[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
GETTING BETTER VALUE
IN HEALTH CARE
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
HEARING HELD IN WASHINGTON, DC, JULY 16, 2008
Serial No. 110-37
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COMMITTEE ON THE BUDGET
JOHN M. SPRATT, Jr., South Carolina, Chairman
ROSA L. DeLAURO, Connecticut, PAUL RYAN, Wisconsin,
CHET EDWARDS, Texas Ranking Minority Member
JIM COOPER, Tennessee J. GRESHAM BARRETT, South Carolina
THOMAS H. ALLEN, Maine JO BONNER, Alabama
ALLYSON Y. SCHWARTZ, Pennsylvania SCOTT GARRETT, New Jersey
MARCY KAPTUR, Ohio MARIO DIAZ-BALART, Florida
XAVIER BECERRA, California JEB HENSARLING, Texas
LLOYD DOGGETT, Texas DANIEL E. LUNGREN, California
EARL BLUMENAUER, Oregon MICHAEL K. SIMPSON, Idaho
MARION BERRY, Arkansas PATRICK T. McHENRY, North Carolina
ALLEN BOYD, Florida CONNIE MACK, Florida
JAMES P. McGOVERN, Massachusetts K. MICHAEL CONAWAY, Texas
NIKI TSONGAS, Massachusetts JOHN CAMPBELL, California
ROBERT E. ANDREWS, New Jersey PATRICK J. TIBERI, Ohio
ROBERT C. ``BOBBY'' SCOTT, Virginia JON C. PORTER, Nevada
BOB ETHERIDGE, North Carolina RODNEY ALEXANDER, Louisiana
DARLENE HOOLEY, Oregon ADRIAN SMITH, Nebraska
BRIAN BAIRD, Washington JIM JORDAN, Ohio
DENNIS MOORE, Kansas
TIMOTHY H. BISHOP, New York
GWEN MOORE, Wisconsin
Thomas S. Kahn, Staff Director and Chief Counsel
Austin Smythe, Minority Staff Director
C O N T E N T S
Hearing held in Washington, DC, July 16, 2008.................... 1
Hon. John M. Spratt, Jr., Chairman, House Committee on the
Hon. Paul Ryan, ranking minority member, House Committee on
the Budget................................................. 2
Hon. Adrian Smith, a Representative in Congress From the
State of Nebraska, prepared statement of................... 3
Peter Orszag, Director, Congressional Budget Office.......... 4
Prepared statement of.................................... 6
Issue Brief, dated June 5, 2008, requested by Mr. Smith
of Nebraska............................................ 40
Jeanne M. Lambrew, Ph.D., associate professor, Lyndon B.
Johnson School of Public Affairs, University of Texas at
Prepared statement of.................................... 17
David Gratzer, M.D., senior fellow, Manhattan Institute...... 22
Prepared statement of.................................... 25
GETTING BETTER VALUE IN HEALTH CARE
WEDNESDAY, JULY 16, 2008
House of Representatives,
Committee on the Budget,
The committee met, pursuant to call, at 10:10 a.m., in Room
210, Cannon House Office Building, Hon. John Spratt [chairman
of the committee] presiding.
Present: Representatives Spratt, Schwartz, Kaptur, Becerra,
Doggett, Berry, Scott, Etheridge, Moore of Kansas, Ryan,
Conaway, Alexander, and Smith.
Chairman Spratt. I call the hearing to order.
Good morning and welcome to the House Budget Committee's
hearing on Getting Better Value Out of Health Care. We have
three outstanding witnesses with us today to help us understand
what needs to be done to ensure that our money is spent wisely
and well on health care both in the private and public sectors.
CBO's Director Peter Orszag has made a great contribution
towards helping us in Congress understand better the issues and
levers that are available to us in the arena of health care. I
can't understate how much we appreciate his advice and input.
Jeanne Lambrew is a health policy expert now at the
University of Texas, a constituent of Lloyd Doggett, but we
know her from years past for her excellent advice and
participation in these issues as well.
Dr. David Gratzer is a physician who has practiced in
Canada and the United States, which gives him a special
perspective to bring to the table today. I thank all three
witnesses for coming and we look forward to your testimony.
Health care spending has outpaced U.S. economic growth for
quite some time and, frankly, is expected to continue doing so.
This overall trend has significant implications for our Federal
budget. CBO projects its spending for Medicare and Medicaid
under current law could more than quadruple as a percent of GDP
over the next 75 years, growing from 4.1 percent of GDP today
to 18.6 percent of GDP by 2082. CBO also projects that based on
current trends and policy preferences, the gap between Federal
spending and revenues over the next 75 years is 6.9 percent of
To address this long-term fiscal imbalance, everything will
have to be on the table and everyone will have to be at the
table, but it is also clear that these budget decisions cannot
be made in a vacuum. Putting the budget on a sustainable path
inescapably involves the need to address the growth trends in
overall health care spending.
We have held a number of hearings on this subject, and we
will hold more. Today's hearing gives us a chance to delve a
bit deeper into some of the challenges and opportunities in
We do not know with any certainty today how much society
can or should spend for the health care we all desire, but we
do know it makes no sense to spend money on health care that is
ineffective or potentially even harmful to patients.
Dr. Orszag has noted in previous testimony that there are
significant opportunities to reduce health care costs without
harming health care outcomes. It is critical that we begin to
explore these opportunities, especially in connection with a
system-wide look at both public and private health care.
Today's hearing gives us just that opportunity.
Before turning to our witnesses for their testimony, let me
go to Ranking Member Ryan and ask him for any opening statement
he would like to make.
Mr. Ryan. Thank you, Mr. Chairman. As usual, another great
hearing. A very timely topic and fantastic witnesses.
Access to quality, affordable medical care is critically
important to all Americans, and that is why this hearing is so
timely. The problem is, we are spending more than $2 trillion a
year on health care, and that number continues to skyrocket.
But we still have 47 million people without health insurance,
and many others are afraid they might lose their coverage
because costs are rising too fast for them to keep up with it.
We can and we must get control of health care costs, and
there are a number of steps we can make to improve this
situation, some of which we are going to be discussing here
today. But we need to be sure that we start in the right place,
and that would be the argument I would make.
The real cornerstone of health care is the relationship
between the individual patient and their doctor. So whatever we
do, we ought to aim to strengthen and reinforce that
We can achieve that goal by removing the distortions in the
health care marketplace to make it more competitive and more
cost-effective. That was one of the guiding principles in the
health care component of a plan I introduced in May that I call
a Roadmap for America's Future. I believe that some of the
elements of my plan will be consistent with some of the
recommendations of our witnesses here today, so I will briefly
just note a few.
First, we need to recognize that the current third-party
payment arrangements promoted by the Federal tax exclusion for
employer-based health insurance and by the structure of
Medicare and Medicaid themselves remove patients from the
decision-making process and hide the true costs of services.
The tax treatment also discriminates against workers and
families who do not have employer-sponsored health insurance.
Placing the tax benefit in the hands of individuals and
families will lead to better competition, which will spur
greater options and higher-quality services to meet the diverse
needs of Americans, just as it does in all the other sectors of
the U.S. economy.
Second, making price and quality data available to everyone
is critical. It is critical to the success of an effective
health care marketplace. Individuals and families must have a
better sense of what they are expected to pay for health care
and what they are going to get for their money.
Third, just as individuals ought to be able to own their
own health care coverage, they should also own their own health
care records. This can be done by making medical records
electronic and portable.
Finally, we have got to recognize that we will never get
ahold of overall medical costs without also addressing the
structure of Federal health entitlements. We know this all too
well on this committee. Medicare and Medicaid make up one-third
of all health care spending nationally, so clearly this has a
huge impact on the overall health care financing network.
As I said at the start, because Americans want quality,
affordable medical care, we will always spend a large share of
our economic resources to get it. But we can certainly get more
value for what we spend today, and I look forward to hearing
from our witnesses on how we just do that on this critical
Thank you, Mr. Chairman.
Chairman Spratt. I ask unanimous consent that all members
be allowed, if they wish, to submit an opening statement for
the record at this point.
Without objection, so ordered.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Hon. Adrian Smith, a Representative in Congress
From the State of Nebraska
Good morning. Thank you, Mr. Chairman, for convening this hearing
today on Getting Better Value in Health Care. Thank you also to our
distinguished panel of witnesses.
With Medicare, Medicaid, and Social Security consuming 8.4% of the
federal budget, and expected to grow to 18.9% by 2050, we cannot hope
to balance the budget if we do not find ways to encourage more
efficient use of health care dollars. Collecting and sharing data on
the effectiveness of various treatments is one way we could encourage
better decisions. By doing so, we would be able to demonstrate to both
providers and patients the most common or expensive course of treatment
is not always the most effective, and begin encouraging better use of
Medicare's limited funds.
We must remember, however, that doctors and patients, not
politicians, are best equipped to determine the proper course of
treatment. While comparative effectiveness data can be a useful tool in
saving lives and money, patients have unique needs, and this
information should not be used to mandate treatment for anyone. Not
only do patients react differently to treatment, but often the best
course of treatment for seniors in large cities with ready access to
health care facilities may not be right for a senior in rural Nebraska
who must travel 50 to 100 miles or more round trip to see a specialist
for the same condition.
We must remember comparative effectiveness is not a panacea. We
must also pursue any number of other solutions to encourage the smart,
efficient use of health care dollars if Medicare is going to be around
for our children and grandchildren.
Thank you again, Mr. Chairman and panelists. I am looking forward
to learning much more this morning about how we can more efficiently
provide health care to our seniors.
Chairman Spratt. Let's begin our witnesses today with Dr.
Dr. Orszag and all of our witnesses, you should be on
notice that your entire statement will be made part of the
record so that you can summarize it as you see fit. But the
floor is yours to take as much time as you need to explain your
Let's begin, as I said, with Dr. Orszag.
Thank you, sir, for coming. We look forward to your
STATEMENT OF PETER ORSZAG, DIRECTOR, CONGRESSIONAL BUDGET
Mr. Orszag. Thank you, Mr. Spratt, Mr. Ryan, members of the
Health care contains, in my opinion, the largest
inefficiencies in our economy. Credible estimates suggest that
as much as $700 billion a year in health care services
delivered do not improve health outcomes. That is 5 percent of
our national income. There is no other inefficiency that I can
identify that comes close to it.
Health care costs are also the key to our fiscal future, as
the first chart shows--or is about to show--with very rapid
growth in Medicare and Medicaid being the dominant force in
spending over the long term.
It is also the case, as an illustration of the
inefficiencies that I mentioned, that health care costs vary
quite substantially across different parts of the United
States, as the second chart shows, for reasons that cannot be
explained based on the severity of illnesses in different parts
of the country or the prices of building a hospital or paying a
doctor in different parts of the country. And the darker blue
areas of the country--I should probably say that sometimes this
graph is presented in red and sometimes in blue; today it is
blue. The darker blue parts of the country have significantly
higher costs mostly because of more intensive treatment
patterns--not because things cost more there, but rather
because there is more done there.
The interesting part is as you look at the next chart,
there is no additional benefit that you seem to get from the
higher spending areas. So the higher spending is not associated
with better health outcomes or higher quality than lower
spending areas. And we see that even at our leading medical
centers, where there are significant variations in the cost of
treating a patient across our top medical centers that don't
correlate or do not seem to generate improvements in health
outcomes. I think that is perhaps the most telling illustration
of this significant inefficiency.
So what do we do about it? It seems to me like there are
three steps that are crucial to any plan to attack this
The first is, we need much more information on what works
and what doesn't. Far too much of the medical care delivered in
the United States is not backed by specific evidence that it
works better than anything else, and much of that additional
intensity in the higher spending regions is of low or zero
value apparent care, again because it is not backed by any
specific evidence that it works better.
In order to get that information on what works and what
doesn't, we likely will need a more universal system of health
information technology. And I would just immediately say if you
were serious about getting there, rather than providing small
subsidies for hospitals and doctors to adopt health information
technology, which would only affect those entities that were
close to adopting voluntarily, you could very quickly get to
nearly universal health information technology if you said to
hospitals and doctors, you have 3 or 4 years to adopt a health
IT system that meets the following qualifications, and after
that you won't be reimbursed under Medicare unless you have
such a system in place.
If you did that, I am very certain we would have nearly
universal health IT very quickly.
In addition, you need some system for using the information
and evaluating what is coming out of the health IT system
through some sort of comparative effectiveness research entity
or entities. So that is more information.
Secondly, we need to change the incentives in health care.
Right now we have financial incentives for more care rather
than better care, and we are not going to get better care
unless we create incentives for that. What that means is
basically paying more for the stuff that works and not paying
for or paying less for the stuff that doesn't. We can talk more
I also think we need to be doing a lot more on healthy
living and helping people live the kinds of lives that most
people say they want to. On that point, I would say I feel like
I was mistrained as an economist, and we are learning from
behavioral economics and psychology that a lot of personal
behavior is driven by social norms, by the way things are
presented, by what the default is, what happens automatically,
and that financial incentives can matter, but they matter often
much less than those other things. So the purely rational
Economics 101 perspective, which is at the heart of a lot of
public policy, is very limited in terms of how effective it is
in affecting personal behavior.
I would just close by noting, I think one of the
significant impediments that we face is a political economy
one, which is that most workers don't seem to appreciate how
much health care costs are actually bearing on them because the
costs are hidden in the form of employer contributions for
health insurance; and even though all of the evidence suggests
that workers do bear those costs through reduced take-home pay,
it is not salient. People don't focus on that, and most people
I think don't recognize how much the system is actually costing
Secondly, there are questions about whether our political
system deals well with gradual, long-term problems like this
one, gradually increasing costs. On that point, I would note
there may be process changes that could help. There have been
ideas floated for a Federal health board, which we could
discuss in more detail. And also, unlike some other long-term
challenges that we face, this one has things that are happening
today. As I have already said, workers' wages are being reduced
to a degree that perhaps is underappreciated and unnecessarily
At the State level, Medicaid costs are crowding out State
support for higher education and thereby raising public tuition
today. And your taxpayer dollars are financing care at UCLA
Medical for Medicare beneficiaries in the last 6 months of life
that cost an average of $50,000 a year, and at the Mayo Clinic
for Medicare beneficiaries in the last 6 months of life $26,000
a year; and I cannot tell you what we are getting in exchange
for the extra money.
Thank you very much, Mr. Chairman.
Chairman Spratt. Thank you, Dr. Orszag.
[The prepared statement of Peter Orszag follows:]
NOTE.--This statement reprises a presentation given at the Senate
Finance Committee's ``Health Reform Summit,'' in Washington, DC, on
June 6, 2008.
Chairman Spratt. Now Dr. Lambrew.
