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


 
                      MEDPAC'S ANNUAL MARCH REPORT 

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 11, 2008

                               __________

                           Serial No. 110-74

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

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

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

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

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                            C O N T E N T S

                               __________
                                                                   Page

Advisory of March 4, 2008, announcing the hearing................     2

                                WITNESS

Glenn M. Hackbarth, Chairman, Medicare Payment Advisory 
  Commission, Bend, Oregon.......................................     6


       MEDICARE PAYMENT ADVISORY COMMISSION'S ANNUAL MARCH REPORT

                              ----------                              


                        TUESDAY, MARCH 11, 2008

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Fortney Pete Stark [chairman of the subcommittee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 04, 2008
HL-21

                 Stark Announces a Hearing on MedPAC's

      Annual March Report with MedPAC Chairman Glenn M. Hackbarth

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
the Medicare Payment Advisory Commission's (MedPAC) annual March report 
on Medicare payment policies with MedPAC Chairman Glenn M. Hackbarth. 
The hearing will take place at 10:00 a.m. on Tuesday, March 11, 2008, 
in the main committee hearing room, 1100 Longworth House Office 
Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from the invited witness only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    MedPAC advises Congress on Medicare payment policies. MedPAC is 
required by law to submit its annual advice and recommendations on 
Medicare payment policies by March 1, and an additional report on 
issues facing Medicare by June 15. In its reports to the Congress, 
MedPAC is required to review and make recommendations on payment 
policies for specific provider groups, including Medicare Advantage 
plans, hospitals, skilled nursing facilities, physicians, and other 
sectors, and to examine other issues regarding access, quality, and 
delivery of health care.
      
    In announcing the hearing, Chairman Stark said, ``The Congress 
relies heavily on MedPAC's expertise when crafting Medicare 
legislation. MedPAC's recommendations help Medicare remain a reliable 
partner to providers, while also assuring that beneficiaries and 
taxpayers are getting the best value for their money.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on MedPAC's March 2008 Report to Congress.
      

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noted above.
                                 

    Chairman STARK. If our guests could find a seat, we will 
begin our annual hearing on the MedPAC March report. Please 
join me in welcoming Glenn Hackbarth, the chairman of the 
Medicare Payment Advisory Commission, affectionately known as 
MedPAC. We appreciate, Glenn, all the work you and your 
commission do to advise us, and thank you for your leadership.
    We rely on MedPAC's analysis and recommendations when--we 
did rely on it when we wrote the Children's Health and Medicare 
Protection Act last year. And your recommendations helped shape 
our legislation as it pertained to Medicare Advantage, 
physician reimbursement, long-term care hospitals, skilled 
nursing facilities, home health agencies, dialysis. And I am 
glad to see that some of our policy ideas to improve benefits 
for low income beneficiaries have been embraced as MedPAC 
recommendations.
    I would just interject here, I have always felt that this 
subcommittee--I am not sure all the Members agree with me--but 
I think ought not to get in the position of recommending 
procedures or prices because I think if we did, the supplicants 
would form a line three times around this building as everybody 
came and asked us to make certain procedures available or set 
certain prices.
    But having said that, we have to doubly rely on MedPAC and 
parts of CMS who make those decisions because they have 
professional staff who--I guess they can all speak Latin so 
they can understand what the procedures are. But it makes your 
work doubly important because we, I think, have to rely on it.
    Many in the provider community balked at some of the 
provisions in our CHAMP bill. But I would like to remind them 
that most of that bill was consistent with your 
recommendations, and in fact, some of our provisions were more 
generous than what you recommended.
    Too often we get twisted up in provider complaints that 
they can't sustain a market basket shave, so it is good to have 
you remind us of how high some of the margins become, and that 
our job is to ensure that Medicare maintains access as well as 
being prudent purchaser.
    We will continue to grapple with the issue of physician 
reimbursement. I know in the past--and Mr. Camp can speak for 
himself--the 10 percent cut, as far as we are concerned, is not 
acceptable. But I am not sure we know how to change the 
reimbursement of physicians at this point, although I think we 
both agree that we have to find a better way to do it so we 
don't run into this problem in the future.
    We will keep trying to enact your recommendations regarding 
Medicare Advantage, although the insurance lobby and others 
keep trying to stop us from that. Your latest projections tell 
us that we are overpaying Medicare Advantage plans by about 13 
percent.
    I don't want to steal your thunder, but your written 
testimony says that those overpayments worsen or get worse--or 
decrease the long-range financial sustainability of the 
Medicare program, and I couldn't agree more. I hope that all 
those who share my concern for the future of the Medicare 
program as an entitlement will join me in reining in those 
overpayments.
    One rare area of bipartisan agreement in Medicare was 
concern over the special needs plans. And last year we passed 
the Medicare, Medicaid, and SCHIP Extension Act of 2007. The 
law established a moratorium on special needs plans so that we 
could have more time to determine how those plans differed from 
other Medicare Advantage plans and what if any additional value 
they provide. We appreciate MedPAC's attention to these plans 
and will work to incorporate your recommendations into any of 
our special needs plan authorizations.
    As always, we continue to look to Medicare payments across 
provider types to make sure we are appropriately paying for 
those services. And I look forward to working with my 
colleagues in getting input and advice from Mr. Hackbarth and 
the MedPAC staff as we move through our agenda. Thanks again 
for being here.
    I would like to give Mr. Camp a chance to give his opening 
remarks, and then we will let you proceed, Glenn, in any manner 
that you would like.
    Mr. CAMP. Well, thank you, Mr. Chairman. And thank you, Mr. 
Hackbarth, for being here and for the work that you do.
    I can't emphasize enough my concern about the financial 
situation of the Medicare program. MedPAC's warning that 
Medicare is on a financially unstable path is one that we can't 
ignore. Significant reforms must be made, and time is of the 
essence.
    The Medicare trustees estimate that the hospital trust fund 
will go bankrupt in 2019, a mere 11 years from now. If we don't 
take action to address the unaffordable increases in spending, 
Medicare expenditures will threaten our nation's economy and 
put the program at risk, putting seniors and the disabled at 
risk.
    Congress must look to wholesale reforms of the Medicare 
program as, Mr. Hackbarth, you said in your written statement. 
The current payment systems and the structure of the delivery 
system make gains in value difficult to realize. If we continue 
to simply tinker around the edges, Congress will inevitably be 
forced to increase taxes, increase beneficiary costs, or cut 
payments to providers. And we can do much better.
    In the coming weeks, Congress will have the opportunity to 
begin addressing Medicare's financial troubles. The 
administration has taken the first step by sending Congress a 
proposal in response to the 45 percent trigger. Their package 
curbs Medicare spending by improving the quality and efficiency 
of care, increasing transparency, encouraging adoption of 
health IT, and limiting taxpayer subsidies to ambulance-chasing 
trial lawyers. Frankly, even this is just tinkering.
    Congress must not let this opportunity pass. Simply burying 
our heads in the sand will make today's problems much worse and 
far more expensive. We must put ideological differences aside 
in order to preserve a program that we all value. We must also 
move toward a system that pays hospitals and physicians based 
on the quality of care they provide, not simply on the number 
of services they order. We must also encourage providers to 
adopt health information technology that reduces medical 
errors, saves lives, and save taxpayer money.
    Some members today will selectively focus on how MedPAC 
again recommends cutting more than $150 billion from the 
Medicare Advantage program. These cuts would leave 22 states 
without a single senior enrolled in Medicare Advantage. Those 
select few who are still fortunate enough to have a plan 
participating in their area would see their benefits slashed 
and out-of-pocket costs increase. According to CBO projection, 
these cuts would reduce Medicare Advantage enrollment by seven 
million.
    MedPAC's stated belief that ``financial neutrality'' will 
foster efficiency and innovation is also off-base. The 
suggestion that plans in Miami, Florida are somehow four times 
as efficient as plans in Midland, Michigan defies logic. To 
presume this to be true is irresponsible and harmful to the 
seniors I represent.
    It is unfair to single out Medicare Advantage and the nine 
million beneficiaries who depend on the program for their 
health care to address all of the financial problems facing 
Medicare. I want to be clear that I am not suggesting that we 
shouldn't look at savings opportunities in the Medicare 
Advantage arena, including adjusting the benchmarks to 
recognize true market forces.
    At the same time, no provider should be above reform or 
scrutiny. I appreciate MedPAC's thoughtful recommendations on 
the many Medicare providers that we will hear about today, not 
only how they should be reimbursed but how to improve quality 
in the various sectors. I also appreciate MedPAC's continued 
call to provide dialysis providers with an update, something I 
have long advocated for.
    And I thank the chairman, and yield back the balance of my 
time.
    Chairman STARK. If other members have opening statements, 
they will appear in the record in their entirety without 
objection.
    And Glenn, while normally we would ask a witness presenting 
to time limit their remarks, why don't you proceed to summarize 
your testimony however you desire, and at the conclusion of 
that we will try and drill a little deeper with our inquiries. 
Why don't you proceed.

