does your idea on a 
FASB-like model handle that? Could you explain that idea a 
little bit further?
    Ms. HERZLINGER. Certainly. Thank you for the question, 
Congressman.
    The FASB is a collection of the important interest groups 
in the business, so it represents the business community, the 
chief financial officers of business, academics, professionals, 
the accountants themselves, and they have a broadly consensual, 
completely open decisionmaking on how to measure certain 
issues. It is a process that, while not perfect, has made the 
American capital markets the best in the world.
    The SEC has the right to measure how businesses do, but 
from the beginning, Franklin Delano Roosevelt gave up that 
right, and he called the SEC, said the appropriate role for 
Government is to make sure the truth is told. He called it the 
truth agency. If the Government is the promulgator of the 
truth, in addition to all the difficulties you mentioned so 
eloquently, it also loses the inability to audit whether the 
truth has been told. You can't be both the truth teller and the 
auditor of the quality of that truth.
    So, I think the FASB in this particular case is a very 
effective partnership, and we know it is so because our capital 
markets were so efficient and widely emulated throughout the 
world.
    Mr. RYAN. So, FASB is the truth teller, and SEC is the 
truth auditor?
    Ms. HERZLINGER. Great way to put it. It also says if you 
don't tell the truth, I am going to really punish you. The SEC 
is essentially a profit center, and it is a profit center 
because of the huge fines that it collects from people who 
don't tell the truth.
    Mr. RYAN. Mr. Evans and Mr. Brenton, Steve, I have known 
you a long time. We talked about the PricePoint Website many, 
many times. It is charges plus some kind of a universal 
discount that is an average discount. So, I have always 
believed that the PricePoint is a good first step in probably a 
five- or six-step process that Wisconsin Hospital Association 
is going to have to go through to put real paid prices for this 
hospital, for that hospital, for this hospital. If you took Tom 
Barrett and myself--Tom was a former Member, Democrat from 
Milwaukee, took 3 years to get the GAO to do a study on prices 
in health care, and that was just using older data from the 
FEHB model. We did this hearing in Milwaukee where we found 
that the price paid private payers in just Milwaukee actually 
ranges from for a bypass surgery from $47,000 to $160,000--
$140,000 in just the metro area, which is about a 10-square-
mile area. So, we have found quite a difference in prices 
actually paid.
    What I want to ask the two of you, the hospital guys, is 
tell me a little bit about hospital politics. Tell me a little 
bit about how difficult it is to get each hospital to be 
willing to publish their prices, the prices paid. Are some 
hospitals cutting-edge, willing to submit it? Are other 
hospitals, heck no, we won't go, and therefore you go to the 
lowest common denominator and you put charges up? Tell me a 
little about that.
    Mr. EVANS. Ambiguity breeds fear, and if they are not 
clear, hospital executives are going to be afraid. They are 
going to think prices will go down, not up. They will cut 
programs, cut services, lose their jobs, everything bad you can 
imagine.
    The range you just described, of course, can be dependent 
upon three or four pretty significant variables, not only the 
payola, but the health status of the individual. So, I can't 
really respond to that except to say it is probably true.
    Seems to me--and this is very pie in the sky--that hospital 
executives and associations are running essential public 
services, and the rules ought to be a little different with 
respect to competition than they are on things that aren't 
essential public service. I hate to analogize to this, but the 
best I can think of is public utilities where we have actually 
screwed things up by over regulating, and we find foreign 
businesses buying U.S. businesses. I don't want to take that 
analogy too far.
    There needs to be the rule maker and the truth teller, and 
the truth will be what are the quality standards, and the rules 
would be, well, what are the rules if you futz with the quality 
standards and overcharge somebody for what they bought? We have 
robust rules in this country for a violation of a Consumer 
Product Safety Act, 1974, I think, on this very issue.
    So, I wouldn't mind as a hospital executive a few more 
rules about transparency, but right now the antitrust rules are 
what stop us. I go to a meeting in Wisconsin with my 
competitors, we cannot, will not discuss price, cannot. In 
fact, lawyers will start the meeting by giving us the normal 
discourse. So, right now the rules are, can't collaborate on 
price, period. So, the only people that know price are the 
payers. That is, they know what they are paying the different 
providers, and they are competitors, too. So, right now the 
system doesn't seek to squeeze those prices together. It seeks 
to do just the opposite.
    Mr. BRENTON. Well, what a great answer. I have very little 
to add other than, it may not be a bad idea, Congressman Ryan, 
to have the FEHBs publish those negotiated prices in their 
