[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                 MEDICARE PAYMENT ADVISORY COMMISSION'S
                 REPORT ON THE SUSTAINABLE GROWTH RATE

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 6, 2007

                               __________

                           Serial No. 110-18

                               __________

         Printed for the use of the Committee on Ways and Means



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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 DAVE CAMP, Michigan
MIKE THOMPSON, California            SAM JOHNSON, Texas
RAHM EMANUEL, Illinois               JIM RAMSTAD, Minnesota
XAVIER BECERRA, California           PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota           KENNY HULSHOF, Missouri
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin

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                            C O N T E N T S

                               __________

                                                                   Page

Advisory of February 27, 2007, announcing the hearing............     2

                               WITNESSES

Glenn M. Hackbarth, J.D., Chairman, Medicare Payment Advisory 
  Commission.....................................................     5

                                 ______

Bruce C. Vladeck, Ph.D., Interim President, University of 
  Medicine and Dentistry of New Jersey, Newark, New Jersey.......    31
Gail R. Wilensky, Ph.D., Senior Fellow, Project Hope, Bethesda, 
  Maryland.......................................................    36


                 MEDICARE PAYMENT ADVISORY COMMISSION'S
                 REPORT ON THE SUSTAINABLE GROWTH RATE

                              ----------                              


                         TUESDAY, MARCH 6, 2007

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

    The Subcommittee met, pursuant to notice, at 2:08 p.m., in 
room 1102, Longworth House Office Building, Hon. Fortney Pete 
Stark (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
February 27, 2007
HL-3

                   Health Subcommittee Chairman Stark

             Announces a Hearing on MedPAC's Report on the

                     Sustainable Growth Rate (SGR)

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
the Medicare Payment Advisory Commission's (MedPAC) report on the 
Sustainable Growth Rate (SGR). The hearing will take place at 2:00 p.m. 
on Tuesday, March 6, 2007, in Room 1100, Longworth House Office 
Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 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:

      
    Since 1997, annual updates to Medicare's reimbursement for 
physicians and certain other providers have been determined by a 
formula known as the Sustainable Growth Rate (SGR). This formula sets a 
target for growth in Medicare expenditures for services reimbursed 
under the physician fee schedule based on growth in the gross domestic 
product. The SGR is also adjusted for volume growth and other factors. 
If Medicare expenditures for these services exceed the target, Medicare 
payment rates are reduced. If Medicare expenditures for these services 
are less than the target, payment rates are increased.
      
    The first negative update resulting from the SGR took effect in 
2002. In each of the following years, Congress acted to override the 
SGR and provide a positive update. In order to break this annual cycle, 
Congress directed MedPAC to issue a report on various options to refine 
the SGR in the ``Deficit Reduction Act of 2005'' (P.L. 109-171). MedPAC 
will issue this report on March 1, 2007.
      
    In announcing the hearing, Chairman Stark stated, ``Physicians are 
the gateway into the health care system, and a key driver of health 
spending. Medicare's physician reimbursement mechanism needs to be 
stable and accurate, while also incorporating incentives for physicians 
to deliver appropriate care. This topic will be a main focus of the 
Subcommittee this year.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on MedPAC's mandated report on the SGR, as 
well as trends in Medicare spending on physician services in recent 
years. On the first panel, MedPAC will review the deliberations on the 
statutorily mandated options for revising the SGR, and discuss their 
recommendations for physician payment reform. On the second panel, 
former Administrators from the Health Care Financing Administration 
(HCFA--now the Centers for Medicare and Medicaid Services, CMS) will 
discuss the history of Medicare's reimbursement policies for physician 
services, and the role of expenditure targets.
      

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    Chairman STARK. Today we will begin the fun job of working 
on the Sustainable Growth Rate (SGR). We've overridden the 
payment cuts and that's made it more difficult I think for us 
to get a long-term fix, but as a result of ignoring this over 
the past many years, we've--the docs face a 10 percent cut next 
year and 5 percent reductions through 2015 if we do nothing. 
The Congressional Budget Office tells us we're looking at $330 
billion over 10 years if we just repeal it and let Medicare 
Economic Index (MEI) go ahead.
    Now taking a note from my former colleague in the Air Force 
who went to Iraq with the Army he had and not the Army he said 
he wished he had, that goes for me as well. I got to work with 
the budget I have and not with the budget I wish I had.
    Fortunately, we can count on MedPAC to at least provide us 
objective advice on how to improve and protect the programs, at 
least to criticize them for us in a fairly objective way even 
if they aren't willing to come up and give us an exact program 
to follow. We asked MedPAC to analyze options in the 2006 
Congress, and Mr. Hackbarth is here to discuss the results of 
their analysis.
    Also we have two people who many of us have worked with in 
the past who have firsthand experience in managing physician 
spending in Medicare, Dr. Bruce Vladeck and Dr. Gail Wilensky, 
who are former administrators of the Healthcare Planning 
Administration, now known as the Centers for Medicare and 
Medicaid Services (CMS).
    Gail remembers that during much of her tenure I chaired 
this Committee when the President's father was in the White 
House and we worked with the physician community and the 
Republicans and developed a physician pay schedule. Glenn will 
tell you that one wasn't very good either, but maybe it was 
better than what we've got.
    I don't know if we'll have a similar success, but I look 
forward to hearing from Glenn, and I'd like to give Dave Camp a 
chance to put his spin on this opening session.
    Mr. CAMP. Well, thank you very much, Mr. Chairman. Again, 
welcome back Chairman Hackbarth. It's good to see you again. I 
want to thank you and your staff for the good work you did on 
the recent report on Medicare payments to physicians and the 
SGR, the SGR formula used to set those payments.
    I also want to welcome Dr. Vladeck and Dr. Wilensky as two 
former administrators of Health Care Financing Administration 
(HCFA), now CMS. I know you're well aware of the physician 
payment issue, and so I look forward to hearing your thoughts 
as well.
    In the SGR report, MedPAC examined alternative ways to curb 
the volume growth of physician services. The report laid out 
several options for Congress to consider including tweaking the 
existing formula, creating a completely different payments 
formula, promoting several new quality and efficiency 
initiatives. I commend you, Chairman Hackbarth and the MedPAC 
staff for completing such a comprehensive report.
    This report wasn't only requested because of the inherent 
flaws in the SGR formula. Not only are physicians scheduled for 
a negative 5 percent payment cut through 2015, the incentives 
under the SGR formula are inappropriate. Medicare now pays 
physicians based on the quantity of services provided but not 
the quality. As physicians are threatened with payment cuts, a 
natural response is to provide more services.
    In fact, CMS found that between 2000 and 2004 the volume of 
physician services grew at nearly 5 percent a year. The payment 
system for physicians needs to be changed so that they are 
encouraged to provide appropriate, high quality services. Even 
though MedPAC has proposed a wealth of alternatives in 
developing a long-term solution, there is no easy answer to 
address the issue of cost, and the cost is significant.
    Scrapping the SGR formula and replacing it with an index 
similar to the MEI costs $262 billion over 10 years. Providing 
just a freeze in payments from 2007 levels costs $34 billion 
over 10 years. Year after year, we've enacted temporary fixes 
to the problem of Medicare payments for physicians.
    These temporary fixes failed to address the underlying 
flaws with SGR and only make any future fix more expensive. 
What was a $218 billion problem last year is now a $262 billion 
problem this year.
    We need to work together with MedPAC, the administration 
and physician groups to come up with a reasonable solution to 
the cost issue. Once the cost is resolved, Congress can start 
looking at long-term alternatives to the SGR formula, and we 
start paying physicians for the quality not the quantity of 
their services.
    Again, I thank the Chairman for holding this hearing and I 
yield back the balance of my time.
    Chairman STARK. There we go. Glenn, why don't you proceed 
in any way you'd like?

   STATEMENT OF GLENN M. HACKBARTH, J.D., CHAIRMAN, MEDICARE 
                  PAYMENT ADVISORY COMMISSION

    Mr. HACKBARTH. Thank you, Chairman Stark and Ranking Member 
Camp, Members of the Subcommittee. I appreciate the opportunity 
to talk about our report on alternatives to Medicare's SGR 
system.
    As requested in the congressional mandate, MedPAC has 
analyzed the pros and cons of expenditure targets in general as 
well as the five options included in the mandate. We present to 
you two alternative policy paths for your consideration, one 
that does not include an expenditure target, repeals the SGR 
and does not replace it; the other would have an expenditure 
target although one structured significantly differently than 
the current SGR.
    As you well know, MedPAC is a 17-member commission whose 
members are drawn from clinicians and healthcare executives and 
academics and former government officials. Despite the 
diversity of the commission, we have generally been very, very 
successful in reaching consensus on our recommendations to the 
Congress. Alas, in this particular case, it's not been possible 
to forge a consensus on all aspects of the SGR issue.
    To help you understand where the commissioners do agree--
and there are important areas of agreement--as well as where we 
disagree, I've divided the SGR problem into four dimensions. If 
you look at the slides, you see those four dimensions, and I 
will very, very briefly describe those each in turn.
    The first is encouraging efficiency in the delivery of 
healthcare. When I use the term ``efficiency,'' what we mean, 
what MedPAC means, is maximizing the benefit to patients for 
any given level of expenditure. The important point is 
efficiency is not just about reducing cost. It also includes 
consideration of the quality of the service provided.
    So, increasing efficiency is an important, vital goal for 
the Medicare Program. There is unanimous agreement within 
MedPAC that expenditure targets themselves do not establish 
appropriate incentives for efficiency. You've heard this before 
in previous MedPAC testimony on SGR.
    Let me give you a couple examples. By constraining only the 
amount paid per unit of service, we fear that at least in some 
instances the expenditure target may induce inappropriate or 
cost increasing behavior that has little or no benefit for 
patients. Moreover, of course, we feared that payments that are 
too low, for example, as a result of sustained, repeated cuts 
in the payment rate, could end up impeding access to important 
beneficial care.
    To establish proper incentives for efficiency in the 
Medicare Program, Congress must pursue the agenda briefly 
described on this slide. These four points are very broad. 
There's lots of detail behind them. I'm not going to, in my 
opening statement, go into that detail but I would refer the 
Committee to pages 17 and 18 of my written testimony for some 
additional detail, and I'd be happy to discuss them further 
during the questions and answers.
    The commission is unanimous in believing that these sorts 
of steps are the policy changes needed to improve efficiency in 
the Medicare Program. It's not an easy agenda, but it's an 
urgent agenda and one that requires substantial investment in 
CMS's capability to develop, implement and refine payment 
systems. We're making progress on this agenda, but at this 
point it's far too slow given the needs of the Medicare 
program.
    Let me go back to the dimensions of the SGR problem. The 
second is encouraging fiscal discipline in policymaking. As I 
just said, expenditure targets don't establish appropriate 
incentives for providers. Well, why would you want to use them?
    Here is an issue where there is a division within the 
commission. There is a group of commissioners who believe that 
expenditure targets could be useful in establishing discipline 
in the policymaking process. To be real blunt about what that 
means, targets could be used to limit future increases in 
Medicare payment rates for providers.
    In addition, this group of commissioners believes that 
having an expenditure target system in place may create a 
change in political dynamics and create the political leverage 
to force providers to accept reforms that they might otherwise 
resist.
    The third bullet is Increasing Equity Among Regions and 
Providers. All MedPAC commissioners, substantially all the 
commissioners, agree that the existing SGR is highly 
inequitable in important respects. If the target is exceeded, 
all physicians are punished equally, regardless of their 
individual performance. Moreover, all regions of the country 
are treated equally even though there's abundant evidence that 
healthcare delivery is more efficient in some areas than 
others. Finally, the SGR targets only physicians when Medicare 
has a total cost problem not just a physician cost problem.
    With those points in mind, the commissioners who favor 
expenditure targets believe that it will be possible to develop 
a fair or more equitable system, one that applied to total 
Medicare costs, that applied greater pressure in high cost 
regions than low cost regions, and one that allowed an 
opportunity for groups of providers to band together in what we 
refer to as Accountable Care Organizations that would be then 
be assessed on their own performance against the 
congressionally set targets.
    Make no mistake, however, that making expenditure targets 
more equitable in this way, expanding them to parts A and B, 
geographically adjusting and so on, is not an easy task. Time, 
patience, determination, and not a little money would be 
required to accomplish that task. Without adequate time, 
patience, determination and money, the risk of failure and 
unintended consequences would increase.
    The last of the four dimensions is minimizing or offsetting 
the budget score. MedPAC does not have a magic solution for the 
growing SGR budget gap, which was referred to earlier. It's in 
the hundreds of billions of dollars.
    I would remind the Committee, however, that we have made 
proposals that could make a substantial contribution toward 
filling that gap, that budget gap. For example, the CBO says 
that the 10-year cost of repealing SGR and replacing it with an 
MEI-based update would be roughly $250 billion. CBO also 
estimates that MedPAC's proposals for going to financial 
neutrality for Medicare Advantage plans would save $160 
billion. Couple that with restraint on updates for other 
providers. As you know, MedPAC has often recommended update 
factors lower than the baseline in the budget, and those 
proposals add up to a substantial contribution toward that 
$200-some billion cost for the repeal of SGR.
    With that, Mr. Chairman, I'll stop. I welcome your 
questions.
    [The prepared statement of Mr. Hackbarth follows:]

            Prepared Statement of Glenn M. Hackbarth, J.D.,
             Chairman, Medicare Payment Advisory Commission

    Chairman Stark, Ranking Member Camp, distinguished Subcommittee 
members, I am Glenn Hackbarth, Chairman of the Medicare Payment 
Advisory Commission (MedPAC). I appreciate the opportunity to be here 
with you this afternoon to discuss alternatives to the sustainable 
growth rate (SGR) system used in Medicare's physician payment system.
    Medicare pays for physician services on a fee-for-service basis 
using a resource-based relative value scale. Each service is assigned a 
weight reflecting the resources needed to furnish it. Payment is 
determined by multiplying a service's weight by a national physician 
payment rate, called the conversion factor.
    Currently, as specified in statute, the annual update to the 
conversion factor is determined under the SGR, based on an expenditure 
target that is tied to growth in the gross domestic product (GDP). The 
SGR is widely considered to be flawed; it neither rewards physicians 
who restrain volume growth nor punishes those who prescribe unnecessary 
services. Some critics contend the SGR may actually stimulate volume 
growth. Other observers believe that, despite its flaws, the SGR has 
helped curb the increase in Medicare spending for physician services by 
alerting policymakers that spending is rising more rapidly than 
anticipated and constraining the ability of policymakers to increase 
fees.
    Slowing the increase in Medicare outlays is important; indeed it is 
becoming urgent. Medicare's rising costs, particularly when coupled 
with the projected growth in the number of beneficiaries, threaten to 
place a significant burden on taxpayers. Rapid growth in expenditures 
also directly affects beneficiary out-of-pocket costs through higher 
Part B and supplemental insurance premiums as well as higher 
copayments.
    The Deficit Reduction Act of 2005 (DRA) requires MedPAC to examine 
alternative mechanisms for establishing expenditure targets. We also 
considered ways to reconfigure the existing SGR to improve its 
performance. We have reviewed the pros and cons of the different 
alternatives and outlined two possible paths for the Congress to 
follow. Significant disagreement exists within the Commission about the 
utility of expenditure targets. Moreover, the complexity of the issues 
makes it difficult to recommend any option with confidence. Absent 
careful development and significant investment, the risk that a 
formulaic expenditure target will fail and have unintended consequences 
is substantial.
    Despite disagreement about expenditure targets, the Commission is 
united on this: Whether or not the Congress elects to retain some form 
of expenditure target, a major investment should be made in Medicare's 
capability to develop, implement, and refine payment systems to change 
the inherent incentives in the fee-for-service system to reward quality 
and efficient use of resources while improving payment equity. Examples 
of such reforms include pay-for-performance programs for quality, 
improving payment accuracy, developing incentives to coordinate care, 
using comparative-effectiveness information, and bundling payments to 
reduce overutilization.
    An expenditure target, however designed, cannot substitute for 
improvements to Medicare's payment systems; at best, it may be a useful 
complement. An expenditure target alone will not create the proper 
incentives for individual physicians or other providers; indeed, there 
is a risk that--in the absence of other changes--constraint on 
physician fees will stimulate inappropriate behavior, including the 
very increases in volume and intensity that the target system purports 
to control. It is better to think of an expenditure target as a tool 
for altering the dynamic of the policy process than as a tool for 
directly improving how providers deliver services. An expenditure 
target alerts policymakers that spending is rising more rapidly than 
anticipated and leads to an annual debate over the update to the 
physician payment rate. That debate may also influence the behavior of 
providers: To avoid rate decreases, they could be compelled to support 
payment reforms that they might otherwise find objectionable.
    The Congress, then, must decide between two paths. One path would 
repeal the SGR and not replace it with a new expenditure target. 
Instead, the Congress would accelerate development and adoption of 
approaches for improving incentives for physicians and other providers 
to furnish higher quality care at a lower cost. If it pursues this 
path, the Congress would need to make explicit decisions about how to 
update physician payments. Alternatively, the Congress could replace 
the SGR with a new expenditure target system. A new expenditure target 
would not reduce the need, however, for a major investment in payment 
reform. Regardless of the path chosen, Medicare should develop measures 
of practice styles and report the information to individual physicians. 
Medicare should also create opportunities for providers to collaborate 
to deliver high quality care while restraining resource use.
    If the Congress chooses to use expenditure targets, the Commission 
has concluded that such targets should not apply solely to physicians. 
Rather, they should ultimately apply to all providers. Medicare has a 
total cost problem, not just a physician cost problem. Moreover, 
producing the optimal mix of services requires that all types of 
providers work together, not at cross purposes. For example, physicians 
and hospitals must collaborate to reduce unnecessary admissions and 
readmissions. If used, an expenditure target should be designed to 
encourage all types of providers to work together to keep costs as low 
as possible while increasing quality. The Congress may also wish to 
apply targets on a regional basis, since different parts of the country 
contribute differentially to volume and expenditure growth. Moreover, 
high-spending areas have not demonstrated higher quality of care.
The sustainable growth rate system
    Each year, CMS follows the statutory formula to determine how to 
update fees for physician services to help align spending with the 
SGR's expenditure target. The SGR allows growth in spending due to 
factors that one would expect to affect the volume of physician 
services: inflation in physicians' practice costs, changes in 
enrollment in fee-for-service Medicare, and changes in spending due to 
laws and regulations. In addition, the SGR includes an allowance for 
growth above these factors based on growth in real GDP per capita. 
Growth in GDP--the measure of goods and services produced in the United 
States--is used as a benchmark of how much additional expenditure 
growth society can afford.
   Figure 1.  FFS Medicare spending for physician services, 1996-2006

[GRAPHIC] [TIFF OMITTED] T0307A.001

    Note: FFS (fee-for-service). Dollars are Medicare spending only and 
do not include beneficiary coinsurance.
    Source: 2006 annual report of the Boards of Trustees of the 
Medicare trust funds.