STATEMENT OF JEANNE M. LAMBREW, PH.D., ASSOCIATE PROFESSOR,
LYNDON B. JOHNSON SCHOOL OF PUBLIC AFFAIRS, UNIVERSITY OF TEXAS
AT AUSTIN, AND SENIOR FELLOW, CENTER FOR AMERICAN PROGRESS
Ms. Lambrew. Thank you, Chairman Spratt, Ranking Member
Ryan and distinguished members of the committee. I thank you
for the opportunity to testify on the topic of value in health
care. Arguably, few other topics are more important to your
As Dr. Orszag just laid out, the long-run budget problems
are largely driven by health care cost growth, and fiscal
stability cannot be achieved without health reform. As such, it
is both a health priority as well as a budget priority. In my
testimony, I suggest how value in the care system can be
enhanced and why the opportunity for doing so is on the
To begin with, health care is complex, eluding simple
rules. Technological advances in medicine tend to increase the
need for high-paid specialists rather than improving
productivity. Providers determine demand, as well as meet it,
insurers have little incentive to promote value when enrollees
come and go, and people believe that high-cost care equals
high-quality care, despite evidence to the contrary. As such,
no single simple plan can achieve value. Instead, I suggest
that it requires an adaptable infrastructure through which
changing information, best practices and incentives for use can
The first component of such an infrastructure is standards.
Despite evidence on the benefits and trade-offs for many
treatments, no authoritative synthesis of such information
exists. Instead, different and sometimes conflicting standards
are used across the Nation. This has resulted in low use of
recommended care, high use of questionable care, and
unnecessary complexity for doctors and patients. Creating a
standard-setting process to guide health care decisions could
improve value in the health care system.
Second, dissemination is as critical as the development of
these standards. Standards can only affect performance if they
reach the remote parts of our health care system and vice
versa. Information and expertise from all parts of the health
care system are needed to set standards. Information networks
can accelerate access to best practices and provide data to
Third, knowledge is necessary, but not sufficient.
Financial incentives for providers and patients should be
steered towards value, not just costs. Public subsidies of
private insurers could also leverage value-based coverage, and
the delivery system itself could be redesigned to make high-
value health care in coverage the easiest choice for
individuals and providers.
Such infrastructure to promote standards through
dissemination and their use can undergird a number of different
health reform proposals, although their efficacy is maximized
in a seamless system with sustainable financing. In my
testimony, I have described five policies that could lay the
groundwork for value oriented health care. Here I list three.
The first, echoing what Dr. Orszag just said, is investing
in comparative effectiveness research. A prerequisite to
assigning value is knowing the relative impact of the various
health services and delivery modes. So-called comparative
effectiveness research has support from a wide range of
businesses, consumer groups and experts.
Bipartisan legislation has been introduced, and the
Congressional Budget Office estimated that that proposal could
save the system up to $6 billion over 10 years. Congress should
enact this legislation, since this information is the building
block for a value-based system.
Second, policymakers could create a Federal Reserve-like
board to set standards. This board would be an authoritative
source of information on the value and trade-offs associated
with health care services and delivery mechanisms. It could
focus on high-cost services as well as new services and
complement existing efforts. Its assessments of high-value
health care would be accessible to payers, providers, patients
and the public.
Like the Federal Reserve System, it could also include
regional health value boards to tap into local medical
leadership. Such boards may be better able to gain the trust
and change the behavior of local providers than a national
board. This Federal health board system could be built on
existing State and Federal efforts.
Third, Medicare should become a leader in promoting value.
Despite funding less than 20 percent of the health system,
Medicare often sets the standards for the private sector. It
could lead the shift to a value-based system as well. Congress
could delegate authority to Medicare to adopt payment policies
consistent with value-oriented standards. Such changes could be
allowed within boundaries.
For example, the authority could be limited to changes that
would reduce spending within the budget window according to
Congressional Budget Office or MedPAC or some authority.
Congress could always override these changes, but the default
would be flipped. Medicare would automatically adopt value-
based policies rather than relying on Congress to do so.
In addition, Medicare could use its capital financing to
facilitate high-value care. For example, it could support
computer-assisted reminder systems that have proven effective
at improving use. It could also make the adoption of such
practices part of its accreditation for hospitals and
This infrastructure--and in addition, in my testimony I
talk about mandatory health information technology, which could
be a part of this, as well as the importance of prioritizing
prevention. There are considerable policies out there to figure
out how we shift the emphasis from acute care to prevention,
and those are detailed in my testimony.
But this infrastructure for standards, information
exchange, and tools for its use does not depend exclusively on
a private or public insurance system. It could be put into
place through incremental reform. But high-value health care
cannot be initially or consistently applied when one in three
Americans falls out of the system over the course of 2 years;
and using public financing to leverage private, value-based
care and coverage is necessary to meet the system's potential.
So, in closing, the imperative for improving the value in
the health care system is strong, and the opportunity for doing
so may be nearer. The next Congress and President face
inescapable tax and budget decisions, and a number of expiring
policies will be waiting on the doorstep. Tax and budget reform
represent an opportunity for health reform, and I am encouraged
by your focus on value today.
Thank you for your attention.
[The prepared statement of Jeanne Lambrew follows:]
Prepared Statement of Jeanne M. Lambrew, Ph.D., Associate Professor,
Lyndon B. Johnson School of Public Affairs, University of Texas at
Chairman Spratt, Ranking Member Ryan, and distinguished Members of
the Committee, I thank you for the opportunity to testify on the topic
of value in health care. Arguably, few other topics are more important
to your work. As the Congressional Budget Office Director has
testified, the long-run budget problems are largely driven by health
cost growth. Medicare, Medicaid, and other health program spending
comprise about one-fourth of the Federal budget. Their rapid projected
growth accounts for the entire long-run Federal fiscal deficit. It is
an economic as well as a budget issue. Health spending accounts for 16
percent of our economy--more than housing or food. Its rapid growth
poses challenges to businesses and individuals whose income is
increasingly devoted to paying for health care. And, despite the
enormous investment in health care, the quality of that care and its
outcomes fall short by most standards. As the Federal Reserve Board
Chair Ben Bernacke recently said, ``Improving the performance of our
health-care system is without a doubt one of the most important
challenges that our nation faces.''
In this testimony, I would like to suggest how value in the health
care system can be improved and why the opportunity to do so is on the
horizon. ``Value'' generally describes the perceived quality of care or
benefit per dollar spent. Improving value is not necessarily synonymous
with improving efficiency. Some aspects of care provision, such as its
patient centeredness, are worthwhile to patients but not strictly
efficient. Nonetheless, the United States spends an enormous amount on
duplicative, low-utility, and even harmful health care, so that a high-
value health system would be more efficient overall--and offer
significant non-economic advantages as well.
elements of a value-oriented system
There is no ``silver bullet'' for improving value in health care,
precisely because of the nature of health care. The exacting rules that
govern fields like engineering and physics do not apply to human
health. Illnesses and therapies evolve rapidly, with new diseases and
cures introduced each year. Basic economic rules also fit some aspects
of health care poorly. Technological advances that typically lower
labor costs have instead raised them by increasing the reliance on
highly-paid health care specialists. Mass production that has
revolutionized other sectors has no real foothold in health; health
care jobs now outnumber manufacturing jobs.\1\ Moreover, people still
trust their doctors to define their demand (i.e., diagnose it) as well
as fulfill it. People believe high-cost care equals high-quality care,
despite evidence to the contrary. And, they undervalue disease
prevention and overvalue disease ``heroics'' or intense medical
interventions to reverse disease--reflecting the values and beliefs
that also shape our health system.
The nature of health care make it is impossible to draft a single,
perfect health care system: it would not work for all providers and
people, and even if it did, it would be obsolete quickly. It also means
that classical market solutions do not neatly apply to health care.
Demand is complicated, providers sit on both the supply and demand
sides of the equation, and suppliers--primarily insurers--have little
incentive to promote value when payers and enrollees come and go. What
is needed instead, in my opinion, is a strong infrastructure though
which changing information, best practices, and preferences can be
channeled. This infrastructure consists of standards for high-quality,
cost-effective care, networks for transferring these standards
throughout the system, and policies for their adoption, described
Standards for High-Value Health Care: In certain respects, the
United States leads the world in health care. The National Institutes
of Health, its universities and its private-sector labs have produced
medical breakthroughs that have benefited millions and are used
worldwide. Some insurers and payers of care have used this information
to successfully shape the delivery of care. For example, most health
plans use the Healthcare Effectiveness Data and Information Set (HEDIS)
that measures plan and provider performance on key quality indicators,
with proven success. And, some providers have developed feedback
systems to inform both the basic research as well its adaptation for
daily practice. For example, Kaiser Permanente's monitoring of its own
enrollees detected the increased risk of heart attacks associated with
Vioxx and dropped its coverage of it--contributing to its withdrawal
from the market. Despite evidence of the benefits and tradeoffs for
many if not most treatment options, no authoritative synthesis of such
information exists. Instead, different and sometimes conflicting
standards are used across the nation, propagated by specialty
societies, some government programs, insurers, consumer websites, and
The consequences of few standards for high-value health care and
coverage are troubling. Lack of knowledge of recommended therapies
likely contributed to their provision only 55 percent of the time.\2\
Another study found that only 41 percent of primary care doctors were
familiar with national guidelines for blood pressure treatment,
although awareness increased the probability of recommended action.\3\
Competing standards also affect performance. For example, a study by
the Institute of Medicine found the six major Federal health programs
had different quality standards, creating unnecessary confusion and
burdens for providers.\4\ A typical doctor has public and privately
insured patients, making the adherence to the different coverage and
quality reporting onerous. And, as can be seen in the studies of
practice patterns, the variability is greater for services with a
weaker evidence base. For example, the landmark Dartmouth study that
found no better quality or outcomes in high-cost areas attributed the
excess costs to greater use of testing and evaluative services as well
as use of the hospital as a site of care; use of major surgical
procedures and minor non-discretionary services were not significantly
different.\5\ In the absence of evidence on benefits and costs, people
and often providers assume that more is better even when it may be
wasteful or harmful.
Creating a standard-setting process to guide health care decision
making could improve value in the health system. This process could
identify services and delivery system practices for which there is: (a)
strong evidence for or against their use; (b) strong evidence on the
tradeoffs of substitutes; or (c) weak evidence. It could also identify
research gaps that should be prioritized to promote a high-performing
health system. In particular, studies on the comparative clinical and
cost effectiveness of different treatment options could be encouraged.
These standards would neither constitute ``cook-book medicine'' nor the
elements for a defined benefits plan. For example, the process would
not weigh in on resource allocation and who pays for care. Instead,
these standards would advance a common understanding of the state-of-
the-art health care practices--the basic building block for improving
Information Exchange Networks: Dissemination is as critical as the
development of standards. Standards can only affect performance if they
reach the remote parts of our health system, and vice versa:
information and expertise from all parts of the health system are
needed to set the standards. Historically, knowledge among providers
and managers has been shared through annual conferences, continuing
medical education programs, journals, and specialty societies. Disease
registries, where information is collected on certain types of patients
and treatment protocols, have proven to assist in both education and
adoption. The rapid evolution of information technology has also
facilitated dissemination and adaptation at all levels of the health
system. ``Learning networks'' and Regional Health Insurance Exchanges
have been created to harmonize data collection and reporting at the
local level. Provider and consumer decision support tools have
proliferated. And the interest in implementing a nationwide electronic
medical record is strong.
Yet, rather than simplifying the system, the explosion of
communication tools has sometimes increased chaos. Internet-based
journals, physician and health plan resources, and consumer resources
(e.g., WebMD) abound. A patchwork of registries and data bases has
placed time-consuming and sometimes expensive demands on providers and
organizations to participate. Entrepreneurs have entered the space,
offering electronic health records, support systems, and feedback
tools. Meanwhile, there is no evidence that these advances have
shortened the years for a proven treatment to move from the lab bench
to the bedside. And, a recent study found that only 4 percent of
physicians used a complete electronic medical record, with an
additional 13 percent using a basic system.\6\
One key step to increasing value in health care is creating a
national, health information technology infrastructure to facilitate
development and dissemination of best practices. Beyond its potential
administrative savings, information technology could build in prompts,
reminders, and error warnings at the point of service. The Veterans'
Administration health system has used technology in this way with
positive results. In addition, a national, privacy-protected electronic
health record would provide data for studies on the comparative effects
of clinical and delivery system interventions on a wide-scale basis.
This could make the health system more efficient over time by limiting
the adoption of new therapies that offer less benefit than existing
ones.\7\ Technology is an essential but not the sole source for the
exchange of information. The heavy reliance on judgment and experience
in health care delivery supports the idea of building regional peer
networks. Like specialty societies, they would provide the latest
research and data feedback, but would do so with an understanding of
the local context, culture, and health system resources.
Tools to Promote Adoption of High-Value Care: Arguably the greatest
challenge to promoting value is ensuring that the participants in the
system adhere to proven standards. Knowledge of these standards alone
can help. But, evidence suggests it is not enough. Regular blood
testing is a well-known standard of care for diabetics, yet only 24
percent of participants in a national study had three or more
glycosylated hemoglobin tests over a two-year period.\8\ Conversely,
there is little evidence supporting the use of CT scans for management
of heart disease yet a recent article documented the rapid increase in
their use and thus costs.\9\
Part of this pattern can be explained by reimbursement rates. Value
is rarely taken into account when determining whether and what a
provider gets paid.\10\ Payment rates usually only account for a
service's cost, not its benefits--promoting high-cost health care
irrespective of its merit. This may explain why there is higher
adherence to standards of care for procedures (which tend to have high
reimbursement) versus counseling (which tends to go unreimbursed).\11\
Similarly, the amount that patients pay in cost sharing is typically
pegged to a service's cost rather than its value. Simply stated,
financial incentives for providers and patients are misaligned.
Beyond financing, the lack of organization of the delivery system
diffuses the accountability for producing value. Studies have found
that having an organizational culture that promotes quality results in
high performance ratings for providers.\12\ Yet, most doctors still
practice alone or in small groups and lack the critical mass to
implement and connect to larger systems to improve the value of the
care for their patients. Ideas to remedy this range from linking all
providers to a hospital to forging ``interdependent practice
organizations'' that assume responsibility for members'
performance.\13\ Beyond their ability to invest in system supports,
organizations could also have a social network effect on provider
behavior, which has recently been found to be powerful in reducing
obesity and tobacco use.\14\
Lastly, an often-overlooked tool in improving value is making it
the path of least resistance. A growing literature suggests that making
the desired behavior the default improves the odds of achieving it.\15\
For example, the use of beta blockers after a heart attack is the
standard of care. Research has found greater use of this drug among
patients to whom it was prescribed in the hospital discharge orders--
not leaving it to the patient to fill the prescription independently
later. Moreover, some hospitals automatically prescribe beta blockers
on the discharge order, allowing the doctor to take it off the order,
but asking for an explanation why. This system reduces the required
steps needed to achieve the desired result. Across the board, payment
and delivery systems could be designed so that high-value care is the
easiest choice for individuals and providers.\16\
policies to create the infrastructure for a value-oriented system
This infrastructure--standards for value, information exchange
networks, and tools for its use--could undergird different mixes of
public and private insurance. It does not depend on either an
exclusively public or private insurance system to work. As such, it
could be incorporated into a number of different health reform plans.
However, a key to achieving a high-value health system is seamless
coverage for all Americans: high-value care cannot be initially or
consistently applied when one in three individuals falls out of the
system for at least a month over a two-year period.\17\ Similarly,
inadequate coverage--a problem for 25 million insured Americans
according to a recent study--results in cost-related barriers to care
and coordination and communications problems which interfere with
value-oriented care.\18\ As Henry Aaron has put it, ensuring adequate
coverage for all Americans is, ``a precondition for effective measures
to limit overall health care spending.'' \19\
That said, some of the infrastructure for a value-oriented health
system could be put into place in the context of incremental reform.