markets. Now, we quickly point out that in much of Wisconsin, 
there aren't a lot of Federal employees, and the Blue Cross PPO 
doesn't have much leverage in markets like La Crosse and Green 
Bay, and those are market forces that go into play relative to 
the negotiations. It might be a good place to start because 
your earlier question was, should Government decide or what 
should Government do, and from my perspective, Medicare as a 
purchaser in the FEHBs a purchaser can play a role, should play 
a role.
    When it comes, though, to Government as a regulator, I have 
got a little bit more of a concern than I do as Government as a 
purchaser. When you look at what CMS has done on the quality 
and the safety front and its commitment to do more over time, 
we have got a good start there. When it comes to prices, it is 
a more complicated ballgame. Maybe Government could start by 
publishing those negotiated rates with hospitals and physicians 
that have contracts with that FEHB agency.
    Mr. RYAN. Do you think Medicare ought to release its 100 
percent file in a Health Insurance Portability and 
Accountability Act (HIPAA) (P.L. 104-191) compliant way, just 
release all the Medicare claims data so the public can see it?
    Mr. BRENTON. I have no concerns whatsoever with Medicare 
releasing its claims data in a transparent we may have to help 
the public understand what is in that file, but, yes, I think 
that is fine.
    Mr. RYAN. Great.
    Chairman JOHNSON OF CONNECTICUT. Thank you.
    Mr. Stark has some additional questions he would like to 
pose.
    Mr. STARK. Well, Madam Chair, we have been on the hospital 
issue. I just wanted to add to my friend from Missouri, the 
Maryland plan is an all-payer plan, not a single-payer plan, 
and it means that there are many, many different payers, but 
each hospital has a different set of rates set by a public/
private board so the hospital survives. As far as 
entrepreneurship and quality, Johns Hopkins still remains the 
best hospital in the United States. So, in Maryland, they have 
been able to have the highest quality institution insofar as we 
know.
    However, I wanted to come back. You know, we have been 
talking about the hospitals all day being transparent. If I am 
an Aetna beneficiary, then can I find out which hospital has 
the lowest cost as a member?
    Ms. DOWNEY. Today not a hospital, because we focused on 
physician first because we felt----
    Mr. STARK. Do you intend to do that?
    Ms. DOWNEY. We intend to next year begin to move into the--
--
    Mr. STARK. Let's say I am going to have a baby this year, 
and I am choosing----
    Chairman JOHNSON OF CONNECTICUT. Theoretical.
    Mr. STARK. Does Johns Hopkins take care of that?
    As a prospective customer, are you willing to make public 
the different rates that you have with different hospitals?
    Ms. DOWNEY. For 2007, we are going to be discussing what it 
is we are going to do from a hospital standpoint.
    Mr. STARK. Well, that is not exactly the issue I was 
looking for. I am not sure other--in other words, I am asking 
Mr. Evans to tell me. If I want to choose we have got 9 million 
members of the FEHB, and let's say that we are going to buy a 
high-deductible plan. I think it is the dumbest thing in the 
world, but if we buy one, we buy one; therefore it becomes 
important if you are planning a pregnancy to know what each 
plan's price at Sibley or George Washington is, right, so I 
know what plan to sign up for for the year, because with a high 
deductible plan, I am arguably going to be out of pocket 1,000 
bucks or more.
    Now my guess is that the plans are not so willing to tell 
me prospectively what their negotiated rates are because I 
imagine they feel that would put them in a competitive problem 
because then Len Schaeffer, God forbid, would be able to see 
what you have negotiated with Mr. Evans, and he is a little 
scumbag who will cheat you, and so you want to watch out. You 
don't want to let Len Schaeffer know what you negotiated with 
Mr. Evans. So, is it going to be comfortable for you to make 
public----
    Ms. DOWNEY. Well, we did it for physicians. We are the only 
ones who have done it with physicians, and they told us we were 
crazy to have done it.
    Mr. STARK. Only for subscribers.
    Ms. DOWNEY. What we are going to do for hospitals will only 
be for subscribers.
    Mr. STARK. That is what I am getting at. How do I know when 
I am trying to buy a plan? I am not negotiating with hospitals. 
I am buying the plan.
    Ms. DOWNEY. You as a Member eligible for the Federal 
employee plan would be able to at your enrollment time would be 
able to have a guest ID to be able to go in and look at that 
information.
    Mr. STARK. Okay. Even if I am not a member of Aetna, if I 
have the Blue Cross, and I got the reenrollment period, I can 
go in and see what your charges are and compare them to Blue 
Cross.
    Ms. DOWNEY. Since your employer is part of our health plan. 
We have to be able to provide that information.
    Mr. STARK. In the individual market, that wouldn't 
necessarily be available.
    Ms. DOWNEY. Not today as an individual. That doesn't mean 
it wouldn't be in the future, but that doesn't mean not today.
    Mr. STARK. I guess what I am getting at, we have focused on 