    The SGR system has been widely criticized. In recent years 
expenditures for physician services have grown substantially, 
suggesting that the SGR does not provide a strong check on spending 
(Figure 1). It does little to counter the inherently inflationary 
nature of fee-for-service payment. In addition, the SGR is inequitable, 
treating all providers--regardless of their behavior--and all regions 
of the country alike.
    The SGR also fails to distinguish between desirable increases in 
volume and those that are not. Some volume growth may be desirable. For 
example, growth arising from technology or changes in medical protocols 
that produce meaningful improvements to patients, or growth in services 
that are currently underutilized, is beneficial. But research suggests 
that some portion of volume growth does not advance the health and 
well-being of beneficiaries. In geographic areas with more providers 
and more specialists, research has found that beneficiaries receive 
more services but do not experience better quality of care or better 
outcomes, nor do they report greater satisfaction with their care.

    Table 1.  Cumulative actual expenditures for SGR-related services
           exceeded SGR-allowed expenditures starting in 2002
------------------------------------------------------------------------
                                    Cumulative expenditures
                                         (in billions)        Difference
               Year               --------------------------     (in
                                     Allowed       Actual     billions)
------------------------------------------------------------------------
1996                                    $36.6        $36.6          N/A
1997                                     86.6         85.9         $0.7
1998                                    138.7        135.8          2.9
1999                                    194.1        188.4          6.7
2000                                    253.4        246.4          7.0
2001                                    316.4        312.2          2.7
2002                                    382.5        383.6         -1.1
2003                                    454.5        461.8         -2.3
2004                                    531.2        548.9        -17.7
2005                                    611.3        640.0        -28.7
2006                                   693.0*       734.9*       -41.9*
------------------------------------------------------------------------
Note: SGR (sustainable growth rate), N/A (not applicable). Cumulative
  allowed and actual expenditures are as of calendar year end. Pursuant
  to the Balanced Budget Refinement Act of 1999, the SGRs for 2000 and
  all subsequent years are estimated and then revised twice by CMS,
  based on later data.
* Estimated.
Source: CMS 2006. Estimated sustainable growth rate and conversion
  factor, for Medicare payments to physicians in 2007. November.
http://www.cms.hhs.gov/SustainableGRatesConFact/Downloads/sgr2007f.pdf.


    Medicare spending for physician services has exceeded targeted 
spending for several years, resulting in the SGR calling for cuts in 
physician payment rates (Table 1). The Congress has repeatedly 
prevented these cuts from being implemented without changing the SGR 
formula or the target. As a result, the cumulative SGR formula calls 
for larger fee cuts in multiple years. The Medicare trustees project 
that the SGR will call for annual cuts of about 5 percent well into the 
next decade. The trustees characterize this projected series of 
negative updates to physician fees as ``unrealistic'' because the 
Congress is unlikely to allow them. But the federal budget's baseline 
includes the large fee cuts, making it costly from a budgeting 
perspective to give zero updates, much less increase fees. If they were 
implemented, large cumulative cuts would likely compromise access to 
care. They might also have the unintended consequence of spurring 
volume growth as physicians attempt to maintain their income.
Using Medicare's physician and other payment systems to improve value
    Medicare should institute policies that improve the value of the 
program to beneficiaries and taxpayers (see text box, p. 14). Those 
policies should reward providers for efficient use of resources and 
create incentives to increase quality and coordinate care. Policies 
such as pay for performance that link payment to the quality of care 
physicians furnish should be implemented. At the same time, Medicare 
should encourage coordination of care and provision of primary care, 
allow gainsharing arrangements, bundle and package services where 
appropriate to reduce overuse, ensure that its prices are accurate, and 
rethink the program's benefit design and the effects of supplemental 
coverage. To reduce unwarranted variation in volume and expenditures, 
Medicare should collect and distribute information about how providers' 
practice styles and use of resources compare with those of their peers. 
Ultimately, this information could be used to adjust payments to 
physicians. Findings from comparative-effectiveness research should be 
used to inform payment policy and furnished to beneficiaries and 
providers to inform decisions about medical care. Finally, concerted 
efforts should be made to identify and prevent misuse, fraud, and abuse 
by strengthening provider standards, ensuring that services are 
furnished by qualified providers to eligible recipients, and verifying 
that services are appropriate and billed accurately and that payments 
for those services are correct.
    The Congress needs to provide CMS with the necessary time, 
financial resources, and administrative flexibility to make these 
improvements. CMS will need to invest in information systems; develop, 
update, and improve quality and resource use measures; and contract for 
specialized services. In the long run, failure to invest in CMS will 
result in higher program costs and lower quality of care.
DRA-mandated alternatives to the SGR
    The DRA requires that we examine the potential for volume controls 
using five alternative types of subnational targets--geographic area, 
type of service, group practice, hospital medical staff, and physician 
outliers--and consider the feasibility of each. Policymakers should 
recognize that, by their very nature, these alternatives can only 
attempt to control total expenditures, not volume. Each alternative has 
advantages and disadvantages, but without accompanying payment policies 
that change the inherent incentives of fee-for-service payment, the 
ability to influence the behavior of individual physicians will be 
limited.
    The Commission has not provided budgetary scores for the 
alternatives. MedPAC does not produce official scoring estimates. 
Further, many of the alternatives' administrative implications are 
unknown. For any of the alternatives, details of the formula--including 
where the target is set, how to deal with the existing difference 
between the target and spending, and whether the target is applied only 
to physician services or is extended more broadly--are the important 
determinants of projected total spending. Efforts to relax the current 
SGR (e.g., softening or eliminating the cumulative formula) will be 
costly under current baseline assumptions. However, the Congress may be 
able to maintain some expenditure control by retaining the expenditure 
target in some form.

Geographic area alternative
    The geographic area alternative would apply targets to subnational 
geographic areas. Setting different fee update amounts by region 
acknowledges that regional practice patterns vary and contribute 
differentially to overall volume and expenditure growth. Use of 
different regional updates would improve equity across the country and 
over time could help reduce geographic variation. However, it is not 
clear what the optimum geographic unit would be. Choosing the unit 
involves tradeoffs between physician accountability, year-to-year 
volatility, and administrative feasibility. Using smaller units, such 
as hospital referral regions, might increase physician accountability 
but would also increase year-to-year volatility and be difficult to 
administer. Large units, such as states or Part D regions, are more 
stable and are easier to administer but include too many physicians to 
encourage accountability.
    Using different regional updates would not entirely address the 
inequities of the current system; for example, a physician who 
practices conservatively in a high-volume region would still be 
penalized. Using different regional updates could also create wide 
disparities in payment rates by area. Beneficiaries crossing the 
boundaries of geographic areas to seek care also would be an issue that 
would have to be resolved.

Type-of-service alternative
    A type-of-service alternative would set expenditure targets for 
different types of services, as was done under the volume performance 
standard (VPS), which preceded the SGR. (Under the VPS, three targets 
were established--for evaluation and management services, surgical 
procedures, and all other services.) A type-of-service expenditure 
target recognizes that expenditure growth differs widely across types 
of services. Some might prefer this type of target because it would 
differentiate between services with the greatest growth in volume and 
expenditures and those with the smallest. This alternative also could 
be designed to boost payments for primary care services, which some 
believe are undervalued.
    But service-specific targets present a number of difficulties. One 
problem is that, under such targets, inequities across services and 
specialties could arise. In addition, setting service-specific targets 
would implicitly require Medicare to know the optimal mix of services. 
This would be difficult, since the optimal mix of services will evolve 
with changes in the population served, patterns of illness, and medical 
knowledge and technology.

Multispecialty group practice alternative
    The Congress asked MedPAC to analyze an alternative to the SGR that 
might adjust payment based on physicians' participation in group 
practices, since some studies suggest that physicians in multispecialty 
group practices may be more likely to use care management processes and 
information technology and to have lower overall resource use. But 
considering the small share of physicians in multispecialty groups (20 
percent), and that not all group practices engage in activities that 
improve quality and manage resource use, payment policies focusing 
solely on group status may not effectively elicit the desired behavior. 
Further, using separate targets for group and nongroup physicians could 
be viewed as inequitable, since efficient physicians in smaller 
nongroup practices would be ineligible for the payment updates that 
physicians in multispecialty groups would receive. In addition, rural 
physicians may have few, if any, opportunities to join group practices. 
Such small groups of physicians would also increase year-to-year 
volatility and could be difficult to administer. Establishing payment 
incentives for performing specific activities associated with better 
care and lower resource use would likely be more effective than using 
separate targets based on group practice status.
    While the Commission has not recommended a multispecialty group 
alternative for an expenditure target, such groups may still be an 
important locus for many of the policy changes that MedPAC believes are 
important. For example, these groups could serve as accountable care 
organizations (ACOs), together with independent practice associations 
(IPAs), hospital medical staffs, and other organized groups of 
physicians. The Commission's preliminary research has found that 
beneficiaries who regularly see physicians in multispecialty groups 
appear to use fewer resources than other beneficiaries. Multispecialty 
groups may be more likely to incorporate incentives to control resource 
use and monitor and influence practice styles, which may encourage 
providers to better coordinate care and ensure that patients are 
appropriately monitored and receive necessary follow-up care.

Hospital medical staff alternative
    A hospital medical staff target system would use Medicare claims to 
assign physicians and beneficiaries to one type of ACO based on the 
hospitals they use most. Even if some physicians have little or no 
direct interaction with a hospital, they can be assigned to the group 
based on the hospital most of their patients use. This option creates a 
virtual physician group using the extended hospital staff as the 
organizational focal point. Initially, Medicare could collect and 
distribute information about the practice patterns of different groups. 
Ultimately, that information could be used to adjust payments for 
differences in resource use and quality.
    Using hospital medical staffs as ACOs could better align incentives 
to control expenditures. The hospital could provide an organizational 
locus for physicians in the area to come together to monitor and 
influence practice styles. Although the size of the groups would vary 
substantially, each of them would be much smaller than the current 
national pool. Individual physicians could therefore more readily see a 
link between their own actions and their group meeting its target. Over 
time, this alternative is intended to induce physicians and other 
providers to practice more as a system, optimizing care delivery and 
reducing overall expenditures.
    There are significant barriers to this alternative. Some argue that 
hospitals and physicians are competitors who will not easily 
collaborate with one another, making this type of ACO an unlikely 
vehicle for change. Such small groups of physicians would increase 
year-to-year volatility and could be difficult to administer. 
Physicians may resist having Medicare assign them to an entity to which 
they may feel little or no affinity. Physicians who rarely refer 
patients for hospital care may be particularly resistant. Finally, 
there may be additional legislative changes to allow sharing of funds 
that would be required to implement this alternative.

Outlier alternative
    Medicare could identify physicians with very high resource use 
relative to their peers. CMS could first provide confidential feedback 
to physicians. Then, once greater experience and confidence in 
resource-use measurement tools were gained, policymakers could use the 
results for additional interventions such as public reporting, 
targeting fraud and abuse, pay for performance, or differential updates 
based on relative performance.
    The major advantage of this alternative is that it would promote 
individual accountability and would enable physicians to more readily 
see a link between their actions and their payment. However, a number 
of technical issues would need to be resolved. Implementation of an 
outlier system based on episode groupers may prove difficult if 
physicians cannot be convinced of the validity of episode grouping 
tools. Physicians will need to be confident that their scores reflect 
the relative complexity of their patient mix and that they are being 
compared to an appropriate set of peers. There would likely be 
considerable controversy around initial physician scores as some 
physicians realized that their practice patterns were not in line with 
those of their peers.

Reconfiguring the national target system
    We also considered a reconfiguration of the current national 
target. For example, the current system could be changed to moderate or 
eliminate the cumulative aspect of the spending targets. Another option 
is to implement an additional allowance corridor around the allowed 
spending target line. Both options would relieve some of the budget 
pressure and result in more favorable updates but also would increase 
total expenditures and would not change the inflationary incentives 
inherent in fee-for-service payment.
    Other changes could be made to the physician payment system to 
address services that are growing quickly. Such growth may signal that 
relative prices for those services do not reflect the time and 
complexity of furnishing them. In examining such services, the 
Secretary would need to take into account changes in both the number of 
physicians furnishing the services to Medicare beneficiaries and the 
number of hours physicians worked. CMS could use the results from these 
analyses to flag services for closer examination of their relative work 
values. Alternatively, the Secretary could automatically correct such 
mispriced services and the Relative Value Scale Update Committee could 
then evaluate these changes during its regular five-year review.

Choices for the Congress on expenditure targets
    There are two paths the Congress could take. The Commission did not 
reach a consensus on which path is best. The issues surrounding the use 
of expenditure targets are complex, the information requirements are 
many, and the full effects are almost unknowable; in addition, the risk 
of failure and unintended consequences is high. Nevertheless, some 
Commissioners believe it is prudent to retain an expenditure target to 
limit rate increases and to provide leverage with providers to 
encourage them to embrace reforms they might otherwise oppose. At the 
same time, other Commissioners fear that undue restraint on rates may 
impede access to care in the long run. Moreover, across-the board 
restraint that fails to distinguish between good performers and poor 
performers may encourage providers to engage in undesirable behavior to 
maintain their profitability--for example, ordering services of 
marginal value or seeking to furnish services with payments that are 
high relative to costs.
    Despite disagreement about the utility of expenditure targets, the 
Commission is united on this key point: Whether or not the Congress 
elects to retain some form of expenditure target, a major new 
investment should be made in Medicare's capability to develop, 
implement, and refine fee-for-service payment systems to reward quality 
and efficient use of resources while improving payment equity, as 
discussed below. An expenditure target, however designed, is not a 
substitute for improving Medicare's payment systems; at best, it may be 
a useful complement. An expenditure target by itself cannot create the 
proper incentives for individual physicians or other providers. A 
target is a tool for improving the dynamics of policymaking, not health 
care delivery.
    Following are two alternative paths for the Congress to consider.

Path 1
    The first path would repeal the SGR. No new system of expenditure 
targets would be implemented. Instead, the Congress would accelerate 
development and adoption of approaches for improving incentives for 
physicians and other providers to furnish lower cost and higher quality 
care (see text box, p. 14). Increasing the value of Medicare in this 
way will require:

      Changing the payment incentives. Policies must be 
implemented that link payment to the quality of care physicians and 
other providers furnish. MedPAC's pay-for-performance recommendations 
would move toward correcting the problem of lack of incentives for 
quality care. At the same time, Medicare needs to encourage 
coordination of care and provision of primary care, ensure that its 
prices are accurate, allow gainsharing arrangements, and bundle and 
package services where appropriate to reduce overuse. ACOs like 
physician groups and other combinations of providers can be encouraged 
as a means to improve quality and reduce inappropriate use of 
resources. Medicare should also rethink the program's benefit design 
and the effects of supplemental coverage.
      Collecting and disseminating information. Variation in 
practice patterns may reflect geographic differences in what physicians 
and other providers believe is appropriate care. To reduce this 
variation, providers need information about how their practice styles 
compare with those of their peers. Ultimately, such information could 
be used to adjust payments to physicians. In addition, findings from 
comparative-effectiveness research should be used to inform payment 
policy and furnished to beneficiaries and providers to inform decisions 
about medical care. Both of these are activities in which collaborating 
with the private sector could lead to wider adoption and greater 
impact.
      Redoubling efforts to identify and prevent misuse, fraud, 
and abuse. This effort includes supporting quality through the use of 
standards, ensuring that services are furnished by qualified providers 
to eligible recipients, and verifying that services are appropriate and 
billed accurately and that payments for those services are correct.


Path 2
    The second path would pursue the approaches outlined in path 1 but 
would also include a new system of expenditure targets (Figure 2). As 
policymakers grapple with the budgetary consequences of volume and 
expenditure growth, the presence of an expenditure target may prompt 
more rapid adoption of the approaches in path 1, since it will put 
financial pressure on providers to change. If the Congress determines 
that a target is necessary to ensure restraint on fee increases, the 
Commission has concluded that such a target should embody the following 
core principles:

      encompass all of fee-for-service Medicare,
      apply the most pressure in the parts of the country where 
service use is highest,
      establish opportunities for providers to share savings 
from improved efficiency,
      reward efficient care in all forms of physician practice 
organization, and
      provide feedback with the best tools available and in 
collaboration with private payers.

    In keeping with these principles, the expenditure target should not 
be borne solely by physicians. Rather, it should ultimately be applied 
to all providers to encourage different providers to work together to 
keep costs as low as possible while increasing quality. The Congress 
should also consider applying any expenditure target on a geographic 
basis, since different parts of the country contribute differentially 
to volume and expenditure growth. If an expenditure target reflects the 
limits of what society wants to pay, the greatest pressure should be 
applied to those areas of the country with the highest per beneficiary 
costs and the greatest contribution to Medicare expenditure growth.

                     Figure 2.  Timeline for path 2

[GRAPHIC] [TIFF OMITTED] T0307A.002

    Note: P4P (pay for performance), ACO (accountable care 
organization).
    * Providers receive rewards or penalties if they are not part of 
ACOs.

    Geographically adjusted targets, even if applied at the level of 
metropolitan statistical areas, are still too distant from individual 
providers to create appropriate incentives for efficiency. Creating 
proper incentives for improved performance--whether for physicians or 
other providers--will require much more targeted incentives. Rewards 
and penalties must be based on the performance of provider groupings 
that are small enough for the providers to be able to work together to 
improve. Therefore, within each geographic area, measurement of 
resource use would show how physicians compare with their peers and 
would reveal outliers. The comparisons could show the resource use of 
individual physicians and of groups of physicians belonging to ACOs, 
such as integrated delivery systems, multispecialty physician groups, 
and collaborations of hospitals and physicians. ACOs, in turn, would 
have to meet eligibility criteria but would then be able to share 
savings with the program if they furnish care more efficiently than the 
trend in their area. Episode groupers and per capita measures are tools 
for measuring resource use, and they could become tools that define 
payment adjustments for physicians who remain committed to solo or 
small practice outside the confines of larger organizations.
    This expenditure target system would address three goals 
simultaneously. First, it would address geographic disparities in 
spending and the volume of services. Second, by departing from the 
existing national SGR and allowing providers to organize into ACOs, it 
would improve equity and encourage improvements in the organization of 
care. Third, providers would receive actionable information to change 
their practice style.