These components are described below.
Investing in Comparative Effectiveness Research: A pre-requisite to
assigning value in health care is knowing various services' relative
impact. ``Comparative effectiveness research'' is the rigorous
assessment of the relative safety, effectiveness, and cost of
treatments or approaches for addressing the same condition. This type
of research has been funded by the Agency for Healthcare Research and
Quality's (AHRQ's) appropriations, but at a fraction of the amount
authorized in the Medicare drug law enacted in 2003. Proposals to
significantly increase comparative effectiveness research funding and
ensure its independence have support from a wide range of businesses,
consumer groups, and experts, including the health advisor to George
H.W. Bush.\20\ Bipartisan legislation has been introduced by
Representatives Allen and Emerson and a version of it was included in
the Children's Health and Medicare Protections Act of 2007 that passed
the House but was vetoed by President Bush. The Congressional Budget
Office estimated that this provision, which created a trust fund seeded
by public and private funding, would save the system $6 billion over 10
years and reduce Federal spending by the tenth year.\21\ The 111th
Congress should enact this legislation since this information is
essential to setting standards for value.
Creating a Federal Reserve-Like Board to Set Standards: Another
policy to consider is the creation of an independent board to promote
high-value health care.\22\ Composed of experts with long terms, this
board would be modeled on the Federal Reserve Board which has succeeded
in making crucial decisions with greater credibility than most Federal
agencies. This board would be an authoritative source of information on
the value and tradeoffs of health care services and delivery
mechanisms. Because of the breadth of health care, the board would
focus on high-cost and new services. To ensure it complements rather
than replaces existing efforts, it could give its imprimatur to
publicly and privately-developed standards (e.g., U.S. Preventive
Services Task Force guidelines; the AHRQ's Evidence-Based Practice
Centers; the National Quality Forum; specialty societies' protocols).
Its assessments of high-value health care would be accessible to
payers, providers, patients, and the public.
The board would also assess the optimal mode for delivering high-
value care. This function may be best carried out regionally. The
Federal Reserve has twelve district banks whose governance includes key
stakeholders as well as experts. They are responsive to their regional
resources and climate--features that could be valuable in promoting
value given the geographic variation in health care. Regional ``health
value'' boards could tap into medical leadership to tailor their work
to region-specific problems. They could gather data, analyze it for
patterns, and feed the results back to providers and facilities with
comparisons to local, regional and national process and outcome
measures. They may be better able to gain the trust and change the
behavior of local providers than a national board. Several states have
already developed regional consortia to promote quality and
efficiency.\23\ These boards could also be built from the current
Quality Improvement Organizations in Medicare. Medicare could support
regional boards by providing data as well as incentives (or
requirements) that providers participate in them.
Accelerating the Use of Health Information Technology: This
Congress may succeed in enacting legislation that creates standards,
privacy protections, and funding for the implementation of electronic
health records (EHRs). The bipartisan legislation is necessary but
probably not sufficient to yield rapid adoption of EHRs in a short
period of time. Physicians may still be resistant given their inability
to capture the return on the investment; private plans may worry about
losing a competitive edge; and the benefits that result may make it
more of a public good that private commodity.\24\ Congress should
consider making the President's aspiration that most Americans have an
EHR by 2014 a deadline. It could enforce this requirement in a number
of ways, including lower or no Medicare payment to providers who do not
comply. Loans and grants would likely be needed to assist in meeting
this deadline. The ongoing activity to set standards for
interoperability and privacy and create data exchanges to support EHRs
would need to be stepped up. Other nations have already made the switch
from paper-based to electronic systems; it is feasible as well as
essential to optimizing health system performance.
Allowing Medicare to Align Policies with Value: Even though it
funds less than 20 percent of the health system, Medicare's policies
have often set the standard for the private sector. The shift to a new
standard based on value could be led by Medicare as well. Congress
could delegate authority to Medicare to adopt payment policies that the
Medicare Payment Advisory Commission recommends based on the value-
oriented standards set by the new board. These changes could include
adopting successful ``pay for performance'' models, creating bundled
payments across providers and/or services, and adjusting patient cost
sharing to promote high-value care and discourage low-value care. Such
changes could be allowed within boundaries; for example, the authority
could be limited to modifications that reduce spending within the
budget window according to the Congressional Budget Office. The
Medicare Trustees might also take a bigger role in program operation,
having to approve the policies recommended by the program
administrator. Congress could always override the changes, but the
default would be flipped: instead of having to wait for Congress to
align payments with value, Medicare would do so unless Congress blocked
In addition, Medicare payment systems build in some funding for
capital improvements; this funding could be directed toward system
design to facilitate high-value care. For example, Medicare could
incentivize hospitals to develop or adopt computer-assisted reminder or
default order systems that have proven effective at improving adherence
and outcomes. It could also add the use of effective, simplifying
systems as a condition of accreditation; arguably, they are as
important to safety and the system as a facilities' cleanliness or
doctor attendance at medical staff meetings.
Prioritizing Prevention: Lastly, the gravity of the problem of
preventable disease, coupled with the inadequacy of the existing
system, suggests that a new model is needed to prioritize wellness. To
be effective, it should strive to make preventive services valued by
individuals and providers, available, and affordable. It should elevate
wellness within the health system and complement it with new delivery
systems. Payment for prevention should be designed to leverage
behavioral change and widespread use. Finally, it should be universal,
providing recommended prevention services irrespective of individuals'
A Wellness Trust is one approach for structuring an effective
prevention system.\25\ Under this model, preventive services would be
carved out of the health insurance system and financed through a new
independent agency. The Wellness Trust would set national priorities
for prevention, employ unconventional systems for delivering services,
use payment policy to drive results, and integrate prevention with the
health care system through information technology. Congress could lay
the groundwork for this approach by creating the Trust, assessing
prevention spending, reviewing priorities, and developing a prevention
The imperative for improving value in the health system is strong,
and the opportunity to do so may be near. The next Congress and
president face inescapable tax and budget--as well as health policy--
decisions. A number of expiring policies will be waiting on the
doorstep. These include: the 2001 and 2003 tax cuts, the escalating
taxes due to the Alternative Minimum Tax problem, and a budget that
will likely be unresolved in 2008. Tax and budget reform represents an
opportunity for health reform. Responsible tax policy to replace the
expiring Bush tax cuts could build in revenue to fund up-front health
system changes. Modifying while maintaining the tax break for employer
health benefits could redirect high-income tax breaks to low-income tax
credits.\26\ And, the cost savings inherent in health reform are
essential to long-run budget stability.
No doubt, enacting health--and budget and tax--reform is hard. Yet,
the only thing harder may be turning a blind eye while our nation's
health and economic prospects fade. Incremental reform can lay the
groundwork for a high-quality, efficient, equitable health system; the
policies described here take steps toward it. But small changes may
take as much political capital as big ones. A strong infrastructure
must be combined with coverage in a seamless system supported by
sustainable financing to achieve the potential of a high-value health
\1\ For a discussion of labor costs and the health sector, see, for
example, J. Hartwig. (March 2006). What Drives Health Care
Expenditures? Baumol's Model of Unbalanced Growth Revisited. KOF Swiss
Economic Institute, ETH Zurich, Working paper number 06-133. http://
\2\ E. McGlynn et al. (2003). ``The Quality of Care Delivered to
Adults in the United States,'' New England Journal of Medicine,348
\3\ D.J. Hyman and V.N. Pavlik. (2000). ``Self-Reported
Hypertension Treatment Practices Among Primary Care Doctors,'' Archives
of Internal Medicine,160: 2281-86.
\4\ J. Corrigan, J. Eden, B.M. Smith. (2003). Leadership by
Example: Coordinating Government's Role in Improving Health Care
Quality. Washington, DC: National Academies Press.
\5\ E.S. Fisher et al. (2003). ``The Implications of Regional
Variation in Medicare Part I: The Content, Quality, and Accessibility
of Care,'' Archives of Internal Medicine,138: 273-87.
\6\ C.M. DesRoches et al. (July 3, 2008). ``Electronic Health
Records in Ambulatory Care: A National Survey of Physicians,'' New
England Journal of Medicine, 350:50-60.
\7\ For a discussion of the potential impact of health information
technology on cost, see Congressional Budget Office. (May 2008).
Evidence on the Costs and Benefits of Health Information Technology.
Washington, DC: CBO.
\8\ E. McGlynn et al. (2003). ``The Quality of Care Delivered to
Adults in the United States,'' New England Journal of Medicine,348
\9\ A. Berenson and R. Abelson. (June 29, 2008). ``The Evidence
Gap: Weighing the Costs of a CT Scan's Look Inside the Heart,'' The New
\10\ Value is not a component of public program payment systems,
and a recent survey found few employers use it. See: M.B. Rosenthal et
al. (2007). ``Employers' Use of Value-Based Purchasing Strategies,''
JAMA, 298(19): 2281-88.
\11\ E. McGlynn et al. (2003). ``The Quality of Care Delivered to
Adults in the United States,'' New England Journal of Medicine,348
\12\ See, for example, S.M. Shortell et al. (2005). ``An Empirical
Assessment of High-Performing Medical Groups: Results from a National
Study,'' Medical Care Research and Review, 62(4): 407-34.
\13\ See, for example, E.S. Fisher et al. (2007). ``Creating
Accountable Health Care Organizations: The Extended Hospital Medical
Staff,'' Health Affairs, 26(1): w44-w57; S.M. Shortell, L.P. Casalino.
(2008). ``Health Care Reform Requires Accountable Organizations,''
JAMA, 300(1): 95-97.
\14\ A recent article discussed several of the emerging studies: R.
Stein. (May 26, 2008). ``Social Networks' Sway May be Underestimated,''
Washington Post, A06.
\15\ For a discussion of behavioral economics and its possible
application to health care, see P. Orszag. (2008). ``Health Care and
Behavioral Economics: A Presentation to the National Academy of Social
Insurance,'' Washington, DC: Congressional Budget Office.
\16\ For a commentary on how this might be done, see B. James.
(2001). ``Making It Easy to Do It Right,'' New England Journal of
Medicine, 345: 991-93.
\17\ J.A. Rhoades and S.B. Cohen. (August 2007). ``The Long-Term
Uninsured in America, 2002-2005,'' Rockville, MD: U.S. DHHS, AHRQ,
Statistical Brief #183.
\18\ C. Schoen et al. (2008). ``How Many Are Underinsured? Trends
Among U.S. Adults, 2003 and 2007,'' Health Affairs, WebExclusive,
\19\ H. Aaron. (2007). ``Budget Crisis, Entitlement Crisis, Health
Care Financing Problem--Which Is It?'' Health Affairs, 26 (6): 1622-33.
\20\ G.R. Wilensky. (2006). ``Developing a Center for Comparative
Effectiveness Information,'' Health Affairs, 25(6): w572-85.
\21\ See P. Orszag. (September 7, 2007). ``Letter to Chairman Pete
Stark,'' Washington, DC: Congressional Budget Office, available at:
\22\ This idea is the subject of a book: T. Daschle, with S.S.
Greenberger and J.M. Lambrew. (2008). Critical: What We Can Do About
the Health Care Crisis. New York: St. Martin's Press.
\23\ See, for example, Minnesota's SmartBuy Alliance. A coalition
of purchasers accounting for 60-70 percent of the State's population,
its members use uniform performance standards, cost and quality
reporting requirements, and technology. S. Silow-Carroll and T.
Alteras. (2007). Value-Driven Health Care Purchasing: Case Study of
Minnesota's Smart Buy Alliance. New York: The Commonwealth Fund.
\24\ Congressional Budget Office. (May 2008). Evidence on the Costs
and Benefits of Health Information Technology. Washington, DC: CBO.
\25\ For details, see: J.M. Lambrew and J.D. Podesta. (2006).
Promoting Prevention and Preempting Costs: A New Wellness Trust for the
United States. Washington, DC: Center for American Progress; and J.M.
Lambrew. (2007). A Wellness Trust to Prioritize Disease Prevention.
Washington, DC: The Brookings Institution, The Hamilton Project.
\26\ For a discussion of financing options, see M. Seshamani, J.M.
Lambrew, and J.R. Antos. (2008). Financing the U.S. Health System:
Issues and Options for Change. Washington, DC: Bipartisan Policy
Chairman Spratt. Dr. Gratzer.
STATEMENT OF DAVID GRATZER, M.D., SENIOR FELLOW, MANHATTAN
INSTITUTE FOR POLICY RESEARCH
Dr. Gratzer. Thank you, Mr. Chairman, ranking member,
members of the committee.
I have provided you with written testimony which provides
some thought on these topics. I would emphasize that though I
am a Senior Fellow at the Manhattan Institute, the views I
express in that written testimony, as well as today, are my
views and my views alone, and don't necessarily reflect those
of the Manhattan Institute.
Mr. Chairman, health care can be enormously personal. I
think it is perhaps one of the reasons we are discussing it
here today. Besides, obviously, the budgetary implications,
there are other aspects of public policy that are enormously
important, but perhaps none quite as personal as health care.
Let me open then by talking personally about some of my
experiences with American health care and then maybe drawing
some larger lessons.
It was the best of American medicine, the worst of American
health care. My wife hurt her back. I would emphasize my wife
tells this story slightly differently than I do. For the sake
of our marriage, I have that disclosure.
I was invited to a conference out in the Rockies. They very
generously agreed to pay for my ski ticket and the airfare. All
I had to do was buy a pass for my wife. She ended up on a ski
slope and hurt her back.
I would emphasize she tells this story differently than I
My version of events involves a Bunny Hill, a ski school--
perhaps the Snoopy Dog Ski Camp or something august like that--
with a lot of 5-year-olds, who, by the way, were absolutely
marvelous skiers. And my wife fell a lot.
She tells this story involving a large mountain, gale-like
winds of about 70 miles per hour, and a small furry mammal that
had to be avoided, perhaps a squirrel or something of this
sort. But the long and the short of it is, my wife ruptured a
disc in her back.
My wife is an emergency doctor, and she went from living an
extraordinarily active life to lying on her back hours a day
because of the pain. Of course, there was the numbness in her
foot which made work very difficult.
She needed a procedure. We are two doctors. At the time,
for a variety of reasons, we were living in West New York and
we weren't insured, and we were trying to find the best care we
could. Well, we are tech-savvy people. We went to Yahoo. We are
not super-tech-savvy people because we would have Googled, I
suspect, but we Yahooed, and the top 10 sites were
Finally, we found a neurosurgeon we were comfortable with.
We were interested in outcomes. We couldn't find any on the
Internet. He couldn't provide us with any. We had a choice of
two hospitals for this procedure. We decided, not being able to
get any quality data, to choose the one with ``saint'' in the
title, because, as you know, Mr. Chairman, nothing bad can
happen to you at a hospital with ``saint'' in the title.
These are some of the frustrations we experienced.