the hospitals here, but with 80 percent of Americans having 
health insurance, we are not apt to go to a hospital for which 
you won't pay the bill.
    Ms. DOWNEY. Correct.
    Mr. STARK. That doesn't make much sense for any of us. So, 
our limitation is not so much on what Mr. Evans is charging, 
but it is whether you or Blue Cross or Humana has negotiated a 
deal with Mr. Evans so I could go there and get the bill paid.
    Ms. DOWNEY. Right. The important thing to know is what we 
will reimburse you. So, we will next year provide ranges to be 
negotiated.
    Mr. STARK. I guess all I am saying, Mr. Brenton, is your 
members are dealing with some pretty big buyers. I don't know 
who the big ones are in Wisconsin, but whomever they are, they 
are not just dealing with, well, Golden Rule doesn't negotiate 
with anybody. They, I understand, don't make this information 
and I suspect it is because they don't have enough clout in the 
market, but in any--yes, it is a small market, but in Wisconsin 
and I guess I would say, it doesn't have to be Medicare.
    If we could resolve this, we are talking about 5 or 10 
percent spread, maybe 15, except for the marginal purchasers, 
and what we failed to understand is that when you have these 
rates, like the Maryland rate, you get that money for everybody 
who comes through the door. That means the counties, or the 
State if it is Medicaid, is paying your hospital, Mr. Evans, so 
that, the 10 percent below Medicare is the aggregate, and if 
you are collecting your bills and not having to send these guys 
out with their Doberman pinschers to collect the bad debts, my 
guess is your revenue is going to be substantial enough to make 
up for it. You are going to deal with some large bureaucracy, 
whether it is Ms. Downey is arguably nicer than CMS, but you 
are going to end up in your business your members, Mr. Brenton, 
you are not going to escape this.
    I am just trying to suggest that if we could put the 
hospital guys to rest and as consumers just be sure that, 
whether it is Dr. Herzlinger 's idea of an SEC, that we are 
getting the best rate in each hospital so that I don't have to 
worry--you are not going to like this, Ms. Downey--but if I am 
going to go to Mr. Evan's hospital, I don't really care then 
whether I have Blue Cross or your insurance. I know there is a 
negotiated rate. Then I want to look at his record. I want to 
see if he is going to be transparent on the times he has been 
sued or been charged with malpractice, and how many people have 
come out of the hospital feet first. Those are issues that are 
a little bit more important to me. So, that I want to see the 
transparency in the quality almost more than I do the price, 
because my price was negotiated with Ms. Downey on a monthly 
premium, and I didn't translate that through to something that 
I don't anticipate, albeit maybe the pregnancy.
    So, I think, Madam Chair, if we could get the hospitals 
just to set a standard so that and then we have got to go to 
the docs and the prescription guys where we are going to where 
we have more variation, because I don't--I don't know even if I 
got on the Internet that I would know where to go to shop 
because I would end up going to my doctor or to my Aetna list, 
and they would say, here is your choice. Aetna maybe has a 
broad choice as, say, Blue Cross does.
    So, while I want the transparency, I think I want some help 
because I don't know where to begin. Mr. Evans isn't sure what 
to tell me because of all these bills from the 
anesthesiologist, radiologist and all the other guys.
    One more. Mr. Evans, you paid $500,000, $600,000 to 
radiologists, a bunch of them. I saw that on your report. Do 
you bill for those guys, or do they bill, you collect?
    Mr. EVANS. We own the radiology function. The radiologists 
work for a separate not-for-profit corporation. So, 
technically, they are a vendor. This is how perverse it is. We 
are the sole member of the 501(c)(3).
    Mr. STARK. Okay.
    Mr. EVANS. So, even though we are the sole member of the 
501(c)(3), it is a separate corporation. So, I am in a bit of 
an arm-wrestling match right now with our CFO.
    Mr. STARK. If they had worked for you, then you would have 
to be like a Pfizer.
    Mr. EVANS. If Hopkins had a clinic model, it would be 
easier to bill in a uniform way.
    Mr. STARK. Mr. Brenton doesn't know this, but I am old 
enough to have known Dr. Doege. That dates me with the 
Marshfield Clinic. How do you like that?
    Madam Chair, thank you. I could talk with you.
    Ms. Tu, I just wanted to say, I hope we read her testimony 
as showing that if there are out there in the market just being 
able to shop and get a lot of information, we still may get 
gypped, which may make the SEC or FCC or whatever more 
necessary. The reason she picked the LASIK is there is no 
insurance payment, I don't think, and it is an elective thing 
you would decide on price, and even there people aren't getting 
the best price when they have the so-called transparency, so 
that we move ahead at our risk.
    I want to thank the witnesses for suffering through all of 
this again with us, and look forward to more hearings on this, 
Madam Chair.
    Chairman JOHNSON OF CONNECTICUT. Thank you. Thank you.