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

----------------------------------------------------------------------------------------------------------------
Improving Medicare's value

Medicare should change payment incentives by:

  Linking payment to quality by basing a portion of provider payment on performance. The Commission has found
that two types of physician measures are ready to be collected: structural measures associated with information
technology (such as whether a physician's office tracks patients' follow-up care) and claims-based process
measures, which are available for a broad set of conditions. To implement pay-for-performance, CMS must be given
the authority to pay providers differentially based on performance. Such a program should be budget neutral,
with monies set aside redistributed to providers who performed as required.

  Encouraging coordination of care and use of care management processes, especially for chronic care patients.
There are a number of care coordination and care management models Medicare could implement. For example,
beneficiaries with chronic conditions could volunteer to see a specific physician or care provider for the
complex condition that qualifies them to receive care coordination/care management. That physician would serve
as a sort of medical home for the patient. Payment for services to coordinate care would be contingent on
negotiated levels of performance in cost savings and quality improvements.

  Ensuring accurate prices by identifying and correcting mispriced services. CMS should reduce its reliance on
physician specialty societies to identify misvalued services so that overvalued services are not overlooked in
the process of revising the physician fee schedule's relative weights. CMS should also update the assumptions it
uses to estimate the practice expenses associated with physician services. Further, CMS should initiate reviews
of services that have experienced substantial changes in volume, length of stay, site of services, practice
expense, or other factors that may indicate changes in physician work.

  Allowing shared accountability arrangements, including gainsharing, between physicians and hospitals. Such
arrangements might increase the willingness of physicians to collaborate with hospitals to lower costs and
improve care.

  Bundling services. Bundling puts providers at greater financial risk for the services provided and thus gives
them an incentive to furnish and order services judiciously. Candidates for bundling include services typically
provided during the same episode of care. Bundling the hospital payment and the physician payment for given DRGs
could also increase efficiency and improve coordination of care.

  Promoting primary care, which can lower costs without compromising quality. Medicare should create better
incentives for providers to furnish primary care (e.g., by ensuring accurate prices for primary care services)
and for beneficiaries to seek it (e.g., by changing Medicare's cost sharing structure).

  Rethinking Medicare's cost-sharing structure and its ability to steer beneficiaries to lower cost and more
effective treatment options.

Medicare should collect and disseminate information by:

  Measuring physicians' resource use over time and sharing results with physicians. Physicians would then be
able to assess their practice styles, evaluate whether they tend to use more resources than their peers (or what
available evidence-based research recommends), and revise their practice styles as appropriate. Once greater
confidence with the measurement tool was gained, Medicare could use the results for payments--for example, as a
component of a pay-for-performance program that rewards both quality and efficiency. CMS could also use the
measurement tool to flag unusual patterns of care that might indicate misuse, fraud, and abuse.

  Encouraging the development and use of comparative-effectiveness information to help providers and patients
determine what constitutes good quality, cost-effective care. Comparative-effectiveness information could also
be used to prioritize pay-for-performance measures, target screening programs, and prioritize disease management
initiatives. Given the potential utility of this information to Medicare, and given concerns about the
variability in methods and the potential bias of researchers conducting clinical- and cost-effectiveness
research, a public-private partnership may be warranted. For example, the federal government could help set
priorities for research, while funding could come in part from drug manufacturers, health plans, and pharmacy
benefit managers.
----------------------------------------------------------------------------------------------------------------



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

----------------------------------------------------------------------------------------------------------------
Improving Medicare's Value (Continued)

Medicare should improve program integrity and provider standards by:

  Using standards, where appropriate, in physician offices to ensure quality. MedPAC has recommended that CMS
impose quality standards as conditions of payment for imaging services. Other types of services may be
candidates for standards as well.

  Continuing to improve program integrity, capitalizing on the opportunity presented by administrative
contractor reform. Contractor reform may also provide an opportunity for Medicare to enhance its ability to
measure performance, improve quality of care, and encourage coordination of care.
----------------------------------------------------------------------------------------------------------------


                                 

