[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]

                   HEALTH REFORM IN THE 21ST CENTURY: 
                         AND CONTROLLING COSTS 



                               before the

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


                             FIRST SESSION


                             MARCH 11, 2009


                            Serial No. 111-5


         Printed for the use of the Committee on Ways and Means

                         U.S. GOVERNMENT PRINTING OFFICE 

50-249 PDF                       WASHINGTON : 2009 

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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       DAVE CAMP, Michigan
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            SAM JOHNSON, Texas
JOHN LEWIS, Georgia                  KEVIN BRADY, Texas
RICHARD E. NEAL, Massachusetts       PAUL RYAN, Wisconsin
JOHN S. TANNER, Tennessee            ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
LLOYD DOGGETT, Texas                 DEVIN NUNES, California
EARL POMEROY, North Dakota           PATRICK J. TIBERI, Ohio
MIKE THOMPSON, California            GINNY BROWN-WAITE, Florida
JOHN B. LARSON, Connecticut          GEOFF DAVIS, Kentucky
EARL BLUMENAUER, Oregon              DAVID G. REICHERT, Washington
RON KIND, Wisconsin                  CHARLES W. BOUSTANY, JR., 
BILL PASCRELL, JR., New Jersey       Louisiana
SHELLEY BERKLEY, Nevada              DEAN HELLER, Nevada
JOSEPH CROWLEY, New York             PETER J. ROSKAM, Illinois
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California

             Janice Mays, Chief Counsel and Staff Director

                   Jon Traub, Minority Staff Director

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
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                            C O N T E N T S



John Z. Ayanian, M.D., MPP, on behalf of the Institute of 
  Medicine Committee on Health Insurance Status and Its 
  Consequences...................................................    10
Karen Davis, Ph.D., President, The Commonwealth Fund, New York, 
  New York.......................................................    23
John M. Pickering, FSA, MAAA, Principal, Consulting Actuary, 
  Milliman, Inc, Seattle, Washington.............................    70

                       SUBMISSIONS FOR THE RECORD

America Health Care Association and National Center for Assisted 
  Living, Statement..............................................   131
American Academy of Physician Assistants, Statement..............   134
American College of Obstetricians and Gynecologists, Statement...   138
American Federation of State, County and Municipal Employees, 
  Statement......................................................   143
American Health Quality Association, Statement...................   144
American Society of Association Executives, Statement............   149
Argus Health Systems, Inc., Letter...............................   151
Families, USA, Statement.........................................   153
J. Kirk Peffers, Statement.......................................   154
National Association of Professional Employer Organizations, 
  Statement......................................................   154
National Association of Realtors, Statement......................   156
Newbery, Ungerer & Hickert LLP, Statement........................   157

                   HEALTH REFORM IN THE 21ST CENTURY:


                       WEDNESDAY, MARCH 11, 2009

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

    The Committee met, pursuant to notice, at 10:18 a.m. in 
1100 Longworth House Office Building, Honorable Charles B. 
Rangel, (Chairman of the Committee) presiding.
    [The advisory announcing the hearing follows:]



                                                CONTACT: (202) 225-3625
March 04, 2009

                   Health Reform in the 21st Century:

                 Expanding Coverage, Improving Quality
                         and Controlling Costs

    House Ways and Means Chairman Charles B. Rangel (D-NY) announced 
today that the Committee will hold its first health reform hearing in 
the 111th Congress. The hearing will take place at 10:30 a.m. on 
Wednesday, March 11, 2009, 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 invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.