    I would like to make a couple of conclusions. First of all, 
Ms. Downey, I appreciate Aetna's leadership on price 
transparency with physicians, and, Mr. Evans and Mr. Brenton, I 
really appreciate your work, trying to tackle this issue in the 
hospital setting. Ms. Tu, you make the point that is very, very 
valid. You can't compare prices if they are apples and oranges, 
and we have to make sure that if we compare prices, that the 
prices include the same bundle of services.
    That kind of brings us back to Dr. Herzlinger. If FASB is 
the truth teller because they set the accounting rules, what we 
have currently in Government is a bureaucracy that has been 
unable over decades to set uniform standards as to what the 
cost reports ought to report. Now, this is so basic, it is sort 
of startling, but that is where we are. Then on top of no 
standards, just about allocating costs uniformly in reports the 
Government receives in order to set Medicare prices, so look at 
the depth of this failure.
    It is not that they didn't know, because this Committee had 
hearings 3 years ago on how we tried to get to uniform 
reporting so that we could have timely data. So, this has not 
been an issue that we haven't asked for GAO reports on and so 
on and so forth. We have not been able to solve the problem of 
how we get providers to report costs in a timely fashion so we 
can set public policy validly.
    Secondly, that cost report system is complemented by a body 
of law that then tells us how we will set wages in the formula 
and how we will adapt them regionally. That system is working 
so poorly that in the MMA we arbitrarily threw $900 million at 
the program and said, scrap for it, dogs. One of those dogs got 
it in my district, and one didn't. Twenty minutes apart, urban 
hospitals, roughly the same book of business, $6 million 
difference in payment.
    You would never, ever get that if there was any FASB-type 
rules underneath this system. Look at the physician payment 
system. Completely unworkable if you let it happen. We will cut 
physician payments 5 percent a year for 6 years, and we will 
have no doctors serving Medicare patients.
    So, not only have we been unable to do the simple thing of 
uniform rules for cost reports, but the law undergirding every 
other payment system is literally collapsing. For years we have 
given the nursing homes extra money because we are so under-
reimbursing them under Medicaid.
    So, this issue of price transparency and how do we go about 
reporting it, identifying it, is extraordinarily important. I 
hope all of you, including Ms. Downey, Aetna, will look at this 
issue of what is the price not just to see the doctor, but the 
likely tests you are going to have or the likely medications. 
We don't have to go too far down that path, but we do need to 
look at what is the--when you look at it holistically and 
integrated, we need to have hospitals be able to understand 
what is their costs, what is the doctor's cost, what is the 
anesthesiologist's costs.
    We do have, I want to point out to you, two things that are 
going on relevant to what we are doing, because I want you to 
think about it and feel free to be able to provide input. Game-
sharing. We have a game-sharing pilot that overcomes this whole 
issue of part A and Part B and will allow an integrated billing 
and will allow everyone to understand what the total costs of a 
hospital stay and procedure are. We might need to make some 
extra effort to encourage those game-sharing demonstrations to 
adopt a new billing system and help show us the way.
    Then we have a home office demonstration project that we 
are working on that would be the equivalent of boutique of 
concierge what did Steve call it? Or one of you, I guess 
Regina, you called it concierge medicine. If we don't have a 
kind of medical home that can coordinate for people with 
chronic illnesses, particularly of low-income or elderly, then 
we can't possibly make any real effort at preventive care or 
care management, and we have no shot then at reducing costs.
    So, there are experiments out there that should help you go 
to the next step. You might want to apply to be part of those 
experiments because you are coming at this with so much 
additional experience and information. We aren't in just a 
little trouble, we are in vast trouble, and if we don't solve 
it, Medicare will solve it, and they will solve it like 
Medicaid solved it. They will just under-reimburse you, and 
under-reimburse you, and under-reimburse you. This is what the 
Canadian system has done. This is what other systems have done.
    So, it is not mysterious what will happen if we don't rise 
to the challenge, but price transparency is one piece, along 
with quality reporting and others, that we must be able to do 
accurately and intelligently, but we must never mislead 
patients to believe that their choice of medical care should 
depend entirely on price because it must not, and it cannot if 
they are going to have the quality care that we know is 
available in America.
    Thank you very much not just for being here, but for your 
leadership as thinkers and doers in the health care arena. I 
appreciate it. Thank you. The hearing is adjourned.