    Chairman STARK. Thank you, Glenn. You intertwine in your 
recommendations and throughout your report issues like 
efficiency and quality and behavior in terms of 
overutilization, I suspect, in those sorts of areas. Can a 
payment policy address all those issues or are we to bifurcate 
this and just say, look, we'll have to deal with quality and 
limitation, overutilization, those sorts of things, in separate 
regulations and just deal with the pay system without regard to 
that?
    Mr. HACKBARTH. Yes. Well, we think that using payment 
policy to change behavior, both to reduce cost and improve 
quality, makes sense. That's not to say that it's an easy thing 
to do, but it makes sense, and we think that there's abundant 
evidence that providers respond to payment policy and change 
their behavior accordingly. We've got 25 or 30 years of 
experience that shows just how dramatic those changes can be 
particularly in terms of reducing cost.
    Using payment policy to increase quality is admittedly a 
newer endeavor where we don't have the same track record, but 
in fact we think it could be useful there as well.
    Chairman STARK. As I said, I don't have a question except 
ones that I think you don't want to answer. We are--as you 
know, you and I have discussed this and these alternatives at 
some length.
    The easy way out is to deal with this just for next year 
and hope that the reimbursement fairy puts the plan under our 
pillow sometime between now and 2008, also partly I suppose, to 
kick some of it back to CMS. I would ask, are there--how much 
can they do administratively toward resolving this?
    Mr. HACKBARTH. So, the question is?
    Chairman STARK. Does CMS have a lot more latitude to make, 
in your opinion, administrative decisions that will resolve 
some of the volume quality problems that we should be after 
them to take as opposed to trying to solve all of this in a 
legislative way?
    Mr. HACKBARTH. Well, if you look at that agenda that's on 
pages 17 and 18 of my testimony, there are important parts of 
that agenda that CMS does have the authority to do by 
regulation. An example of that is improving pricing accuracy, 
as we call it.
    We believe that there are some services within the 
physician fee schedule that we're paying too much for. Since we 
pay too much for them there is a profit opportunity that's 
attracting capital, attracting effort on behalf of physicians, 
and we're increasing expenditures without a commensurate 
increase in value for patients.
    So, that pricing agenda, which really doesn't apply just to 
physicians; it applies to hospitals and post-acute providers. 
Those are areas where CMS can work largely on its own. Going to 
new payment approaches that encourage and reward coordination 
of care like the medical home idea as one example, those would 
generally require legislative changes. So, our agenda for 
improving efficiency of value is a mixture of regulatory and 
legislative actions.
    Chairman STARK. Following on that, I believe that MedPAC 
has suggested that we are under-funding CMS for the 
increasingly complex nature of their work and the volume 
involved. Do you want to comment on that?
    Mr. HACKBARTH. Yes, I do. That's very important from the 
perspective of the commission. This agenda, laid out on pages 
17 and 18, is a complicated agenda. There is no silver bullet 
for these problems. At the same time, the clock is ticking 
financially with the retirement of the Baby Boom Generation, so 
the fiscal pressures facing the program are about to escalate 
dramatically.
    We think that the pace of improvement needs to accelerate 
dramatically and we don't think that the pace is slow right now 
because CMS is just sort of sitting back with their feet up on 
the table. We think there are real issues about their capacity 
to develop, implement and refine new payment systems, so we 
need to expand that bottleneck so that we can move some of 
these ideas from concept through demonstration to 
implementation and ongoing refinement much more quickly than we 
do right now.
    Chairman STARK. Thank you. Dave.
    Mr. CAMP. Thank you, Mr. Chairman. The March 1 report, 
MedPAC report says that Medicare access to physician services 
remains stable, but I'm hearing different things from my 
constituents in mid- and northwestern Michigan, in rural areas 
particularly. How will a new physician payment system safeguard 
access and enhance access, frankly?
    Mr. HACKBARTH. Well, a couple points. From a national 
perspective, we believe that access to care for Medicare 
beneficiaries remains good, and we draw that conclusion based 
on both surveys of physicians and of patients.
    Having said that, it's also clear to us that there are 
pockets, areas within the country where there may well be acute 
problems, but on a national basis, we don't think that there is 
a big problem.
    To assure ongoing good access to care for Medicare 
beneficiaries, we need to, of course, assure that the basic 
payment rates are adequate, and we fear that continued cuts of 
the sort that are now mandated by the SGR would threaten access 
to care. In addition to that, we think that by refining our 
payment systems we can help assure access. A particular concern 
in some parts of the country is access to good primary care, 
and we think that in fact in important respects Medicare may be 
underpaying for good primary care, and that's an important part 
of the agenda that is in my testimony. So, that is also 
important in retaining access.
    As you know, Congress, in addition to that, has taken a 
number of targeted actions directed at payment for rural 
physicians where there are special additional payments for 
shortage areas, a limit on the geographic adjuster--floor under 
the geographic adjuster and so on, and those sorts of targeted 
measures can be part of the response as well.
    Mr. CAMP. Physicians just began reporting quality 
information this year. That's a major step in policy change. 
What other steps could be taken, at least in the interim, to 
ensure that we get the right information?
    Mr. HACKBARTH. Well, the reporting obviously is a critical 
step for examining the quality of services provided by 
physicians. Are you talking more generally about information in 
the program?
    Mr. CAMP. Information, what other steps we might take.
    Mr. HACKBARTH. To get additional information on 
performance?
    Mr. CAMP. Well, and also to ensure that we're getting 
quality care and not simply volume as well. It's really two 
sides to it.
    Mr. HACKBARTH. Well, another path that the commission 
thinks is important to explore is information on the 
effectiveness of alternative treatments that could in turn 
guide both physicians and patients. Important, albeit a small 
step, was taken in that direction with the MMA funding, as I 
recall, $15 million for comparative effectiveness research. We 
think that's small compared to the magnitude of the task at 
hand, and we think that a much larger investment in what is 
truly a public good, information about what works, is called 
for, and the Federal Government ought to take a lead in doing 
that.
    MedPAC will be looking at some ideas on how such an effort 
might be structured, where it might be housed, and hopefully 
we'll be making some recommendations on that in the future.
    Mr. CAMP. In follow up to what Mr. Stark mentioned, it 
seems as though some of this could be done administratively by 
CMS. In particular, your comment that we're paying too much for 
some services, that seems to me that's not an issue for the 
Congress but that's an issue for CMS to address. Why have we 
not seen more proposals from them?
    Mr. HACKBARTH. Well, in fairness to CMS, there have been 
some proposals. As you know, an important part of the process 
is a regular reevaluation of the relative values built into the 
physician fee schedule, and there is a periodic review of those 
relative values.
    Just this past year, some changes were made that resulted 
in increases in relative payment for evaluation and management 
services. We believe that there are some design issues in that 
process that we've made recommendations to CMS on that could 
help advance that agenda still further.
    Generally speaking, CMS has been receptive to 
recommendations of that sort, but again there's a question of 
resources and how many different things they can work on at one 
time.
    Mr. CAMP. Thank you. I see my time has expired. Thank you, 
Mr. Chairman.
    Mr. DOGGETT. Continuing on this same line of questioning, 
is it a matter of resources at CMS or do we need to give them 
greater legislative authority?
    Mr. HACKBARTH. More discretion, more latitude? Is that what 
you mean, Mr. Doggett?
    Mr. DOGGETT. Well, this issue of whether it could resolve 
this problem internally or whether we needed to act each year 
has come up again and again, and I'm just trying to get a more 
general understanding of whether they lack all the statutory 
authority they need to address this problem or it is, as you 
were just telling Mr. Camp, more a matter of resources.
    Mr. HACKBARTH. Well, if the issue is the relative values, I 
think that they have the discretion that they need. It may be 
more of an issue of resources than discretion. As you well 
know, issues like the payment update for physicians and other 
providers are generally set by statute. CMS and the Secretary 
do not have discretion on that score. Whether giving them 
discretion would advance the cause or not, I think there's no 
clear right answer to that. There are pluses and minuses.
    In terms of developing and implementing new payment 
systems, I think that there's an interesting, important process 
ongoing with the Medicare Health Support Pilot Project, which 
was established under MMA. This is to help manage patients with 
chronic illnesses. What I want to focus on is not so much the 
merits of the design but the fact that it was set up as a 
pilot. So, here's an idea that Congress wanted to explore; 
let's test it in a systematic way, and then, if it works, give 
the Secretary the authority to move toward implementation as 
opposed to coming back through the legislative process again.
    I think that pilot model may have a lot to recommend it.
    Mr. DOGGETT. You indicated to Mr. Stark and in your written 
testimony that there was a determination that some types of 
services we're paying too much for already.
    Mr. HACKBARTH. Right.
    Mr. DOGGETT. What are some examples of those?
    Mr. HACKBARTH. Well, an area that has been of concern to 
the commission is imaging services. It's fairly technical, 
arcane stuff, but the process by which those prices are set 
that Medicare pays we think may have some bad assumptions in it 
and as a result specific services may be overpriced and 
therefore unusually profitable.
    We've recommended to CMS that they institute a process for 
an ongoing systematic review of those relative values. There's 
certain indicators that they could look at to detect a 
possibility of overpayment like changes in technology, the 
practice expense.
    When a new service is implemented often it comes in with a 
relatively high value, but physicians learn by doing it over 
time. The price ought to come down over time, but it doesn't; 
it stays at the high value.
    So, there's some indicators that we think CMS could look at 
to systematically identify potentially overvalued services to 
be adjusted.
    Mr. DOGGETT. You've indicated in the recommendations that 
we need to incorporate the concept of payment on performance.
    Mr. HACKBARTH. Yes.
    Mr. DOGGETT. How might a system that moved more toward pay 
for performance work in practice for the average family 
physician?
    Mr. HACKBARTH. The commission has made a series of 
recommendations on pay for performance, applying not just to 
physicians but hospitals, dialysis facilities, Medicare 
Advantage plans and the like. In some respects, pay for 
performance for physicians is more complex, more challenging 
than say, for hospitals or Medicare Advantage plans.
    It's more challenging and complex for a couple reasons. One 
is there are so many more physicians than hospitals, for 
example. They tend to be much smaller units. We have, as you 
well know, many solo practices and small group practices. They 
have weaker informational infrastructure than the institutional 
providers and the like.
    So, we think that it's important to move ahead with pay for 
performance for physicians but to do so carefully and select 
measures that we have reason to believe could have a 
particularly important quality benefit for Medicare 
beneficiaries.
    Let me just speak for myself here as opposed to the whole 
commission. I'm a little concerned about a willy-nilly process 
for developing new measures for physicians: More is 
automatically better; we've got to have more measures for every 
physician type, without any attention being paid to the benefit 
for patients of changing performance on a particular measure or 
the cost associated with collecting the information.
    So, I think some care needs to be taken with physician pay 
for performance in particular that we get a good benefit-to-
cost ratio as we choose and implement new measures.
    Chairman STARK. Mr. Johnson.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    You said in your statement that things were happening far 
too slow in the system and yet your indications are that you 
don't want to go with any top speed to any of these changes. 
One of the things I'd like you to talk about is for years we've 
been saying that the information that's available out there is 
not accurate and they're working with 2- or 3-year-old data. 
They refuse to go to the private system for upgraded data.
    Now can you talk to that issue for me?
    Mr. HACKBARTH. Not to that specific issue, Mr. Johnson. 
Certainly, I agree with the premise that too often the Congress 
and MedPAC for that matter work with outdated information, but 
I'm not aware of CMS's response.
    Mr. JOHNSON. You all didn't even look into that in your 
study?
    Mr. HACKBARTH. Not in this particular report, but we've 
looked into it in the past.
    Mr. JOHNSON. So, you can't talk to it? How do we fix it?
    Mr. HACKBARTH. In terms of how you revamp the system?
    Mr. JOHNSON. Yes.
    Mr. HACKBARTH. That is a technical question that is beyond 
the expertise of a commission like ours. That's an operational 
question for operational experts. We are consumers of that 
information.
    Mr. JOHNSON. But you like to deal with old information, is 
that true?
    Mr. HACKBARTH. That's precisely the opposite of what I 
said, Mr. Johnson. We have repeatedly said that it's a problem 
that much of the information we use is outdated.
    Mr. JOHNSON. We've been dealing with this for 10 years at 
least. Now tell me why no one has figured out how to get 
current data.
    Mr. HACKBARTH. Well, MedPAC is a group of part-time 
commissioners. We meet seven times a year. We don't run the 
Medicare program. That's a question best directed to CMS.
    Mr. JOHNSON. You made the statement also that imaging was a 
high expense item. You mean, is it more expensive because we 
have to hire it out to get it done nowadays instead of having 
it in the doctor's office for immediate activity?
    Mr. HACKBARTH. I don't know that that makes imaging more 
expensive. I think that there can be a case made in some 
instances for having in-office imaging as we've said in 
previous reports. We are concerned however that that can lead 
to overuse, and we've also expressed concern about the quality 
of the imaging that results.
    Mr. JOHNSON. Yes, I understand that it's more expensive for 
the patients, too. They have to travel.
    Let me ask you one more question. Can you differentiate--
you suggest that maybe geographically inferences should be made 
to control expense and yet I remember we used to have that, 
precisely that. In the area of Dallas that I'm from we have two 
counties right next to each other, both of them highly 
metropolitan and yet one of them was a metropolitan area and 
the other was a rural area. As you know, the payment schedule 
was totally different.
    How are you going to avoid that if you go back to 
metropolitan areas for example? New York city is going to get 
all the money; New York and Los Angeles.
    Mr. HACKBARTH. Let me distinguish between two things. 
Medicare's payment systems for physicians, hospitals, all over 
providers, include geographic adjustments. They include 
geographic adjustments to try to match the payment level to the 
underlying cost of delivering the care. That continues today. 
That's not old news; that's current news.
    What is suggested in the SGR report is something different, 
which is to look at the total expenditures per Medicare 
beneficiary on a regional basis. The thinking there is that 
there are some parts of the country that contribute more to 
Medicare's cost problems than others.
    There's a dramatic variation in Medicare costs per 
beneficiary, and so the proponents of a geographic system--and 
they are a subset of the full commission, not the entirety--the 
proponents of such a system say, if we've got a Medicare cost 
problem, we ought to apply more pressure on the high cost areas 
than the low cost areas; that's only fair.
    Mr. JOHNSON. Thank you. Thank you, Mr. Chairman.
    Chairman STARK. Mr. Thompson like to inquire?
    Mr. THOMPSON. Thank you, Mr. Chairman. I do.
    Thank you for being here.
    I'd like to talk a little bit about the issue of 
expenditure targets. If in fact we go to a different type of 
expenditure target, how do we avoid getting into the same 
situation we're in now with the targets that we have? Any 
advice on it?
    Mr. HACKBARTH. Well, the crux of the problem right now is 
that we have a target, in this case for physician services, of 
the gross domestic product (GDP), that is totally disconnected 
from the reality of healthcare delivery. So, we establish a 
target, lift payment updates to that target without a plan for 
how we would actually change utilization patterns to get them 
in line with the target goal of growth with GDP.
    When the SGR was established, the growth trend was higher 
than GDP. It's not enough to legislate a lower target. You've 
got to change policy to try to bring the curve down.
    Mr. THOMPSON. My concern is if we change those policies, 
establish a new type of target, we run into the same problems. 
What do you recommend we do to avoid running into that?
    Mr. HACKBARTH. Yes. So, even the proponents of expenditure 
targets within the commission believe that the agenda that's 
laid out in my testimony, pages 17 and 18, you've got to do 
that in addition. You can't expect expenditure targets by 
themselves to solve the problem. You've got to go through 
Medicare's payment systems for physicians and all the others 
and change them and change the incentives if you want to change 
the long-term trend. Targets by themselves will not do that.
    Mr. THOMPSON. Thank you. The other thing I wanted to talk 
about is the idea of the group practice model. Do you think 
this is accurate? Is this a good way to deal with providing 
services and at the same time controlling expenses?
    Mr. HACKBARTH. Well, I'm hardly unbiased on this question. 
I used to be the CEO of a very large multi-specialty group. I'm 
frankly a believer in multi-specialty group practice as a way 
to improve quality and efficiency. Having said that, it would 
only be fair to say that it's not just a group practice, per 
se, that we want to encourage. It's not a legal form. It's not 
an organizational structure. What we want to encourage is 
particular results.
    So, rather than just promoting group practice, the 
commission's view is let's reward the results; let's reward 
higher quality; let's reward better coordination of care.
    Mr. THOMPSON. The multi-specialty model would get you there 
is what you're saying?
    Mr. HACKBARTH. Many multi-specialty group practices are 
very good at those things, but not all.
    Mr. THOMPSON. So, how do you use that model or that theory 
in areas such as mine, rural areas where it's harder to put 
that, to identify those sub-specialties and putting them 
together?
    Mr. HACKBARTH. That's precisely why, a good example of why 
the commission didn't say, well, multi-specialty group practice 
is the answer for Medicare. There are many parts of the country 
where it wouldn't work well, we don't have the provider 
infrastructure for that model to work well, we don't have the 
patient volume for that model to work well.
    So, could it work well in some places but not others? In a 
rural area, potentially hospital medical staff could serve as 
an organizing element. Medicare might at least give the 
opportunity for rural providers to coalesce around a hospital 
or a small hospital system and have that as an organizational 
structure for payment.
    Mr. THOMPSON. But there was that understanding that in some 
areas it's difficult if at all possible?
    Chairman STARK. Mr. Ramstad. He's not here? Mr. English, 
would you like to inquire?
    Mr. ENGLISH. Thank you, Mr. Chairman. I would.
    Mr. Hackbarth, stipulating one of the suggestions you 
presented here as a path that replaces the SGR with a new 
system of expenditure targets, it's obvious from your 
presentation that there was not an agreement within MedPAC on 
the issue, so obviously there might be some resistance from 
stakeholders as well.
    I wonder though, in any system of expenditure targets, how 
much we should be worried about ultimately creating a system 
where there is rationing. How do you assess that risk? Given 
the challenges facing Medicare in the out years, what should we 
be prepared to do to position the Medicare system and 
specifically SGR to limit that risk?
    Mr. HACKBARTH. We think an important part of the response 
is to invest more in understanding the effectiveness of 
different treatments and the ability to actually compare 
different treatments. The way the system works now, all too 
often we almost--not just pay for but pay even more for 
something because it's new without a clear understanding of 
whether in fact it is bringing additional benefit to patients 
and certainly without an understanding of whether the 
additional benefit is equal to the added cost.
    That's a luxury that's going to be increasingly difficult 
for the program to afford as the Baby Boom Generation retires 
and all the demographic forces shift dramatically in a 
different direction. So, as to avoid sort of blind rationing of 
healthcare, what we need is more information to guide 
thoughtful decisions about appropriate utilization.
    So, in the case of an expensive new treatment, rather than 
just saying, well, we can't afford new stuff, it may be that 
that new treatment is useful or has a high benefit applied to a 
particular subset of the patient population. If we have the 
right information we can target those expensive new initiatives 
on those patients who will benefit and help assure that they're 
not applied more indiscriminately in increased costs without 
commensurate benefit. So, information is a key part of the 
solution.
    Mr. ENGLISH. Also a key element of information is the sorts 
of quality standards that are implicit in any system of pay for 
performance. Judging from your presentation, you feel pay for 
performance is a significant part of the solution in 
repositioning the Medicare system.
    When it comes to paying physicians, I've focused on pay for 
performance in some other areas of the Medicare system. Do you 
believe that with the range of specialties, with the range of 
services that we're trying to reimburse here, that pay for 
performance can be developed to a degree to be sensitive enough 
to provide really the right incentives. Is this a system that 
we will be able to develop to the degree necessary to achieve 
real benefits?
    Mr. HACKBARTH. Yes. I believe the answer to that is yes, it 
can. Although as I said earlier, I think that the task is 
markedly more complex for physicians for reasons that we've 
talked about. Therefore it's important to proceed with care and 
thoughtfulness, focus on areas for example where we think that 
there would be a particularly large benefit to the Medicare 
population. If we can improve care for certain types of 
illness, the gains could be significant. If we could improve 
coordination of care between physicians and hospitals to avoid 
unnecessary admissions and readmissions, there could be a 
substantial benefit for that. So, a targeted, thoughtful 
approach for physicians is what I think is called for.
    Chairman STARK. Mr. Becerra.
    Mr. BECERRA. Mr. Hackbarth, thank you for being here with 
us. Let me ask you to give us a little bit more information 
about your sense, MedPAC's sense about how CMS can implement 
and operate within this new world that we may ultimately 
devise. Does CMS, in your mind, have the resources and capacity 
to take this to a new level, a different place with what it 
currently has or will it have to reorganize some, bring in new 
folks, change certain concepts, get new technology and 
equipment, what will they have to do to get us to a point where 
they could actually make this whatever it is work?
    Mr. HACKBARTH. Well, as I said earlier, a significant 
investment is required. The information infrastructure would be 
a very important part of that.
    Mr. BECERRA. Let me stop you there. ``Significant,'' define 
``significant?''
    Mr. HACKBARTH. We are really not the right people to try to 
provide all the estimates on that. What you would need to do is 
do a very detailed review of the agency, its existing 
operations, where the greatest opportunities are.
    Mr. BECERRA. By using the word ``significant,'' that 
implies that the way things are right now in CMS will not cut 
it?
    Mr. HACKBARTH. In our view, doing more of the same will not 
cut it. You are going to have two former administrators here 
who have more recent experience than I do.
    Mr. BECERRA. I am hoping to ask them as well, maybe they 
will give me more specifics on the actual numbers.
    Mr. HACKBARTH. They will probably be able to do that.
    Mr. BECERRA. In your opinion, have we established within 
CMS the type of expertise that can guide us in the direction 
that we need to go and will give us the expertise to try to 
help implement whatever we do?
    Mr. HACKBARTH. Well, again, Bruce and Gail can probably 
address that better than I. I am concerned that we do not have 
all the right expertise within the agency and that over time 
perhaps we have had a drain of expertise from the agency. It is 
not an easy place to work these days, the expectations are 
enormous, the resources are not growing equal to the 
expectations, it is a tough place. When you create that 
environment, it can be difficult to recruit and retain the sort 
of people you need to make a program work. So, there are 
complicated issues there. As I said, they are well beyond 
MedPAC's specific expertise. What we see is we are customers of 
their product much as you are, and see good people working hard 
to do their best for the program, for the Congress but often 
lacking necessary resources.
    Mr. BECERRA. In this effort to get away from the cookie 
cutter approach that we currently live with, invariably we are 
going to run into the tensions that exist between the various 
interests involved. I know that coming from southern 
California, where you have a very high cost ratio for anything, 
not just medical services, health care services, that it is 
going to be important to know that we do a better job of 
determining what are costs really are, but that, as I said, 
invariably implies that you are going to have the tensions 
between those who are currently getting reimbursement rates 
that they like to try to help adjust for those who are not 
getting what they like. Your sense of whether or not we can 
actually parcel this down to a point where we do a better job 
of targeting the reimbursement dollar to those who are 
providing a quality service, is it, given this political 
environment that we are in, possible to get those stakeholders 
who are currently in the system to make adjustments that will 
allow us to try to more appropriately direct the dollar?
    Mr. HACKBARTH. The politics of change is a whole different 
dimension. I have sort of focused on the technical aspects of 
developing and implementing new payment systems. To the extent 
that you are changing payment systems, often you are 
redistributing money, redistributing incomes, shifting 
resources geographically. As is obvious from your question, you 
have experienced first-hand how difficult and painful that can 
be. I would not be doing this if I did not tend to be an 
optimist about the ability to make improvements over time. The 
progress is not always a straight line, but I do think that in 
general we make progress, but Bruce Vladeck and I were talking 
before the hearing about the difficulty of improving things 
like the hospital wage index. We can come up with ideas for how 
that could be a better index that more accurately reflects 
costs in different communities. A lot of the problems right now 
are political. It is not that we cannot figure out how to do it 
technically, it is how to make it happen politically.
    Mr. BECERRA. You have left a lot for Bruce and Gail to 
answer.
    Mr. HACKBARTH. Yes, and they will be good at it.
    Mr. BECERRA. I thank you for your time. I yield back, Mr. 
Chairman.
    Chairman STARK. Thank you. Mr. Hulshof?
    Mr. HULSHOF. Thank you, Mr. Chairman. I think he is a great 
set-up man, isn't he, Xavier, for our next panel. Mr. 
Hackbarth, what is interesting is scattered throughout the 
capital complex, and I guess even at Walter Reed itself, there 
is a lot of attention being paid to quality of care in the 
Veterans Administration and, of course, a natural reaction 
given the revelations about substandard out-patient care, we 
have similar challenges looking down the road, Medicare, 
perhaps falling plaster and mold, but the fact that we are 
going to have nearly 80 million senior citizens living longer, 
the Baby Boomer generation's retirement is imminent, the first 
Baby Boomer reaches 62 in just about 300 days, and so the 
challenges, and we have talked about them, we have talked 
around them some as well, the challenges are monumental, 
although a bit different than of course what is being discussed 
in the VA system. I want to kind of piggyback on what my friend 
from California, and I mean no disrespect by this as far as the 
geographical alternatives and the proponents. I presume that 
the idea would be that Congress would provide CMS with 
additional rulemaking authority. The reason I make that 
presumption is because when the Chairman gaveled this hearing 
to order, I noticed my good friends from Las Vegas, Los 
Angeles, Saint Helena, and Freemont Hills, obviously the West 
would be well-represented, my friend from Fargo, and with due 
respect to the gentleman from Austin, having lived through a 
BRAC commission and seeing the politics of the base realignment 
system, how do we take politics out of it? I think that is sort 
of a generic comment, and I think you were nodding along. I 
presume then CMS, looking at the cost per beneficiary would 
be--and allowing CMS then to establish this formula as is 
current law, as you pointed out to Mr. Johnson?
    Mr. HACKBARTH. Well, let me begin by reminding you that 
this is a sub-set of MedPAC----
    Mr. HULSHOF. I understand.
    Mr. HACKBARTH (continuing). Is interested in the idea of 
geographic expenditure target. The issue about exactly how you 
operationalize it is not one that we have delved into in 
detail. We have done, both in this report and in previous 
reports, is provided data to the Congress on just how much 
variation there is in Medicare expenditures per beneficiary. 
Given the complex nature of the task, it might be good to 
provide some discretion to the Secretary and not to try to 
write rigid formulas into statute. The SGR experience has 
illustrated to us when you try to write a formula into statute 
that is going to run indefinitely into the future, 
circumstances can change and you may regret what you have 
written in, but once you write it in, it affects the budget 
baseline and it becomes very difficult to change. So, 
introducing some element of secretarial discretion could be a 
way to take off the sharp edges of such a system.
    Mr. HULSHOF. Okay.
    Mr. HACKBARTH. But it doesn't have any politics by any 
stretch.
    Mr. HULSHOF. I am intrigued by and I appreciate pages 17 
and 18, which are a good summary I think of the entirety of 
your written statement, and so let me pull the panel a live 
grenade and if you want to leave that grenade on the table for 
our next panel, so be it. One of the things that you reference 
in your bullet points on page 17, again shared accountability 
arrangements and you mention gain-sharing.
    Mr. HACKBARTH. Yes.
    Mr. HULSHOF. Specifically, physicians collaborating with 
hospitals. Then the next bullet point down as well, bundling 
services, bundling both the hospital payment and the physician 
payment for a given DRG. Again in the pure policy vacuum of 
course that is helping to increase efficiency. Without naming 
names of members of this panel, there have been some that have 
made some strong statements about each of those and both of 
those. So, just the remaining time I will give you what 
comments about the bundling or the collaboration suggestions 
you give us?
    Mr. HACKBARTH. The objective behind both of those is to get 
physicians and hospitals to work together to find ways to 
reduce costs and improve quality. On the Commission, we have 
got hospital executives and physicians, people that have a lot 
of experience with that interaction and there is a real sense 
of distress about how the payment system is often sort of a 
wedge between providers. Far from encouraging collaboration, 
they actually discourage it. At the extreme, what we end up 
with is things like physicians going into competition with 
hospitals and not collaborating in the interest of patients but 
let's look at this as competing businesses and each maximize 
our share of the pie. In the long run, that is not good for 
patients, that is not good for Medicare. So, we are trying to 
find ways to bring physicians together with hospitals to 
improve care. We see gain-sharing and bundling of hospital and 
physician payments as potential paths to get that team work 
back into the program.
    Chairman STARK. Mr. Pomeroy.
    Mr. POMEROY. Thank you, Mr. Chairman. Well, continuing on 
that thought just expressed, do you think Congress should 
extend the moratorium on physician specialty hospitals?
    Mr. HACKBARTH. MedPAC, I guess it is 2 years ago, as you 
know, Mr. Pomeroy, did a report and we did not recommend 
continuation of the moratorium. We did make a number of other 
recommendations, importantly changing the payment system so 
that we pay more accurately for some of the services that are 
most popular, popularly provided through physician-owned 
hospitals. To be blunt about it, to take away what we think is 
an inappropriate profit opportunity in some services, some 
cardiac services, for example. CMS has taken some initial steps 
in that direction but not really as far as we recommended in 
our report. We think that is a better approach to dealing with 
specialty hospitals, fair pricing. We also think we ought to 
give physicians and hospitals some ways to collaborate together 
and share in the savings. Right now, if physicians have a 
better way about how to deliver hospital care, the program says 
to them, ``Well, go out and start your own hospital and then 
you can share in the profits.'' If you collaborate with the 
hospital administration, you cannot share in those efficiency 
gains. So, the system is skewed toward let's go compete 
physicians against hospitals as opposed to let's collaborate 
together in the interest of better care for our patients.
    Mr. POMEROY. I am going to say Sam Johnson's comments hold 
true for me as well, there is a little bit of frustration here 
from my part anyway relative to utter lack of guidance from 
MedPAC. You are saying that integrated systems produce more 
beneficial and cost-effective results and yet you are not for 
continuing the moratorium. Take a look at the SGR problem and 
think it needs to be fixed, maybe should there be a target, 
maybe there should not be. It sure would be good if we had pay 
for performance but you do not have that fleshed out. To me, it 
reminds me really of what the Secretary of Health and Human 
Services when he said he sure looks forward to working with us 
on a long-term fix and there is not a nickel in the budget past 
a 1 year patch for a long-term fix. Everyone is just kicking 
this thing down the road and not getting around to any 
meaningful effort to get their hands around it. I think what 
you have said relative to the strength that integrated delivery 
systems flies in the face of MedPAC's position against 
extending a ban on specialty-owned hospitals, and I find that 
disappointing. Out in the rural areas that I represent, we have 
achieved something quite remarkable for Medicare and that is 
high quality at low cost. We have done it because the clinics 
and the hospitals have become single entities and it has 
produced I think a superior result on the metrics that MedPAC 
has developed itself to evaluate these things. What might you 
offer us in terms of guidance for incentives that we can put 
forward to drive this kind of cost effectiveness. You mentioned 
one, whack the reimbursement for certain specialty items. Do 
you have pay scales that you would advance for us to consider 
in passing those recommendations on to the Secretary, how do we 
begin doing that? Secondly, what else do you offer?
    Mr. HACKBARTH. Well, again, the summary version of what we 
are proposing is on pages 17 and 18. Behind each of those 
points there is a lot of detail, including in many instances 
past MedPAC recommendations. I would be happy, Mr. Pomeroy, to 
sit down with you and go through it in as much detail as you 
would like. I do not think that it is true that we have not 
made specific proposals. It is true that we have not come up 
with a single silver bullet but that is the nature of the 
problem. Anybody who tells you that they have got a solution 
for this frankly is not being honest with you. It is not one 
change, it is a lot of changes and a lot of changes over time.
    Mr. POMEROY. I am new to the Subcommittee and I am late to 
this hearing so I have a little more homework to do. At the 
same time, I think it is just critical we redouble our efforts 
here and look forward to the Chairman's leadership in terms of 
as we try and draw the most out of MedPAC that we possibly can 
for near-term legislative action. Thank you.
    Chairman STARK. Well, I guess I would just respond and let 
Mr. Camp respond for himself, I do not know of I think any very 
objective group or institution that really has suggested a 
solution to the SGR. I do not think either Dave or I have 
determined what we can do. You add into that the budgetary 
constraints that we face and you compound it. So, MedPAC I am 
sure will be glad to evaluate anything we would propose that 
may differ or be a combination of the solutions they suggest. I 
think that the fact that they are split, I do not know as I 
have ever asked Glenn how you are split out of the 17, how are 
you split out of the 17, 10 to 7?
    Mr. HACKBARTH. I am only sure of the expenditure targets. 
It is pretty much down the middle, Mr. Chairman.
    Chairman STARK. I rather suspect that that is what you 
would find among of all of our colleagues on both sides and how 
you come together with a way to meet budget targets. My theory 
is that when everybody in the room is scowling, you have got 
the right solution and you drop the gavel. If anybody is 
smiling like you are, you got away with something from North 
Dakota, and I am not sure that Mr. Becerra is going to let you 
take that out of Los Angeles so that is what we are faced with. 
I am quite sure at least that it is minimally partisan. So, I 
think we have to look to MedPAC as a good example of what we 
will face, all the divisions in the provider community, most 
all of the interests that are represented in MedPAC by the 
commissioners. We have plenty of time for a quick second round 
for anybody who wants it but then we will hear from two people 
who have worked on this from before. We can come around again, 
sure.
    Mr. CAMP. Well, thank you, Mr. Chairman, I appreciate those 
comments. The letter we have in our materials from the acting 
director of the Center for Medicare Management kind of goes 
through this problem and talks about the significant growth in 
volume and intensity of Medicare physician services and then 
says, ``We have not been able to come to a conclusion as to the 
causes of this sustained increase.'' So, they have not even 
come to an agreement as to how and why it is happening, much 
less come to an agreement over a solution here, which makes it 
very difficult for a legislative body to act. It really does 
help if we can get that.
    Mr. HACKBARTH. Can I just pick up on that, Mr. Camp, 
because I think that is really the crux of the matter? The 
growth in health care services and spending in general, as well 
as physicians specifically, is a complicated phenomenon. A lot 
of it is good. Some of it is due to wonderful new technology 
that leads to better outcomes for patients, and we for sure do 
not want to discourage that. On the other hand, what you find 
there is a lot of stuff that is expensive, low value, and done 
principally because it is high profit. So, that underlying 
trend is not either good or bad, it is some of each.
    We talked, Mr. Chairman, about the split in the Commission. 
One way to think about that split is we get half the Commission 
that says the underlying trend has a lot of good stuff in it, 
we do not want to use therefore the meat ax approach that might 
damage that good stuff. We need much more targeted adjustments, 
refined adjustments and payment policy so that we do as well as 
we can to encourage the good stuff and penalize the bad stuff. 
The other half of the Commission says, yes, there is good stuff 
and bad stuff in that underlying trend but the problems facing 
the Medicare program, the fiscal challenges facing Medicare, 
and the Congress more broadly, are so great that we need to run 
some risks and use more of a heavy-handed approach, if you 
will. That is a risk worth running. I suspect you talked to 
other groups of ``experts'' if we can be called that, and you 
will find we are split. Some people say the cost problem is so 
urgent, dramatic action is required and dramatic action would 
be a total cost Medicare expenditure limit. Other people do not 
see it that way. It is because this underlying trend has good 
and bad stuff.
    Mr. CAMP. Well, I do think this sort of sawtooth that 
providers and physicians have been subjected to for the last 
few years has really not been acceptable, where we go up to the 
eleventh hour and finally come up with a solution. It is 
ultimately, being a physician is running a business as well and 
they do need some certainty. I think it is certainly a very 
difficult issue but the current process that we have been under 
for the last few years just doesn't seem to be acceptable but 
again I do not have any clear answers for what direction to 
take, but I want to thank the Chairman for the opportunity to 
question again.
    Chairman STARK. Mr. Thompson had a solution, he assured me 
but he left before he shared it with me.
    Mr. CAMP. I think some of that depended on administrative 
help that did not come our way.
    Chairman STARK. Mr. Becerra?
    Mr. BECERRA. Mr. Chairman, just briefly. Mr. Hackbarth, it 
is a comment and a question. The comment is I know there are 
politics even within your group and it must have been difficult 
but the politics get really tough once you get over here to 
this place. It is almost a little discouraging, Mr. Chairman, 
that even within MedPAC the differences were so intense that we 
had two alternatives that were presented to us, which of course 
means that we will turn it into eight or who knows how many 
others. So, I do not know how it can be made any easier but you 
all are considered the experts on this policy-wise and 
technically, and I think it really would help as much as 
possible to get as clear a voice from MedPAC, and I know it is 
tough but that is the comment.
    The question is this, as much as we may think we have come 
up with a silver bullet for this problem that we face within 
Medicare, to some degree we fool ourselves, don't we, if we do 
not take care of all of the other issues in health care 
generally because Medicare is one component of health care and 
providers are providing health care to recipients of Medicare 
but they are also providing it to folks who do not have access 
to Medicare, do not have access to any health insurance, and we 
do not really resolve it for all health care providers simply 
by addressing the problems we have with reimbursement rates 
under Medicare. So, a question for you, how do you see all that 
fitting into the greater issue of how we deal with the global 
issues of health care?
    Mr. HACKBARTH. Yes, a couple of points. I think unanimously 
the commissioners, the people who choose to be on MedPAC and 
devote their time to it out of busy schedules, they are 
believers in Medicare and want to see the program succeed, 
believe in its mission, and are willing to donate a lot of time 
to that end. So, we are all believers. I must say though that 
there are a lot of commissioners who worry about the impact of 
Medicare on the broader health care system and whether through 
our payment policies in Medicare, we encourage a way of 
delivering health care, a style of medical practice that is 
increasingly unaffordable for the average American. So, when we 
have debates within the Commission, we have debates all the 
time about how we slow the increase in Medicare costs and make 
the program more efficient, increase the value, a sub-text in 
that is we need to do that not just for Medicare but for the 
broader health care system. The path we are on is 
unsustainable. We can be certain that more and more Americans 
are going to be without insurance coverage and have diminished 
access to care each year if we continue on this path. So, we 
need to improve Medicare not just for the beneficiaries but for 
the American people as a whole.
    Chairman STARK. I want to thank you, Glenn. I guess we will 
see you again tomorrow for some more enlightenment and look 
forward to that. Thanks for spending a long day here on the 
Hill. We will now have our second panel, people that many of us 
have worked with over the years, Bruce Vladeck, who is 
addressed here as the president. I notice that we are just 2 
days short of celebrating your first birthday as interim 
president of the University of Medicine and Dentistry. So, 
happy first anniversary. Are you still interim?
    Mr. VLADECK. I am still interim.
    Chairman STARK. You are still interim but you are just 
waiting and on the 8th of this month they will announce that 
you have been interim long enough. Welcome back. Gail Wilensky, 
who has long been associated with Project Hope and a variety of 
other policy and research organizations, who served also as 
head of what was then HCFA. I am going to call on you according 
to the order that you are listed here and let Bruce go and then 
we will hear from Gail. I am sure you are going to find many 
interesting comments and suggestions that they will make. Go 
ahead.