  STATEMENT OF GLENN M. HACKBARTH, CHAIRMAN, MEDICARE PAYMENT 
               ADVISORY COMMISSION, BEND, OREGON

    Mr. HACKBARTH. Thank you, Chairman Stark and Ranking Member 
Camp, other Members of the Subcommittee. I appreciate the 
opportunity to talk about our March 2008 report. I will keep my 
comments very brief so we can spend time on the issues that you 
want to discuss.
    Our March 2008 report includes 21 recommendations, seven 
related to payment updates under traditional Medicare, seven 
related to Medicare Advantage, specifically the SNP portion of 
MA, three related to the Medicare savings programs, two related 
to quality for skilled nursing facilities, one on indirect 
medical education, and one on Part D.
    For those 21 total recommendations, there were a potential 
357 total votes. Of those, 332 were yes votes and 5 no votes 
and 4 abstentions. So as in the past, we managed to achieve a 
high level of consensus within the commission about our 
recommendations.
    The one summary statement I would like to make, Mr. 
Chairman, is that the commission does share the growing concern 
about Medicare costs. We are not only concerned about the 
potential burden on taxpayers and on the next generation, we 
are also concerned that how Medicare pays contributes to cost 
growth in the whole health care sector. That is having a number 
of detrimental effects, including adverse effects on coverage. 
I wish--we all wish--that there were a silver bullet for all of 
this. But clearly there is none.
    For our part, MedPAC recommends a combination of restraint 
on fee-for-service updates in traditional Medicare, a reduction 
in Medicare Advantage payments, plus changes in how we pay 
providers--more accurate pricing, rewards for care 
coordination, bundling of certain types of services, et cetera.
    Because changes in payment systems are complex to design 
and sometimes even more complex to implement, not to mention 
uncertain in their effect, we believe it is important to start 
now, work aggressively to improve our payment systems, and fund 
CMS appropriately for that task. Meanwhile, in the short run, 
our focus is on restraint on the Medicare updates for fee-for-
service providers and in Medicare Advantage.
    It is our believe that encouraging slowing cost growth and 
improving efficiency requires constant pressure on rates, both 
in traditional Medicare and Medicare Advantage. In a 
competitive market, the restraint on price, that pressure on 
price, is more or less automatic and relentless. The market 
provides it. In Medicare's administered price systems, both on 
the Medicare Advantage side and traditional Medicare, that 
restraint must come from the Congress ultimately. And our goal 
is to help Congress understand the implications of the pricing 
policies and give you the best advice that we can.
    So that is my opening statement, Mr. Chairman, and I am 
happy to answer any questions about the report.
    [The statement of Glenn M. Hackbarth follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman STARK. Thank you. I guess on the Medicare 
Advantage issue, I am not sure that there is any question that 
we are overpaying relative to what the same procedures might 
cost us under the fee-for-service schedules, and that it is a 
lot of money. I don't know, how many billion dollars a year are 
we overpaying? Five, $10 billion a year? I don't know.
    Mr. HACKBARTH. Per year, it is about $10 billion.
    Chairman STARK. $10 billion a year? I want to go back 
just--we used to have something we called cost-based. How did 
we used to pay people like Kaiser? We had a term for it.
    Mr. HACKBARTH. Yes. Well, if you go way back, there were 
cost contracts. In fact, they still exist.
    Chairman STARK. Cost contracts. But basically, we were 
paying--let's take Kaiser, which is in my district--on a cost 
contract formula for, just about as far as I know, the same 
services they are providing today. But in those days, we paid 
generally less than 100 percent of fee-for-service.
    Now, what troubles me is how can I come to grips or what 
reason could there be when in the past we were paying somebody 
like Kaiser, a managed care plan, less than 100 percent--they 
never came to me and said they were about to go bankrupt or 
disappear--and all of a sudden we are paying them, I don't 
know, what in Kaiser's case may be 108 percent today for the 
same services they provided previously. What possible reason 
could there be for doing that?
    Mr. HACKBARTH. Well, let me just quickly talk about the 
history. The major change in how we paid private plans was--the 
first major change--was in 1982, in TEFRA, at which time I 
worked in the Reagan administration, and we were very excited 
about the opportunity for private plans to enter Medicare and 
participate in what were then called risk contracts.
    Chairman STARK. Risk contracts. That is right.
    Mr. HACKBARTH. Right. And so Kaiser and other participating 
plans were paid a fixed monthly payment set at 95 percent of 
the expected Medicare cost for the same population. And what 
made us excited about it in the Reagan administration was that 
we thought the private plans could contribute something to 
Medicare, that properly configured plans could add value for 
the program and Medicare beneficiaries.
    And so the 95 percent formula said, if you can do it for 
less, you are welcome to come into the program and help the 
program and help the beneficiaries. In a series of steps after 
that, of course, we left the 95 percent standard and adopted 
new payment formulas, which ultimately have led to us paying, 
on average, 113 percent more.
    The major concerns about that policy, paying 113 percent, 
are two. One, obviously, it increases outlays in the short run, 
strains the trust funds, and all of that. But from my 
perspective, perhaps an even bigger concern is that we are 
shaping the market. We are shaping the type of private plans 
that come into Medicare. The benchmarks that we use are a 
signal about what Medicare wants to buy. That is the function 
of prices in a marketplace.
    And basically what we are saying to the marketplace is that 
we welcome plans to come in and participate in Medicare that 
basically mimic Medicare. They offer fee-for-service coverage. 
They are not adding value. And that is the innovation that we 
want to buy.
    I think that is a luxury that the program can ill afford at 
this point. What we want is a payment system that encourages 
innovation, improvements in efficiency, and quality. Plans like 
private fee-for-service, which are prospering under the 
existing payment system, are not adding value to Medicare. 
Their existence, their rapid growth, is a sign the payment 
system is flawed.
    Chairman STARK. How do those private fee-for-service plans, 
if you will, for the committee--how do they differ from fee-
for-service Medicare? What is the difference between a private 
fee-for-service plan and the old-fashioned standard Medicare 
fee-for-service?
    Mr. HACKBARTH. Well, in terms of what they are required to 
do, there is really not much difference at all. By statute, 
they are required to pay providers on a fee-for-service basis. 
They are not supposed to limit the beneficiary's choice. They 
are not supposed to link payment to utilization, et cetera. 
So----
    Chairman STARK. How about extra benefits?
    Mr. HACKBARTH. Well, they provide extra benefits out of the 
additional payments that they get over and above the cost of 
traditional Medicare. In fact, let me just share a couple 
figures on this.
    So in this slide--I assume you can see it--the bottom row 
there is----
    Chairman STARK. It doesn't show up, but that is our--is it 
in your----
    Mr. HACKBARTH. Yes. Okay. So you have--oh, there we go. It 
is on the screen now. So I am looking at the bottom row, which 
is private fee-for-service. So on average, the payments to 
private fee-for-service plans are 117 percent of what Medicare 
would have cost for the same beneficiaries. Their bids are 108 
percent. And then the benchmarks are 120 percent, so they are 
focusing on areas where the benchmarks are high. And then 
rebates are 9 percent.
    So what this is saying is we are paying them 117 percent of 
traditional Medicare. Only 9 percent of that is going back into 
added benefits for Medicare beneficiaries. The other 8 
percentage points is going into the higher cost for the plans, 
whether they be higher utilization rates or higher 
administrative costs, whatever. So only about half of the 
overpayment is actually making it to Medicare beneficiaries.
    Chairman STARK. And am I correct in assuming that none of 
us know what if any additional benefits are actually used by 
the beneficiaries? We know they are ``offered,'' but we have--
there are no records, as I understand it----
    Mr. HACKBARTH. Yes.
    Chairman STARK [continuing]. As to whether they are 
actually being consumed or used or have any costs to these 
private fee-for-service plans.
    Mr. HACKBARTH. Yes. Well, under the terms of the Medicare 
Advantage program, plans are only required to submit limited 
data that supports the risk adjustment system. They don't have 
to provide detailed encounter data on all services provided. 
And without that encounter data, it makes it difficult to 
assess the value.
    Chairman STARK. If it was decided, whether we decided or it 
was recommended, that many of these extra benefits should be 
added as basic benefits in Medicare, is there a more efficient 
way to provide them?
    Mr. HACKBARTH. Well, again, going back to the slide, that 
row on bids, what that 108 percent number means is that the 
plans themselves say it costs them 8 percent more than 
traditional Medicare to provide the basic Medicare Part A and B 
benefit package. So they are saying they cost more than 
traditional Medicare.
    So if the goal is to provide additional benefits to 
Medicare beneficiaries, a more efficient way to accomplish that 
goal would be to do it through traditional Medicare.
    Chairman STARK. It is my understanding MedPAC is working on 
the issue of how to revise the physician reimbursement plan.
    Mr. HACKBARTH. Yes.
    Chairman STARK. And we will hear from you about that later 
on?
    Mr. HACKBARTH. Yes. Mr. Chairman, could I just add one 
other point on Medicare Advantage?
    Chairman STARK. Sure. Yes.
    Mr. HACKBARTH. I do want to point out that, you know, I am 
focusing on the bottom row there, on private fee-for-service. 
If you look at the HMO row, there are some private plans that 
provide the services for less than Medicare's costs. And so the 
average HMO bid is 99 percent of Medicare costs.
    Chairman STARK. Ninety-nine?
    Mr. HACKBARTH. Ninety-nine percent. And so in that case--
and some HMOs do substantially better than that. So in that 
case, the private plans are more efficient at providing the 
additional benefits. I just wanted to make sure that was clear.
    Chairman STARK. Can you differentiate at all, I mean, 
between those that are bidding at par or less with those who 