    [Whereupon, at 11:59 a.m., the hearing was adjourned.]

    [Submission for the record follows:]

              Statement of American College of Physicians

    The American College of Physicians (ACP)--representing 120,000 
physicians and medical students--is the largest medical specialty 
society and the second largest medical organization in the United 
States. ACP is pleased to share its recommendations with the 
Subcommittee on how best to guide consumers' choice of physician 
through price transparency.
    In the first section of this statement, ACP discusses the potential 
advantages that price transparency offers to patients. In the second 
section, ACP offers recommendations on what is realistic at this point 
in time in terms of disclosing fee information to patients. The third 
section discusses the obstacles inherent to transparent physician price 
information.Finally, due to ACP's concern that price, alone, is a poor 
proxy for determining the total cost of care and informing consumers' 
choice of physician, ACP recommends that Congress look beyond the 
disclosure of unit pricing and consider new payment models that provide 
consumers with a more meaningful picture of a physician's performance.
    For definitions of terms often used in the context of this 
discussion, please refer to Appendix A.

I. ACP's Support for Transparency
    ACP is committed to the goal of transparency for health care 
pricing. For years, ACP has encouraged its members to discuss with 
patients the fees charged for their services--in advance of rendering 
services, whenever possible--with the qualification that the fee 
charged for an office visit or other service does not necessarily 
predict the total cost of care. ACP also recently developed a policy 
monograph on consumer-directed health plans, which pointed out that 
consumers must be provided with accurate, accessible, and 
understandable information in order to make well-informed health care 
decisions. This position statement calls on employers, health insurers, 
and regulators to make sure that valid and reliable information and 
appropriate decision-support tools are made available to consumers. It 
also states that public policy and private sector responses are needed 
to guide the development of standardized measurement, data collection 
and dissemination, and decision-support tools to assist consumers to 
navigate an increasingly consumer-oriented health care system.

II. Recommendations on What is Realistic at This Point in Time
    The following subsections make recommendations on how price 
information could be disclosed on a voluntary basis and in a user-
friendly manner to the following groups: Medicare patients; patients 
with typical managed care or PPO plans; and self-pay patients.
Medicare Beneficiaries
    ACP believes that public access to physician pricing for Medicare 
patients can best be achieved by modifying the publicly accessible 
physician fee schedule database(s) available through www.cms.hhs.gov. 
Medicare pricing for physicians that participate in the program is 
currently accessible in a format that is understandable to industry 
professionals, but not to patients. This system would have to be 
modified and available through a website maintained for Medicare 
patients, such as www.medicare.gov. To make the website patient-
friendly, ACP recommends the following:

      Patient first enters zip code;
      Patient has the option to view all prices for physician 
services for his or her Medicare geographic-adjusted area or to search 
by specific physician service/procedure;
      The prices should be displayed in the following format:
          Lay person description of service/procedure;
          Current Procedural Terminology (CPT) code;
          Medicare allowable amount, with typical Medicare 
        payment (80 percent) and typical patient co-payment (20 
        percent);
          Medicare limiting charge amount, which pertains to 
        unassigned claims submitted by non-participating physicians, 
        with typical Medicare payment (75 percent of Medicare 
        allowable) and typical patient co-payment (difference between 
        115 percent limiting charge and 75 percent of Medicare 
        allowable);
          Indicate if the service is Medicare non-covered, i.e. 
        never covered by Medicare regardless of the patient's 
        condition, with a statement that physicians can charge the 
        patient their established fee even if it is more than the 
        Medicare allowable.