             STATEMENT OF BRUCE C. VLADECK, PH.D.,

         INTERIM PRESIDENT, UNIVERSITY OF MEDICINE AND

          DENTISTRY OF NEW JERSEY, NEWARK, NEW JERSEY

    Mr. VLADECK. Thank you very much, Mr. Chairman and Mr. 
Camp, Members of the Subcommittee. It is a great pleasure and a 
privilege to be back before this Subcommittee. Again, I must 
start out with the necessary disclaimer though that I appear 
not as my role as interim president of a large Medicare 
provider but as the former administration of the HCFA, who 
spent four and a half years grappling with many of the same 
problems you are addressing today. I am not sure I can claim 
substantially greater success. In observation of your rules 
about time, let me just summarize very quickly a few of the 
points I sought to make in my written testimony.
    The Medicare physician payment is now 15 years old and some 
of its deficiencies are increasingly apparent. Obviously, the 
SGR itself has left you in the possible situation of having to 
choose every year between reductions in physician fees, which 
might eventually imperil beneficiaries' access to physician 
services and modest increases, which reward the profligate and 
parsimonious alike and which have a particularly adverse effect 
on an already difficult enough Federal budget process. The 
problems with the SGR arise and turn, to at least some extent, 
from the extraordinary growth in procedural services, 
especially diagnostic procedures, being provided to the 
Medicare population, a rate of growth which many observers 
think is probably not clinically optimal.
    In my view, however, the principal shortcoming of the 
payment system as it is now operating is the way in which it 
has been reinforcing the continuing erosion of primary care in 
the distribution of medical services in many communities. One 
of the principal goals of the Congress and the executive branch 
when the system was first created was to provide incentives to 
increase the supply of primary care services to the Medicare 
population and to communities in general by shifting payments 
away from diagnostic and surgical procedures to so-called 
cognitive services. For the first few years of the new payment 
system that desired goal seemed to be met, but in more recent 
years, the erosion of primary care availability has accelerated 
due at least in some part to the effects of the SGR itself as 
MedPAC's report notes, as well as to the inadequate 
characterization and price setting for primary care services in 
the fee schedule. This was not just a matter of taste, I don't 
believe. Many of the most serious problems in the performance 
of the health care system, particularly for Medicare 
beneficiaries with their higher burden of chronic illness and 
multiple medical problems, can be attributed, at least in part, 
to the inadequate availability of and economic pressures on 
family practitioners, general internists, geriatricians and 
other primary care providers. If you look at all the nations of 
the world which perform better than we do in terms of 
controlling health care costs well, having universal access to 
healthcare, and which have older populations than we do in the 
United States, you see one of the few characteristics that they 
have in common is a higher ratio of primary care providers to 
specialty providers than we have in the United States.
    In my view, it is impossible to do everything at once in so 
complex an area as physician payment policy, as is evidenced by 
the MedPAC report itself, so we should focus on meeting a few 
key objectives. My priority would be to focus on reform of the 
payment system until we address the balance between primary and 
specialty care by doing the following: One, going back to the 
basic coding scheme and weighting for evaluation and management 
services. Second, then replacing the SGR with a formula similar 
to the Volume Performance Standards, which existed prior to the 
SGR, of which I think Dr. Wilensky was responsible for some of 
the original formulation in which we established separate 
growth targets for evaluation and management services and other 
kinds of procedures and encourage the faster growth of those 
services at the expense of others. I would also support 
expanded experimentation with additional case management or 
care coordination fees for primary care and adoption of 
economic incentives for the further development of multi-
specialty group practices, which tend to internalize cross-
subsidization of primary care services.
    Given how complicated both the Medicare payment system is 
and physician services are out in the communities, I do not 
think there is a single set of changes that are likely to solve 
all of the problems with the current system, nor are we likely 
to get everything right the first time or the second or the 
third, but I believe that adoption of the proposals I have 
suggested would at least begin the process of turning around 
and moving us back in the right direction toward ensuring that 
primary care services will be the central building block of a 
more accessible and effective system of care for Medicare 
beneficiaries.
    Again, I am honored to have the opportunity to be back 
before you today, and obviously I would be happy to respond to 
any questions after Dr. Wilensky's comments.
    [The prepared statement of Mr. Vladeck follows:]

            Statement of Bruce C. Vladeck, Ph.D., President,
 University of Medicine and Dentistry of New Jersey, Newark, New Jersey

    Mr. Chairman, Mr. Camp, Members of the Subcommittee, my name is 
Bruce C. Vladeck. I am Interim President of the University of Medicine 
and Dentistry of New Jersey, but I appear before you today not as a 
representative of that institution, but as a former Administrator of 
the Health Care Financing Administration who spent four and a half 
years grappling with the issues before you today. I very much 
appreciate the opportunity to share with you my views on the Medicare 
Physician Payment System and the report of the Medicare Payment 
Advisory Commission (MedPAC), which I believe has done its usual 
exemplary job of laying out the key issues and reporting the critical 
facts in an insightful and balanced way. Uncharacteristically, however, 
the members of MedPAC were unable to come to consensus on a single 
approach to the problems they addressed, which I believe reflects the 
complexity and difficulty of the problems we are facing.
    The system by which Medicare pays for physician services obviously 
has a number of significant problems. Total expenditures are growing at 
a rate that poses an increasing burden on Medicare beneficiaries, in 
the form of out-of-pocket costs, Part B premiums, and Medicare 
Supplemental premiums, while also producing an excessive strain on the 
federal budget. At the same time, it is far from clear that those 
expenditures are buying anything like a proportional improvement in the 
accessibility or appropriateness of physician services beneficiaries 
are receiving. The ability of Medicare beneficiaries to receive 
physician services when they need them appears to be holding its own, 
except perhaps in a few specific markets, but not improving 
dramatically; the overall quality of physician services received by 
beneficiaries is probably improving, but not fast enough in the view of 
many experts and commentators; and the critically important problem of 
inadequate coordination among multiple providers of care appears, if 
anything, to be getting worse. More specifically, the Sustainable 
Growth Rate (SGR) formula, the focus of MedPAC's report and of today's 
hearing, has created a situation in which the Congress must, every 
year, either let stand an unacceptably large reduction in Medicare 
physician fees, or cobble together an arbitrary fix which, under the 
peculiar rules of the Federal budgetary process, have a particularly 
severe impact on the overall budget, and thus on the availability of 
funds for other pressing public priorities or for deficit reduction.
    In my testimony today, I would like to make a few general 
observations about Medicare physician payment; offer a few general 
guidelines, based on years of often difficult experience, about payment 
systems, what they can and can't accomplish, and what is reasonable to 
expect from them; and then offer my own suggestions about the direction 
of future policy. In doing so, I would emphasize that these are 
extremely difficult problems, that we are unlikely to get everything 
right the first, second, or third time around, and that a certain 
humility on the part of all participants in the policy process would be 
entirely appropriate, given our historical experience.
Paying Physicians Under Medicare
    This year marks the fifteenth anniversary of the implementation of 
the Medicare Physician Fee Schedule, but in my view physician payment 
still constitutes the most difficult and problematic aspect of Medicare 
reimbursement policies. Physician practice in this country remains 
enormously diverse: in the relative supply of physicians, the ways in 
which they are organized, historical patterns of both fees and 
utilization, as well as practice patterns. The role and significance of 
multiple specialties is critically important, and also varies 
considerably from one community to another. Physician fees, in and of 
themselves, account for less than one quarter of all Medicare 
expenditures, but physician decisions drive almost all of Medicare 
utilization and thus Medicare spending. Since both underutilization and 
overutilization are significant problems, often in the same communities 
and sometimes in the same practices, getting the incentives right is a 
Herculean and perhaps impossible task. Moreover, medical practice is 
extraordinarily, and perhaps increasingly, dynamic, as the impact of 
new procedures and new technologies is reinforced by competition among 
suppliers, hospitals, and physicians themselves. In that regard, it's 
impressive that the Fee Schedule works as well as it does, as is 
evidenced by the fact that most private payers, lacking plausible 
alternatives, now piggyback their own payment systems on Medicare's.
    Yet it's important to remember that one of the major objectives of 
the reform in Medicare physician payment adopted by the Congress in 
1989 was to redress the then-perceived imbalance between primary care 
and specialty services, by implementing a resource-based fee schedule 
that would increase the relative prices for cognitive services at the 
expense of procedural ones. In this regard, the early experience of the 
new system was quite successful, as it shifted literally billions of 
dollars from procedures to cognitive services, increased the relative 
incomes of office-based practitioners at the expense primarily of 
surgical specialists, and helped contribute to a modest shift in the 
development of more primary care resources in many communities.
    Obviously, that trend did not continue, and the SGR itself may be 
partially at fault. As the MedPAC report documents so well, procedural 
services have fueled the growth in Medicare physician spending over the 
last decade, and because the SGR formula responds to disproportionate 
growth in one category of services by reducing future fees for all 
physicians, it in effect suppresses the growth in fees for cognitive 
services for which utilization is growing at a slower rate. Whatever 
the cause, the ratio of procedural to cognitive services is back to 
pre-fee schedule levels, and the proportion of young physicians 
entering primary care practices has fallen dramatically.
    This is not just a reimbursement problem. In my view, almost any 
analysis of the shortcomings of the health care delivery system in this 
country leads back, sooner or later, to the relative shortage of 
primary care. Those nations whose health systems produce better 
outcomes than ours at lower costs are almost all characterized by a far 
higher ratio of primary care practitioners to specialists than the 
United States. In general, communities or health care systems with 
higher ratios of primary care providers to specialists are less 
expensive, and frequently provide care of higher quality. The 
significant problems of care coordination and continuity which MedPAC 
discusses in its report, and which are a major and increasingly-
recognized source of problems in health care quality, are integrally 
connected to the interrelated shortage of primary care practitioners 
and contemporary economics of primary care practice. And this imbalance 
has particularly baleful effects for Medicare beneficiaries, with their 
higher burden of chronic illness, their multiple medical conditions, 
and their frequent difficulty in navigating an increasingly complex 
health care system. In my own view, then, no physician payment system 
can accomplish every objective one might desire for it, but if we focus 
on increasing the availability of primary care while simultaneously 
shrinking the specialty sector, we can achieve some of the most 
important objectives, including cost deceleration and greater care 
coordination.

Some General Observations About Payment Policy
    In evaluating the MedPAC report, and thinking about what steps the 
Congress should take to address some of the problems caused by the SGR 
and more generally affecting Medicare physician payments, it may be 
helpful to consider some generalizations about what works and doesn't 
work more generally in Medicare payment policy. I offer the following 
observations, based both on my own experience in developing and 
implementing such policies and the broader literature.
    First, you can only do so many things at once. If Medicare 
physician payment policy could insure adequate access for beneficiaries 
and reasonable cost containment, while not exacerbating the trends 
towards erosion of primary care and more procedure-oriented medicine, 
that would be a significant accomplishment. Other worthwhile goals for 
public policy, including improvements in quality of care, reductions in 
overutilization of selected procedures, and greater alignment of 
incentives between physicians and other providers, can be addressed 
through mechanisms other than the payment system, as the MedPAC report 
itself correctly emphasizes.
    Second, you're never going to get everything exactly right the 
first time, so it's important to build the capacity to learn from 
actual experience and make appropriate changes in a timely way into 
policy design. I know it's somewhat heretical to suggest this in this 
setting, but that implies that the Congress might give serious 
consideration to giving more discretion to CMS in the operation of 
payment systems, rather than legislating rigid formulae like the SGR. 
Any resulting decisions which the Congress considers unacceptable can 
always be overruled legislatively.
    Third, it's important not to overestimate how ``scientific'' the 
rate-setting process is, or can ever be. MedPAC, in its report, 
criticizes the pre-SGR Volume Performance Standards because it 
maintains separate targets for different categories of services. Over 
time, that produced different conversion factors which, according to 
MedPAC, ``distorted'' the initial weightings of those services, which 
were derived from resource-based relative values. But those weightings 
themselves were heavily colored by pre-existing practice patterns, not 
from any scientific formula. And the weighting methodology itself, due 
to a range of practical limitations, was hardly flawless. As the 
experience in trying to weight practice expenses in the fee schedule 
further bears out, when the data is poor and the preexisting status quo 
less than optimal, policy and political concerns are appropriate 
considerations, especially since they're likely to eventually dominate 
the decision-making process anyway. One should therefore be careful in 
arguing that one policy alternative is less ``scientific'' or 
technically defensible than another.
    Similarly, it's an illusion to believe that complex payment systems 
can be extremely precise. Adjustments for regional variations, 
differential input prices, or changing technologies can never be as 
accurate as the theorists would desire. Rough justice is preferable to 
no justice at all.
    Finally, since the world is extremely complicated and responses to 
new payment systems are not always predictable, more experimentation is 
often desirable. The MedPAC report calls for systematic testing of a 
number of alternatives to current payment methodologies, and I would 
wholeheartedly endorse such an approach.