    Healthcare spending is expected to consume 17.6 percent of Gross 
Domestic Product (GDP) in 2009, and it is projected to rise to 20.3 
percent by 2018 if current trends continue.\1\ Since 2000, healthcare 
premiums have grown four times faster than wages.\2\ The U.S. spends 
twice as much per person for healthcare as any other country in the 
world, and yet continues to lag behind other countries in terms of 
coverage and quality. There are nearly 46 million uninsured people in 
America, and millions more have inadequate coverage. The U.S. has lower 
life expectancy rates than all other high-income countries, including 
Japan, Germany, Australia and Switzerland. These premature deaths might 
be prevented through timely, effective healthcare or early efforts to 
screen and prevent diseases from progressing.\3\
    \1\ Sisko, Andrea, et al, ``Health Spending Projections Through 
2018: Recession Effects Add Uncertainty to the Outlook.'' Health 
Affairs. February 24, 2009 Web Exclusive: w346-357
    \2\ Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-
2008. Bureau of Labor Statistics, Consumer Price Index, U.S. City 
Average of Annual Inflation (April to April), 2000-2008; Bureau of 
Labor Statistics, Seasonally Adjusted Data from the Current Employment 
Statistics Survey, 2000-2008 (April to April).
    \3\ C. Schoen, R. Osborn, S.K.H. How, M.M. Doty, and J. Peugh, In 
Chronic Condition: Experiences of Patients with Complex Health Care 
Needs, in Eight Countries, 2008, Health Affairs Web Exclusive, Nov. 13, 
2008, w1-w16.
    Lack of health insurance coverage, rising costs and lower quality 
are intimately intertwined. The uninsured crisis is not just affecting 
those families without coverage; it affects costs and quality for 
everyone. A recent report from the Institute of Medicine found negative 
``spillover'' effects that occur for people with health insurance who 
are in communities with a large uninsured population. These effects for 
the insured include decreased access to both primary care physicians 
and specialists, strained emergency services, and less access to state-
of-the-art treatments.\4\ Widespread lack of coverage also increases 
healthcare costs for providers, plans, and those with health insurance 
through cost-shifting.
    \4\ Institute of Medicine, ``America's Uninsured Crisis: 
Consequences for Health and Health Care'', February 24th, 2009.
    The flaws in the U.S. health system have contributed to the 
economic downtown by putting enormous pressures on the Federal budget 
and making it harder for businesses to provide coverage for their 
employees. In addition, medical debt threatens the health and economic 
security of millions of Americans families. As the President said on 
Monday, March 2, ``If we're going to help families, save businesses, 
and improve the long-term economic health of our nation, we must 
realize that fixing what's wrong with our healthcare system is no 
longer just a moral imperative but a fiscal imperative.''
    Reform will require a comprehensive approach that addresses 
coverage, cost and quality. The Commonwealth Fund's Commission on a 
High Performance Health System recently released a report that details 
key elements of a reform plan that could guarantee coverage for all, 
reduce health spending and improve quality.\5\ The Commonwealth 
Commission proposes a series of insurance, payment and delivery system 
reforms designed to change the way the nation pays for care, invest in 
information systems to improve quality and safety, and promote better 
health. These changes could yield higher value and substantial savings 
for families, businesses, and the Federal and state Governments.
    \5\ The Commonwealth Fund Commission on a High Performing Health 
System, ``The Path to a High Performance U.S. Health System: A 2020 
Vision and The Policies to Pave the Way'', February 2009.
    In announcing this hearing, Chairman Rangel said,``Health reform 
cannot wait any longer. President Obama made a significant investment 
in health reform in his budget and this Committee is eager to continue 
working with the Administration to ensure success in our shared goal of 
improving the health system.''


    The hearing will focus on the need for comprehensive health reform 
and key features of a reformed health system.


    Please Note: Any person(s) and/or organization(s) wishing to submit 
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the final page. ATTACH your submission as a Word or WordPerfect 
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by close of business Wednesday, March 25, 2009. Finally, please note 
that due to the change in House mail policy, the U.S. Capitol Police 
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For questions, or if you encounter technical problems, please call 
(202) 225-1721.