    While this information would not differ from one physician to 
another within a Medicare geographic adjustment area, it would enable 
patients to compare Medicare prices to physician retail prices and to 
amounts paid by private insurers, if available.
Patients Enrolled in Managed Care or PPO Plans
    While Medicare generally pays a single amount for each service 
(adjusted slightly by geographic area) to all physicians, patients in 
managed care or PPO plans need to be informed about the discounted 
rates that health plan members actually pay, since the maximum 
allowable payments are determined by the provider's contract with the 
insurer. The out-of-pocket cost to patients enrolled in managed care or 
PPO plans for a specific service or procedure is the co-pay or co-
insurance for covered benefits or the retail price for non-covered 
benefits that the patient elects to receive.
    To best inform a consumer's choice of provider, private insurers 
must make consumers aware of the actual negotiated rates it pays its 
physicians for individual services. Information about what an insurer 
will reimburse is currently available to the consumer retrospectively, 
or after care has been received, and often only at the request of a 
member. ACP recommends that this information be made available 
prospectivelyso that the consumer can make a well-informed decision. 
Insurers should work with physicians to determine the actual out-of-
pocket cost to the consumer and to determine how best to present this 
information.
    ACP recommends that the Administration review private sector 
initiatives for guidance on how best to provide consumers with price 
information (see Appendix B).
Self-Pay Patients
    To give self-pay patients access to physician charges, ACP could 
recommend that its members make their retail price public for the 10 
services/procedures most commonly furnished by the specialty of general 
internal medicine (using Medicare national aggregate billing data) or 
for the 10 services/procedures they personally furnish most often by 
posting the information on their website, if applicable, and/or 
disseminating it on patient request. ACP prepared a template that could 
be shared with our members for use by those who choose to make their 
retail prices widely available (see Appendix C).
    CMS could also make this information available through its publicly 
accessible Participating Physician Directory (PPD), which enables 
patients to identify physicians who participate with Medicare. The PPD 
is currently available through www.medicare.gov/physician. In 2003, CMS 
proposed that physicians have access to their individual PPD record so 
that they could self-report whether they are accepting new patients. 
CMS could expand the PPD to include physician self-reported prices for 
non-Medicare patients. CMS likely would want to house this modified PPD 
database elsewhere, such as on the U.S. Department of Health and Human 
Services website, since the prices would reflect the physician's retail 
prices and be irrelevant to Medicare. CMS should provide a template 
that physicians could use to report their prices.
    Further, ACP believes that CMS could expand the modified PPD that 
contains physician prices to include additional information on services 
that a patient may find valuable. Physicians could self-report 
information such as whether they maintain an in-office laboratory; 
whether they accept Medicaid as a secondary payer; whether they provide 
minor clinical services via e-mail; and whether they provide 
transportation services. Physician self-reporting of this additional 
information should be voluntary. This information could supplement 
physician-specific quality data and would likely be easier for the 
patient to understand.
    Although the actual amount that a physician charges is most 
valuable to patients who pay for services out-of-pocket (including 
those with indemnity or high-deductible health plans), patients with 
other insurance products--such as Medicare or a private HMO--may also 
find this information valuable to compare what their insurance pays 
toward the physician's retail price.

III. Obstacles to Transparency
    Although ACP offers these short-term strategies, we remain 
concerned about the complexity of providing patients with the 
information and decision-support tools they need in health care. 
Introducing transparency into the medical marketplace depends on a 
convoluted set of circumstances and challenges, each of which hinder 
the effectiveness of some or all of the aforementioned strategies:

      Physician fees for a specific service or procedure have 
little relationship to the total cost of care. Knowing how much an 
internist charges for a ``typical'' office visit, for instance, does 
not tell the patient anything about what level of office visit may be 
required, what tests or procedures may have to be ordered, or what 
other costs could be incurred for referrals to other physicians or 
health care facilities.
      The costs associated with an entire episode of care would 
be a more relevant indicator--but such cost of care measures are still 
very much in their infancy. To be meaningful, those measures would have 
to encompass the services of multiple providers and sites of service, 
as well as pharmaceutical, radiological, and laboratory costs, rather 
than just the cost of care provided by a single physician.
      Physicians often have a single retail ``fee'' for each 
service, but the amount they charge--and the amount they actually 
collect from the patient--is a function of a specific contract signed 
with a particular insurer.
      Some physicians practice in more than one setting or in 
the employment of more than one employer, so an individual physician 
may have a different set of fees for each setting and/or employer, 
meaning the physician may have multiple fees for the same service.
      Telling patients what a physician's retail fees are for 
common procedures still does not let patients know what they will have 
to pay out-of-pocket--unless insurers also disclose how much they 
reimburse for a given service, including the patient's co-pay or co-
insurance for covered services, in advance.
      The fees physicians can charge and the amount they can 
collect from patients enrolled in Medicare, the country's single 
largest health care payer, are subject to strict price controls.
      Comparing prices could be misleading unless patients also 
have comparative data on the quality of care provided. However, we are 
still very much in the early stages of developing physician-specific, 
evidence-based quality measures that can be reported to the public.
      And finally, there is little evidence to date that 
patients are willing or able to consider the price of services when 
seeking medical care for themselves or family members, particularly for 
non-elective, urgent or potentially life-threatening illnesses. To the 
extent that patients would consider price, experts are concerned that 
patients may forgo beneficial treatments.