Implications
    Given all these considerations, I would offer the following 
personal recommendations, which are different from, but with a few 
exceptions not inconsistent with, the MedPAC recommendations:
      First, I would encourage a systematic re-evaluation of 
the relative weights assigned to Evaluation and Management services by 
replacing the current CPT codes for such services with any of several 
preferable alternatives. There's a school of thought that the major 
flaw in the Medicare fee schedule is its continued reliance on an 
obsolete and often misleading coding system, and the gruesome 
experience providers and payers alike have had with attempting to 
arrive at correct coding for E&M services suggests there has to be a 
better way. More accurate reporting of such services would, in my view, 
do more than anything else to redress the existing disincentives for 
primary care.
      At the same time, I would urge a return to the 
differential limits for different kinds of services that was embodied 
in the VPS, but abolished by the SGR. MedPAC's major objection to such 
an approach appears to be that it introduced ``distortions'' into the 
relative weighting system of the RBRVs, but as noted above, I think 
that objection is far from compelling. Policy and political 
considerations invariably creep into the process of weighting 
individual services; it might be far healthier to address them openly 
and explicitly.
      To further encourage the provision of primary care 
services in the Medicare program, I would strongly support MedPAC's 
recommendation for experimentation with the payment of additional fees 
for case management and care coordination. We actually have some 
experience with such mechanisms in programs of Primary Care Case 
Management in Medicaid, and while the circumstances surrounding such 
programs were radically different from the way in which the Medicare 
program generally operates, techniques for implementing such a program 
are well-established. In the interim, the literature on primary care 
suggests that some improvements in care coordination and case 
management will occur anyway as a result of increased reliance on 
primary care services themselves.
      I would also support MedPAC's recommendation that we 
experiment with incentives to encourage further growth in multi-
specialty group practices. The difficulty of organizing and sustaining 
such practices in most communities is reflected in the fact that they 
still employ only 20% of practicing physicians, despite the 
demonstrated benefits in both quality and cost-effectiveness such 
practices display. Appropriate payment incentives may be necessary to 
overcome the apparent barriers to further development.
      Finally, I would argue that other worthwhile objectives 
for Medicare policy towards physicians, such as discouraging 
overutilization of selected services, redressing imbalances in 
physician supply and distribution, and--most importantly--improving 
quality of care, are best addressed by administrative and 
organizational mechanisms other than payment policies. MedPAC correctly 
notes that CMS possesses other administrative tools, often 
underutilized because of resource shortages or the general fixation on 
payment policy, to address such issues. Adequate consideration of each 
of these issues would require extensive analysis and discussion, 
presumably at another place and another time, but I would contend that, 
precisely because these are such important concerns, they should be 
addressed frontally, rather than as epicycles to an already too-complex 
process of calculating appropriate physician fees.

    In summary, I would suggest that we replace the SGR with a modified 
form of its predecessor--a service-specific reinvention of the VPS 
formula, which prospectively adjusts conversion factors by major 
service categories. At the same time, we need to reevaluate the 
weighting of cognitive services, while exploring other means of 
encouraging greater care coordination and the evolution of multi-
specialty group practices.
    It is, again, a privilege and a pleasure to have the opportunity to 
appear before you, and I'd be happy to try to respond to any questions 
or comments you might have.
    Thank you very much.

                                 

    Chairman STARK. Thank you and with that, we will hear Dr. 
Wilensky's comments.

 STATEMENT OF GAIL R. WILENSKY, PH.D., SENIOR FELLOW, PROJECT 
                    HOPE, BETHESDA, MARYLAND

    Ms. WILENSKY. Thank you, Mr. Chairman, Mr. Camp. It is a 
pleasure to be back here. As you noted, I am currently a senior 
fellow at Project Hope and also, which many of you may not 
know, co-chairing a congressionally mandated Task Force on the 
Future of Military Health Care. I have somewhat broader 
experience with regard to Medicare, having had the privilege to 
be the administrator of HCFA but also chairing the Physician 
Payment Review Commission and then subsequently for four years 
the Medicare Payment Advisory Commission, and my views are 
shaped by those complex set of experiences.
    I think we all agree on the goals of what we are trying to 
accomplish, which is moderate spending, maintain access, and 
encourage quality and efficiently provided services by the 
provider community. The spending goal is quite clear, I am 
definitely one of those who are extremely worried about the 
future sustainability and the financial impact on beneficiaries 
that not maintaining some control on Medicare spending will 
have for the Federal budget and for the country as a whole. I 
agree with Glenn Hackbarth's assessment that nationally access 
is not currently a problem in any systematic way but it is 
something we need to monitor as we go forward in the future, 
particularly if we try more aggressively to attack the spending 
problem.
    When it comes to the provision of appropriate, efficiently 
provided quality care, there we do have a problem and it is not 
just Medicare's problem. We have many indications in terms of 
medical errors and patient safety statistics. If you look at 
the assessment of the likelihood of receiving appropriate care, 
when a person is a patient in a hospital, the average is about 
55 percent, large variations in Medicare spending with very 
little to show at the high side for it. So, we have many 
signals that when it comes to appropriate, efficiently provided 
quality care, Medicare has a problem as does the rest of the 
health care system.
    In general in trying to moderate spending, Medicare moved 
away from historic charges to administered pricing and with it 
to a bundling together of services. That has had a lot of 
impact, much of it good, in terms of trying to moderate 
spending without having to resort to expenditure targets. The 
history of the physician payment reforms, as you know, has had 
a different history. I would give Mr. Stark much more credit 
for the introduction of the Volume Performance Standard. I was 
the administrator who got to implement the Resource-Based 
Relative Value Scale and the Volume Performance Standard. 
Relative to the problems that occurred in the past, it 
attempted to solve many of those problems, increased payment 
for primary care, redistribute payments across urban and rural 
areas, and slow down what had been very rapid growth in 
spending when only the MEI had been used for the update. There 
were some anticipated problems with regard to volatility and 
the Volume Performance Standard was replaced with a SGR in the 
Balanced Budget Act (P.L. 105-217). We can debate whether or 
not that has actually changed the volatility much, there still 
is a lot of volatility.
    When you look at the SGR or the Volume Performance 
Standard, it is clear that spending limits will limit spending 
if they in fact are invoked, which as you know for the SGR has 
not been the case since 2002. The problem though is that it 
does not affect the volume and intensity behavior at the 
individual physician level and that is where the problem is 
that drives the Volume Performance Standard (VPS) or the SGR. 
Neither the Relative Value Scale nor the VPS nor the SGR 
encourage or reward physicians for efficiently produced high-
quality care and that is a problem because we do have evidence 
that financial incentives can change behavior.
    We have two paths that have been identified by MedPAC, 
repealing the SGR and trying to change the payment or putting 
the SGR everywhere. I actually regard them more appropriately 
as being sequential. I think you need to change the payment 
mechanism to move to more of a bundling of payment, and you can 
think about that on many dimensions, and I would go for almost 
any of them. When I was the administrator, we had the Coronary 
Artery Bypass Graft (CABG) demonstration where Part A and part 
B payments were bundled into a single payment. That seemed to 
have some good outcomes. I am a proponent of gain sharing, 
getting hospitals and physicians to work together and share the 
savings. I like the disease management demos. I think pay for 
performance has a lot to say for it, although it will work a 
lot better in integrated systems than with individual 
practices. Realigning incentives is critical, but I have also 
as of late been focusing on one other area and that is the need 
for better information. I believe if we are going to have 
smarter spending, which is critical, we need to allow payers 
and clinicians and the public to understand better what works 
when, for whom, under what circumstances, and that means a 
significant investment, and I even have some ideas about what 
that significant investment might be if we are going to go 
forward. The bottom line is we need to know more and we need to 
pay for it better. If this does not slow down Medicare 
spending, then I suspect we will move to an across-the-board 
expenditure cap for Medicare's future because we do need to 
moderate spending or we will have major problems for both the 
Federal budget and the American public.
    Thank you.
    [The prepared statement of Ms. Wilensky follows:]

             Prepared Statement of Gail R. Wilensky, Ph.D.,
            Senior Fellow, Project Hope, Bethesda, Maryland

Goals of Medicare: moderate spending, maintain access, encourage 
quality and efficient use of resources by providers.

    Spending goal is clear: question of future sustainability and 
financial impact on beneficiaries. Access is not currently a problem. 
Provision of appropriate, efficiently-provided, quality care is--but 
not just a Medicare problem.
    In general, Medicare has moved away from historic charges to 
administered pricing, prospective payment and ``bundling'' of services. 
Bundled services are updated with a ``bottoms-up'' approach and 
concerns about volume/intensity increases have been limited.
    Physician payments have had a different history: can be 
characterized as a disaggregated fee schedule and a ``top-down'' 
updating strategy. When physician spending continued to grow rapidly in 
the 1980's, even with the introduction of the MEI, expenditure targets 
were introduced. The VPS was introduced in 1992 and the SGR after 1997. 
Both produced more volatility than expected and since 2002, scheduled 
fee reductions haven't been implemented.
    The SGR will limit total spending by physicians but doesn't affect 
the volume/intensity of individual physicians and may even exacerbate 
their incentives to increase services. Neither the RBRVS nor the VPS 
encourage or reward physicians for efficiently-produced, high-quality 
care.
    MedPAC has identified two paths: repeal the SGR and focus on 
developing payments reforms for physicians or don't repeal the SGR and 
extend it to the rest of Medicare.
    Possible to view these choices as sequential. Medicare needs to 
improve the value of what it buys, encourage the efficient provision of 
services and incent quality improvement and care coordination, in any 
case. For physicians, this means moving to a more aggregated fee 
schedule and this could mean eliminating the SGR. Creating the right 
bundles is hard and will mean difficult power shifts. Lots of 
interesting demos that may help: CABG demo, gain-sharing demos, disease 
management demos, Premier hospital payment demo, etc.
    Realigning incentives is important but better information is also 
needed. Creating a comparative clinical effectiveness center to provide 
credible, objective data should also be considered.
    Bottom line: Need to know more and pay for it better. If this 
doesn't slow down Medicare spending, across-the-board expenditure caps 
could be in Medicare's future.
    Mr. Chairman and Members of the Subcommittee, thank you for 
inviting me here today to testify on strategies to moderate physician 
spending and alternatives to the sustainable growth rate (SGR). My name 
is Gail Wilensky. I am currently a senior fellow at Project HOPE, an 
international health foundation that works to make health care 
available to people around the globe. I have previously been the 
administrator of the Health Care Financing Administration, now known as 
the Center for Medicare and Medicaid Services, and also the chair of 
the Physician Payment Review Commission and the Medicare Payment 
Advisory Commission. I am here today to share my ideas on strategies to 
moderate physician spending under Medicare based on my views as an 
economist and my experiences in these various positions. My testimony 
reflects my personal views and should not be regarded as reflecting the 
views of Project HOPE.
    My testimony reviews Medicare's attempts to moderate spending on 
physician services, the differences between strategies for physicians 
and other areas of Medicare, the successes and problems with the SGR as 
well as other strategies the Congress should consider in order to 
achieve its various goals for the Medicare program: moderating 
spending, maintaining access to quality care for beneficiaries and 
rewarding quality and the efficient use of resources by providers.
Moderating Spending on Medicare Services
    Finding ways to moderate spending on Medicare services is clearly 
an important goal for the Congress to pursue. Numerous studies have 
indicated the long term problems regarding Medicare's fiscal 
sustainability and the pressures that Medicare and other entitlements 
will place on the Federal budget if ways aren't found to moderate the 
growth in Medicare spending. A third volume in the Brookings series on 
``Restoring Fiscal Sanity'' devoted entirely to health care, including 
a chapter on Medicare that I have authored, will be released later this 
month, reinforcing this message.
    In addition, rising Medicare expenditures, particularly for Part B, 
affect the beneficiaries of the Medicare program in at least two 
important ways. Part B premiums, currently set to cover 25% of Part B 
costs, increase with increased physician spending. Because of rapid 
spending in Part B, even with the SGR in place, Part B premiums have 
doubled from 1998 to 2006, increasing from $43.80 per month to $88.50. 
Secondly, each of the services carries with it a 20% co-insurance 
payment. Thus, increased spending affects the amount the beneficiary 
has to spend on co-insurance payments as well as on premiums.
    While the importance and desirability of moderating Part B 
expenditures is readily apparent, the difficulty is finding ways that 
do so without negatively affecting beneficiary access and that also 
encourage the provision of high quality care. MedPAC reports regularly 
on what is known about access, largely from survey data, and to date, 
there does not appear to be any systematic problems with beneficiary 
access. That does not mean that access problems won't arise in the 
future and concern about potential future access problems presumably is 
the major reason that Congress has not implemented the reductions in 
physician fees that have been required by the SGR every year since 
2002.
    Unlike access, the information on the quality of care that is being 
purchased is more troublesome, although definitely not a Medicare-only 
issue. A series of studies by the Institute of Medicine, beginning with 
its 1999 report, To Err is Human, indicates that medical errors and 
quality in general, are a serious problem in the U.S., with as many as 
100,000 lives lost annually because of patient safety and medical error 
issues. In addition, studies by Beth McGlynn from the Rand Corp. and 
others have indicated that, on average, patients receive only 55% of 
the care regarded as appropriate for their medical condition.
Medicare's History in Moderating Spending
    Implementing strategies to moderate spending in the Medicare 
program has been a focus for the agency administering Medicare and the 
Congress for at least the last three decades. Although initially 
reimbursement followed historical charges, that changed for hospital 
payments with the introduction of the prospective payment system in 
1983 and the introduction of the Medicare Economic Index (MEI) for 
physicians in 1984.
    In general, Medicare has used a system of administered pricing to 
set the reimbursement required for an efficiently produced service. 
Using administered pricing requires a methodology both to set the 
reimbursement and also to update it. For most services in Medicare, the 
movement has been increasingly towards ``bundled'' payments. This 
movement began with inpatient operating hospital services but has been 
extended to capital payments in hospitals, outpatient services, home 
care and nursing home payments. To update the reimbursement for bundled 
payments, Medicare uses a ``bottoms up'' strategy. In other words, 
estimates are made for the components in the bundle that are thought to 
be associated with increasing costs over time--an inflation measure for 
these components is specified usually in the form of an industry-
specific input-price index called a ``market basket''--and an 
adjustment is also made for productivity.
    There has traditionally been less concern about potential volume 
increases for services that are paid as part of a bundle, either 
because ``induced demand'' for a bundled service is considered less 
likely or because gaming is more difficult. This is not to say there 
have been ``no concerns'' about volume increases and the effects that 
they could have on Medicare spending but the view has been that the 
aggregate nature of the bundled payment make volume changes less of an 
issue and that protections against ``gaming'' can be put in place. An 
example of such a protection is not paying for readmissions for the 
same DRG within a 30-day period of the discharge.
    Physician payments have had a different history. Unlike the 
increasingly aggregated payments for most other services in Medicare, 
the fee schedule used to pay physicians is very disaggregated, 
involving more than 7,000 CPT codes. Also, unlike most other parts of 
Medicare, updates to the fee schedule are driven by a ``top-down'' 
strategy and since 1992 have been controlled by a spending target, 
initially the volume performance standard (VPS) and then after changes 
in the Balanced Budget Act, the sustainable growth rate (SGR).
    Initially, physician fees were based on historical charges as were 
other parts of Medicare. This first period of physician payment under 
Medicare lasted for 20 years, from 1965 to 1984 and was associated with 
rapid increases in both charges and volumes of services. The second 
period of physician payments, from 1984 to 1991 used the Medicare 
Economic Index (MEI) to increase fees and was also associated with 
rapid growth in spending.
    The experience from these two periods of physician payment 
strategies made clear that controlling fees alone with a disaggregated 
fee schedule like the one used for physicians is not a very effective 
way to control spending. During the decade of the 1980's for example, 
spending for physicians grew at an annual rate of 13.7% while spending 
for all services grew at a rate of 11.1%--not that an 11% growth rate 
should be regarded as much of a goal.