are bidding more? I mean, is there any----
    Mr. HACKBARTH. What type of plan?
    Chairman STARK. Yes, or how they operate. Is there a way 
you can distinguish statistically how they differ?
    Mr. HACKBARTH. I would point to a couple things. One is 
that there are geographic differences, as Mr. Camp alluded to. 
In some areas of the country, the traditional Medicare costs 
are very high and private plans are able--many private plans 
are able to bid less than the traditional Medicare costs.
    In other parts of the country, the traditional Medicare 
costs are significantly lower and it becomes more difficult for 
a private plan to bid less than the Medicare fee-for-service 
costs. So geographic differences are important.
    Also, plan type is important. More tightly organized 
systems like Kaiser Permanente, generally speaking, have lower 
costs than looser systems like private fee-for-service or large 
network HMOs.
    Chairman STARK. Let me just get one more question in here, 
and I want to yield to Mr. Camp. He has been patient with my 
inquiries.
    In the area of comparative effectiveness, it is my 
understanding that we are perhaps one of the few industrialized 
nations in the world in that doesn't have some form of 
comparative effectiveness studies, certainly for 
pharmaceuticals if not for medical procedures.
    We came fairly close on a bipartisan basis to--I think we 
came together on a bipartisan basis that it would be useful for 
us to have a comparative effectiveness program. My 
understanding is that we came apart on Blue Cross complaining 
that if they were going to pay anything, they wanted to control 
the system. And I personally felt that it had to be at least a 
private/public partnership.
    And in a way to pay for it, we had suggested that the 
government should pay some and the insurance companies, who 
would benefit from the use of this data, should pay--I think it 
was two bucks a year per insured, which hardly seemed--
considering how much money they make--a burden for them.
    Can you give us an outline of what you would suggest as how 
we would set up a body to ensure independence, that the 
effectiveness research had a stable funding source and could 
maintain its independence? Have you got--I mean, this is what I 
think MedPAC does, although we pay the full freight, the 
taxpayers do. How would you suggest we set that up?
    Mr. HACKBARTH. Yes. We will actually address this issue in 
some more detail in our June 2008 report. So it is an issue 
that is currently under active discussion within the 
commission.
    What we have said to this point is that we think it is 
critically important that the entity be perceived as 
independent. The whole idea here is to have an entity that 
exists to produce the best available information, not just for 
payors but also for patients and physicians. And given the 
sensitivity of the topic, it will only be credible and useful 
if it is seen by all parties as independent.
    Second, we believe it is very important that the 
organization have a secure, stable flow of funds and not be 
subject to having to ask various parties for money each year. 
That would limit its effectiveness, limit its ability to invest 
in major research.
    As to the specific mechanism for financing, we have not 
made a recommendation on that. But it does seem to us that it 
ought to come from the people who benefit from the research, 
which includes both the public and private payors. Now, there 
are various ways that that might be accomplished.
    Chairman STARK. Is your board close to unanimous in its 
agreement with those principles, or are----
    Mr. HACKBARTH. Yes.
    Chairman STARK. They are?
    Mr. HACKBARTH. We are.
    Chairman STARK. Well, I am happy to hear that, and look 
forward to, in your report to us in June or any sooner, that 
you could let us know what your deliberations decide.
    Mr. HACKBARTH. Yes. And I might add that within the 
commission, it is some of the physician commissioners who have 
been most articulate about this. As practicing clinicians, they 
feel that the quality and the amount of information that they 
get about what works for their patients is less than they would 
desire, less than they need.
    Chairman STARK. Thank you very much.
    Mr. Camp.
    Mr. CAMP. Thank you.
    Mr. Hackbarth, the Medicare Modernization Act in 2003 had a 
number of provisions to improve Medicare Advantage payments. 
Have these changes stimulated growth, particularly in the 
underserved rural areas? And so have they actually succeeded in 
providing rural seniors with more options?
    Mr. HACKBARTH. Absolutely.
    Mr. CAMP. The MedPAC report found that Medicare Advantage 
plans were paid about 13 percent more than traditional fee-for-
service. Did you take into account the value of extra services 
like dental and vision care, preventive services like annual 
physicals, free annual physicals, that Medicare Advantage plans 
provide?
    Mr. HACKBARTH. Well, what we are looking at in that number, 
the 113 percent, is the amount of the payment as opposed to the 
additional benefits provided.
    Mr. CAMP. That is just a raw score. So it does not take 
into account the issue of benefits?
    Mr. HACKBARTH. Well, in the slide that I have up, Mr. Camp, 
the additional benefits that the plans are providing over and 
above the basic Medicare benefit package would be reflected in 
the rebate column. So they are providing services estimated to 
be 9 percent above the traditional Medicare benefit package, 
but they are receiving payments equal to 117 percent.
    Mr. CAMP. Did you include the value of the assistance 
Medicare Advantage plans provide in helping beneficiaries with 
lower co-payments and deductibles as well?
    Mr. HACKBARTH. That would be in the rebates, yes.
    Mr. CAMP. You also say in your statement that we are not 
receiving value for the additional money in Medicare Advantage. 
However, GAO found that beneficiaries in traditional Medicare 
pay $800 more per year than those in Medicare Advantage. And 
the Kaiser Family Foundation report found that while 
beneficiaries save--all beneficiaries save more money in 
Medicare Advantage, but on average, those with the highest 
health care costs save more than $4,000 a year by being in 
Medicare Advantage.
    Are you familiar with those findings?
    Mr. HACKBARTH. Yes. And I think I can explain how they fit 
into our analysis.
    Mr. CAMP. Would you describe those are receiving value, 
those individuals?
    Mr. HACKBARTH. Well, the same additional benefits could be 
provided by Medicare, traditional Medicare, that is, at a lower 
cost. The plans themselves say that their costs to provide the 
Medicare services are higher than traditional Medicare's.
    Mr. CAMP. But traditional Medicare doesn't provide those 
services.
    Mr. HACKBARTH. Apples to apples.
    Mr. CAMP. So you are assuming that then traditional 
Medicare would then continue to provide all of those services 
that we are finding in Medicare Advantage.
    Mr. HACKBARTH. Well, to the extent that what the plans are 
doing in their additional services is filling in deductibles, 
coinsurance, paying premiums, I think that is a reasonable 
assumption.
    Mr. CAMP. But also dental and vision care and other items.
    You mentioned reducing those Medicare Advantage payments 
also to spur efficiency and innovation. Are you suggesting that 
the health care delivery systems in North Dakota and Wisconsin 
are ten times more inefficient than those in New York and 
Florida, particularly?
    Mr. HACKBARTH. Well, the states that have low traditional 
Medicare costs would tend to be more efficient, not less 
efficient. In fact, in many of the low-cost Medicare states, as 
you know--not all of them, but many of them--also tend to do 
quite well on quality measures. And so traditional Medicare is 
providing very good value in those low cost states.
    Mr. CAMP. Well, so that is--yes. Those with higher Medicare 
spending and utilization often have lower health and quality 
outcomes compared to areas that are--where utilization is much 
lower. I think that is what you are saying.
    Mr. HACKBARTH. I am sorry. Say that again?
    Mr. CAMP. I think what you are saying is that benchmarks 
vary widely across the country, and that you have found that 
regions with the highest Medicare spending and utilization 
rates often have health and quality outcomes similar or worse 
than those areas where utilization is much lower.
    Mr. HACKBARTH. Yes. That is correct.
    Mr. CAMP. Is that a fair statement?
    Mr. HACKBARTH. That is correct.
    Mr. CAMP. Are you exploring ways to ensure that seniors in 
states like Michigan will not continue to subsidize the over-
utilization of services by paying higher monthly premiums and 
deductibles in Florida and other areas?
    Mr. HACKBARTH. Yes. Well, much of our work is aimed at 
trying to improve traditional Medicare so that it incorporates 
stronger incentives for efficiency and quality. So yes, that is 
what we spend most of our time trying to do.
    Mr. CAMP. Thank you. I see my time has expired, Mr. 
Chairman. Thank you.
    Chairman STARK. Mr. Doggett, would you like to inquire?
    Mr. DOGGETT. Thank you very much for your important, 
continuing work.
    I would like to direct your attention first to the section 
of your report captioned, ``Part D Data Still Unavailable for 
Purposes Other than Payment and the Related Recommendation.'' 
In that portion of your report, you say that in calendar year 
2006, Medicare and Medicare beneficiaries under the 
prescription drug program paid out about $50 billion in 
premiums, but ``because of gaps in available data, there are 
fundamental questions that cannot be answered about how Part D 
is operating.''
    I think this is a very troubling finding, and your 
recommendation to try to get CMS and HHS to do what they are 
charged under the law already, I believe, to do is very 
important. I have just been consistently amazed at this 
administration's tolerance of waste, fraud, and abuse in the 
Medicare Advantage program. Apparently it is okay to have 
waste, fraud, and abuse in government programs as long as it 
fulfills an ideological imperative and benefits insurance 
companies.
    Specifically, for over eight months I have been trying to 
determine whether all of $100 million was wasted or just a 
large part of it in this program to provide prescription drug 
assistance to people who weren't told in a timely way they were 
entitled to get it, and the refusal of CMS to go back and take 
a look at whether all that $100 million was wasted or just a 
large part of it.
    I asked in this room in June. I asked in October. I asked 
when Secretary Leavitt was sitting where you are, when he came 
to testify about the President's budget. I asked again last 
week in the Budget Committee. CMS continues to refuse to 
explain what happened to that $100 million for low income 
beneficiaries.
    Let me ask you: As a nonpartisan research organization with 
no political agenda, the Medicare Payment Advisory Commission, 