    For these reasons, price transparency is most useful for elective 
procedures where the patient has the time and ability to potentially 
choose among different providers. But even in such cases, price may 
still not be a good predictor for the total cost of care and any 
posting of the typical fees for elective procedures needs to state this 
clearly.

IV. Recommendations on Looking Beyond the Disclosure of Unit Pricing 
        and Considering New Models
    ACP is concerned that price data, alone, is a poor proxy for 
determining the total cost of care and informing consumers' choice of 
physician. As long as Medicare and other payers continue to pay 
physicians based on unit prices and volume of services, efforts to 
introduce price transparency will have only a limited impact on 
quality, cost, and consumer decision-making. We therefore recommend 
that the Administration look beyond the disclosure of unit pricing and 
consider better ways to help patients make informed choices.
    New payment models proposed by ACP would provide consumers with a 
more meaningful picture of a physician's performance by reflecting 
quality, cost, and patient experience, while at the same time 
incentivizing physicians to organize their practices to produce better 
care at a lower cost. Providing consumers with more robust data on both 
cost and quality is the premise behind ACP's recently proposed Advanced 
Medical Home (AMH), a patient-centered, physician guided model of 
health care under which patients would select a physician based on 
service attributes--such as patient-centeredness, improved access, and 
coordinated care of a practice--as well as value attributes as 
demonstrated by publicly available reports on quality and cost. ACP 
believes this model would provide consumers with a much more 
comprehensive and complete assessment of a physician.
    ACP also supports the concept of linking payments to physician 
performance on evidence-based measures. The College's position paper, 
``Linking Physician Payments to Quality Care,'' provides a framework 
for developing and implementing a Medicare pay-for-performance program 
that would recognize and support the value of care coordination and 
quality improvement by a patients' physician. Incentives would be based 
on effort, so that physicians who expend a disproportionately large 
amount of time and resources trying to improve quality--such as the 
effective management of patients with multiple chronic diseases--are 
recognized and rewarded accordingly. This is especially critical for 
the internist, whose ability to provide better care at lower costs 
through effective management of patients has been historically under-
valued.
    ACP's long-standing commitment to evidence-based medicine and 
continuous quality improvement is also evidenced by our active 
involvement in the Ambulatory Care Quality Alliance (AQA). The AQA, a 
national consortium of large employers, public and private payers, and 
physician groups, aims to improve health care quality and promote 
transparency and uniformity by evaluating ways to most effectively and 
efficiently measure physician performance, aggregate data, and report 
on the results. The AQA recently endorsed principles on: reporting to 
consumer and purchasers; reporting to physicians and hospitals; data 
sharing and aggregation; and efficiency meaures. It is also pilot 
testing quality reporting at the physician practice level.

    More information on these topics can be found at:

      The Advanced Medical Home:
        http://www.acponline.org/hpp/adv_med.pdf

      Linking Physician Payments to Quality Care:
        http://www.acponline.org/hpp/link_pay.pdf

      The Ambulatory Care Quality Alliance:
        http://www.ambulatoryqualityalliance.org/

    ACP welcomes the opportunity to meet with you or your staff to 
further discuss these topics.
Conclusion
    Any model for price transparency must take into account the special 
circumstances involved in patients' medical decision-making and the 
peculiar way that health care is financed in the U.S. It is also 
critical that transparency models be created specifically for and by 
those who deliver and receive health care services, rather than being 
grafted onto medicine from another industry.
    ACP is committed to working toward the goal of transparency in 
pricing and quality and appreciates the Administration seeking our 
input on how best to inform consumer decision-making in health care. We 
hope this discussion will encourage the Administration to look beyond 
unit pricing of physician services and to consider alternative models 
that would make the overall quality and efficiency of health care 
transparent to consumers.

Appendix A
Definition of Terms Used in the Context of Health Care Pricing 
        Transparency
      Retail price: refers to the amount charged for a service 
and is most relevant to self-pay patients (e.g., those who do not have 
health insurance or have a high-deductible health plan) and traditional 
indemnity insurance patients.
      Cost of care: refers to the total cost of services 
provided to a patient (price multiplied by volume and intensity of 
services). Cost of care can be accounted for at the level of an 
individual physician based on the costs for which the physician is 
directly responsible or can include the costs of care associated with 
all the care received by a patient for a specific episode of care.
      Total cost of care measures: refers to measures of the 
total cost of care attributable to a given provider for a defined 
episode of care (by diagnoses and duration of services provided).
      Allowable amount or maximum negotiated fee schedule 
amount (or other similar terms): refers to the amount that a health 
plan will reimburse for a particular service, which may have little or 
no relationship to the retail price charged by the provider.
      Out-of-pocket expenses: refers to the costs for which the 
patient is responsible; the amount of patient out-of-pocket expenses 
varies according to whether the patient has Medicare; is covered by a 
typical managed care or PPO plan; or is self-pay.