Physician Fee Schedules and Expenditure Targets
    The legislation passed in late 1989, with an implementation date of 
Jan. 1992, affected physician payments in a number of significant ways. 
The most important of these was the abandonment of a charge-based 
payment system, the limitation on balanced-billing liabilities that 
beneficiaries could face, a redistribution of payments across 
procedures and geographic areas and the introduction of a direct link 
between the volume and intensity of services in a base year and the 
update in fees in a subsequent year.
    The fundamental change to the physician fee schedule itself was the 
adoption of a resource-based, relative value system (RBRVS) in place of 
the charge-based system. Payment rates under the RBRVS are calculated 
by adding together three different weights that reflect the relative 
costliness of the most important inputs to a physician service--
physician work, practice expenses and professional liability expenses. 
The relative weights are adjusted to reflect relative costs in the 
local market where the service is provided. Multiplying the weights by 
a conversion factor translates the weights into dollars.
    The RBRVS changed the relative payments across procedures and 
across geographic areas but does not address concerns about potential 
changes in volume and intensity that could result. Given the experience 
with the previous use of a disaggregated fee schedule, this concern was 
not without cause and produced a lot of heated discussion about the 
appropriate ``behavioral offset'' to assume. In many ways, assumptions 
about potential changes in volume and intensity became irrelevant 
because the 1989 legislation also included the VPS, which directly 
(subject to a two-year lag) tied the update to changes in the volume 
and intensity of services provided by physicians. As a result, 
overspending or under-spending, relative to the target set by Congress, 
was reflected in a reduction (or increase) in the update two years 
later. To some surprise, volume and intensity relative to targets 
declined initially which resulted in larger than legislated changes for 
a period. But because the VPS was also based on historical changes in 
volume, it resulted in adjustments that were unexpectedly volatile. 
During the period between 1992 and 1998, the MEI increased between 2.0% 
and 3.2% while the annual updates increased from 0.6% to 7.5%.
    Concerns about the volatility with the VPS led the Congress to 
replace it with the SGR as part of the Balanced Budget Act. Under the 
SGR, the expenditure target is tied to the growth in the economy--the 
inflation adjusted growth in GDP per capita, to be more specific. The 
SGR also is designed to reflect cumulative spending relative to the 
target.
    As is frequently the case, the substitution of the SGR for the VPS 
solved some problems but created others. Initially the increase in fees 
was quite substantial since the economy was growing rapidly in the late 
1990's and volume of services was not. That changed by 2002, when the 
economy had slowed down and volume and intensity of services had 
started growing more rapidly. Since 2002, physician fees have been 
scheduled to decline each year as a result of spending growth that 
exceeded the inflation adjusted growth in per capita GDP. In 2002, fees 
declined as scheduled by 3.8%.
    Since 2002, Congress has been under enormous pressure not to 
implement the 4% to 5% fee reductions that the SGR would otherwise have 
required each year and indeed, Congress has either frozen fees (2004 
and 2005) or provided for small increases in fees in the years since 
2002. Meanwhile, spending has been rising rapidly during this period 
(12 to 15% a year), again making it clear that controlling fees is very 
different from controlling expenditures.

Problems with the SGR
    The SGR, if followed, will limit aggregate spending on physician 
services but there are several serious analytical issues that have been 
raised about the SGR. Congress has also indicated concerns about 
repeated fee reductions and in fact, has only once implemented the fee 
reductions produced by the SGR. Spending targets can control spending 
but only if there is the political will to invoke them although it has 
been suggested that their presence puts an important restraining 
influence on any fee increases that do occur.
    The primary problem with the SGR is that while it controls total 
spending by physicians, it does not affect the volume and intensity of 
spending by individual physicians. In fact, there is some concern that 
it may actually exacerbate the incentives for individual physicians to 
increase the volume and intensity of services they provide. The reason 
is that nothing that they do as individuals is likely to affect the 
overall spending level for physician services. This has led to serious 
questions about what the current Medicare fee schedule is and is not 
rewarding. While some trade-offs are inevitable because multiple goals 
may not be entirely compatible, the incentives associated with an SGR, 
particularly one applied only to one segment of Medicare spending, 
(that is physician spending), have been viewed by many as being 
perverse.

What are the Alternatives
    MedPAC has identified two major choices for the Congress. The first 
is to repeal the SGR and focus on the development and adoption of 
payment reforms that would improve incentives for physicians to provide 
high quality services at lower costs. The second is not to repeal the 
SGR but to extend spending limits across all of Medicare, perhaps with 
targets differing across regions to reflect the well-known variations 
in spending by region.
    While I don't disagree with the basic dichotomy that has been laid 
out--repeal the SGR or extend the concept to all of Medicare--I would 
phrase the choices slightly differently. As MedPAC has also noted, 
Medicare needs to institute policies that improve the value of the 
program and that rewards providers for the efficient use of services as 
well as creating incentives to improve quality and care coordination--
no matter what it does about expenditure targets.
    Moving in this direction for physicians will require, among other 
things, the use of a less disaggregated fee schedule and the use of a 
less disaggregated fee schedule should make it possible to do away with 
the SGR for at least a period of time. Care coordination and the focus 
on better treatment for chronic conditions which is where so much of 
Medicare spending occurs anyway, is unlikely to work well when 
physicians are being reimbursed on a micro unit basis. Figuring out how 
to create the right bundles and recognizing the significant power 
shifts that could result will be difficult and time-consuming but there 
are interesting demonstrations that are already started or at least 
being developed that should provide some assistance.
    The Coronary Artery By-Pass Graft (CABG) demonstration that was 
started when I was at HCFA bundled for all Part A and Part B 
expenditures into a single payment and although not conclusive appeared 
to result in lower costs and as good or higher quality for the 
participating groups. A gain-sharing demonstration is starting that 
would allow physicians and hospitals, that are not financially at-risk, 
to work together and share savings that result from better care of 
complex cases and chronic care patients. Other demonstrations are 
attempting to show the effects of disease management or better care 
coordination in a fee for service system.
    MedPAC has recommended elsewhere and as co-chair of the IOM 
subcommittee that was responsible for the recent release of the IOM 
report on Pay for Performance, I concur with the idea of adopting 
payment strategies that reward institutions, and when we can put in the 
proper measurement systems, clinicians who provide high-quality, low 
cost care and to do so in at least a budget neutral manner. The early 
results from the Premier demonstration are consistent with conventional 
wisdom that increasing quality can be associated with lower costs but 
this is just one small example. As the IOM report makes clear, however, 
moving to a system that realigns incentives will require a lot of 
changes and a lot of difficult decisions, not the least of which is a 
uniform, national performance set of measures.
    I regard Pay for Performance or Results-Based Payment as part of 
the process to begin realigning incentives in Medicare so that the 
payments that are made are more in line with the objectives of the 
Medicare program--but only that--part of the process. Many changes will 
need to be made to restructure the payment system so that it encourages 
more of what we want produced (i.e., high-quality, efficiently produced 
appropriate care) and that recognizes that much of the care needed by 
an aging population will have to focus on the needs of individuals with 
multiple chronic conditions.
    As important as it is to realign incentives, it is also important 
to provide both payers and providers with better information on the 
relative clinical effectiveness of alternative medical procedures and 
technologies. A number of other countries have been involved with the 
concept of comparative clinical effectiveness but generally only for 
new pharmaceuticals and medical devices. Similar information needs to 
be available for medical procedures as well since among other things, 
that's where most of the money is spent. Even if incentives are 
appropriately aligned, we can hardly expect to ``spend smarter'' if 
clinicians and payers (and patients) don't know ``what works when, for 
whom, under what circumstances.'' Getting such information will require 
a significant investment and take several years to develop but in a 
sector that is now spending $2 trillion, it is hard to explain why that 
type of investment would not be appropriate.
    The bottom line: ``we need to know more and pay for it better.''
    If that doesn't work to slow down Medicare expenditures, we had 
better be prepared to introduce expenditure targets across the board in 
Medicare but recognize it will be hard not to exacerbate problems with 
medical silos in a world that really needs better coordination across 
medical boundaries.

                                 