We also experienced frustrations around the bill. At the
end of the day we were sent a bill that was a foot-and-a-half
long, and it was my medical opinion that they didn't know what
they were talking about. I called up the top administrator of
the hospital, and I said, I have never not paid a bill in my
life, but this seems outrageous for a day procedure. She
responded by telling me that this is simply the starting point
of our negotiations.
I don't know anywhere else in American society where you
get a bill from somebody and they fully acknowledge that they
themselves don't take the bill seriously.
I also want to emphasize, though, that this was the best of
American medicine. Fifty years ago somebody like my wife would
have hurt her back and would have lived out the rest of her
life with chronic pain and some significant morbidity. Twenty
years ago I suppose she would have had a spinal fusion, which
is a very complicated procedure.
Today, or a few years ago, she got a procedure that lasted
under half an hour, an incision that was less than an inch, and
she is up and about and living her life as she wants to. We had
our second child a year ago and life is good. That is the best
of American medicine. We can never forget that when we have
these discussions. These are always feel-bad discussions.
I don't feel badly about American medicine and I don't feel
badly about the future because we have done so much in the last
60 years--tamed polio, made depression treatable, allowed
people like my wife to return to the workforce--and I look very
much forward to what we will do over the next 60 years. Part of
the reason we were able to do these things is that we have
certain values in American health care that we should preserve
even when we talk about what is wrong with it.
First and foremost is that we value the doctor-patient
relationship. Secondly is that we recognize that not all
decisions should be driven by dollars and cents, that health
care also has some intuitive value. And thirdly, perhaps a
point slightly underappreciated, is the best way of spending
money often is keeping people out of the health care system, by
which I mean keeping them healthy in the first place.
There are undoubtedly enormous problems with American
health care. Costs keep rising year after year. My colleague
and cowitness has given a very nice summary of some of the
I like to think of things in terms of its implications in
the American family. As you know, every year for the last 7
years the median family income has dropped by about 1,000 bucks
a year because of rising health costs, even though wages are
These are enormous problems. What should we do to get
better value in American health care? Well, I put forward a
number of ideas. But, again, I think back to my wife and that
black box of American health care that we dealt with, and I
think forward to some basic ideas.
First of all, we need to move decisions closer to families.
Too much of American health care, for historic reasons, is paid
by someone else, usually employers, and, of course, as you are
well aware also, the Federal and State governments. I like
experiments like health savings accounts. I like Medicaid
experiments like those going on in South Carolina and Florida,
again bringing decisions closer to the individual.
Transparency is, I think, something we can all agree has
enormous value. I would point out, though, that even though the
Federal Government sits on such a wealth of information,
relatively little of it is revealed.
I would also suggest that if we are talking about the
government pushing the private sector in more of the right
direction, we could talk about better disclosure by hospitals,
clinics and doctors in terms of fee schedules and the like.
We need better information on quality, and I think that is
a thorny issue. Often it is difficult for us to judge how to do
that. Certainly, with surgeries, one can look at complications,
and that is relatively straightforward. But I am a
psychiatrist, and sometimes I wonder how one judges who is a
good psychiatrist and who isn't.
I think some of this information is going to come from the
public sector. I think about the New York State report cards on
cardiac surgery. Some of it will come from the private sector,
such as the Leapfrog Group and their work.
Finally, I believe in five-sixths of the general economy,
we have discovered that the best way of improving quality and
value is through competition and choice, and too often in
health care, governments have been eager to regulate first and
ask questions later. It deprives individuals of choice,
innovation suffers, and I think, ultimately costs rise.
I would suggest to you those are some basic commonsense
ideas we can employ with health care to move us forward so that
people like my wife and I can have better information on
quality before we make a decision, people like my wife and I
and you and your spouse and your constituents.
Thank you very much.
Ms. Schwartz [presiding]. Okay, and thank you for your
[The prepared statement of David Gratzer follows:]
Prepared Statement of David Gratzer, M.D., Manhattan Institute
I am honored to testify today in these hearings on ``Getting Better
Value in Health Care'' before the Committee on the Budget. My name is
David Gratzer. I am a physician and a senior fellow at the Manhattan
Institute in New York. The views I present are my own and do not
necessarily represent those of the Manhattan Institute.
Before speaking directly to the topic at hand, I wish to put
forward an important anecdote. The daughter of a friend of my family
will start elementary school in the fall. Of course, there doesn't seem
much remarkable about the above statement--millions of children across
the United States are starting grade 1 in a couple of months. But my
friend's daughter is a cancer survivor. Just a couple of years ago, she
was diagnosed with leukemia. After a series of treatments, however,
she's fine. Actually, she's more than fine. She's bright, energetic,
full of life. And why shouldn't she be?
But not that long ago, of course, a diagnosis of childhood leukemia
was a death sentence. Today, the vast majority of children under the
age of 12 with this illness are cured. That's not to suggest that life
isn't without complications--recent studies peg their SAT scores at
lower than average for their age cohort--but these challenges seem
minor compared to battling cancer.
We're talking today about ``getting better value in health care.''
At a time when health costs are spiraling up, it would be difficult to
think of a more timely or relevant topic. But as we consider what's
wrong with American health care and what's to do, it's important to
remember what's right. People like my friend's daughter get excellent
Before discussing better value, we should note our values in making
it possible for people like my friend's daughter to thrive: (1)
American health care is built on the doctor-patient relationship; (2)
health care isn't just about dollars and cents, but about improving
lives; (3) the best way of saving money is to keep people out of the
health care system by keeping them healthy in the first place.
We live in challenging times. My co-witness Peter Orszag provided
macro-numbers pointing out the high cost of health care. Let me bring
things back to the household level: Median family income has dropped by
a thousand dollars a year every year since the beginning of the decade
because of rising health costs.
Why? The central problem is the way Americans pay for their care.
Rather than paying directly, most people get their health insurance
from their employer (or the parent's or spouse's employer). Someone
else foots the bill. This odd financing arrangement developed because
of World War II wage controls. Employers began to provide health
benefits as a disguised form of income, and their incentive to do so
only increased when the IRS ruled that, unlike income, these employer-
provided benefits would not be taxed.
The resulting accidental system is wasteful and bureaucratic. With
Americans paying directly just 13 cents for every health dollar they
spend, there is much incentive to spend first, and ask questions later.
Health managers, meanwhile, create bureaucratic hurdles in an attempt
to constrain patient choice (and thus costs). During the 1990s-heyday
of managed care, for instance, HMOs attempted to dictate whether and
when their patients were tested. HMOs have fallen away--the economic
problem they attempted to address continues.
There is hope: the Miami Herald ran a story on a Fort Lauderdale
woman who shopped around for physiotherapy--and saved herself a
thousand dollars a session. Obviously, not every health service can be
``shopped for.'' That said, there are some basic steps that we should
take with health care to make it easier for patients and providers to
seek out excellence and value:
moving decisions closer to families
Innovative health insurance products like health savings accounts
encourage Americans to think more about the financial consequences (and
the value) of the health services they receive. Medicaid experiments in
South Carolina and Florida also attempt to reward better decisions.
For practically everything other than health care, Americans are
able to access good pricing information before making a decision.
That's not true with health care. HHS has started to reveal more
information--an important if small step. The federal government should
make its pricing information available and encourage hospitals,
clinics, and doctors to do the same.
better information on quality
While some aspects of health care remain difficult to measure,
surgical outcomes, complication rates, and a raft of other information
is available--except to patients. Ultimately, better quality
information should be developed, which probably will come from both
public sector sources (e.g., the New York State report cards on cardiac
surgery) and private sources (e.g., the Leapfrog Group).
more competition and choice
For 60 years, the federal and state governments have heavily
regulated health care. The end result is that patients are deprived of
choice, innovation suffers and costs ultimately rise. New regulations
ought to be carefully considered in terms of their impact on choice;
existing regulations should be reviewed.
Some have suggested that a centralized board should oversee health-
care decisions. While the idea is tempting--who wouldn't want a
defining authority to push America to better value in health care?--the
international results are at best mixed. The euphemistically named NICE
in Britain, as an example, is slow to approve drugs for funding (often
taking up to 2 years) and tremendously biased against new or cutting-
edge cancer treatments, which partially explains the poor outcomes
found in that country.
American medicine has never been better. American health care,
though, is at a cross-roads. Some see utility in pushing down the path
to greater government involvement. In five-sixth of the economy,
however, we value individual choice, competition, and responsibility.
The prescription for American health care is thus clear.
Ms. Schwartz. I guess I have the discretion of the Chair,
which is kind of neat, so I think I was first in line to ask
questions anyway, so if my colleagues will indulge.
I did want to thank you again very much for your testimony.
I think one of the themes that came out in all of your
testimony was the issue of quality. That has come up. I
particularly wanted, though, to focus my question on something
else that two of you mentioned, which is the issue of health
We had a very good win I think for Medicare and for the
country last evening when we passed the Medicare bill, which
included e-Prescribing, an initiative of mine that I know all
of you know about, that is a great first step in using health
information technology, moving doctors and hospitals to use
that technology to reduce errors, to save lives and to save
So what I would like you to do is elaborate, if you will.
And I know there was some work--Peter Orszag, you particularly
have done some study of this.
But I wanted to also ask, Jeanne Lambrew, if you will
comment on the potential for improving quality, improving
health outcomes for Americans, if we were to scale up in a very
aggressive way the use of information technology, particularly
electronic medical records; and specifically how we might do
that other than just your suggestion of mandating it, which I
guess is one possibility.
But my question very clearly is, what do you believe we
should do right away on information technology and electronic
medical records in particular? And how could that impact both
savings in the health care system, the public and providers,
and improve outcomes?
Dr. Orszag, if you would start, that would be great.
Mr. Orszag. Sure, Chairwoman, I will elaborate a little
Let me say first that health IT has substantial potential
to help reduce costs and improve quality in health care if--
if--it is part of a system in which the information is used to
evaluate what works and what doesn't, and if it is part of a
system in which there are financial incentives for the stuff
But just by itself, plopping a health IT system into a
fragmented system with distorted financial incentives and no
way of using the information in general doesn't generate the
kinds of results that many people would hope for.
Ms. Schwartz. So does that involve, Federal standards have
to come first, or be a part of it, as to how they will be used?
Mr. Orszag. There are questions about interoperability and
what have you, and I will leave that aside for a second.
What I meant was the evidence on health IT actually
generating improvements in efficiency or some combination of
higher quality and lower costs are more impressive for more
integrated systems where the information that's coming out of a
system is used to evaluate the procedures and then to push back
down to the practitioners some guidance on what works and what
In an isolated hospital setting or an isolated physician
setting, we have much less opportunity to do that, unless the
information is then garnered or used for some broader
comparative effectiveness kind of effort.
Ms. Schwartz. Certainly systems that use it say that, in
and of itself, the use of electronic medical records,
particularly if they are interoperable, actually do help
alleviate the fragmentation, basically help to coordinate care,
because your doctor can see work that has been done last week
by another doctor, your emergency room can see your test
results from your doctors the week before.
So it actually forces, if you want to call it that, a
better integrated system. I don't know if you want to comment
on that, or Professor Lambrew.
Mr. Orszag. I would just say--I guess she is deferring to
me for a second--on the fragmentation, the problem is really
the financial incentives and the way in which care can be
delivered in multiple settings. Yes, you can get some benefit
from seeing the tests that were done somewhere else, but that
is not the most salient or problematic aspect of fragmentation.
The biggest problem associated with fragmentation is that
you have financial incentives for multiple care being done in
multiple places without the kind of unification that doesn't
come just from seeing the other tests that were done.
Ms. Schwartz. You are saying, even if they see the MRI from
yesterday, they are still going to repeat it because there is
no financial disincentive.
I am not sure that is true, by the way, but that is what
you are saying, isn't it?
Mr. Orszag. You assumed, also, full interoperability. In
many cases that is not the case. So unless you have full
interoperability and then, again, some system for--it is not
just whether they repeat the MRI, but whether the MRI is used.
When the MRI is done or not done could be informed by, how
many times for that kind of patient does the MRI change the
diagnosis. And unless you have some structure in place for
evaluating that kind of information, just stringing together
lots of different outpatient settings where there are MRIs done
and letting them see each other's MRIs is not going to change
that basic dynamic.
Ms. Schwartz. But, again, the issue is also the software
that suggests you ought to order the MRI or you don't need to.
You haven't mentioned that, but that is also part of this, that
there is also the opportunity.
And maybe this is the chance, Dr. Lambrew, to jump in to
actually be able to say it matters to do an MRI or it matters
to talk to somebody at this point about other testing or other
kinds of behavior. It is also something that could be part of
electronic medical records, based on evidence-based medicine,
Ms. Lambrew. I would just say, if we think about the
potential benefits of all electronic health records, there are
four different levels. There is the basic administrative
paperwork savings and reductions, which is important--not
necessarily a major driver of our costs, but an important
Second, is this information sharing to reduce duplication
and to ensure, when possible, coordination? I have to say, as
somebody who has tried to gather my medical records because I
moved recently, it is not easy. It is not easy to go every
third Tuesday to a doctor's office to collect your medical
records and pay $25.
So I do think there is more potential to that information
sharing than not.
Ms. Schwartz. The point is well taken. It is information
sharing not only between the providers, but also with the
patients and consumers as well.
Ms. Lambrew. A third level is this idea of using
information tools, because in that waterfall of medical
information that comes out, physicians and patients, it is hard
to figure out what is the right information, how to use it, and
do you have it at the bedside at the right moment for both the
patient and provider. And using the tools that are available
through an information basis or a platform could be significant
when we again decide what is high-value care and promoting it.
Lastly--and I feel very strongly about this as a
researcher--are the feedback loops. It is trying to figure out
how we get the information to feed back in to figure out what
is high-value care. You look at two examples of organizations
that have used it, the Veterans Administration and Kaiser
Permanente. Kaiser discovered Vioxx earlier than anybody else,
the problems with it, because it had a system that it could
monitor what was going on and pick up and detect things that it
wasn't necessarily looking for.
So I think these four levels are the potential for it, and
I would argue that we can't get to a system using the word
``system'' without this basis.
So it is necessary, but not sufficient, to use a cliche.
Ms. Schwartz. Just take another minute to make a comment.
Dr. Gratzer. These comments have been pretty innocuous. I
think we would all agree that there is something wrong with a
health care system whose basic information infrastructure
harkens back to the days of the Pony Express.
Looking internationally, there are countries that have done
far more in terms of information technology experimentation. In
Canada, Alberta, one of the largest and most affluent
provinces, in fact, puts practically all health records now
online. You see your family doctor, the tests go on your
record; you cross the street and go to the hospital, and it is
there and accessible.
In Denmark, they have gone so far as to put the health
records online, and it is accessible, in fact, to patients. And
patients can even track things like their own cholesterol
levels and glucose levels. I think these things are definitely
worth thinking about.
I think, again, by the way, some of this will begin in the
United States through the private sector. I wonder about Google
medicine and Google health. I think it is worth for Congress to
weigh these things as well.
I would point out, though, in both the Canadian and Danish
experiments, you don't quite get the cost savings that people
have suggested you would. I think this might be a step in the
right direction. I don't think anyone would argue it is a
Ms. Schwartz. All right. I would say that what a couple of
you are suggesting is that, while it may not be a panacea, it
is a tool that we ought to really look seriously at.