Appendix B
Private Sector Initiatives
    Aetna: Recently became the first health insurer to make available 
online the actual negotiated rates it pays some of its physicians for 
their services. Aetna posts the actual discounted rates it pays doctors 
for about 25 of their most common office-based procedures, such as 
physicals, electrocardiograms, and vaccinations. Under an initial pilot 
program, members in the greater Cincinnati area can now look up the 
fees charged by 5,000 local physicians and specialists.
    Cigna: Uses a three-star rating system to rank hospitals by their 
contracted rates for specific services. The insurer soon plans to 
replace the stars with actual price ranges. Cigna also recently 
launched a web-based tool that lets members comparison-shop for 
medications at 52,000 pharmacies nationwide. Enrollees can view the 
discounted price of drugs at various pharmacies as well as their share 
of the total cost based on the type of coverage they have.
    Humana: Provides members with an online tool that lets members 
compare hospitals based on their average discounted price for an entire 
episode of care. The price quotes are derived from claims data Humana 
tracks by diagnosis. The prices reflect inpatient costs as well as 
physician fees, laboratory work and all other expenses related to a 
specific procedure. By entering their ZIP codes and the type of care 
sought, members can view estimated out-of-pocket costs at up to 10 
local hospitals at a time.\1\
---------------------------------------------------------------------------
    \1\ Benko L. Price Check! Modern Healthcare. November 14, 2005.
---------------------------------------------------------------------------
    Council for Affordable Quality Healthcare (CAQH): CAQH, which 
represents many of the nation's largest private health plans, has an 
initiative to establish a system that provides physicians with online 
access to patient eligibility and benefits information for CAQH 
participating health plans. The goal is to give physicians access to 
patient eligibility and benefits information before or at the time of 
service. Physicians would be able to send an on-line inquiry from a 
single point of entry, using an electronic system of their choice 
(similar to the real-time response from processing a credit card 
charge), to find out:

      Which health plan covers the patient;
      Whether the service rendered is a covered benefit, 
including co-payments, co-insurance levels, and base deductible levels;
      What amount the patient owes for the service; and
      What amount the health plan will pay for the authorized 
service.

    ACP recommends that the Administration contact CAQH to determine if 
it is interested in exploring whether this initiative can be modified 
to provide payment information specific to a particular physician 
within a specific health plan.

Appendix C
Common Services / Procedures Pricing Template
    [X Internal Medicine Practice] believes that patients have the 
right to know what the charges for physician work might be before 
arriving at the office. We have posted the fees for our ten most common 
services/procedures below. Please note that it is often difficult to 
determine what must be done to find out what is wrong with you or how 
to take care of it until you arrive in the office. For that reason, we 
cannot say with certainty how much care you will need from us or from 
others, such as the lab or a pharmacy, and how much you will be charged 
in order to diagnose and treat your condition.
    These charges are the established fees for the office and in most 
cases do not match the amount that the patient will pay. The amount 
paid by the patient will vary based on insurance coverage and the 
meeting of deductibles and copays. It is also important to remember 
that your primary goal in seeing a physician and our primary goal in 
treating patients is the maintenance and improvement of health and our 
practice is fully dedicated to this goal.

------------------------------------------------------------------------
                Service                      Price        Medical Code*
------------------------------------------------------------------------
Office Visit (New Patient)              $xx--$xxx       99201-99205
------------------------------------------------------------------------
Office Visit (Established Patient)      $xx--$xxx       99211-99215
------------------------------------------------------------------------
Hospital Admission                      $xxx--$xxx      99221-99223
------------------------------------------------------------------------
Hospital Visit                          $xx--$xxx       99231-99223
------------------------------------------------------------------------
Hospital Discharge                      $xx--$xx        99238-99239
------------------------------------------------------------------------
Nursing Home Visit                      $xx--$xxx       99231-99233
------------------------------------------------------------------------
Electrocardiogram (EKG)                 $xx             93000
------------------------------------------------------------------------
Flu vaccine                             $xx--$xx        90655-90658
------------------------------------------------------------------------
Chest X-Ray                             $xx--$xx        71010-71030
------------------------------------------------------------------------
Removal of Lesions                      $xx--$xxx       17000-17250
------------------------------------------------------------------------
*These codes are needed for insurance companies to process bills.

                                  
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