    Chairman STARK. Well, thank you both. As, Gail, you will 
remember when we wrote the first reimbursement plan, my 
counterpart on the other side was Senator Durenberger, who has 
in the interim become the Garrison Keillor of the medical 
delivery and he comes up on my email right after the Viagra ads 
about once a month with his Commentary from Dave. I thought I 
would just quote one of his latest newsletters, he talks about 
another friend of ours and he says, I quote here, ``Doctor Uwe 
Reinhardt tells me of his recent challenge to a Canadian health 
economist to explain why there are so many cues in the Canadian 
system. `Simple,' says the Canadian economist. `It is the sign 
of a much more efficient health system passing on avoided 
excess capacity costs you Americans love to Canadians in much 
less expensive health care.' '' Only Uwe I suppose could come 
up with that, but I want to ask each of you a question about 
issues that have concerned me. Bruce, you talk about primary 
care and your concerns there, and I share those that I hear 
anecdotally that we are getting fewer students coming out of 
medical school and it is pretty easy, in California $100,000 a 
quarter for a family physician to start and in Indianapolis, a 
radiologist can make $500,000 a year and at least they have 
enough math in medical school so they can figure that one out 
with their shoes and socks on as to how much more quickly they 
can pay back the loans that you have given them at I hope an 
excessive interest rate.
    My theory is that one of the things we could do, and I 
share this idea of disease management on Medical Home, and 
rather than let these commercial companies that are out there 
develop this and sell it to us, that we somehow empower the 
primary care doctors to take on that responsibility and get 
paid for it, whether they use physician's assistants or I don't 
care, bill collectors to call me and remind me to take my Zocor 
or whatever they do, but it occurs to me that we have a chance 
there, I am not sure I like the idea of there being 
gatekeepers, but as I say to manage and be responsible for our 
beneficiaries in particularly those areas where you don't have 
enough population to have a Health Maintenance Organization 
(HMO) or a managed care plan, they could fulfill this role, 
what would that do to your graduates into the Medicare system?
    Mr. VLADECK. No, I actually think that there would be a lot 
to be said for it. The problem is with many practices, we would 
need an up front investment, particularly in the area of 
information systems.
    Chairman STARK. We will get to that in a minute.
    Mr. VLADECK. Individuals or small groups of primary care 
physicians are the most disadvantaged in terms of their 
systems--and lagging I think the furthest behind. In fact, we 
have a little bit experience with an approach similar to that 
under very different circumstances, which was up until the 
early 1990's, the largest form of Medicaid managed care in 
terms of enrollment was so-called Primary Care Case Management 
Programs, which sought to do very similar sorts of things, in a 
very different kind of environment, a very different setting 
and with not enough financing, I think, but at least in some 
areas of maternity care and well child care, I think the track 
record was encouraging. So, I would be very supportive of that 
sort of approach.
    Chairman STARK. The other issue for Gail, and you mentioned 
it in your last bullet here, you talk about the need to know 
more, and I have been concerned--well, as you remember, Bill 
Gradison and I were talking about outcomes research 15 years 
ago, and without any kind of a database, you cannot get much 
outcomes research. So, you wouldn't know what to advise a woman 
in terms of where to go for breast cancer, which is the best 
procedure. There are good schools around the country, good 
centers of excellence, each of which would use a different 
procedure. When Bruce gets prostrate cancer, he is going to get 
the same answer at Hopkins as he is going to get in Austin and 
maybe the procedures are equally efficacious but you really do 
not know with some kind of statistical certainty which is 
better, and I think we can know that. My solution is, and this 
is by way of asking for your comment, that I do not think we 
are going to be able to build a universal database, which 
obviously would have to take advantage of information 
technology and some kind of uniform reporting or records 
keeping unless or until probably Medicare drops the hammer and 
says you will not get paid if you do not keep your records, 
hospital, medical school, doctor, in this format and the 
sanitized information on each patient goes into a I don't care, 
National Institutes of Health, Bruce's medical school, some 
place where it is kept and nobody gets the name unless there is 
a need to know but researchers can use the data to build the 
kinds of things, pay for performance, how do we know that 
performance--you give an aspirin to Cheney as a blood thinner, 
I know that. You certainly do not want to pay doctors for 
anything I know. So, my thought is, one, somebody has to 
mandate it. Two, it has to be universal. Nobody will like it, I 
am convinced that whatever system is picked, 90 percent of the 
providers are going to hate it because it isn't their system, 
but we will be improving one system and the third part is that 
in spite of the complaints I have heard about the Stark laws, 
the Federal Government is going to have to pay for it. We are 
going to have to pay over five years say and front-end load it. 
That means people who already are in the system get their money 
back. The doctor who has not bought his laptop yet gets the 
money. So, we go 10, 8, 6, 4, 2 and out, but I somehow think we 
will not get to all these good things we want to get to unless 
we bite hard on that bullet and mandate a system that will 
collect the information to build the database. Do you want to 
sign on?
    Ms. WILENSKY. Well, I will sign on to pieces of it. Let me 
share where I agree and where at least my thinking has gone in 
a different direction. I am a very strong proponent of the need 
to build a center for comparative clinical effectiveness. I had 
a recent paper that was released, and I have been spending a 
lot of time thinking about where it should be housed and how to 
fund it. I see that as somewhat separate, although the 
information that could come from experiences in Medicare and 
patient records would help that. I actually see a combination 
of data from randomized clinical trials combined with 
administrative record analysis combined with consensus 
information. So, I see that as somewhat different, but the 
question of how to try to get consistent information and to 
what extent you rely on electronic records is a very important 
one. If you believe in pay for performance or pay for results, 
which I do, it requires having uniform measurement systems. It 
will be made much easier with support from electronic medical 
records.
    I do not know whether I think you need to actually pay for 
them directly, and the reason is we do not pay directly for the 
construction of cath labs or open heart surgery centers, but we 
have many of them. We pay for them by how we reimburse.
    Chairman STARK. I guess that is what I am talking about, an 
increase on a procedure payment over a period of time to 
compensate.
    Ms. WILENSKY. To the extent that we pay for the kind of 
results that you can get with electronic medical records, that 
is a different way than paying for it explicitly. You can drive 
behavior, we have a lot of cath labs, we have a lot of imaging 
centers and it is probably the best signal we have of our 
skewed reimbursement system. To the extent we pay more for the 
kinds of things that you can get easily with information 
systems, you can do the same thing. I worry a bit about whether 
we are going to step backwards to a cost-based reimbursement 
system if you pay directly for electronic medical records.
    Chairman STARK. I am thinking of something Graduate Medical 
Education (GME), just an addition that every provider gets and 
those who already have it, get their money back, those who 
don't have it, get the money to go out and buy it.
    Ms. WILENSKY. I think what we are trying to do is similar, 
and we could debate exactly which of the strategies would work 
best, but I do not disagree with what you are trying to do. I 
also do not have a problem with saying you do not have to 
participate in Medicare but if you want to participate in 
Medicare, this is how you have to submit your bills. As I 
recall, the Congress has been reticent in the past to require 
electronic submissions for physician reimbursement because of 
concerns in rural areas, but if you had a payment system that 
looked like it would make that more feasible, that concern may 
go away. So, again, there are certainly areas of overlapping 
interest.
    Chairman STARK. Thank you. David?
    Mr. CAMP. Thank you, Mr. Chairman. Thank you very much both 
of you for your testimony. I am interested in the idea of 
giving more discretion to CMS in the operation of payments 
systems. Dr. Vladeck, I think that was in your testimony. Could 
you just elaborate on that a bit?
    Mr. VLADECK. Well, again, and I do not know what the CBO 
would do with it, but----
    Mr. CAMP. Probably not good.
    Mr. CAMP. In fact, if you look at the way in which hospital 
updates have been done under the prospective payment system for 
hospitals and Medicare and compare that with a rigid formula 
like the SGR, there is a lot more wiggle room in terms of 
historically the way the updates were set until they become 
part of a reconciliation process every year. You could dampen 
some of the volatility that Gail and Glenn talked about. You 
could maybe set multi-year kinds of targets rather than doing 
it every single year, things of that sort. So, I think in other 
settings, historically in the Medicare program and other 
payers, you can set a target as a range or set a target with 
multi-year adjustments or things of that sort rather than 
writing in a formula that is as rigid as the SGR, achieve some 
of the same effects in doing it, certainly send very much the 
same signals to the provider community but without locking 
yourself into the kinds of mess frankly that the SGR has now 
produced. Now what CBO does with that, I don't know but it 
would certainly be worth just getting away from some of the 
rigidities of these things.
    Similarly, I would argue that some of the criticisms of the 
old VPS formula that were both in the MedPAC report and that 
Gail referred to in terms of volatility was in part because the 
basic structure of those categories were established 
statutorily. If you gave CMS the opportunity to set some 
targets, we are really worried about imaging this year, we are 
going to put a separate cap on certain categories of imaging, 
we are really trying to encourage this kind of category, we are 
going to put in the bucket that we are going to accept a larger 
rate of growth and so forth, you might be able to get away from 
some of the rigidities that the current formulas tend to 
create.
    Mr. CAMP. Well, I think one of the things that have 
happened as the formulas get more complex, the distortions in 
the formulas do not get any less. I think SGR was viewed as a 
proposal that would even things out even more, yet the 
complexity of these formulas makes it very difficult as well.
    Mr. VLADECK. I do not disagree. On the other hand, I would 
say part of the problem is that complexities accumulate and you 
are never going to get it right entirely in any one year any 
way, and so we are now in a position where in order to change a 
formula that is not working well, the Congress has to legislate 
a new formula. If there were somewhat--and I do not know 
exactly how to do it, somewhat broader and vaguer legislative 
authority for CMS to set targets or for the Secretary to set 
targets that gave them more administrative flexibility. The 
fact is that every few years, you probably need to try 
something new because nothing is ever going to work perfectly. 
Some of the complexity is because you do learn from prior 
mistakes. The system is not set up very well to learn because 
it requires legislative action with significant budgetary 
implications in order to change.
    Mr. CAMP. All right, thank you. Thank you very much, Mr. 
Chairman.
    Chairman STARK. Mr. Becerra?
    Mr. BECERRA. Thank you to the two of you for your 
testimony. I have to make one comment, Mr. Hackbarth is still 
here so either he lost his ride or he really is interested in 
what is going on because you are the first witness I have ever 
seen who stayed beyond his or her time. So, glad you are still 
here.
    Dr. Vladeck, you mentioned primary care and how we need to 
try to re-emphasize that and then you talked about some of the 
countries in the world who do a better job in that area. I am 
wondering if you could give me your sense, as we look around 
the world at other systems, health care systems, and I guess if 
we try to compare apples with apples, developed countries, 
first world countries, are there any countries that are having 
the type of difficulty we have, and I guess here we are talking 
about the segment of the population that receives Medicare so 
it is principally the elderly population, are there any 
countries in the world comparable to us who are having the same 
kind of money problems we are having when it comes to trying to 
provide health care to its elderly population?
    Mr. VLADECK. Well, I think everybody is having money 
problems in the sense that health care costs are going up in 
many instances more quickly than government revenues. The 
population is getting older everywhere.
    Mr. BECERRA. In fact, they are probably having an aging out 
problem more than we are in some cases.
    Mr. VLADECK. My understanding is, if I remember the data 
correctly, that of the nations of the Organization for Economic 
Co-operation and Development (OECD), which is a good sub-set of 
the industrial nations of the world minus some of the newer 
ones in Asia, we are tied with Australia and New Zealand for 
having the youngest population of the OECD countries. So, many 
of them have substantially older populations. They all have 
problems with health care cost inflation but they are not as 
severe as ours, and they start from lower bases. So, the 
average of say Western Europe countries is about, dollar 
adjusted and so on, is a third to 40 percent less than ours. I 
think there is an increasing amount of data that suggests that 
is not the result of significant queuing for services in many 
of those countries. It is not the result of less utilization of 
services. The Germans use imaging services like crazy, but it 
has to do with, one, systems that are much more organized 
around primary care in which their ratio of services provided 
by primary care practitioners to the services provided by 
specialists is a lot higher than it is in the United States. 
Two, lower prices for things that are partially a result of 
that differential balance between primary and specialty 
services.
    Mr. BECERRA. Tell me if I am wrong in this, and Dr. 
Wilensky, please feel free to chime in, my sense is that those 
principally European countries start off with far lower costs, 
which in some ways would be difficult for us to try to emulate 
because in this country, you are better off if you are doctor 
than the general--far better off than you are in the general 
population. You make more money, it is a more lucrative career 
even those days a lot of physicians will tell you it is still 
not as good as it used to be. So, in Britain or other 
countries, you are probably making less if you are a physician, 
which obviously keeps some of your costs down, certainly some 
of your expectations as well, but at the same, as you mentioned 
I think Dr. Vladeck, they are more organized and they are more 
organized around giving care at the beginning than say at the 
end. So, is there some way to pair what we have, which is very 
high quality in some areas but disparately proportioned, with 
the need to have more organization within our system and 
focused at the beginning stages?
    Mr. VLADECK. Let me just say very quickly I think it is a 
complicated question, and Gail may want to add something to 
this, but I only say 15 to 20 years ago when most of the 
specialty and sub-specialty societies strictly limited the 
number of residency slots and the opportunities to enter those, 
we all accused them of anti-competitive behavior, we all told 
them they were unfairly monopolizing economic opportunities for 
people. We accused them of making it impossible to get sub-
specialists in the rural communities or in under-served urban 
communities, and we frankly beat the hell out of them to open 
up the areas of economic opportunity and the availability of 
sub-specialists in smaller and less populated geographic areas. 
So, part of the reason we are more expensive is just because we 
are so big and it is so far from one place to another in a lot 
of communities, and we have rejected regionalization in most of 
the country as a policy, which prevails in many of these other 
countries, but I think, again, one of the things that they do 
elsewhere is very significantly limit the supply of specialty 
physicians through the educational system, which we used to do 
through the American Medical Association and the specialty 
societies used to do for us, and we all decided was 
unacceptable abuse of private power.
    Ms. WILENSKY. Yes, your question is quite complicated but 
other countries tend to limit specialists and they tend to 
limit the expense of specialized support for the specialists in 
terms of equipment and specialized hospitals or the beds that 
are supporting specialized hospitals. The good news in terms of 
having a high base of spending per capita is that we have a lot 
of one off savings potentials if we could begin to get a more 
efficiently driven health care system. Most of these countries 
actually have more similar spending growth rate problems to 
ours and it is really the absolute level that is so different. 
They are very similar kinds of problems. You and I have spoken 
in the past about using loan forgiveness as a way to drive more 
people into primary care. I continue to think that it is an 
excellent way given the levles of indebtedness that people 
coming out of medical school are carrying now, saying that we 
will waive your medical school debt if you go into any one of 
the primary care areas that are in short supply. Loan 
forgiveness has not been very popular, I think because of the 
lack of success in the 1970's when it was first tried but 
incomes were high and growing and medical school tuition was 
low and not growing so rapidly and these have now reversed. You 
are also quite correct in saying that the relative differential 
in terms of income for physicians versus other workers in this 
country relative to most other countries is much greater here. 
I don't know that you want to directly try to take that on as 
much as trying to do things that shift the balance by changing 
the mix in terms of specialty and primary care physicians. That 
seems to me an easy way to start.
    The issue about regional variations is complicated. Maybe 
we can use them to drive toward higher quality, if we monitor 
and reward those groups that provide high quality, efficiently 
produced care. These groups are frequently either in integrated 
settings or are focused in particular areas and it is why I am 
very much supportive of the strategy that Glenn Hackbarth had 
raised. Rather than kill off specialty hospitals, pay them 
right, which would be less than a community hospital which has 
to be available 24/7 and also provide a lot of poorly 
reimbursed services like burn care. It is possible specialty 
hospitals can actually provide care better or do it cheaper but 
they certainly shouldn't get reimbursed at the average rate 
that they are now getting reimbursed. So, I think we need to 
think about ways of how can we try to target or reward places, 
clinicians, institutions that do it better and do it cheaper. I 
don't mean it just as an add-on, Mr. Stark. I also mean it at 
the very least as budget neutral and maybe even a budget 
savings.
    Chairman STARK. I thought you were going to add Medicare 
Advantage Plans into the line-up.
    [Laughter.]
    Ms. WILENSKY. No.
    Mr. BECERRA. Mr. Chairman, I have tons of other questions 
but----
    Chairman STARK. Well, we may have some votes in a couple of 
minutes, and I wanted to give Earl a chance to support the 
rural health care delivery system in this country.
    Mr. POMEROY. Mr. Chairman, I will get to that some other 
day, I am just finding this to be a thoroughly enjoyable 
discussion and one that I feel like I am re-entering the health 
policy discussions having met each of you when I was a State 
insurance commissioner and been kind of away from the action 
and now this Committee is letting me get back into the action. 
I am eager to get back in. Glenn, maybe I was a little hard on 
you earlier, I am just frustrated, and I will look forward to 
discussing this further with you tomorrow night. Bruce, I 
thought your comments were very interesting in terms of how 
maybe now the SGR issue is actually accelerating the departure 
from primary care medicine. Just in North Dakota, we have made 
exhaustive efforts to get a 4-year medical school, which for a 
population of our size is a real undertaking. It is family 
practice-oriented, primary care residencies, and they are 
having trouble filling some of those primary care family 
practice residencies, and I think the student debt load has a 
lot to do with it but maybe there are some other things as 
well. Gail has presented well some of the positive things we 
can look at maybe to try and put this back, to try and 
reinvigorate the attractiveness of primary practice 
residencies. Bruce, you talk about how the way the SGR is 
working now, it seems to be advancing the disincentive, you 
mentioned it in your testimony, I would like you to just spend 
the rest of the time with this question elaborating on that?
    Mr. VLADECK. Well, I am happy to respond although in all 
honesty I got it right out of the MedPAC report and their 
explanation of the phenomenon, but essentially if you have a 
single cap on the rate of fee increases but the cap is a 
function both of fees and volume, and if the volume of your 
radiology procedures is going up way fast and your volume of 
evaluation and management services (E&M), is going up very, 
very slowly but you have one cap, and then what that does is it 
caps the fees of everybody in the same way even though you 
probably are paying too much for those diagnostic radiology 
services and too little for the E&M services. Over time it 
compounds that effect. Part of the problem always with 
designing these systems has been that if the service consists 
primarily of a physician or other health professional 
interacting with another human being by doing a physical, by 
taking a history, by counseling or whatever, there is only so 
much more volume that you can produce and this is the 
underlying problem with primary care. If you are taking 
pictures, first of all, you are the radiologist, you are not 
taking pictures at all anyway, you are the technician and every 
year you can get an additional computerized thing that is going 
to screen them more quickly for you so if you used to read 100 
mammograms a week, you can now read 200 or whatever. So, if you 
impose a cap on total Medicare physician spending, as MedPAC 
notes, and the stuff that you do not want to encourage more of, 
like the imaging is growing faster than the stuff you want to 
encourage more of, you have a sort of perverse effect of taking 
a double whammy at the stuff that you may be underpaying for. 
That is the phenomenon they note and that I also note. I think 
that is the problem with a single cap.
    Ms. WILENSKY. It is the problem really with the cap 
altogether. Even among the radiologists, for example you 
probably have some that are very conservative in their practice 
style and others that are very aggressive. The cap is a very 
crude instrument. It will limit spending but it makes no 
distinction between the physician that is very careful and 
conservative from the very aggressive ones. There has been some 
mention of looking more seriously at outliers, and I think that 
is something that CMS ought to be encouraged to do. We know 
that there are some physicians or some practices that are very 
aggressive in what they do. Maybe they really do have sicker 
patients but that is the kind of thing where some analysis of 
the top 1 percent, 5 percent of the most resource-intense 
practices might find either reassurance that their patients 
really are sicker or a very different practice style and 
thinking about how to try to change this type of behavior 
through various strategies. We know concentration in health 
care spending is a problem. It is a different way to look at 
the concentration problem but giving CMS more discretionary 
authority in this and other areas I think really might help 
them be more aggressive in going after some of the aggressive 
spending practices.
    Mr. POMEROY. That is very interesting. I think your outlier 
idea deserves some further discussion in this Subcommittee. 
Blue Cross/Blue Shield in North Dakota was one of the last 
bastions of really unfettered fee-for-service medicine and as 
they started to get a consumer majority on the board, it 
started to crank down just a bit. Looking at outliers was one 
of the early steps and it was pretty successful.
    Mr. VLADECK. If I can just say this also gets back not only 
to the discretion issue but to some extent the resource issue 
for CMS because they do not do nearly the kind of analysis of 
patterns of claims, of just basic statistical analysis for 
these purposes that the most sophisticated private insurers do 
and to a large extent that is just because they do not have the 
money and the resources to do it. They do not have the in-house 
data processing capability and there is not enough money left 
over in the contractor budget. So, again, I think it is a 
relatively modest investment relative to the cost of the 
program that could be put to very good use in this and other 
ways.
    Mr. POMEROY. Database outcomes and the analysis have all 
been under discussion since my insurance commissioner days. It 
is really astounding given the percentage of the national 
budget going this way and the accelerated growth of spending in 
this area that we have got so little built in analytical 
capacity.
    Ms. WILENSKY. It happens because the benefits come out of 
the entitlement fund and the administrative support is a direct 
appropriation. That means that every time there is 
consideration for administrative increases, it is competing 
against all those other areas of appropriations, although with 
regard to Medicare fraud, there was a trust fund type of 
mechanism that was set up. This might be a way to model it so 
that if aggressive use of claims, auditing or practice 
assessment would in fact produce savings, at least its funding 
doesn't have to be competing against low income education 
support and all these other things that come out of the 
appropriations process.
    Mr. POMEROY. I thank the panel and yield back. Nice to see 
you again.
    Chairman STARK. I want to thank both of you for continuing 
to take the time. I would ask Gail, I think I know how Bruce 
would answer, I hate to ask questions I do not know the answer, 
but do you think it is important to continue Medicare as an 
entitlement?
    Ms. WILENSKY. I would like to see some changes in how it is 
structured but Medicare basically as a program for the over 65 
population will continue and I think should continue. I 
personally am more comfortable with having the contributions 
that the Government make range more by income than it does but 
it actually has been moving that direction in a number of ways.
    Chairman STARK. But on the other hand it is already perhaps 
the most progressive tax, if you figure that somebody makes $10 
million in salary, pays the same Medicare tax as somebody at 
the minimum wage but they both get the same benefit and then to 
add on, sort of insult to injury, and I have always worried 
that we would create a sense of turning it into a welfare 
program by discouraging those among us who are more well to do. 
I wouldn't mind if they want to adjust the tax, which is the 
same way of getting there I guess.
    Ms. WILENSKY. Yes, and I worry that it be made into a 
welfare program. I think it is possible through a combination 
maybe of tax changes and other changes on the benefit side to 
reduce some of the government's contribution, but I share your 
concern. I actually am more concerned about not doing enough 
for individuals who are just above the Medicaid cut off.
    Chairman STARK. You serve on the Maryland----
    Ms. WILENSKY. Yes, I am actually at the moment their acting 
chair.
    Chairman STARK. Is that the commission that sets rates for 
Maryland hospitals?
    Ms. WILENSKY. It decides the Certificate of Need. There is 
a separate rate setting commission that is the sister agency 
right next door.
    Chairman STARK. That sets rates, which gives them the all 
payer?
    Ms. WILENSKY. Right.
    Chairman STARK. How would that work? I think the history of 
that is that when it was organized or formed, I think it is a 
good system for reimbursing hospitals, it takes all the gaming 
of quantity discounts and major purchasers from getting special 
discounts and giving the hospitals fits, but I cannot sell it 
to my California hospitals, but I still think it is good, but 
at the time it was propounded, the physicians screamed and 
yelled and stayed out of it. Would that kind of a system work 
for physicians?
    Ms. WILENSKY. Well, the rate setting goes on for physicians 
under the Resource-Based Relative Value System.
    Chairman STARK. No, but I am talking about in Maryland with 
the all payer system.
    Ms. WILENSKY. Well, the all payer system affects the 
hospitals, it does not affect----
    Chairman STARK. I know that, but if you included physicians 
in that kind of a--that type of a rate setting system rather 
than what we are doing now?
    Ms. WILENSKY. The part--I think fundamentally we need to 
bundle the physician services. The question is about how to do 
that. Remember the physician Diagnostic Related Groups (DRGs) 
that were under consideration in the 1980s, I guess it would 
have been shortly after DRGs were introduced, or some other way 
of bundling payments using the medical staff. You have got to 
bundle services in some way to get around the problems of the 
SGR. The SGR or the VPS was put in place because with a very 
disaggregated fee schedule, we had abundant evidence that 
spending would go up even more rapidly than other areas in 
Medicare without a spending limit, and we shouldn't ignore that 
past. So, the way to try to figure it out is what is the best 
way to try to bundle services? Is it by chronic care so that 
you bundle care for a diabetic patient or for congestive heart 
failure? Is it to try and do for things that go together, puts 
A and B together so for the bypass surgery, putting the 
physicians that care for a patient together with the hospital 
costs and do that bundle? The answer may be that there are 
different kinds of bundles that would make sense, chronic care 
having one type, primary care maybe having another, and that 
which is related to surgery doing more part A and B bundling so 
you have crossed medical silos. The way you get around that 
really micro-level of fees. That is the killer. That is the 
part that drives you to using a spending limit, which then puts 
you back into penalizing the good guys, the conservatively 
practicing physicians. So, that is the basic direction that 
needs to be taken. To me, almost anything that you gives you 
more bundling is moving in the right direction. Now, there are 
power shifts implied with bundling. That was really what I 
think stopped the physician DRGs--a recognition that one group 
or entity was going to be the holder of all the money and that 
will be difficult. Up until now, the groupings have all been 
voluntary. Figuring out how to have groups form so you can 
bundle the services is the key. That is the direction of the 
answer to the SGR issue.
    Chairman STARK. Would you like to further inquire, Dave? We 
have some time.
    Mr. CAMP. Yes, I am interested in that concept because, as 
we know, there are 700,000 physicians with 700 million claims 
in Medicare alone and the 7,000 system of codes that they have 
to deal with, a lot of sevens here but it is not workable 
anymore. The idea of bundling, could you just describe a little 
bit more how that would work?
    Ms. WILENSKY. Well, let me show you. There are different 
ways. We already have bundling for surgical fees because there 
is a flat fee that includes the actual surgery plus the pre-
care and the post-care.
    Mr. CAMP. Yes, for the event.
    Ms. WILENSKY. For the event. So, you have that limited 
bundling that goes historically on just in the nature of how it 
has happened. When we had this CABG demo, the demonstration in 
the early 1990's, physicians and hospitals came together and 
negotiated with HCFA saying here is what we used to charge all 
separately but we are going to come together and propose a 
lower reimbursement. It will cover all the physicians that drop 
in on the patient while the patient is having the bypass 
procedure or the valve replacement and also include the 
hospitalization. It was less money and as best we could tell, 
as good or higher quality care. It eliminated some of the 
various specialists who used to come by as consultants for 
whatever. Those numbers went down substantially. You had a more 
integrated group for what was a complicated procedure. Some of 
our NIH consultants said, ``Not only that, you will have better 
outcomes because you will drive the various physicians who are 
working together on this complex case to work together more 
effectively.'' Bundles will require sitting down to look at for 
chronic care, which by its nature, is not a single visit, that 
is the nature of the chronic care disease, and deciding how to 
bundle the payments of the primary care physician that is 
taking care of the complex diabetic or the congestive heart 
failure patient. This way the physician gets a payment and then 
Medicare doesn't have to bug them for every individual test 
they do in between. It is why you do not have to bug hospitals 
anymore for all the little things they order, once you have got 
the DRG, it's their problem and it is not Medicare's problem.
    Mr. CAMP. Well, if CMS could guide that is because the last 
thing you want us to do is to be trying to understand these 
procedures and it seems as though they have the authority to--
--
    Ms. WILENSKY. I am not sure about that.
    Mr. CAMP (continuing). Or at least begin some of that.
    Ms. WILENSKY. They can do--what they can do is 
demonstrations. The only frustration is demonstrations, even 
successful ones, do not have a good track record of making it 
into legislation. I believe, although I am not a lawyer so I 
may be wrong on this, I think ultimately they would need the 
legislative authority to reconfigure payment but you would not 
want to put in statutory language exactly what all these 
bundles look like.
    Mr. CAMP. Exactly, right. Yes, Dr. Vladeck, you have 
something to say?
    Mr. VLADECK. Just very quickly, some of what we talked 
about in terms of demonstrations with case management fees or 
care coordination fees are a halfway step toward episode 
bundling or an annual bundling for certain chronic care 
patients. I would just put the caveat on that my geriatrician 
friends would tell me about that they are unfortunately 
relatively few Medicare beneficiaries with only one chronic 
disease. So, there is a lot more research and investment that 
needs to be made in figuring out how to do those bundles, but I 
think that is the right direction going over time.
    Ms. WILENSKY. We do have some experiences, as Bruce had 
said, the primary care case management system for well-baby 
care and pre-natal care in Medicaid has had a pretty 
interesting history. South Carolina, which was normally not the 
place for a lot of innovations in Medicaid, has used this as a 
very successful model. Figuring out what the right bundle is 
will take some intellectual capital and horsepower, but when 
you think about how much goes into maintaining this incredibly 
complicated area, this would be time so much better spent.
    Mr. CAMP. Well, and many physicians complain about the 
administrative burden of the coding system, if that could be--
you would have a lot of savings there as well.
    Ms. WILENSKY. Absolutely.
    Mr. CAMP. That could be addressed. Thank you, Mr. Chairman.
    Chairman STARK. Thank you both. I guess we will see Gail 
tomorrow, but thanks, Bruce.
    Mr. VLADECK. Thank you, Mr. Chairman.
    Ms. WILENSKY. Thank you.
    [Whereupon, at 4:20 p.m., the hearing was adjourned.]

                                 
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