has the administration--formally or informally--been willing to 
provide you with the facts that you need concerning either this 
$100 million payment or the overall experiment with Part D, $50 
billion? And if not, has that refusal to provide data impaired 
your work to ensure accountability?
    Mr. HACKBARTH. Well, I am not sure about the $100 million 
issue, Mr. Doggett. But in general, we have been concerned that 
we haven't been able to get claims level data on Part D so that 
we can answer basic questions about how the program is 
functioning--for example, which drugs are the most frequently 
used, and how many beneficiaries are entering into the coverage 
gap, and those sorts of issues. And without that information, 
we feel we can't advise the Congress on how well the program--
Part D, that is--is working.
    So we have recommended that Congress pass legislation 
requiring CMS to provide claims level data to MedPAC and other 
congressional support agencies, and also executive branch 
agencies that have health and safety responsibility, like FDA.
    Mr. DOGGETT. And you believe they could provide you that 
data right now; but given their attitude, you feel a mandate is 
necessary?
    Mr. HACKBARTH. Well, my understanding is that there are at 
least people who believe that they don't have the legal 
authority to do that right now, which is why we have couched it 
as a recommendation that Congress enact legislation to make it 
perfectly clear that CMS is not just authorized but required to 
give us the data.
    And obviously, it ought to be done so in a way that 
protects confidentiality to beneficiaries. And we have a fairly 
good track record of dealing with confidential information.
    Mr. DOGGETT. If you had that data already, certainly you 
have mechanisms within your committee to protect 
confidentiality.
    Mr. HACKBARTH. Oh, yes.
    Mr. DOGGETT. You would have protected it had you been 
supplied the data you need to do your job. You have, even 
without that data, been able to do a great deal of research on 
the windfall subsidies that Medicare Advantage plans enjoy. 
They of course don't just go to low income individuals. They go 
to people of all income ranges.
    Do you believe that Medicare Advantage is the best way to 
assist poor folks, low income individuals, with their health 
care costs?
    Mr. HACKBARTH. No, we don't. We believe that there are 
other ways that are more targeted and would therefore be more 
effective at achieving the goal of providing support to low 
income people.
    Mr. DOGGETT. I believe the latest estimate we have is that 
we will waste about $150 billion over the next ten years on 
Medicare Advantage over delivering it through traditional 
Medicare.
    Just one last question, if I may, in another area, Mr. 
Chairman. And that is with regard to not so much these 
recommendations as the meeting that you had last week to begin 
exploring again this question of bundling hospital and 
physician payments for services around a hospitalization.
    As you know, when we had the so-called wrap DRG, there was 
a concern about bundling radiology, anesthesiology, pathology 
services all together. Could you just give us a general idea of 
where you think MedPAC is going with this new bundled payment 
pilot, and perhaps tell us what type of select conditions might 
come into play, whether it is high volume, or just generally 
what are the conditions for which quality has been a persistent 
problem but for which standard protocols are not available?
    Mr. HACKBARTH. Yes. Well, a couple points.
    Mr. DOGGETT. Or are available.
    Mr. HACKBARTH. First is that we have not made a 
recommendation yet. We discussed a draft recommendation at our 
March meeting last week, and we will take up a recommendation 
in April. But I don't want to prejudge that the commission will 
endorse that.
    The concept that we have talked about is starting with a 
select number of DRGs, focusing on particular conditions that 
are high volume and, for example, where there is a lot of 
variation around readmission rates and the like--focusing on 
those DRGs and then, for those conditions, bundle together in a 
single package not just the hospital payment but also the 
inpatient physician fees, subsequent hospital readmissions 
within a given window like 30 days after the first admission. 
And the ultimate goal would be to have a single fixed payment 
that goes to an organization that then divides it among the 
physicians and hospitals and others participating in the care.
    So that is the basic concept. To get to that true bundled 
payment, we are likely to recommend some transitional steps 
that would move us gradually in that direction.
    Mr. DOGGETT. Thank you.
    Chairman STARK. Mr. Johnson, would you like to inquire?
    Mr. JOHNSON. Thank you, Mr. Chairman.
    You indicated that rural access has improved beneficiary 
choice to Medicare Advantage. And what would your proposed cuts 
do to Medicare Advantage to current beneficiaries' access? Is 
that going to impair them?
    And you need to know that the seniors in my district have 
asked me not to mess with their Medicare Advantage plans, and I 
know that Mr. Stark's percentage is way up there on numbers of 
people in your district who take Medicare Advantage. Compared 
to mine, you are about five times as many.
    Mr. HACKBARTH. Clearly, as I said in response to Mr. Camp, 
the additional payments that are being made to private plans 
are, at least some of them, going into added benefits for 
Medicare beneficiaries. And of course we understand that that 
is very popular.
    But if the goal is to provide added benefits to Medicare 
beneficiaries, we believe that there are more efficient ways to 
do that than to funnel the money through----
    Mr. JOHNSON. Yes. You made that statement before. You keep 
saying there are other ways. What are the other ways? Would you 
care to discuss----
    Mr. HACKBARTH. If Congress wants to expand the Medicare 
benefit package, Congress can do that and it would be at a 
lower cost than doing it through Medicare Advantage.
    Mr. JOHNSON. How can you be sure it would be a lower cost?
    Mr. HACKBARTH. The plans tell us so. Again, looking at the 
table before you, the plans say that it costs them more than 
traditional Medicare to provide the Medicare benefit package.
    Mr. JOHNSON. Well, but you also made the statement that it 
varies across the country. And how do you equalize that?
    Mr. HACKBARTH. Well, let's just go through some of the 
numbers here. On average, for all Medicare Advantage plans 
across the country, all types of plans, the average bid is 101 
percent of traditional Medicare.
    For the private fee-for-service plans, which are, as you 
know, the most rapidly growing and the most prevalent form in 
the rural areas, the plans say that it costs them 108 percent 
of Medicare's cost to provide the traditional Medicare package. 
So there certainly is variation.
    But in the rural areas, the private plans say it would cost 
us quite a bit more than traditional Medicare to provide these 
benefits. That is what the plans say. That is what their bids 
say. So if we want to provide more benefits to Medicare 
beneficiaries, it is more efficient to do it through 
traditional Medicare than through private fee-for-service 
plans.
    I would also add that if the goal is to improve geographic 
equity, if people feel like traditional Medicare is unfair to 
parts of Texas or to Michigan relative to Florida, the place to 
fix that is in traditional Medicare, not in paying additional 
money to private plans in those areas.
    When traditional Medicare pays a lot more for--or when 
Medicare pays a lot more for private fee-for-service in Texas 
or in Michigan or in South Dakota, a lot of that money is going 
into higher administrative costs and profit for plans. It is 
not going to the health care providers in those states that 
have produced those low traditional Medicare costs. It is going 
to insurance companies.
    So if we want to improve geographic equity in traditional 
Medicare, fix traditional Medicare. If we want to provide more 
benefits to Medicare beneficiaries, provide them through 
traditional Medicare. It is lower cost. It is more targeted.
    Mr. JOHNSON. So what you are saying is the government is a 
better insurer than private industry?
    Mr. HACKBARTH. No. Actually, I am not saying that.
    Mr. JOHNSON. Yes, you----
    Mr. HACKBARTH. Well, this is a critical issue, Mr. Johnson, 
so I want to be really clear on it.
    Is traditional Medicare lower cost, more efficient, than 
private fee-for-service plans? Yes. The data say so. The data 
submitted by private fee-for-service plans say so. Is 
traditional Medicare more efficient than all private plans? No. 
Some of them bid less. HMOs, on average, bid less than the cost 
of traditional Medicare, and some HMOs significantly less than 
traditional Medicare.
    Some private plans are efficient. Others are not. The 
problem with this payment system is we are rewarding 
inefficient private plans. In fact, we are encouraging growth 
in inefficient private plans.
    Mr. JOHNSON. Well, I think--would you agree that 75 percent 
of the people use HMOs?
    Mr. HACKBARTH. Seventy-five percent of the enrollment? Yes.
    Mr. JOHNSON. Can you tell us? Is that true?
    Mr. HACKBARTH. Yes. But the most rapidly growing piece of 
this is the private fee-for-service.
    Mr. CAMP. Would the gentleman from Texas yield just for a 
point of clarification?
    Mr. JOHNSON. Yes. Sure.
    Mr. CAMP. Mr. Hackbarth, are the coordinated care plans in 
a different position than the private fee-for-service? Are 
those still--I mean, your own data suggests they are providing 
services more efficiently, yet your testimony seems to lump 
everybody together. And if you could just clarify those points, 
I would appreciate it.
    Mr. HACKBARTH. Yes. Sure, Mr. Camp. And believe me, I am 
doing my best to be clear on this. Not all private plans are 
the same. There is a lot of variation. We tend to, for analysis 
purposes, group plans into broad categories--private fee-for-
service, coordinated care plans, regional PPOs, and the like.
    There are variations across those categories. Clearly, 
private fee-for-service is the least efficient option among the 
broad categories. Within a category, like coordinated care 
plans, that includes HMOs and local PPOs, as I recall, there 
are variations among HMOs in terms of their efficiency. Some of 
them are much lower cost than traditional Medicare. Some are 
highest cost than traditional Medicare. So the labels are----
    Mr. CAMP. Do you have a conclusion as a category, though?
    Mr. HACKBARTH. On average, the HMO category provides the 
traditional Medicare benefits for less than traditional 
Medicare.
    Mr. CAMP. Thank you, sir. I yield back.
    Mr. JOHNSON. Thank you.
    Chairman STARK. Ms. Tubbs Jones, would you like to inquire?
    Ms. TUBBS JONES. Thank you, Mr. Chairman.
    Good morning, sir. How are you?
    Mr. HACKBARTH. I am doing well.