There are some conditions set and there are a number of
bills moving through Congress thinking about this. But I think
we would all really appreciate hearing the conditions that have
been suggested as important to this, in and of themselves.
It only matters if we actually do it right, and that is
true for just about everything we do. But it is a tool we have
not used in any elaborate way. I think less than about 5
percent of American doctors use full electronic medical
records. The suggestion is, if done right, it could actually
affect both quality outcomes and costs.
We are looking for savings wherever we can get them, and if
we can improve quality at the same time, it certainly seems
But having taken my time, I would like to move on and ask
Mr. Ryan if he chooses to inquire.
Mr. Ryan. Thank you, Ms. Schwartz. First, let me start off.
Dr. Orszag, you are taking about an hour out of your day,
and the rest of the day you are going to be spending on the GSE
issue, Fannie and Freddie.
Mr. Orszag. I am viewing this hearing as a welcome respite
Mr. Ryan. I am sorry about that. I am going to ask a GSE
question, a very brief one, and then I want to get into health
care. It is just so topical right now.
I am reading in the Business section of The New York Times
today this article that more or less implies that because
Treasury is asking for unlimited limits on explicit debt or
line of credit or ability to go purchase instruments, that
there might not be any score attributed to that.
You are in the middle of trying to score all of this. I am
not going to ask you to give specifics because you are probably
still figuring this out. But whatever we do on the GSEs, your
granting the Treasury more authority, is it not going to score?
And if there is no limit to Treasury's ability to go and do
this, that is going to score a lot, is it not?
So can you just give me your sense of the wisdom of the
implication in this New York Times article? And what should we
begin to expect on scores coming from CBO with respect to these
ideas we are looking at that we very well could be voting on as
early as, I think, Wednesday or something like that.
Mr. Orszag. I guess my response would be, that was not news
that was fit to print.
Mr. Ryan. The New York Times put that out.
Mr. Orszag. Correct.
Mr. Ryan. Okay. Thank you.
Mr. Orszag. And that the absence of a limit on the ability
of the Treasury to inject funds, either as equity or debt in
loans into the GSEs, does not mean in any way that there would
be no cost associated, no score associated with the activities.
And CBO will be issuing a cost estimate for the legislation in
the near term.
Mr. Ryan. All right. I won't ask you any more details,
because I am sure you are still figuring that out.
Mr. Orszag. Thank you.
Mr. Ryan. I want to, but I won't. Let's go to health care.
There is a bipartisan issue out here that we can get done,
and it is IT and it is transparency. So let's explore how we
should go about doing this. America is sort of behind the times
when it comes to these issues, especially on technology.
First, let me put a pitch in for a bill I have with Dennis
Moore on health IT. Right now, the system that works today, you
have the marketplace basically putting up silos. You've got
McKesson, Epic, Cerner, GE and, I think, Siemens as the main
providers of health IT software and hardware, who by their own
very designs have these stovepipes where they can't talk to
each other. So, by design, they are not interoperable systems.
When you get into this issue, we are concerned about
privacy, about the property, who houses these records,
individual medical privacy, but also interoperability. So I
hope Dennis will take time in his questioning to go into this.
But this is something we are really going to have to look
at with respect to how these medical records are housed, where
they are housed, who has them, and how do we drive
I think, Dr. Orszag, you have given us some good ideas
about how to get this going and get it off its feet.
Let me get to the more sticky issue of transparency. In my
roadmap plan, I pursue a legislative course, which I will be
doing an independent bill on soon, to try to get at real
transparency on cost, on price and value and best practices.
And here is the basic question: What is the best way to go
about this? Should we have the Federal Government, HHS, CMS,
design the metrics on price, design the metrics on quality,
design the metrics on best practices; and basically tell
physicians how to practice medicine, and we are going to pay
you for this or we are going to pay you for that?
The reason I urge caution on this is, from being on the
Ways and Means Committee for the last decade, this then becomes
politicized. There are just no two ways about it. What you will
have are various provider groups, various interest groups come
to the Ways and Means Committee and say, pick us as the winner,
pick us as favorites; and we nonphysicians will inject
ourselves into the practice of medicine in the marketplace. The
professionals won't be the decision-makers, it will be the
bureaucrats and the politicians.
I think there is probably a better way. And the way we are
advocating, and I would like your response to, is, instead of
having CMS design and police all of this--which will be behind
in the times, it will be behind in innovation--let's look at
areas where similar ideas have worked better.
Financial markets: After the Great Depression, we created
the Securities and Exchange Commission to sort of police
corporate books and make sure this is working.
We have the FASB, the Federal Accounting Standards Board,
which is not a government agency, but a public-private
partnership of all the various stakeholders, the academics, the
consumers, the CFOs, the Big Three or Four accounting firms--I
don't remember how many are left--to basically come up with
promulgating standards and metrics on accounting which innovate
with the time. And if you cook the books and don't follow the
standards, the SEC comes and gets you with government
So what I am proposing is taking AHRQ, taking it outside of
CMS, using it as a stand-alone agency, calling it the Health
Care Services Commission, to also set up a board of standards
of all the stakeholders, so that you have a standard-setting
agency that designs the metrics. But it is the market designing
it, more or less with the enforcement mechanism of a health
care SEC, if you cook the books.
So when we are designing best practices on how to replace a
hip, it is the College of Orthopedic Surgeons that are in the
room helping design those standards as technology continues to
innovate. So when we are designing metrics on how to measure
price on per episode of care, on what does the entire bypass
surgery cost, you have got the hospitals in the room saying,
here is how we ought to do it. When you are talking about
quality standards, you have the actual specialist in the room
saying, here is the best way to risk adjust, putting a drug-
coated stent versus a non-drug-coated stent; you have the
cardiologist doing that.
The point I am trying to make is, this industry innovates
very quickly. Health care innovates very fast, faster than
government can possibly promulgate regulations. So why not have
a system like we have for the financial services sector, which
innovates with that sector, in health care, where you have the
government saying, if you cook the books, if you deviate, you
are going to be penalized. But you have the industry itself,
along with consumers, along with all the various stakeholders,
government included, designing the metrics on price, designing
the metrics on quality, designing the metrics on best
practices, putting them out on an apples-to-apples basis,
standard metrics, so the market can respond, so consumers can
see, so people can shop for value, so employers can reward
outcomes, so the payers can actually see what they are getting
for their money.
Is that not a better model going forward, than having CMS
dictate the terms of all of this stuff, and penalize or reward
providers based on what CMS thinks is the best way to practice
I will start with Peter and go down the road. Would you
care to respond to that notion?
Mr. Orszag. Do I have an option?
No, I didn't think so. Why don't I phrase it this way?
In the current structure of our public health insurance
programs, Medicare and Medicaid, there are decisions that the
government needs to reach on what should be reimbursed and what
have you. So in a sense you are asking a far larger question
about the structure of those programs.
But given those programs, structured roughly like they are,
there is a further question which is, can the decision-making
process be improved through which reimbursement rates and what-
have-you are set? And I think, on that, Dr. Lambrew mentioned--
and I know it has come up on the Senate side during hearings--
this idea of trying to create some other structure that takes
many more of the decisions away from the Ways and Means and
Finance Committees and puts them in a Federal Reserve-like
structure, both for technical competence and for political
I would say that CBO will be doing a report on options for
that kind of Federal health board which should be out later
Mr. Ryan. All right.
Ms. Lambrew. I think there are a lot of analogies with what
I discussed and what you just said, and I am excited to have
I would say the question becomes how much you want to
separate out what I will call ``the standard generation'' from
its use. And I think that what I described here--and I work
with with Senator Daschle, who has been thinking a lot about
this idea--what we both are thinking is, you would create the
standard-setting board with experts--doctors, economists,
people who are pure experts--to figure out: is there strong
evidence that something is high value or low value? Is there
real evidence on trade-offs, whether this one has a marginal
impact on quality, but this has an impact on cost? Real trade-
offs. Or is there no real evidence, so we have to basically let
other people figure out what to do with this?
So our idea is, you have one body create the standards.
Then you have other people, because when you start figuring out
resources and price, that gets into value judgments, societal
judgments, political judgments. So we would separate out the
standard development from the use of it.
What I propose in my testimony is, we basically allow
MedPAC and the board of trustees for Medicare and other public
programs, for example, to use that information, in a devolved
way, to act, so it doesn't have to be decided by the Ways and
Means Committee and the Energy and Commerce Committee. You
basically say, here are the standards, here are your experts
who say how to employ that, and then let Medicare do that
without the process of coming to Congress every single time.
I think it has to be kind of a trade-off, because having
the standard-setting board also say, here is an aggressive way
to pay for it, may be, probably, a different set of expertise.
That is why we separate them out.
But there are many different models for how you allocate
these functions, with the bottom line being--and I firmly agree
with this--we need to find a new way for decision-making
processes in health policy and trying to move it into the sort
of processes I set forward.
Mr. Ryan. We definitely want to get to the same place. That
is pretty clear.
Just from being jaded, being in the middle of the committee
that oversees this stuff and seeing how politicized this gets,
how slow the bureaucracy moves, it is a cautionary tale of how
to proceed going forward.
Dr. Gratzer. I know that you have drawn heavily in your
thinking from the work of Professor Regina Herzlinger, who does
talk about a Securities and Exchange Commission for health
care. I have enormous respect for Professor Herzlinger. As you
know, she also has an affiliation with the Manhattan Institute,
and I think she has written probably the second best book on
health care to be published in the last half decade.
I am not quite as bullish on all aspects of this as perhaps
Undoubtedly, we have an issue with transparency. We can
talk about pricing; that is the tip of the iceberg. We are not
just interested in how much each orthopedic surgeon charges. We
are interested in how good are they at it.
Mr. Ryan. Without the quality, you can't get the value
Dr. Gratzer. Well, a starting point is to look at pricing,
because one finds extraordinary things when one looks at that
alone. It is very difficult to get pricing. As you know, the
Bush White House has attempted to do that, and different people
have been approached. And the hospital industry argues that
they don't actually have prices, it is the insurance industry;
and the insurance industry argues it is the hospital industry.
We know also there have been some experiments with
legislation, like in California where hospitals are required to
release all their pricing information; and unfortunately, most
of what they release is nonsense because they don't really
expect to receive the list pricing. So one hears there that
blood testing can be $300 at a hospital, but they don't
actually get that. Certainly they don't get that from Medicare
or Medi-Cal, and they don't get that from the private sector.
So some sort of fair play organization, modeled after the
SEC, where you would have more information on pricing, more
disclosure of complication rates and low-hanging fruit we can
all agree on. I think that might be reasonable.
I am hesitant in pushing forward and saying that such a
body could then turn around and identify best practices and so
on. I am worried about the politicization that would come from
it. I am worried also about other things.
That is not to say that I don't think there is an enormous
role for the Federal Government in facilitating information.
Let me give you an example, as a practicing psychiatrist.
There are new drugs coming to the market all the time. I
treat schizophrenic patients. What is the best antipsychotic?
There is no drug company that is going to fund a head-to-head
comparison with another on-patent drug. NIMH funded a beautiful
study done by psychiatrists at different centers, called CATIE,
that gives you great information. Those are the sorts of
initiatives I think the Federal Government could do and the
sort of research that NIMH and NIH could do.
Again, I am just a little bit hesitant in how much further
you want to push. You suggest bringing in the experts and
bringing in the orthopods and discussing what are best
But, you know, they do actually have clinical guidelines
come out of those bodies. I am not sure there is as much
discrepancy in terms of best practices as some would suggest,
or that there is as much a role for the Federal Government as
some would advocate.
Mr. Ryan. Dr. Gratzer, you practice both in Canada and the
Dr. Gratzer. Now I am not practicing in the United States.
Mr. Ryan. You practiced in Canada; is that correct?
Dr. Gratzer. That is correct.
Mr. Ryan. I want to ask you one final question.
In the year 2000, the World Health Organization said the
French health care system was the best health system in the
world. The next year, France declared the system bankrupt.
President Sarkozy now--he won his election on many issues,
chief among them saying people are going to have to pay more
for their health care expenses out of pocket.
Give us just your top few ideas on lessons learned from the
Canadian system and lessons we ought to learn before we
overhaul our system, and what we ought to avoid going forward,
so that we can learn from your experience and the mistakes that
may have been made in Canada, rather than repeating them.
Dr. Gratzer. Sure.
The WHO study is often cited. I fear it is probably not
worth the paper it is written on. International comparisons are
enormously difficult to do. If you actually look at their data
set--and it has been some time since I looked at it--they put a
huge emphasis on things like equity and relatively little
emphasis on things like timeliness of care.
I would point out that the United States and--for that
matter, Canada--finished behind Morocco and Colombia, and I
don't think the experts at the WHO, as august and intelligent
as they are, really pack their kids up in the morning if they
have a cough and fly them to Bogota for care. So I think one
has to be enormously cautious about international comparisons.
I think if you look right across the Western world and not
just at Canada, as you suggested--the country of my birth--but
France and Sweden and Great Britain, you find that these
countries are dealing with similar things that we are dealing
with right here in the United States, an aging population, the
full impact of the high-tech, high-expense medical revolution,
the fact that value doesn't necessarily come with higher
I would also suggest to you that many of those countries,
countries with public systems that some in the United States
seem to idolize, we see that they haven't found a cure-all.
Which isn't to say that there aren't ideas there that are
relevant in the United States or there aren't things that we
could learn about, for instance, information technology. But in
the overall scheme of things, often what they have ended up
doing is simply rationing care.
If you see a doctor in Canada or Britain or Sweden, I don't
think they have access to the best practices much more than in
the United States or other countries. And I think part of the
way they have saved money--and let's emphasize those systems
are much less expensive than the American system as a percent
of GDP--people just have much less access to care.
There is a news item in The Globe and Mail, which is a
major newspaper in Canada, kind of like I suppose The New York
Times is in the United States. They are talking about a town in
Newfoundland, Gander, where they have an annual lottery, and
the people who win the lottery get access to the family doctor.
Again, I want to emphasize, there are things we can learn
right across the board from these countries, but there is no
country we can point to and say, they have gotten everything
right and we just need to plagiarize.
Mr. Orszag. Could I make a very quick point? I would urge
that we dial down a bit the cross-country comparisons, and dial
way up the comparisons across parts of the United States. There
is so much variation within the United States, within a single
payment system under Medicare, where I think we could be
learning a lot about ways of improving efficiency.
And the cross-country comparisons are useful for some
purposes, but there are lots of problems associated with them.
They get way more than attention than the regional variation
within the United States, and I think we should try to flip
that on its head.
Mr. Ryan. What is helpful with cross-country is policy
I think you are right, what is helpful is--look at
Louisiana--I think their prices are twice or three times what
we have in Wisconsin; you factor utilization in and exempt out
for that, it is still a huge, huge delta.
And that is why--correct me if I am wrong, Peter, Dr.
Orszag--IT is a big deal, IT and best practices, and seeing
very clearly what value you get and then rewarding based on
I think we all agree, that is clearly the way to go after
where a lot of the waste is in the system. Is that not your
Mr. Orszag. I think there is substantial inefficiency, and
one of the key ways of capturing it is to have a more expansive
health IT system that is then used for that purpose.