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    Chairman RANGEL. The Committee will come to order, and I 
cannot tell you how proud I and Mr. Camp are in terms of being 
one of the lead Committees in tackling a very serious and 
national problem.
    It is the hope of our new President that all of the people, 
not just the patients and potential people in need of 
healthcare, could come together, insurance companies, 
Government, local and state, unions, and management. He brought 
us together at the White House to see how at the end of the day 
we can make this country more healthy.
    It involves our workforce, international trade, 
competition, cost, prevention, reimbursement, universality, and 
I really believe on the House side that we can do it, 
notwithstanding the fact that more than one Committee has 
    We will be working with the Committee on Energy and 
Commerce and Education and Labor, not only in informal 
hearings, but informal Republicans and Democrats to see if at 
the end of the day we can get a bipartisan piece of 
    This gives us an opportunity to reform the system, to deal 
with reimbursements, to deal with a variety of things, because 
there is no question that the healthcare system in our country 
has broken down.
    It is not just the question of the 46 billion people that 
are not covered, it is also the cost to other people who have 
coverage, because these people are getting healthcare, and the 
Government and private companies are paying for it.
    Most all of the work on this has been done by Mr. Stark, 
Chairman Stark and his Subcommittee. I would like to now yield 
to him to get his views for the direction which the Full 
Committee will be taking.
    Chairman Stark.
    Mr. STARK. Thank you, Mr. Chairman, and thank all of you, 
our witnesses.
    We made some moves toward what President Obama has talked 
about as a moral and economic imperative for our economy. As we 
will hear today, the quality of our healthcare is based on 
geography, health insurance status, the number of uninsured in 
our community, a whole lot of things that are not really 
    We did deal with health IT and made a step toward 
comparative effectiveness research, but with those 
advancements, our healthcare system will still be inefficient 
and unfair unless we do what virtually every other nation in 
the world has done, and that is extend coverage to everyone.
    You have got cost shifting, a fractured system, and unless 
we have a system where everybody is a part of the program, we 
will not have achieved our goals. We can improve a lot of 
things in Medicare and Medicaid and SCHIP, but when we talk 
about reform, I guess I think of coverage for everyone.
    It is interesting that more than two-thirds of the public, 
in the polls at least that we have seen, believe that they want 
an option to choose between a public plan or a private plan. 
That seems to be at least the direction in which the Committees 
are going in and following the President's request.
    We are going to hear from three witnesses this morning. We 
are going to hear from the Institute of Medicine, who is going 
to tell us about the cost of being uninsured, and it has a lot 
of ramifications other than bankruptcy.
    We will hear from The Commonwealth Fund, and they have 
spent a lot of time designing an outline--I guess they call it 
a framework. They have reviewed--my only disappointment was 
once they reviewed all the health plans that were available, 
mine came in first, so, I think they did not like that, so they 
wrote their own. That is okay with me.
    Then we will hear from an actuary with Milliman 
Incorporated, and I do want to note that their analysis was 
conducted on behalf of the health insurance plans and the 
hospital association, and MedPAC takes exception to the 
analysis, and I would ask that MedPAC's statement prepared for 
the record for today be made part of the record.
    [The information referred to follows:]