    Ms. TUBBS JONES. My name is Stephanie Tubbs Jones. I come 
from Cleveland, Ohio. And I am concerned, and I have kind of 
looked through this report and I am not sure that it is 
included in that: You are familiar with all the research that 
shows that there are significant health disparities, 
particularly in the delivery of health care for minorities, are 
you not, sir?
    Mr. HACKBARTH. Yes.
    Ms. TUBBS JONES. Is there any place in this report where 
you address the issue of health disparities?
    Mr. HACKBARTH. Well, there are places that we take care to 
look at differences. For example, in----
    Ms. TUBBS JONES. Can you refer me to somewhere in the 
report to do that?
    Mr. HACKBARTH. Yes. For example, in looking at dialysis 
facilities and closure rates, one of the things that we look at 
is the impact on different populations, including African 
Americans.
    Ms. TUBBS JONES. And what were your findings?
    Mr. HACKBARTH. Well, in that case we found that among the 
closing dialysis facilities, they were somewhat more likely to 
be facilities that have a disproportionate share of African 
Americans. It is not a huge disparity, but something that bears 
watching, we think.
    Ms. TUBBS JONES. And the reason you are focusing on that is 
because end stage renal disease predominates in African 
Americans and other minorities. Is that correct?
    Mr. HACKBARTH. Yes. It is a particular problem.
    Ms. TUBBS JONES. And so what do you propose we do to 
address that particular issue, sir?
    Mr. HACKBARTH. Well, in this case, as I said, we found a 
slight difference and think that it is something that bears 
watching. We don't think that there is evidence of an 
overwhelming problem at this point that requires----
    Ms. TUBBS JONES. But if you are looking at a population in 
which it predominates, the slight difference could have a 
disproportionate impact on that group of folks.
    Mr. HACKBARTH. All of the other statistics that we look at 
in terms of access to care for African Americans in general, 
the growth in services, et cetera, they all are in line with 
the needs of the population. So the number that I am saying is 
a little bit, something that bears watching, is the closure of 
facilities. Are the ones that are closing disproportionately 
facilities that serve African Americans?
    Ms. TUBBS JONES. So are you saying to me that in terms of 
health care disparity, the only issue is the closing of end 
stage renal disease facilities?
    Mr. HACKBARTH. We don't look at every issue with an eye 
towards disparities. No, we don't.
    Ms. TUBBS JONES. Is that something you could do?
    Mr. HACKBARTH. We would be happy to look at particular 
issues, yes.
    Ms. TUBBS JONES. I mean, I think that in light of the fact 
that every research is showing that health care disparities 
predominate, delivery of care to minorities is a big issue for 
minority communities. It would only make sense that you, who do 
the report to Congress on Medicare payment policy, would 
include that in your research.
    Could you see that that is something you include moving 
forward in the future?
    Mr. HACKBARTH. Yes. We can take a look at that.
    Ms. TUBBS JONES. You are aware, in fact--I am encouraging 
you to do so. And I am going to stay on this health care 
subcommittee counting on you to provide that kind of leadership 
for us.
    You are aware that the committee--not the committee, the 
chair and I requested the GAO to do a study around end stage 
renal disease and the impact bundling would have on end stage 
renal disease?
    Mr. HACKBARTH. Yes.
    Ms. TUBBS JONES. Is there anything in your research that 
speaks to that issue?
    Mr. HACKBARTH. To bundling?
    Ms. TUBBS JONES. Yes. The bundling of Epogen and the impact 
that it would have on minority communities?
    Mr. HACKBARTH. Well, the commission has recommended 
bundling of ESRD-related services. And we have recommended that 
when that is done, that there be careful attention paid to 
incorporating measures of quality.
    Ms. TUBBS JONES. But when you made that recommendation, did 
you have any study upon which you based that it would have any 
disparate impact on minority communities?
    Mr. HACKBARTH. No. We don't have information to show----
    Ms. TUBBS JONES. Could you, please--again, I am asking on 
behalf of the minority communities across this country in whom 
end stage renal disease predominates--do some research in and 
around that?
    Mr. HACKBARTH. Yes.
    Ms. TUBBS JONES. And when we receive this GAO study that we 
have frequented, that you take a look at that to determine the 
impact, what impact your decision could have based on the study 
that they have done?
    Mr. HACKBARTH. Yes. Of course we would be happy to do that. 
I would add, though, that we recommend bundling for ESRD 
services because we think that that system can produce better 
quality for all Medicare beneficiaries within end stage renal 
disease.
    Ms. TUBBS JONES. But let me----
    Mr. HACKBARTH. The goal is to enhance quality as well as 
improve efficiency.
    Ms. TUBBS JONES. Exactly. But the question I have is: Do 
you believe that doctors recommend drugs in order to make money 
versus standing in the stead of doing the job that they are 
supposed to do, which is to do no wrong?
    Mr. HACKBARTH. Some doctors do that, and many do not.
    Ms. TUBBS JONES. So upon what do you base that answer that 
some doctors do that?
    Mr. HACKBARTH. That some doctors----
    Ms. TUBBS JONES. Do that, what you just--that is what you 
just said.
    Mr. HACKBARTH. I am saying that there are doctors who will 
do things due to financial motivation, and many who do not.
    Ms. TUBBS JONES. And upon what do you base that statement?
    Mr. HACKBARTH. You can look at variation in utilization of 
services, and look at things like how ownership affects 
utilization recommendations.
    Ms. TUBBS JONES. So do you have a research report that says 
doctors make that kind of recommendation, for profit, versus 
looking out for the interests of their patient?
    Mr. HACKBARTH. Again, I don't know if I am misunderstanding 
your question. Are there physicians who recommend more because 
they are influenced by financial incentives? I say yes, there 
are some physicians.
    Ms. TUBBS JONES. And I am asking you, if you have 
physicians that do that, do you have a report that shows that 
they do that?
    Mr. HACKBARTH. There is abundant research that shows that 
there is a relationship between financial incentives and 
physician utilization decisions. There is research that shows 
there is a relationship between physician ownership of 
facilities and their decisions about utilization of those 
services. We don't produce every bit of research ourselves. We 
rely on work done by other researchers.
    Ms. TUBBS JONES. I would be interested in having someone 
from the folks that are with you giving me the research that 
says that doctors would over-prescribe a drug of purposes of 
profit versus looking out for the interests of their patient. 
And I am out of time, so I am looking for you to send that to 
me.
    Mr. HACKBARTH. Well, again, the point is that physicians 
respond to incentives.
    Ms. TUBBS JONES. I don't know if anybody in the physician 
community is sitting out there listening to these blanket 
statements that you are making, but I am confident by the end 
of the day you are going to hear from a whole bunch of them.
    Mr. HACKBARTH. Well, we have got physicians on MedPAC who 
would agree with that statement.
    Ms. TUBBS JONES. Send it to me. If you have it, I would 
love to read it. But I am telling you, by the end of the day I 
am confident you are going to hear from a lot of physicians who 
agree with that blanket statement you are making about their 
practice of medicine.
    Mr. HACKBARTH. And in fact, just so the record is clear, I 
did not make a blanket statement. What I said is that some 
physicians do; most do not.
    Ms. TUBBS JONES. I will let the physicians argue with you. 
Thank you, Mr. Chairman.
    Chairman STARK. You are welcome.
    Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman, and thank you, Mr. 
Hackbarth. I appreciate your testimony today, and also MedPAC's 
work in the report that you submit. Obviously, you give us a 
lot of policy issues to chew on in the course of the report.
    Skilled nursing facilities/home health: I am very concerned 
about their status back in Wisconsin. Obviously, MedPAC is 
recommending zero percent.
    Mr. HACKBARTH. Right.
    Mr. KIND. And that is based on what the Medicare margins 
are right now, is my understanding. The problem we are facing, 
however, is the state funding issue, which many of us believe 
has been inadequate, especially in Wisconsin, for too long. And 
yet they keep coming to us seeing if there is any type of help 
or relief in light of the funding shortfall that is occurring 
at the state level.
    You probably weren't paying attention, but a couple of 
weeks ago we just passed reauthorization of the Higher 
Education Act, which had a maintenance of funding language in 
it, basically telling the states, listen. If you are going to 
make it a policy proposal to reduce funding for higher 
education, don't expect the Federal Government then to come up 
and make up for the shortfalls in that.
    I am just wondering whether or not something like that 
might be necessary in order to address the skilled nursing 
facilities and home health issues since Medicare's margins are 
above and beyond, and yet the state funding seems to suffer 
each year as we go forward, and then jeopardizing that care 
back home.
    Mr. HACKBARTH. Yes.
    Mr. KIND. Did MedPAC look at anything like that?
    Mr. HACKBARTH. Well, what we have said is that using 
Medicare funds to offset Medicaid shortfalls is a mistake.
    Mr. KIND. Right.
    Mr. HACKBARTH. For two reasons. One, if the Federal 
Government says, we will assume responsibility for the bottom 
line of nursing homes and home health agencies, that is the 
reason for the state and other payors to say, oh, we will 
reduce the amount we pay because the feds will make up the 
difference. And that is the issue you are getting at.
    The second aspect of it is that if we use Medicare rates to 
cross-subsidize for low Medicaid payment, the skilled nursing 
facilities, for example, that are going to get the most money 
are the ones that have the highest Medicare case loads and the 
lowest Medicaid case loads. And so the money is not going to go 
to the right people.
    So if you want to fix low Medicaid rates, you have got to 
fix Medicaid, not do it through Medicare. As to how to fix 
Medicaid, that is beyond the scope of the Medicare Payment 
Advisory Commission, so we have not made a specific Medicaid 
recommendation.
    Mr. KIND. Now, let me just relay the sense of frustration 
again that many of the providers feel back in my district in 
western Wisconsin. High quality care. One of the lowest 
reimbursement regions in the entire country. Now, if we were to 
move forward aggressively, getting e-prescribing, HIT in place 