Ms. Lambrew. Just a quick note. Thinking about Medicare, we
do have significant variations in Medicare when you can argue
there shouldn't be that much. But it is still less than what we
see more generally, and part of the reason is that providers
operate in local contexts. So you know from Wisconsin that your
private payers and your Medicare payers generally have lower
prices and lower costs than other areas of the country.
This is why I think we have to go beyond doing solutions
one program by one program, figure out how to develop a
standard, figure out a system to transmit those standards to
all parts of the system, public and private; and then--and I
think we can't underscore this enough--come in with financial
tools, systems to make it the priority, because just having the
information out there isn't sufficient.
Chairman Spratt [presiding]. Thank you very much.
Mr. Becerra. Thank you, Mr. Chairman, and thank you to the
panelists for their testimony.
Dr. Orszag, a quick question. You mentioned the $700
billion that doesn't seem to get us anything more than we
already had. That seems to indicate that we have quite a bit of
room to make improvements and dollars to use to make the system
much more efficient and successful in its outcomes towards
America's health care.
Mr. Orszag. I think there are huge opportunities for
improving efficiency. The difficulty is how to capture that
Mr. Becerra. If we could capture it, that is $700 billion
we could put into the system in more efficient ways.
Mr. Orszag. Yes. It is a lot of money, but a big ``if.''
Mr. Becerra. They are both big, both big.
Dr. Gratzer, a question for you: I don't think anyone
disagrees with you with regard to trying to move towards a
health system that places the decisions closer to the home, to
the family, to provide them that choice.
The difficulty I think I would have with what you say is
that chances are your family, my family, would have far better
choices than, say, most of the folks who live in my
congressional district in the city of Los Angeles.
The average income in my district, the median income of a
family in my district is about $34,000. That is probably about
what I make in 3 or 4 months as a Member of Congress, and I
guarantee it is probably somewhere around what you make--maybe
you make more than I do, as a physician as well. But I think it
would be very difficult for a lot of these families to have the
choice that your wife had with regard to her back surgery. That
is what makes it difficult. They would love to have that
choice, to stay closer to home. The problem becomes
So what Mr. Ryan was saying, and I think what you were
saying with regard to the markets--and I am not sure if I would
want to use the markets necessarily these days to try to talk
about a better role model for our health care. If you look at
the financial markets recently, the ups and downs, they would
probably cause quite a bit for chaos for health care if people
had to depend on a pure market-based system.
Supply and demand works well if it is a pure system. But if
your wife demands surgery for her back, if my wife demands
surgery for her back, we probably can find it and find a good
physician to provide that surgery. I doubt that most of the
people who live in my congressional district could make that
demand and follow through.
So supply and demand is great so long as, on the demand
side, you have the ability to follow through.
At the same time, there is the issue of choice. You are a
physician, your wife is a physician, my wife is a physician. I
will bet if I told you to make sure that your wife didn't have
to go to the hospital to get that surgery in July, you would
understand why I was saying that.
My wife and a lot of her colleagues always joke and say, if
you are ever going to become seriously ill or injured, make
sure it is not in July, because you don't want to go into a
hospital in July. Why? That is when most medical students who
graduated start their residency program in teaching hospitals
or in hospitals that take residents.
So the last thing you want is to be severely injured or ill
and have to go to the hospital and the person who is treating
you firsthand is a resident, a first-year resident.
I suspect you have probably admonished people the way my
wife has admonished me and others that, if you are going to see
a physician, make sure the physician you are going to see is
board certified. I have got some 20 years of education under my
belt, 4 as undergraduate, 3 as a law student. I wouldn't have
known to ask that M.D., by the way, are you board certified in
that particular field? But now I do because I happen to have a
physician as a spouse who says to me, make sure that physician
you are going to see is board certified.
These are all choices we get to make, but some people have
better information than others do, and some have a better
ability to make choices and make the demands than others do.
And so I think if we could figure out how to make better use of
the $700 billion that is out there and then be able to give
everyone in America, including those 47 million Americans who
don't have health insurance, a choice so they can make a
demand, to make sure the supply meets the demand, then I think
we would be there. But at this stage we still have so many
people who don't have even basic access to health insurance
that the choice your wife gets to make, my wife gets to make,
that we get to make is not yet there.
And I thank all of you for your testimony. I don't really
have a question, but I think it is important to note that there
are good ideas out there. It is just a matter of making sure
that we match the good ideas to the good intentions to make
sure everyone in America can make good use of those ideas.
Mr. Chairman, I yield back the balance of my time; and I
thank the panel for their time as well.
Chairman Spratt. Thank you, Mr. Becerra.
Mr. Smith. Thank you, Mr. Chairman.
I guess, Dr. Gratzer, if you wouldn't mind, what is the
availability of information? Let's just say, most basic, for a
patient wishing to know how much a procedure will cost before
they undergo the procedure, can they call? What is the
likelihood of being able to find out the cost before it is
Dr. Gratzer. That is a surprisingly complicated question.
If you asked me what is the price of a Toyota Camry in
different places in the United States, it is a pretty easy
question to answer. It is very difficult for individuals to get
Now, again, it depends if they are in the public sector or
the private sector in terms of their insurance. As you know,
HHS has been trying to release more data.
As you know, different companies like Aetna and so on have
experimented with better disclosure of how much, say,
specialists in Cincinnati are compensated for consults. But,
for the most part, it is very difficult to get that sort of
information available. Which I think also suggests some of the
enormous problems that people who champion consumer driven
health care face, because there is not that much consumerism to
be had if you don't have good information available.
So I think wherever you sit on this debate, though, one can
appreciate that we need more information, both on pricing and,
ultimately, on pricing and quality.
Ms. Lambrew. I think that we need to be careful about more
versus better. Because the reality is that we do have a fair
amount of information on things that we potentially can't use.
In fact, there has been some studies that are interesting that
say sometimes there is too much information for effective
decision making. The classic study being that if you give
people many, many choices of ice cream they choose chocolate,
vanilla and strawberry, versus you give them 10 choices they
can digest them and choose across a broader range of that.
So I think that we need to look at the type of information
that people should have. People want to know the information on
their doctor so they can make a choice to a degree. I think it
is always a little bit more about word of mouth and other
factors, but they want to choose their doctors, they want
information on their plans, and then they want information at
the point of service when there is a real choice.
I think we need to figure out how to structure the
information around those types of choices so it is useful,
effective and promotes high value, and take some of the other
information, when there is a clearly effective service or a
clearly better way to deliver health care, to adopt it. Because
we can't reduce that variation without at some point saying,
this does work. Let's use every tool that we have to promote
Mr. Orszag. Can I just add two quick points?
In the written testimony, there is a little discussion of
I think there are two things to remember about the price
transparency for individual transactions, for medical services,
this surgery, that surgery, et cetera. First is such a large
share of health costs are insured, something like 80 percent or
so, which obviously diminishes the incentive to kind of shop
around, if you will.
And then, secondly, that many health care markets are
local, and many of those local health care markets are quite
concentrated. And evidence from other sectors suggests when
there is more price transparency with that kind of industrial
organization setting, where there is only a limited number of
competitors, basically, the effect can be to facilitate
collusion. So if you are thinking about two hospitals in an
area and you start publicizing prices for individual
transactions, the effect in other sectors has been not to
reduce the average price but to increase it because of
Mr. Smith. So there is evidence that through more
disclosure of price that that leads to price fixing or a
Mr. Orszag. Yes, there is. And so that would be a concern
that would need to be very carefully attended to with more
price transparency in local health markets.
Mr. Smith. So I guess what I am getting at is what is the
incidence of a patient needing to pay for an office call with
the provider before they know how much it is going to cost?
Mr. Orszag. Oh, I am not denying there is very little
transparency that exists currently in terms of how much things
actually cost. If you were quoted a price, that, as was already
mentioned, is often not the final price but rather just a
starting point for negotiation anyway.
But the question I was trying to answer is what if we had a
lot more transparency about the underlying cost or price of the
doctor visit or the MRI or the surgery. And I think in our
heads we all think that will lead to significant reductions in
cost because we will be a bunch of very savvy consumers
shopping around. And there is a limit to the degree to which
that will happen to the extent you are insured and therefore
don't have much incentive to shop around, first.
And then, secondly--and that's on the beneficiary side. And
on the provider side you could be facilitating collusion and
moving towards more monopoly pricing, rather than competitive
pricing, which is just a concern that would need to be again
sort of very carefully monitored by antitrust and other
Mr. Smith. Absolutely. I would speculate that it would be
easier to detect collusion with more information available to
the public, getting more people chatting about it and perhaps--
I mean, there will always be that risk with more information,
but, to me, it would be a greater opportunity for detection.
Mr. Orszag. Let me just pin in, focus in on that. What you
would expect with more transparency is that, currently, there
is some distribution of prices basically, and that it would
collapse. It would--you know, there would be much less variance
in the prices. But whether that collapses to a higher or lower
average price depends on the provider behavior in addition to
beneficiary behavior, and that is where it can get a little
We put out a policy brief on this topic a few months ago
which I will get to you with examples of other sectors where
this has actually led to higher rather than lower prices.
[The information follows:]
Mr. Smith. Okay. Thank you, Mr. Chairman.
Chairman Spratt. Mr. Doggett.
Mr. Doggett. Thank you, Mr. Chairman; and thank you for the
testimony that each of you have offered.
Dr. Orszag, if I understand your testimony, it is that we
have $700 billion of waste in our health care system and one of
our goals is to try to reduce or eliminate that waste.
Mr. Orszag. Let me rephrase it carefully. Credible
estimates suggest that as much as $700 billion a year is
delivered in health care services, surgeries, MRIs, doctor
visits that don't improve health outcomes. That is a lot of
Mr. Doggett. If they don't improve health care outcomes,
they are wasteful expenditures.
Mr. Orszag. They are wasteful in terms of improving health
outcomes. The providers may not view them as wasteful.
Mr. Doggett. Well, and that goes to the heart of how we
address the problem.
You have also said--and there has been kind of a suggestion
among some of these questions--that if we have the truth it
will set us free. And I think you have pointed out that just
having information, just having disclosure is not a panacea,
that in fact it will only add cost to the health care system
and be of academic interest unless you link that disclosure
specifically to comparative effectiveness and have financial
disincentives so that you are not rewarded for waste.
Mr. Orszag. I think that's right.
Just to focus on the fact, while I think in general for
consumer behavior the Econ 101 perspective is exaggerated, on
the provider side, we do need to remember financial incentives
matter; and to a first approximation in health care we get what
we provide financial incentives for providers to provide. And
unless you are going to change the payment methodology, you are
not going to wind up with a more efficient health care system.
Mr. Doggett. You have also suggested that if you really
want to have comprehensive information technology where all
health care providers use it, just providing financial
incentives will only encourage those who are about to adopt it
anyway and that what we need to do, ultimately, is to set a
timeline by which if you don't adopt the technology you don't
get a penny of government money.
Mr. Orszag. Yeah, let me come back to that. Because that
had come up earlier.
So one approach is to provide some tax credit or a payment
or subsidy for adopting health IT. The problem with that is the
folks who already view it as beneficial for their own
operations to adopt will have done so, and there will be more
of them over time even without Federal intervention.
And so what are you doing? You are flipping those people
who were sort of close to the line, who from their own
perspective were pretty close. And if you want to keep the
fiscal costs contained, you are not going to have a huge
I was asked earlier, what else could we do? Well, you know,
it is either the carrot or the stick. That is kind of the
carrot and then there is the stick approach. In e-prescribing
and other approaches, you can combine both of them. You could
provide a small subsidy up front during a 3- or 4-year
transition and say, thereafter, you won't receive Medicare
reimbursement unless you've adopted.
I'd also note that is not a perfect system. The Medicare
approach, for example, pediatricians and others who might fall
outside of the bulk of the Medicare system may require some
other kind of approach.
Mr. Doggett. I want to involve Dr. Lambrew in this, also.
If the goal here is just get the government out of the way
and turn all of this over to those who have a financial
interest in the outcome, let PhRMA decide pharmaceuticals, let
some kind of surgeon decide what kind of surgery we will
reward, that certainly won't eliminate that $700 billion of
waste, will it?
Ms. Lambrew. I don't think so. I think that, going back to
the car analogy, because that is what we usually do in health
Mr. Doggett. Better than a financial services analogy.
Ms. Lambrew. Exactly. It is not as though trying to pick a
drug or picking a doctor is like buying a car. It is more
analogous to trying to say people should be buying the parts
for their car and putting it together themselves.
We have to think through systems. We know that thinking
through choice of organizations where you get care, because the
organizations then have the infrastructure, the multiple
specialists, nurses, the other components of a high-functioning
health care system matters.
We also know that having somebody help structure the
choices for health insurance matters. Employers do these days
really make discriminating decisions on behalf of many people
to figure out what is a high-value health insurance plan.
Unfortunately, there is often not as many choices as they would
like. We see a real consolidation of the insurance industry.
I did a study about 5 years ago in which we asked people,
which would you rather have, the money your employer pays and
go out and buy insurance on your own or a set of a couple of
choices, three to five choices of health insurance plans? And,
by far, people wanted their employers to help them.
Health care is complicated. They want choices, but it's a
narrow set of choices, and we need to figure out not only how
to focus in on the right types of choices for individuals that
promote value in their own preferences but also make sure
everybody has those choices.
I need to underscore the point that you made earlier. We
have to have everybody have those choices. It is not fair to
have a system where one in three Americans is out of the system
at some point in time over 2 years. We have to get everybody in
to make sure that this is a high-functioning as well as a fair
Mr. Doggett. Let me just say, in closing, Mr. Chairman, the
suggestion that has been made this morning, not by the
witnesses, that we need our health care system to follow the
example of the Securities and Exchange Commission and the
regulation of the financial market seems to me to be
particularly ill-timed, because we have had the idea of
government gets out of the way, no regulation of the sub-prime
market, and we have a disaster.
I think to follow the notion that we will just turn it over
to those that know best and government with get out of the way
and Congress won't pay attention or be involved, everything
well work out fine--we only need to look at the economic crisis
we face today to know that approach does not and will not work.
Chairman Spratt. Thank you, Mr. Doggett.
Mr. Berry. Thank you, Mr. Chairman.
Mr. Gratzer, I believe that you in your opening remarks
spoke of HSAs and how you thought that was one of the good
things that had been done. Do you have information that says
how much money they save or do they get better outcomes, why
you think that is a better deal?
Dr. Gratzer. Thank you, Mr. Congressman.
We are in the early stages of experimenting with health
savings accounts. I think that there have been a plethora of
studies that have come out. To really satisfactorily study this
issue, we will need far more data over many years.
I think that there is early evidence, certainly some from
insurance companies, some from organizations, suggesting that
when people are given more financial incentives they do tend to
make better decisions. I think we have some early evidence
that, and of course we are all very worried about this, people
aren't sacrificing care and thus sacrificing their own health
in the long run.
As you know, there is one landmark study from the 1970s,
one of the largest social science experiments in human history,
the RAND Health Insurance Experiment, where a thousand families
were put on a free-for-all system, not unlike perhaps what one
would get in a country like Canada. A thousand families were
put on a user-fee system, and there was no discernible health
outcomes except in the poorest of the poor.