    Chairman RANGEL. I wanted to say to Mr. Camp that it 
appears as though the other body is attempting to proceed in a 
bipartisan way. I do not know whether we will have that 
flexibility, but I hope after we listen to the witnesses, we 
can determine whether there are serious differences in the 
approaches that we are going to take. But if indeed they are 
not serious, then whatever can be worked out, I would hope we 
would at least try to work it out.
    I yield to you whatever time that you would like.
    Mr. CAMP. Well, thank you, Mr. Chairman.
    As you have said, this is an important hearing following a 
historic meeting at the White House last week. I first want to 
thank the Chairman for so readily turning over the microphone 
this time.
    Mr. CAMP. I know if we cooperate with this, I think there 
is really no limit on what we can accomplish together, but too 
many families are struggling to pay for their healthcare. Too 
many employers are being forced to reduce or eliminate 
coverage, and, yes, too many Americans are uninsured.
    These are facts that we all agree on. As I told the 
President last week, I think there is broad agreement on the 
principles of any successful healthcare reform: lowering costs, 
increasing access, ensuring portability, having a strong 
prevention and wellness component among others.
    The difficulty is how do we get there, and that is why I 
want to begin my remarks by highlighting one fact, that 61 
percent of Americans have their health insurance through their 
employer for those 65 years and under. Let me also say that 65 
percent of Americans less than 65 are covered with some form of 
private insurance.
    The reason I wanted to highlight those numbers is just for 
one specific reason. It is clear a majority of Americans 
receive their healthcare through their employer or other 
private means. I think the first principle we must follow in 
healthcare reform is protecting the coverage Americans already 
have, and that is the coverage they receive through their 
    Increasing the Government's role in healthcare has a cost 
for taxpayers, and as Mr. Pickering will testify, for employers 
providing coverage and the workers they cover.
    This Government to employer and employee cost shift will 
eliminate the manner in which about 120 million Americans 
receive their healthcare, and that runs the risk of violating 
the Hippocratic Oath, which is first, do no harm.
    Sometimes on television you see an ad for new medicine and 
the latest cure-all, and as usual, at the very end of the 
commercial, you hear what the side effects are. You might hear 
``mild nausea,'' and you think, well, okay. An occasional 
headache, that might be worth it, but a fatal stroke, that is 
obviously not a chance.
    That, I fear, is exactly what some witnesses today are 
asking us to risk, a fatal stroke that will eliminate the 
ability of employers to offer affordable healthcare to their 
workers and their families.
    Mr. Chairman, you well know that employers are already 
having enough difficulty maintaining coverage for their 
employees, and I think you would agree with me that they 
deserve to be commended for giving millions of Americans access 
to critical care.
    Let us make sure that we continue to support them and their 
    I look forward to working together to make sure healthcare 
remains a benefit provided by employers while driving down the 
high cost of care that every single American faces, and I look 
forward to working with you on trying to see if there is a path 
forward to ensure that more Americans have access to 
healthcare, more Americans have insurance, and the reforms of 
wellness and prevention are incorporated into any plan that 
might move forward.
    With that, I yield back the balance of my time. Thank you.
    Chairman RANGEL. Thank you. We have three witnesses today, 
John Ayanian, Karen Davis, and John Pickering.
    John Ayanian is a doctor from the Institute of Medicine, 
the Committee on Health Insurance Status and its Consequences, 
and a Professor of Medicine and Healthcare Policy at Harvard 
Medical School.
    He will be testifying on behalf of the Institute of 
Medicine Committee about the recently commissioned report 
summarizing the research on effects of un-insurance We look 
forward to your testimony.
    The procedure is that you would have 5 minutes, but you 
will be allowed to finish your thought on that. So, welcome, 
and we welcome your testimony this morning.