with quality of care standards, and move to an outcome or 
performance-based reimbursement system, how much cost savings 
do you think that would bring the Medicare system in light of 
the solvency issues that have been highlighted here today?
    Mr. HACKBARTH. From HIT in particular?
    Mr. KIND. Yes. From HIT, but also going to a performance-
based type of reimbursement system that also deals with the 
utilization variances from regions.
    Mr. HACKBARTH. Yes. I don't know, Mr. Kind, exactly what 
the number would be. You know, people have looked at some 
pieces of that. The Rand Corporation, for example, tried to 
look at the potential long-term savings from HIT. MedPAC 
specifically has not looked at those issues. But potentially 
the savings are quite large from improved efficiency.
    Mr. KIND. And you are probably familiar with the type of 
provider initiative that is taking place in Wisconsin, where 
they are trying to--this new quality collaborative initiative 
that all the providers have bought into in the state in trying 
to establish standards, increasing transparency, and getting 
that data available, which I think makes a lot of sense as long 
as you can get that type of integration and cooperation across 
the providers.
    But naturally, we do have a solvency issue. But one of the 
issues coming up this year was going to be the 45 percent 
trigger issue. Does MedPAC have any thoughts about that 45 
percent trigger?
    Mr. HACKBARTH. Well, we have not made any recommendation on 
the 45 percent trigger per se. I would say that, as I said in 
my opening statement, the commission is very concerned about 
the solvency of the program and feels a growing sense of 
urgency about that. So to the extent that the 45 percent 
trigger reflects the same sense of urgency, that is good news.
    The problem with the trigger is that, as you know, it 
focuses on the portion of the program that is financed through 
general revenues. And so it is just looking at a piece of the 
financial picture, not the overall cost of the Medicare 
program.
    And so in that sense, the 45 percent trigger is inadequate 
to deal with our big picture issue, which is the total cost of 
the program, whether it is financed from general revenues or 
the HIT.
    Mr. KIND. Right. What are your thoughts on these so-called 
efficiency payments, trying to incentivize increased 
efficiencies and cost savings and the delivery of health care? 
Are they going to be effective? Are they going to----
    Mr. HACKBARTH. We have got to move in that direction. We 
need to move in that direction with care. We need to make sure 
that the system includes quality measures to assure that we 
aren't hurting quality as we try to lower costs.
    We need to take care that there is appropriate adjustment 
for patient case mix and severity of illness so there aren't 
incentives to avoid the sickest patients. But the direction is 
the direction we need to move. We just need to move there with 
care and thought.
    Mr. KIND. Great. Thank you. Thank you, Mr. Chairman.
    Chairman STARK. Mr. Pomeroy, would you like to inquire?
    Mr. POMEROY. I do have a few questions. I would first like 
to pick up on my colleague's comments about the skilled nursing 
home care reimbursement issue. Now, MedPAC is an advisory 
committee for Medicare, so maybe MedPAC only needs to look at 
the Medicare component of reimbursement under CMS. But I 
believe the responsibilities on us, as members of the Ways and 
Means Committee, needs to be a little broader even though 
Medicaid jurisdiction falls principally on the Commerce 
Committee.
    But what we have for the nursing home in North Dakota 
providing services, much of which is paid for by federal 
programs, Medicare or Medicaid, is negative margins. They are 
getting negative margins because they are losing their short on 
Medicaid reimbursements being below costs, and they have been 
able to cross-subsidize a little bit with the margin, a 
favorable skilled nursing care margin on Medicare 
reimbursements.
    So simply to, without attending in any way to the 
underpayment on Medicaid, hammer now the margins on Medicare, 
at the end of the day, for the institution we demand provide 
quality care to the senior in that home, we are only making the 
job much more difficult.
    And I believe that you can even look at it a little more 
expansively as a Medicare problem as well. If the institutions 
are, in aggregate, in negative margins because of a federal 
program, it seems to me we had better be somewhat tempered in 
what we do on the Medicare side lest we drive the quality or 
the availability of care in the nursing home area to where we 
can't get acceptable outcome for the Medicare reimbursements 
that we make. We have that as a higher priority personally in 
the year ahead as we look at this.
    But I want to ask you about a few different things. The 
growth we are seeing in the Medicare Advantage is all in the 
private fee-for-service side in North Dakota. An awful lot of 
aggressive marketing has produced some substantial enrollment 
change recently.
    And I just don't see much quantification of the private 
fee-for-service return for the 17 percent we pay over the cost 
of Medicare, paying for the benefit on the fee-for-service 
basis. Is that substantially MedPAC's view as well?
    Mr. HACKBARTH. Mr. Pomeroy, again I would refer you to the 
table that is on the screen. So that last column, the rebates, 
that is the amount of money that goes back to Medicare 
beneficiaries in the form of added benefits, reduced premiums.
    So of the 117 percent payment, overpayment, 9 percentage 
points of that 17 is going to the beneficiaries in the form of 
added benefits. The remaining 8 percent out of the 17 is going 
into higher plan costs for administration, profit, et cetera. 
So some of it is making it to beneficiaries, but only about 
half.
    Mr. POMEROY. Yes. For whatever enhanced benefit we want, we 
are paying $2 to get a buck's worth of good out there.
    Mr. HACKBARTH. Yes. Right. Exactly.
    Mr. POMEROY. There ought to be a more efficient way of 
doing that one.
    There is a book I would commend to you, if you haven't read 
it, ``Overtreated: Why Too Much Medicine Is Making Us Sicker 
and Poorer,'' written by Shannon Brownlee. The New York Times 
called it the number one economic book in 2007. And it talks 
about vast differential in practice patterns not reflected to 
improved outcomes, in fact potentially inversely related to 
preferred outcomes, adding costs that the author estimates to 
be $500 to $700 billion a year.
    Now, as a system, is Medicare incapable of responding to a 
practice pattern in one place that is carving people up at a 
rate that is totally unmatched in other parts of the country 
without any better outcomes to show for the cost and the trauma 
to patients?
    Mr. HACKBARTH. Well, one of the tools that Medicare has at 
its disposal is in fact to use private plans. Traditional 
Medicare has some strengths. It is large. It can get good rates 
from providers because of its size. It has low administrative 
costs because of its size. Traditional Medicare's weakness 
historically has been its inability to change practice patterns 
and deal with this sort of issue.
    And so part of the original thinking around Medicare 
Advantage was, well, if we allow private plans to come in and 
they can selectively contract, they can better coordinate care, 
and the like, they can deal with some of these inappropriate 
utilization patterns maybe more flexibly than traditional 
Medicare.
    I still believe that is true. The problem with Medicare 
Advantage is the payment system that we are using rewards 
inefficiency as well as efficiency.
    Mr. POMEROY. All right. Thank you, Mr. Chairman.
    Chairman STARK. Thank you.
    Mr. Thompson, would you like to inquire?
    Mr. THOMPSON. Thank you, Mr. Chairman. I would. Thank you, 
sir, for being here today and helping us work through these 
vexing issues.
    In the administration's budget, they were silent on the 
issue of addressing the impending physician rate cuts, which I 
take to be a silent endorsement of the cuts. And it is 
interesting because CMS's own actuaries seem to recognize that 
cuts of this magnitude will impact access to care. As a matter 
of fact, they said that it would substantially reduce 
beneficiary access to physician care.
    Does MedPAC agree that cuts in the range of 10 percent 
would have an impact on beneficiaries' access to care? And do 
you have any comments as to how you think Congress should deal 
with it?
    Mr. HACKBARTH. Yes. It is quite possible that a cut as 
large as 10 percent would start to affect access to care, in 
particular in some markets. MedPAC's recommendation is for an 
increase in physician fees equal to the increase in their input 
prices minus a productivity factor. It works out to about 1.1 
percent.
    Mr. THOMPSON. And that would avert any reduction in care 
to----
    Mr. HACKBARTH. Yes. We think a modest increase in the 
payments is appropriate.
    Mr. THOMPSON. I would like to follow up on something our 
colleague Ms. Tubbs Jones mentioned, and that is the issue of 
bundling of Medicare payment rates for dialysis. And she said 
one thing that--she asked you one question that I was somewhat 
perplexed by your comments, and that is the fact that--the 
closing of these facilities.
    And I didn't hear any mention on your part that there is a 
nexus between reimbursement rates and the ability of some of 
these facilities to stay open. And I think that was something 
that--maybe it is intuitive, but it is important to note that.
    It is more than just the reasons that you stated for folks 
to stay open and continuing to be able to provide care. If they 
are not getting the reimbursements they need to keep the doors 
open, they are going to close.
    Mr. HACKBARTH. Yes. But could I comment on that, Mr. 
Thompson?
    Mr. THOMPSON. Sure.
    Mr. HACKBARTH. Just to be clear, the number of facilities 
closing in any year is quite small. And maybe somebody can get 
that number.
    Mr. THOMPSON. Well, and the number----
    Mr. HACKBARTH. And so I didn't mean to overstate the 
closure problem. But I was giving it as an illustration of 
where we have looked in particular at a disproportionate impact 
on certain communities, like the African American community.
    Mr. THOMPSON. The actual number is less important to me 
than the fact that people who need this care--I mean, it is 
very, very important--have the ability to do it. I don't know 
where you live, you know, if you live in the city, or maybe it 
is easy to get to them. But I represent a district that is 
largely rural, and it is tough for people to drive--especially 
to undergo this type of treatment--to drive any great lengths.
    And I will stipulate that bundling probably does save 
money. But I think it is important also to point out that it is 
more than just saving them money. There is a quality to health 
care, a quality of health care, an access to that quality of 