So there is evidence that if you separate out smaller items
in health care--checkups, X-rays for sprained ankles and so
on--from larger items, like, God forbid, one of us is hit by a
bus, that people are able to make decisions again. Early
evidence from health savings accounts does prove somewhat
supportive of this.
Mr. Berry. Either one of you have a comment?
Ms. Lambrew. I would just say that I think there are
downside risks to this approach, and they are kind of trying it
out. One of which is we do have a sense from the research that
people are not good at discerning necessary from unnecessary
use, so they maybe equally likely to skip the chronic disease
medications or the early detection of a disease that does cost
as much as other services. So I think there is a risk of losing
valuable services as well as wasteful services in the process.
And the second is that, to the extent that people have low
income and we're not figuring out a way to address that, we are
really creating financial barriers to access to care. And most
of the surveys we have seen of these different products are
indeed they do increase people's awareness of cost, but they
also increase people's self-reported access problems and
financial problems associated with those deductibles.
Mr. Berry. I am curious, as this discussion has taken
place, there has been--most of the discussion has been about
IT, it seems to me. And I don't discount the value of that. I
think we are going to have to do something that improves all
I am a little bit surprised that no one has mentioned the
value of larger health care pools. I don't believe I have heard
it. Maybe it happened when I was out of the room. Or the cost
of prescription medicine in, actually, what I consider to be a
wacky way that prescription medicine is priced to the American
Have you all looked at any of those things as they reflect
the cost of health care? And if anybody knows the value of
PBMs, I'd like to know what it is, because I have never
Mr. Orszag. Okay, why don't I take a crack at that?
By the way, I should first say I actually have a health
savings account myself.
On your former question and the discussion--Mr. Ryan looks
surprised by that----
Mr. Ryan. Pleasantly surprised.
Mr. Orszag. The discussion we were having before about lack
of information about the value of different procedures and what
have you, the lack of comparative effectiveness is quite
salient because it is often very difficult as a non-medical
professional to determine what is or is not valuable.
Let me turn to pharmaceuticals. I think it is they get a
lot of attention, but it is important to remember that
pharmaceutical spending is about 10 percent of the total health
care spending. And that, therefore, there is sort of an
inherent limit in some sense to the traction that you get from
bending the overall curve through changes in pharmaceutical
spending. And in fact there is often some offset in the sense
of more pharmaceutical spending may reduce inpatient and other
On pharmaceutical benefit management firms or that
technique, we have seen a very dramatic shift towards generics
and away from branded drugs, which, by the way, is the primary
explanation for why Part D in Medicare is costing a lot less
than was projected initially. The shift towards generic drugs
that has occurred overall means that overall pharmaceutical
spending is much lower than it was projected to be at the time
of enactment of Part D. And that has carried through over to
Part D, also. So there is no sort of magic to the fact that
Part D spending is lower than was projected. That is occurring
in drug spending overall, where there has been much less rapid
growth than was projected in, say, 2001, 2002, 2003.
Mr. Berry. Could that savings not have been achieved just
by using the pharmacist and his knowledge or her knowledge or
by a Medicare-run plan?
Mr. Orszag. There are lots of ways of achieving savings.
Again, the question is you need to make sure that the
entities that you are hoping will achieve savings have
financial incentives to do so. And you mentioned PBMs, they
have incentives to achieve those savings.
Ms. Lambrew. I would like to address your other issue about
pools, and I think that was a neglect on my part in my
testimony. Because I do think we have heard today the
discussion about health care, and it is just not a normal
economic good. So the question, if we have price transparency
leading to higher collusion on prices, that is not your typical
market. So the question becomes, if we do have this different
type of system where we have some of this collusion going on,
how do we best reduce that? That was a question I think
Representative Jordan asked earlier.
And I would argue that trying to have individuals out there
shopping for different providers to hopefully lower the price
is not a viable option. Having large pools, pool purchasers,
sophisticated buyers, insurers trying to figure out how they
can, for blocks of people, negotiate down rates, figure out
better systems of care, would be more effective, to say nothing
of the marketing costs, administrative costs of taking apart
our employer-based system today where 60 percent of the people
So I would argue that there is fairly significant evidence
that if you have large groups of people, not monopolies per se,
but large groups of people in purchasing pools that are dealing
with a complicated health care system that is fairly
consolidated, supply-oriented, you might be able to achieve the
kinds of value-oriented health care that we discussed.
Mr. Berry. Thank you very much.
Dr. Gratzer. I wanted to add, in two or three sentences you
have raised some of the biggest issues in health care,
obviously going beyond just what we've discussed so far.
Pooling is an issue, and the way we buy health insurance right
now is very relevant. There are some questions as to whether a
1940s model of employer-based health care is relevant in a day
and an age when people are turning over jobs and moving from
workplace to workplace. That is a topic for another day.
The other issue, of course, is that prescription drugs
often is brought up; and people often get very excited about
it. It is only really about 10 percent of overall health
spending. It is probably not nearly as fast in growing as a
percentage of health spending as, say, hospitals are at this
point in time.
It is one area, by the way, where we have seen better
information and better pricing availability for people make a
difference in that people increasingly choose generics, which
probably are more cost-effective for more individuals. That
might be one of the very few success stories we can clearly
identify, both in Part D and in the private sector.
Chairman Spratt. Mr. Etheridge.
Mr. Etheridge. Thank you, Mr. Chairman. Thank you for this
hearing. I thank our panelists.
I think we all do share the goal of having a health care
system that buys high quality and the costs are affordable. We
struggle with both those, unfortunately, especially today.
We talk about it--but what we are really talking about is a
system last year in the United States we spent about $2.3
trillion, and we are hearing that CBO projections that health
care spending will go up to roughly, over the next 75 years,
and may increase 10 times. And we're looking at about $28
trillion, which is a number that is so big we can't really
comprehend at this point.
Each of you have spoken about the importance of controlling
health care costs. Yes, it is what we are about today. How do
we do that?
We talked about IT as one of those areas. And just
yesterday Congress passed the Medicare Improvement Act, which
includes provisions on electronic prescriptions, which I think
is a great step forward. I know when I get a prescription from
my doctor, his handwriting looks about as bad as mine; and I
really wonder how the pharmacist figures it out. But I guess he
does so that we get the right kind of medication and the
prescription is done, and that is a step in the right
direction. Number one, it won't get lost; and, number two, we
get the right stuff. So I won't ask you the question on IT
because I think we have pretty well beaten that dog to death.
The issue I guess that I do hope you'll cover when I get to
the next question is, we have to find a way, I think, in health
care how IT can improve our understanding of the system.
Because I think, to get the results we want, we really have to
understand the problem first--I am not sure we do--that will
lead to better care.
And I think consolidation is one of those issues across the
country as we look to the charts, hospitals advertise, and if I
am sick I want to go to the very best one. I think that is true
of everyone else.
You have talked about that through your wife. And that's
what happens. We start to do selections. And in the process it
is the cost of the increased equipment we buy that we get to.
So I guess the question I want to ask is, one of the
curious things about health care is that people don't always
have the time, they don't always have the knowledge to wade
through all the options. Prime example was the Medicare option
as it relates to prescription drugs.
We came out--in North Carolina, I think we had 37 different
plans we could go through. Now I have some knowledge of stuff,
and my mother-in-law, I was trying to help her, and finally we
just decided we weren't going to change. We had an insurance
plan. It was so complicated that you had to go to so many
different areas to find out whether they covered the drugs she
That is the question. I hope you'll comment on that.
But as we look at the enrollment, people tend to save if
they are automatically enrolled and have to opt out. You
touched on that earlier. Health care plans, I would be
interested in that. Are there ways that we can develop policies
that harness this power to improve Medicare or medical
efficiencies? Because I think we give too many choices, the
first option is not to choose at all, unfortunately, either on
the provider or on the consumer side.
Mr. Orszag. Yes. Absolutely. And I think this is one of the
largest untapped areas of improving health. So, for example,
that if you are trying to get someone to get vaccinated next
week, saying you should go get vaccinated, you get very low
take-up rates. If you say, you should go get vaccinated and
here is where you should go and give them a map, higher level.
If you automatically make an appointment which they can then
cancel, you get extraordinarily higher take-up rates. And,
again, you are not imposing anything on anyone because they can
always opt out. So you still have the freedom of choice about
But making it easy for people to do things I think is an
extraordinarily powerful thing that we have not tapped across a
whole array of policy topics.
And in terms of healthy living, I think what we learn is
that if there are even small impediments to exercise or eating
well generate very large differences in how much people
actually exercise or what they eat. And that is the same story
as retirement savings. Just a small impediment, that you have
to read through the forms and then sign on the dotted line,
that is a big deal in terms of participation rates. We need to
be making it easy and simple for people to be eating right and
to be exercising, and in the health care system we can be using
that same insight.
You mentioned Medicare. In Medicare, for example, one of
the things that would pay off, people are always asking me,
what can we do that would actually save money in a 5- or 10-
year window? E-prescribing actually was scored as saving money.
Another thing that would save money is if we got flu
vaccination rates for Medicare beneficiaries up to closer to
100 percent. That would save money in the short run. There is
not universal take-up. You could probably get towards universal
take-up because most beneficiaries touch a medic or see some
Medicare provider during the flu vaccination season. If it were
the default that when you went to see a Medicare provider you
would receive the flu vaccine unless you opted out--so there
are lots of things that you could do.
Ms. Lambrew. I just would build on it by saying that we
also have to figure out ways like that that move beyond the
medical system. Because so much of the types of prevention and
wellness and behaviors that we need to address are outside of
the boundaries of our medical system.
And one study found that if we had a typical physician with
2,500 patients provide the recommended preventative services to
that patient group, 7 out of 8 hours of the day would be spent
providing prevention. So I do think that part of our challenge
in health care is thinking about how we use less costly ways of
delivering it in schools, in the workplace. Pharmacists we
talked about earlier. Pharmacists see a lot seniors. Why not
build pharmacists into these systems to try to ensure
immunizations and other good, preventative practices?
So much of prevention is asymptomatic without diagnosis and
could be delivered in less costly and more ubiquitous ways, and
I think that we need to figure out ways to explore that as
Dr. Gratzer. I think we can all agree that one of the
easiest ways of saving money is to keep people out of the
system in the first place because they are healthy.
Long-term projections always need to be taken with a grain
of salt, but people have looked at rising obesity rates in the
United States and suggested, between now and 2020, in one study
20 percent of all new costs would be associated with obesity-
related illnesses. As you know, that is an entirely avoidable
condition. Unfortunately, more and more Americans now qualify
as obese. I know the last statistical analysis suggested that
maybe we had plateaued out, something like one in five
Americans qualify as obese; 40 percent are overweight.
I think, though, when we look at public health--and this is
an area of extraordinary interest to me--we have to be a little
bit cautious. Life isn't as easy as it was in the 1960s. As you
know, in the early 1960s, before the greatest public health
revolution of the 20th century, two-thirds of Americans
actually thought there was no connection between tobacco use
and cancer. Because of the Surgeon General's report and because
of the government's efforts on educating, by the end of the
1960s the vast majority of people saw that obvious connection.
Today, people are actually extremely informed. There was a
study recently done by an economist suggesting that tobacco
users, cigarette smokers in fact tended to overestimate the
risk to their health.
So it is one thing to say, look, prevention is good. We
have to deal with prevention, though, through the challenges of
our time, which are that people are more educated than ever
before and more informed on health issues more than before.
Why is it that they continue to make bad decisions? Well,
there are economic factors. There are cultural factors.
But that is equally relevant I think to these discussions.
How can we save money with health care over the long term? Have
more healthy Americans.
Mr. Orszag. Can I just add one more really quick comment,
which is that we are seeing--smoking is a good example where
the reductions in smoking rates that occurred
disproportionately occurred among higher-income, better-
educated people and did not occur to the same degree at the
bottom of the socioeconomic distribution.
One of the consequences relative to that kind of change is
that we are seeing literally an explosion in life expectancy
inequality, where life expectancy is going up on average, but
it is going up way faster at the top of the socioeconomic
distribution, and it is flat or by some measures may even be
declining slightly at the bottom.
One of the things that may be the consequence of changing
defaults and changing social norms and what have you is to kind
of retilt that a little bit. That is what happens in retirement
savings. What happens when you make retirement saving automatic
is that you get low- and moderate-income workers participating
at rates that are close to those for higher-income workers
which no other policy intervention seems to be able to
Mr. Etheridge. Thank you, Mr. Chairman. I yield back.
Chairman Spratt. Mr. Moore.
Mr. Moore of Kansas. Thank you, Mr. Chairman; and thanks to
the three panelists for being here.
Dr. Orszag, you emphasized in your opening statement that
our health care system's use of electronic medical records
would be of benefit, I think--establishing a system. As I
provided you a copy of the Dear Colleague letter that Mr. Ryan
and I have circulated to our colleagues in support of such a
system. And I understand and I appreciate your comment back,
and we will review the study that you mentioned there and
certainly correct it if it needs correcting as far as the
But we have introduced the Independent Health Record Trust
Act, which would establish a modern, market-driven, nationwide
health information technology network by providing for the
creation of nonprofit health record trusts in this country.
Under this system, persons would have--the individuals would
have the option of signing up for an account to be managed by a
health record trust similar to the way banks offer to maintain
credit card accounts.
Right now, patients walk into a hospital or a physician's
office and the first thing they are handed is a history form to
be completed and provide information about medical history.
Sometimes the patients get it right, and sometimes they don't.
And I think I read into what--at least what I heard you say
Dr. Orszag, that we could benefit from these miraculous little
devices called computers now and bring maybe the health care
delivery system into the 21st century.
I am not trying to be facetious here, but I am just saying
I think there is a lot of opportunities for errors when
patients are asked every time they check into a medical
facility or a doctor's office to complete this patient history
form. And, again, they may or may not have the correct
information, and the information could be compiled and could be
distributed with the authority of the patient.
My wife is a practicing nurse for more than 20 years, and
she says patient confidentiality and protecting patient's
information is very important. And we certainly understand that
and agree with that as well. In fact, she says a woman who goes
in for a skin condition to a dermatologist, the dermatologist
probably, probably does not need to see her OB/GYN records, and
she should have the authority to make that decision.
But our point is that--and I would like you and the other
panelists, if you have thoughts about this, to comment on how
much benefit we could derive--our country could derive and
especially our people could benefit from the establishment of
this kind of system. Because, again, we want to get it right,
but we want to provide information to the caregivers with the
authority of the patients.
A CBO study of health information technology released in
May laid out some of the improvements in efficiency that can be
captured through health information technology, but the
analysis, in my opinion, seemed to downplay some of the health
and safety benefits of the health information technology and
that the full value of adoption of such a system can only be
realized through the system-wide change like we proposed here.
And I guess I just--do you think the widespread, integrated
implementation of a national health information network,
particularly one that protects the privacy and security of an
individual's records, is a critical component of any effort to
control the growth of health care costs and improve the
efficiency and effectiveness of our system?
And the last thing I want to ask--and will stop and you can
talk--is somebody--I think it was you, Dr. Orszag, but
whomever--mentioned the Veterans Administration system; and
I've heard from many people that they have a pretty good system
overall. And I guess I would like you just to give any
additional comments you might have there.