health care issue that I think has to be put in place.
    And I am hearing rumors that, given the support for the 
bundling, that there may in fact be something along those 
lines. But I think we need to do some better tests than the 
tests that have been proposed so far.
    And I think that those pilots or tests or whatever you are 
going to--the matrix that you are going to set up to determine 
the impact that this is going to have on very real people with 
very serious health problems, that it take into consideration 
not just the savings associated with this but also the impact 
it has on someone's access to quality health care. And I would 
like to see something come out of MedPAC that would address 
that issue.
    Mr. HACKBARTH. We agree that designing the system so that 
it doesn't just preserve quality but I think can even enhance 
quality, that should be the objective.
    Mr. THOMPSON. We just need to make sure we do the work on 
the ground so we are not modeling after urban facilities. We 
need to take into consideration the impact this is going to 
have on rurals.
    And then one last question. The administration held 
Medicare Advantage Plus harmless, and this has been talked 
about a little bit already, but in the budget that cut the 
rates for almost every other provider group.
    And it seems to me that in your work, you suggest that the 
Medicare Advantage plans take up about $10 billion more for 
beneficiaries enrolled in those plans. And my question to you 
is: Without reform, do you see the MA reimbursement rates 
continuing to tread upward in comparison for fee-for-service? 
And what can you suggest that beneficiaries are getting that 
make this extra expenditure worthwhile?
    Mr. HACKBARTH. Well, so long as we keep the current payment 
system, we expect that enrollment will continue to grow. And 
each new beneficiary is costing traditional Medicare more. So 
the cost of the program will grow with that additional 
enrollment. And that is one of the reasons we think it is 
important to act on this as soon as possible.
    Mr. THOMPSON. So $10 billion today?
    Mr. HACKBARTH. It will be bigger in the future so long as 
you leave these payment incentives in place.
    Mr. THOMPSON. Pretty soon we are talking about real money.
    Mr. HACKBARTH. Yes. We are at risk in the extreme of taking 
large portions of the country where traditional Medicare's 
costs are relatively low and quality relatively high, and 
moving all those beneficiaries into higher cost fee-for-service 
plans that add no value over traditional Medicare. And the 
price tag for that will be very large.
    Mr. THOMPSON. And as far as what these beneficiaries are 
getting for this $10 billion extra?
    Mr. HACKBARTH. Well, again, the table that we have 
discussed summarizes the data. In the case of private fee-for-
service--which has basically doubled in size; it is the most 
rapidly growing--doubled in size of the last year; it is the 
most rapidly growing piece of Medicare Advantage--only about 
half of the overpayments are going into additional benefits for 
Medicare beneficiaries.
    Mr. THOMPSON. Thank you very much.
    Chairman STARK. Mr. Becerra, would you like to inquire?
    Mr. BECERRA. Yes, Mr. Chairman.
    Mr. Hackbarth, thank you for being with us again. And once 
again, thank you for the report, your testimony, and the good 
work that the commission has been doing.
    I would like to focus my first question on some of your 
recommendations pertaining to trying to increase the 
participation rates by modest income Medicare beneficiaries in 
the Medicare savings program and in the low income drug subsidy 
program as well.
    You make some specific recommendations, which I think you 
have made in the past. I know I have heard you say this. One is 
that the Secretary of Health and Human Services should increase 
the funding for outreach to low income Medicare beneficiaries 
that participate in the state health insurance assistance 
program.
    Two, you call on Congress to raise the Medicare savings 
program income and asset test to conform to the low income drug 
subsidy criteria that we have, so that you bring them together 
and let low income folks who happen to have some modest assets 
still qualify without having to become so poor before they are 
able to get some assistance to get their Medicare benefits.
    And you also talk about Congress changing the program 
requirements so that the Social Security Administration would 
be able to screen low income drug subsidy applicants for the 
federal Medicare savings program to see if they are eligible, 
and if they are, to be able to enroll them; in essence, a one-
stop shop. So that if the state is finding out that these folks 
qualify, or the SSA is finding out that they qualify for one 
thing, chances are they will qualify for the other. And rather 
than have them not know the other, we get them into the boat 
getting their health care right away.
    Mr. HACKBARTH. Exactly.
    Mr. BECERRA. You have made these recommendations before. 
Our bill, the CHAMP bill last year, tried to implement them. We 
have not gotten there. Why do you keep making these 
recommendations? Beyond the social desire of trying to get 
folks who qualify, who are eligible for these benefits to know 
about them, is there a financial savings as well?
    Mr. HACKBARTH. Well, I am not sure that there would be a 
financial savings, at least not in the first instance. These 
increase outlays----
    Mr. BECERRA. To the overall----
    Mr. HACKBARTH [continuing]. It is money well spent.
    Mr. BECERRA. Right. To the overall system, I guess I should 
say.
    Mr. HACKBARTH. Yes. No, frankly, the context in which we 
took on these issues was influenced by the Medicare Advantage 
debate. A lot of people said, well, Medicare Advantage is 
providing support for low income beneficiaries. It is making it 
so that they can get added benefits.
    And that is a worthy, important goal. And so we said, well, 
there are other ways to achieve that goal more efficiently 
without just sort of spreading money all over the country. 
Let's target it to low income people. We have vehicles in 
place, namely, the Medicare savings programs. Let's change the 
rules there so that they are more effective.
    Mr. BECERRA. So we could be more efficient if we were able 
to target it through these programs that already exist?
    Mr. HACKBARTH. Yes. That is our thought.
    Mr. BECERRA. Let me ask another question. I know there is a 
constant debate about the issue of the high deductible health 
plans, and the health savings accounts that the President has 
really promoted for quite some time really provide resources 
for those who are in these high deductible health plans.
    These plans, my understanding is, run the risk of being 
attractive to individuals who, for the most part, are healthy 
or wealthy. But when you take into account that 80 percent of 
our health care costs are for 20 percent of the population, it 
seems to me that the 20 percent that is at most risk of needing 
health care, they are the folks that are least likely to go 
into these health savings accounts and these high risk 
deductible plans because their up-front costs would be too 
tremendous for them to be able to afford that type of an 
insurance program.
    Any comments?
    Mr. HACKBARTH. Well, we have not looked specifically at the 
issue of the high deductible plans. We do refer to some 
research in our report that has been done by other people that 
suggests that, yes, maybe there is a selection effect here, 
that they are most attractive to people who have relatively 
high incomes and who are relatively healthy. I would note, 
though, that it is pretty early in the development of the idea. 
And so it is probably premature to draw definitive conclusions.
    From my own personal perspective, I guess the big question 
that I have about the effectiveness of the high deductible 
plans, having been in one myself, actually, is: Are they going 
to help us deal with the health cost problem, which as you say 
is that 20 percent of the population that uses 80 percent of 
the resources.
    The people who have multiple chronic illnesses are going to 
blow through these deductibles. And once they are through the 
deductible, they basically have first dollar comprehensive 
coverage. So what is the incentive to reduce costs in the case 
of the people who use all the money? So are they going to solve 
our health cost problem? It is hard for me to see how they will 
do that.
    Mr. BECERRA. Well, I thank you for the report because it 
seems to me you are trying to target these efficiencies that we 
can inject into the system. And I appreciate that because one 
of the things we are finding is that we may have disagreements 
about how to do health care, but I think if we know we can save 
money and still provide health care, most of us in this 
Congress would be supportive of that.
    So we appreciate the reports and the recommendations that 
we have gotten from MedPAC. Thank you for your time.
    Mr. HACKBARTH. Thank you.
    Chairman STARK. Thank you. I had a couple of questions, 
Glenn.
    You continue to recommend a bundled payment for dialysis 
providers. Do we need to do a demonstration first before moving 
to a bundled payment system, or do we have enough information 
to proceed?
    Mr. HACKBARTH. I think there is probably enough information 
to proceed as is, Mr. Stark. I don't think another demo is 
needed. Having said that, of course, it is very important to 
take care in the design of a bundled payment to include 
appropriate case mix adjustment and quality measures.
    Chairman STARK. So that would take into account adjustments 
for minority populations or for rural settings? All those 
issues that my colleagues have raised today would be taken into 
account in setting up a bundled payment system, and you have 
enough information, you feel, to do that?
    Mr. HACKBARTH. Well, I think it can be designed to address 
the legitimate concerns that have been raised.
    Chairman STARK. In the area of the for-profit skilled 
nursing facilities, you project Medicare margins of 11 percent 
in 2008 in the for-profit groups. Is there a variation in 
margins between the for-profit and not-for-profit skilled 
nursing facilities?
    Mr. HACKBARTH. Yes. The average Medicare margin for the 
freestanding facilities I think is projected to be 11 percent. 
And the margin for the for-profits--this is actually the 2006 
data. So the overall average is 13 percent, and the for-profit 
was 16 percent, and the not-for-profit was 3 percent.
    Chairman STARK. Why is that, and what should we do to 
perhaps bring them closer together?
    Mr. HACKBARTH. Yes. We have been concerned for several 
years now about the system used to pay skilled nursing 
facilities, and didn't feel like it was appropriately 
recognizing differences in some types of patients. And there 
are two particular components that have been troubling to us: 
how the system pays for non-therapy ancillary expenses, as they 
are known, which is like drugs and respiratory therapy, things 
like that; and then how it pays for physical therapy, 
occupational therapy, and the like.
    In the one case, the non-therapy ancillaries, we think the 
existing system underpays. So these are often complicated 
patients that we think are not getting enough money from 
Medicare. On the other hand, the existing system provides very 
strong incentives to do lots of therapy, and there may be too 
much profit in that end of the business.
    We are looking at a recommendation and we talked about a 
draft recommendation last week that would change the payment 
system for non-therapy ancillaries and therapy, and would have 
the effect of changing these margins. So margins at the for-
profit skilled nursing facilities would fall. Profits at the 
not-for-profit skilled nursing facilities would increase. I 
would also add that the financial performance of hospital-based 
skilled nursing facilities would also improve under our 
recommendation.
    Chairman STARK. And you won't get me crosswise with Mr. 
Pomeroy in saying that we won't be disadvantaging rural 
providers or inner city providers?
    Mr. HACKBARTH. No, I won't. We think it is a fairer payment 
system that more accurately reflects the needs of the patients 
being served.
    Chairman STARK. Mr. Camp, did you----
    Mr. CAMP. Yes. I just had a follow-up to the question you 
had.
    Obviously, MedPAC has recommended in past reports a bundled 
payment for dialysis services combined with quality monitoring. 
So this is not a new recommendation.
    Mr. HACKBARTH. Right.
    Mr. CAMP. But what is new is that CMS has just completed 
their final report on a potential model for an ESRD bundled 
payment. In that, I understand there are a number of case mix 
adjusters.
    Are any of those including race?
    Mr. HACKBARTH. I don't know. I think the CMS report came 
out like a week ago.
    Mr. CAMP. Yes. I believe none of them. There are 22 case 
mix adjusters, and none of them are including race.
    Do you believe the model that CMS has developed can be used 
to implement a bundled payment system nationwide that accounts 
for both individual patient characteristics as well as the 
smaller dialysis facilities?
    Mr. HACKBARTH. Because the report is a recent one, we are 
still in the process of looking at it. But as you point out, we 
have said for a number of years now we think a bundled payment 
is the way to go.
    Mr. CAMP. And rather than a pilot program, do you believe a 
transition might be more appropriate to phase in a bundled 
payment, similar to the transitions to reform patients to 
inpatient hospitals, skilled nursing facilities, long-term care 
hospitals, inpatient rehab facilities?
    Mr. HACKBARTH. Yes. In fact, that is a quite common thing 
in the Medicare program, where you are making a significant 
change in a payment system to allow a gradual transition. Yes.
    Mr. CAMP. And would it also not be suitable to provide a 
regular update that is built into the baseline, much like other 
providers?
    Mr. HACKBARTH. I am sorry. You are saying a statutory 
update?
    Mr. CAMP. Yes. To provide a regular statutory update that 
is built into the baseline, which is similar to what other 
providers receive?
    Mr. HACKBARTH. Well, as you know, MedPAC's stock in trade 
is to look at a variety of different factors to make an update 
recommendation, things like margins, access to capital, access 
to care for beneficiaries, et cetera. And those variables 
change over time. They change year to year in some cases.
    And so our basic approach on all updates is that you ought 
to do an analysis each year to determine an appropriate update, 
as opposed to writing a baseline that says, oh, they are going 
to get X percent every year into the future. So if anything, we 
would like to see everybody on the same footing as dialysis 
facilities, which is no automatic increases.
    Mr. CAMP. So you are suggesting we remove the built-in 
baseline update for other providers?
    Mr. HACKBARTH. We think that determining the appropriate 
rate increase is something that ought to be done year by year.
    Mr. CAMP. And how does that--if that is completely open 
year to year, doesn't that make long-term planning somewhat 
difficult, particularly in hospital settings and other large 
concerns that have a variety of business decisions to make as 
well as the care of patients?
    Mr. HACKBARTH. Well, most businesses don't have guaranteed 
updates. They have prices set by competitive markets. And they 
still manage to plan. They make assumptions about what it is 
going to be. They respond to changes in prices by improving 
efficiency. The norm----
    Mr. CAMP. There is also more choice available in the 
private sector in many cases than there is in the heart sector. 
We don't always have the comparable choices available. But I 
understand the point you are trying to make. I do think it is a 
little different when there is a sole provider, a community 
hospital, to say that they are just like the three auto parts 
stores that are in town. I think there is a bit of a difference 
there.
    Mr. HACKBARTH. Yes. And in cases where there is a sole 
provider and it is a critical access institution, there aren't 
readily available alternatives, we ought to target those 
institutions in particular, as you folks have, and set up 
special payment systems for those isolated providers. But where 
there are alternatives, I think that living without price 
guarantees is the way the economy works in general.
    Mr. CAMP. Well, I think in many large cities you have lots 
of alternatives. But in most of America, there aren't lots of 
alternatives. So yes, if you live in a large urban setting like 
Washington, D.C., you have got lots of choices. But even in 
parts of the city, you have to travel a ways to get to those 
choices.
    So anyway, I appreciate the chairman's time. Thank you.
    Chairman STARK. Just one more issue on this dialysis thing. 
According to your report, we are spending about 26,000 bucks a 
year for each patient. Right? I think that is in your report 
somewhere.
    Mr. HACKBARTH. Okay. I don't have that number in my head.
    Chairman STARK. And the for-profit, there are two big for-
profit chains, and their average margin is 7.6 percent. 
Everybody else is around 2 percent margin.
    Is there that big a disparity in quality between the non--
those that aren't the two big chains?
    Mr. HACKBARTH. As you know, the payment system isn't at all 
based on quality.
    Chairman STARK. No, no. I just wondered if you know. Is 
there any reason----
    Mr. HACKBARTH. Yes. Not that I know of. I don't know that 
there is a quality advantage in the big chains.
    Chairman STARK. So we are paying these guys three and a 
half times as much, and you don't think there is three and a 
half times better quality.
    I was just looking the other day, and in most every other 
country in the world, dialysis is done through hospitals. What 
if--and assuming that we would have to keep the patients happy 
by having little clinics all over hell's half acre, but the 
hospitals could run those, just as they often run outpatient--
what if we just--I mean, we are talking about this huge margin. 
And the hospitals are--none of them have margins near 7 
percent. On average, most of our hospitals--what if we just 
gave this extra money to the hospitals and said, you guys run 
it? Some hospitals do it as a part of their service. What would 
be wrong with just turning the whole dialysis program over to 
our not-for-profit acute care hospital system and give them the 
margin?
    Mr. HACKBARTH. Well, in general, we favor having choices 
for beneficiaries and competition in the belief that that can 
make things----
    Chairman STARK. But they have a choice--in many areas, they 
have a choice of hospitals. In some areas where----
    Mr. HACKBARTH. Right. But to designate a particular 
provider type as the only one who can provide a service, 
particularly what is basically an outpatient service like this 
one, wouldn't be the approach that MedPAC would normally take. 
What we try to do is devise payment systems that are neutral to 
provider types.
    Chairman STARK. But this is the only service that we pay 
for everybody. In other words, if America--I mean, this is 
socialized medicine. Dialysis is the only procedure that we pay 
for everybody, and the government pays the whole freight, so 
that it arguably is a different procedure. And if we are going 
to set the price, maybe we could set the setting.
    And we are also worried about the financial health of the 
hospitals. And I just suggest that maybe this would be a way to 
give them a little extra revenue. They certainly have the 
extra--and in many cases they do do it in hospital settings. It 
sounds to me like it is some low-hanging fruit that might help 
our hospital system provide competition, provide access, all 
those things that--I would be curious to see what you think. 
See if you can sell that to your board.
    Mr. HACKBARTH. It might be a tough sell.
    Mr. CAMP. If I might just follow up on one question. There 
is a different patient mix in the small rural providers and the 
large dialysis chains, is there not? They are not comparable 
patient populations, is my understanding.
    Mr. HACKBARTH. Well, I honestly don't know----
    Mr. CAMP. So the margins would reflect the different 
population mix and payment mix of those two groups, would they 
not?
    Mr. HACKBARTH. Yes. I don't know that there is a 
difference, Mr. Camp. Maybe one of my colleagues----
    Mr. CAMP. Yes. I think before we draw offhand conclusions 
on the margin differences between the larger chains and the 
smaller chains, I think we need to understand is there a 
different patient mix in those two types of facilities. And I 
believe you will find there is.
    Mr. HACKBARTH. We can provide you a more detailed answer.
    Mr. CAMP. Yes. I would appreciate that.
    Mr. HACKBARTH. But there might be some differences, small 
differences, in the patients served among the different types 
at this point.
    The second point I make is----
    Mr. CAMP. One may have a larger percentage of Medicare 
patient, and the other may have other payment? There could be 
quite a difference there.
    Mr. HACKBARTH. Ideally, what you want----
    Mr. CAMP. I appreciate the information.
    Mr. HACKBARTH. In a bundled payment system, you want a case 
mix adjustment that deals with difference in patient need.
    Chairman STARK. Glenn, thank you. Thank your staff, Mark 
and the rest, all of you, for helping us through these thorny 
problems. We will look forward to June report.
    Mr. HACKBARTH. June report.
    Chairman STARK. Do we get it in June or July? June?
    Mr. HACKBARTH. Get it in June, yes. About the 15th of June.
    Chairman STARK. Great. Look forward to it. Thank you very 
much.
    Mr. HACKBARTH. Thank you.
    [Whereupon, at 11:44 a.m., the subcommittee was adjourned.]
    [Questions for Record follow:]

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