Because we've just got to get this right. It just seems
like we are not delivering the best health care to people if
the physicians and the people who are providing the treatment
and the hospitals don't have all the correct information they
need. Again, with these devices, that should be kind of
something that shouldn't require a lot of thought.
Mr. Orszag. Sure, let me just first say health information
technology in my view is necessary but not sufficient. So it is
critical to improving the efficiency of the health system, but
by itself, if that's all you did, it wouldn't be sufficient to
capture the $700 billion opportunity that we were discussing
The VA system, through its Vista health IT system, does
have one model. And we actually came out with a preliminary
report. We are going to have a fuller report on the VA system
and what we can learn from it out I think later this year.
You have to remember that that system basically is
contained. It's not a fully integrated system, but it is closer
than the rest of the health system to the sort of full array of
things of what you would want. There are incentives for higher-
value care. The information is processed in terms of what is
coming out. It's not just the health IT systems. It is a health
IT system in a structure that makes sense.
The analogy that Laura Adams, who runs the Rhode Island
Quality Institute uses, is: getting more efficiency out of the
health system is like waiting for toast to come out of the
toaster. And some people say we need to plug the toaster in.
That is like health IT. Other people say we have to go to the
store and we have to buy the bread. And other people say you
have to put the bread in the hole and press the lever down and
wait for it to come back up. You need to do all of those
things, obviously; and just plugging the toaster in by itself
is not going to get the bread to come out. And that is my
Mr. Moore of Kansas. Thank you very much.
Any other comments?
Chairman Spratt. Ms. Kaptur.
Ms. Kaptur. Thank you, Mr. Chairman, very much; and, again,
thank our long-suffering panelists here for being with us and
for the great work that you do.
I wanted to ask, Dr. Orszag, in your testimony on page 3
you have included a map and it is entitled, Medicare Spending
per Beneficiary in the United States, by Hospital Referral
Region. I would be very interested and I am sure all the
members would be in our own regions, since these maps don't
reflect congressional districts and what that might say about
our respective regions.
Are those dollar amounts merely a reflection that we have
more elderly or is it the system that is operating in the area
and the way it expends dollars? And if so, if it is the second,
then could you comment on the areas that are in the top
category and what those higher costs might reflect?
Mr. Orszag. Yes. Most of that variation is occurring
because of the intensity with which Medicare beneficiaries are
treated. In those areas that are at the top of the cost curve
that are darker in this map, there is a lot more stuff that
happens to you.
So if you get sick, you are much more likely to be
hospitalized--for any given condition, you are much more likely
to be hospitalized. You are much more likely to spend a lot
more time in the hospital. You are much more likely to see lots
of specialists. You are much more likely to have lots of tests
done to you. And when there is ambiguity about what should
happen, you're much more likely to have an expensive procedure
So the more intense service is provided. But the kicker is
it doesn't look like that greater intensity actually buys you
anything in terms of better health outcomes.
Ms. Kaptur. That is what I want to know. One of the
sentences that you have in your testimony is some of the
highest cost areas are concentrated around the top U.S. medical
centers. Now that is very interesting.
One of the issues that we face in our region is the ability
to keep attracting good doctors and research-related doctors,
because they go off to where these medical centers are where
they can do more intensive research and where there is a
broader array of physicians. And I see--just as with airline
deregulation and you have these mammoth, big airports in
certain places, I see what is happening in our health care
system, these mammoth health systems that are creating,
rearranging the way we have doctors arrayed in this country,
for example, and it is a great concern. I was wondering what
that map is really telling us.
Well, let me ask this question. Do you see any correlation,
Dr. Orszag, in work that you have done between the cost of
medical care and pharmaceuticals? And one of my big questions
there is, when a pharmaceutical comes off patent, are there
studies that show that prices go down?
Mr. Orszag. Yes.
Ms. Kaptur. Is it by drug?
Mr. Orszag. What you see is--the patterns around when
something--a brand new drug goes off patent are actually often
quite interesting, but let me actually--we can raise--there is
legislation, for example, for so-called follow-on biologics
which would create a pathway for FDA approval of complex
molecules, complex drugs, not simple molecular drugs but
complex molecular drugs to get FDA approval.
We have scored savings to that legislation because having
that follow-on biologic, which is sort of a generic type thing,
enter the market would help, once a brand-new drug came off
patent, drive down the price. I mean, basically, the mechanism
is, once something is off patent and generics are a more
prominent part of the market, there is price pressure on the
old, branded drug, but then consumers are shifting towards this
Ms. Kaptur. You can't watch television without seeing 15
ads in an hour. I mean, if you weren't sick before you started
watching, you will be sick after. So the amount of money it
takes to do that across this country, unbelievable.
I am interested in pharmaceuticals and the rising cost of
health care in this country. Any studies, any information you
have would be most interesting, especially when most of those
pharmaceuticals are made offshore.
Let me give you an example. Heparin--not a new drug. I
don't know what the prices of heparin are. I would be
interested if there is a study that tells me. But we had lots
of people die in this country taking heparin that was
manufactured in China.
I would like to know, if you can tell me, what it would
cost to manufacture that right here in this country? What is
the cost advantage to the company to manufacture in China?
And we have people in my district that died taking that in
full faith that it was examined and so forth. How can that
happen? It is a formula that is well-known. It is a very old
drug. I don't know how much it costs. What should it cost? And
what happened that we can't make that in this country? Is it a
complicated formula? And, if it is, maybe we should be making
it here. Can you comment on the heparin situation and how that
could have possibly have happened in the year 2008 in this
Mr. Orszag. I am going to stay away from talking about a
specific drug, but let me come back to your broader question.
There is no question that pharmaceuticals play some role in
rising health care costs. But I do think it is important to
remember they seem to receive an amount of attention that is
disproportionate to their role either in cost growth or in
cost. They are about 10 percent of total health care spending.
Most of that $700 billion inefficiency that I was
mentioning before occurs because of variations in--that we were
talking about in this map--occurs because of variations in
hospitalizations and surgery rates and MRIs and other imaging
and what have you. So pharmaceuticals are part of the puzzle,
but relative to their actual contribution they receive way more
media and policy attention than their sort of numerical
contribution would suggest.
Ms. Kaptur. Well, I know my time is up, Mr. Chairman. But I
would be very interested in, Dr. Orszag, on the map if you
could take the 9th Congressional District of Ohio and tell me--
because you can't really tell where it is on here--if you could
go down to that level and tell me what those numbers mean for
us. What does that translate into our particular region--I am
sure other members on the committee would be similarly
And then, on the pharmaceutical issue, I would be very
interested in anybody on the panel, if you know where I would
find this, I would like to know the cost accounting of
manufacture of heparin. I would like to know how much it costs,
I would like to know where it is manufactured, and I'd like to
know what it would take to manufacture it in this country.
Incidentally, all the heparin cases are being referred to a
Federal court in my district, so I have a really special
interest in this.
What are the economics of driving that production offshore?
I don't know if you have access to studies on that or if you
could refer me somewhere, but I am very, very--because that is
not the only one. That is one I am really paying close
Why can't we make that here? What are the economics that
are driving that offshore? And then I want to know what it
costs if you go off and you buy it through Medicare, let's say.
You must have access to data. Do any of you feel comfortable in
referring me to sources on that?
Ms. Lambrew. I will say one of the interesting experiences
that I had in the '90s when I worked in the Clinton
administration was we were all debating the Medicare drug
benefit at that point and looked into how do we understand the
relative prices of a set of a basket of drugs. And it is very
difficult to try to go in and try to look at who pays what from
wholesale price to retail price to Medicaid price to the cost
of manufacturing. And we found our study concluded that we
don't have the systems in place to know.
So I think it is a very hard question that you have asked.
I am not sure there is information on that.
I would put in a plug for trying to ensure at least that
the data support agencies that you have--CBO, GAO, CRS--get
access to some of the drug data that we are getting through
Medicare. I mean, Medicare is now a major payer for
prescription drugs in the United States of America. Yet we--you
all in government don't necessarily have the types of scrutiny
of the data that we are getting to figure out what is working,
what is not working and what are the costs of the different
drugs. So I think that there is some improved information
sharing that could happen with the new Medicare drug benefit to
begin to feed into a larger system to help answer some of these
Ms. Kaptur. Thank you.
Thank you, Mr. Chairman.
Chairman Spratt. Just two questions and then Mr. Ryan has a
question to close.
Going back to this variegated map of the United States and
costs per capita. Dr. Orszag, you said it can't adequately be
explained. I understand we are trying to discern the reasons
for these different patterns of expenditure. But, number one,
what can we do to better discern and speed up the effort to
determine what is at the root cause of these differences in per
And, secondly, how do we disseminate that information? How
do we institutionalize it and disseminate it? Would it be
worthwhile to consider the creation of an institute at NIH for
the delivery of health care in order to develop information in
a package form that can be systematically disseminated amongst
physicians, practitioners all over the country?
Mr. Orszag. Let me answer that in two stages.
First, with regard to the regional variation, CBO came out
with a report a couple months ago looking at what is known.
There is ongoing work about getting at the cause. There is a
group up at Dartmouth, the Wennberg Center, that is exclusively
devoted to this kind of regional analysis.
And CBO is currently expending a lot of internal resources,
putting together two significant volumes that will be out at
the end of this year to present policymakers and others with
options for improving the efficiency of the health care system,
among which will be options to try to get at this regional
The second part of your question had to do with ways of
disseminating information, and I think we have touched upon a
Federal health board idea. There are related ideas about some
comparative effectiveness entity or entities beyond the
existing AHRQ that is part of HHS.
It is crucial to--coming back to the basic point, just
having information floating out there is not going to do the
trick. In order for information to matter, it has to affect the
way medicine is practiced. And in order to affect the way
medicine is practiced, you need to be getting the information
especially to medical professionals and doctors. And then you
need to be giving them incentives to, again, move towards
So I do think there are institutional gaps in our ability
to do both of those things right now, and that is why there are
discussions about whether some change in institutional forms
would be beneficial.
Chairman Spratt. Thank you.
Mr. Ryan. I will follow up on that.
I guess at the end of the day the different approaches we
may look at come from sort of a bottom-up market-based approach
or sort a of top-down government-based approach. But I think we
are all coming to consensus on the need on some of the design
features, and then we will squabble over a few other details.
But this is a productive debate going in the right direction,
Dr. Orszag, you said something when I stepped out which was
interesting. Unless you change the payment system, you are
never going to have a more efficient health care system.
Obviously, I think that is totally accurate.
Let me ask you this. The trustees of Medicare are telling
us we have a $34 trillion unfunded present value liability with
respect to Medicare. Can you change the payment system without
spending more money? And can you change the payment system that
actually saves more money? And, if so, can you quantify that?
Mr. Orszag. There is no question that--first of all, I will
try to avoid only saying interesting things when you are not
here. But there is no----
Mr. Ryan. The HSA comment was the most interesting.
Mr. Orszag. There is no question that you could save money
through payment methodology changes within Medicare today----
Mr. Ryan. Net.
Mr. Orszag. Net. That is not hard. Because, you know,
simplistically, you could ratchet payments down.
The key question is, can you change the payment methodology
in a way that not only saves money but is sustainable over time
and that changes the way medicine is practiced so that you are
bending the curve not only for Medicare but for the health
system as a whole? Because, if not, you are just going to
create the kind of issue that we have with the sustainable
growth rate formula and other artificial constraints that
operate just on Medicare. If you are not affecting the overall
rate of health care spending over time, all you would create
with ratcheting down Medicare reimbursement rates is an access
Mr. Ryan. That is basically why I asked the question.
If anybody else wants a stab at that, please have at it.
Ms. Lambrew. You also asked the question of can you save
without spending. I think the question depends, can you get
these types of bending-the-curve systems without an up-front
investment. And I would argue that we do need to consider
investing in health information technology, investing in the
research to undergird this system, getting people into
insurance arrangements so that they have the same choices and
benefits that we all have.
I could make a case--and I will just say one more thing. Of
that $700 billion that Dr. Orszag has suggested is out there,
remember that is not all public. A good proportion of that is
private savings. Trying to figure out how we capture and
redirect in a system is hard to do at the Federal level.
Mr. Ryan. Do these investment costs have to be borne by the
taxpayer or could they be borne by the market?
Ms. Lambrew. I would make a case that if the goal is to
figure out where the Federal Government invests in public
goods, then I would argue HIT and comparative effectiveness are
public goods. I would argue trying to help low-income people
afford health insurance is not something the markets can do. I
think there needs to be an up-front Federal investment.
I can make a case that that up-front Federal investment
should and potentially could yield systemic, if not Federal,
savings within a budget window. And that is our challenge, is
to figure out how academics and policymakers can come together
to say, let's invest now but ensure that that investment yields
long-run savings. That is our challenge.
Mr. Ryan. Yeah, and scoring it.
Ms. Lambrew. That's his challenge.
Chairman Spratt. Could I add one final question?
If we want to disseminate the information and have this
diffusion of knowledge on a more equal basis and have
information technology, latest technology, wouldn't it make
sense for the government simply to develop this software, this
program and maybe develop it on an open source basis so that it
is changed, upgraded from time to time? It would mean that
everybody was operating with the same system.
Mr. Orszag. Well, the Federal Government has sort of tried
that in the sense of almost basically giving away a health IT
I think it may turn out to be more productive for the
Federal Government to set certain standards regarding
interoperability and privacy and then let the market develop
for the specific systems that can fulfill those standards, that
the history of government innovation in technology is not
marked by substantial successes. So the approach of kind of
saying, here is what we need the system to do.
And, again, coming back to our earlier discussion, if your
system doesn't do that, you are not going to get paid under
Medicare, may wind up being the most auspicious approach.
Chairman Spratt. Well, I think one of your studies noted
part of the problem is there are still a lot of small-sized
practices, and these practices find it difficult to spread the
cost of expensive software over the relatively small volumes of
businesses that they do. If the government was bearing much of
the cost of development of the software like this, you would be
able to have these smaller firms take advantage of it.
Mr. Orszag. Yeah. But the problem is it is often not just
the purchase of the software that is the cost, it is that you
are disrupting your operations for some period of time while
people learn how to use it. And all the other sort of process
changes that are involved. So just even giving away software
will not get you universal take-up among small practitioners.
Mr. Ryan. I think, if you take a look at the market, you
have five or six basic big players doing the software systems
out there. A couple of them are from Wisconsin, GE and Epic.
And if the government simply requires interoperability, it
patches on these programs so that they can talk to each other,
that in and of itself is a step in the right direction. But the
market continually innovates, continually competes and meets
the needs without the government designing the software systems
because you already have private firms doing the design.
The question is, are they going to be done in the stovepipe
fashion that they are today or will the government be a
flattener so that these things can talk to each other and then
the market can continue to innovate and provide these benefits?
That is where I think we can make a difference. That is what
Dennis and I are trying to achieve in our bill, among some
Chairman Spratt. Let me thank all three of our witnesses
for coming today, for your presentations. We very much
appreciate it, and we think we will probably revisit this topic
from time to time in the future. Thank you very much for your
[Whereupon, at 12:07 p.m., the committee was adjourned.]