    Dr. AYANIAN. Thank you, Chairman Rangel, Representative 
Camp, and Members of the Committee on Ways and Means.
    My name is Dr. John Ayanian. I am a Professor of Medicine 
and Healthcare Policy at Harvard, a practicing physician at 
Brigham and Women's Hospital in Boston, and member of the 
Institute of Medicine Committee on Health Insurance Status and 
Its Consequences.
    I am honored to present to you today the Institute of 
Medicine's most recent report, ``America's Uninsured Crisis: 
Consequences For Health Health Care.''
    Our report addressed three key questions. First, what are 
the dynamics driving downward trends in health insurance 
coverage? Second, is being uninsured harmful to the health of 
children and adults? Third, are insured people affected by high 
rates of un-insurance in their community?
    The first topic of our report assessed the continuing 
decline in health insurance coverage. With eroding private 
coverage and expanded public programs from 2000 to 2007, the 
proportion of uninsured children remained steady at about 11 
percent, while the proportion of uninsured adults increased 
from 17 to 20 percent.
    The principal cause of declining private insurance coverage 
has been the rising cost of healthcare. Between 1999 and 2008, 
family health insurance premiums rose nearly 120 percent, more 
than triple the increase in workers' earnings.
    Employers are less able to sponsor coverage, and employees 
are less able to afford the premiums if coverage is offered. 
Our Committee concluded that these trends will not reverse 
without concerted action.
    Current economic conditions and rising unemployment will 
only exacerbate the problem as more individuals and families 
lose employment based coverage.
    The second major topic of our report focused on the health 
consequences of being uninsured for children and adults.
    Based on nearly 100 new and generally stronger studies that 
we reviewed, we found that uninsured Americans frequently delay 
or forego doctors' visits, medications, and other effective 
treatments, even when they have serious or life threatening 
    Uninsured children receive fewer immunizations and basic 
dental services. When they have serious conditions such as 
asthma or diabetes, they have more unmet healthcare needs. 
Uninsured children are also more likely than insured children 
to miss school due to health problems.
    Among uninsured adults, 40 percent have one or more chronic 
condition, such as high blood pressure, diabetes or depression. 
Many of them receive little or no medical care, and their 
health declines more rapidly than for insured adults with these 
    Uninsured adults are also more often diagnosed with later 
stage cancers. As a result, they are more likely to die more 
prematurely than insured adults, and with serious conditions 
such as heart disease, cancer or trauma, the risk of death can 
be 40 to 50 percent higher.
    Fortunately, our Committee also found good news to report 
about the benefits of gaining coverage. When uninsured children 
gain coverage, they have serious health problems identified 
sooner, better preventive services, fewer hospital stays, 
improved asthma outcomes, and fewer missed days of school.
    When uninsured adults enroll in Medicare, they receive more 
appropriate tests and treatments that improve their health and 
prevent costly complications. The risk of death is also reduced 
when they are hospitalized for heart disease and other serious 
conditions, such as strokes or hip fractures.
    Therefore, our Committee concluded that lacking health 
insurance is hazardous to the health of children and adults. 
More importantly, gaining health insurance provides substantial 
health benefits to uninsured Americans.
    The third and final topic of our report focused on the 
affects of high rates of un-insurance for Americans who have 
health insurance.
    When rates of un-insurance in communities are relatively 
high, insured adults report more difficulty obtaining needed 
healthcare and less satisfaction with the care they receive.
    Furthermore, weaknesses in local healthcare systems are 
intensified by high rates of un-insurance, and these problems 
have potentially grave consequences for the quality and 
timeliness of emergency services and trauma care for everyone 
in the community, both insured and uninsured.
    In conclusion, we determined that the evidence on the 
adverse health consequences of being uninsured is stronger than 
ever before.
    This evidence makes a compelling case for urgent action, 
because insurance coverage matters for the health of children, 
adults and communities.
    Given the harms of lacking health insurance and the 
benefits of gaining coverage, the Institute of Medicine 
recommends that the Congress and President work with other 
public and private sector leaders on an urgent basis to achieve 
health insurance coverage for everyone and to reduce the 
escalating costs of healthcare to make coverage for all 
sustainable for the nation.
    Thank you.
    [The prepared statement of Dr. Ayanian follows:]


    Chairman RANGEL. I would like to have Mr. Stark introduce 
our next witness who is a friend of the Congress and has been 
so helpful to us even when she thought we were wrong.
    Mr. Stark.
    Mr. STARK. Well, I am pleased to introduce a person for 
this Committee who needs no introduction, Karen Davis, who is 
President of The Commonwealth Fund in New York, and has spent 
much of her career and directed untold resources from The 
Commonwealth Fund toward studying the ways we can improve the 
delivery of healthcare in this country.
    They have come up with this as suggested in the eleventh 
hour, and I think we all have a copy of it with us, a plan, a 
    She, too, has hired an actuary, but I think it is important 
to note that whatever the exact numbers in your report are, 
they are less important than the direction that the curve 
moves. I do not think at this point it is worth arguing about 
the exact hours.
    It is the fact that we have trends which will get us over a 
period of years to savings, and those savings will allow us to 
provide quality care to more people.
    Karen, I look forward to you enlightening us this morning. 
Thank you.


    Ms. DAVIS. Thank you, Representative Stark, for that 
gracious introduction.
    Mr. Chairman, Mr. Camp, Members of the Committee, really it 
is a great opportunity to be here on this very important 
hearing on health reform in the 21st Century.
    With the economy in crisis, healthcare costs rising as 
Representative Camp said, too many families are struggling with 
the cost of healthcare and the cost of health insurance 
premiums, and too many employers are cutting back on coverage.
    We can certainly do much better than we are currently 
doing, and we cannot afford to continue on our current course. 
It is urgent to start now.
    In fact, the longer we wait, the worse these problems will 
get, and the more difficult they are to confront. As 
Representative Stark said, The Commonwealth Fund Board of 
Directors established a commission on a high performance health 
system in 2005.
    They have recently released the report they were pleased to 
share with you on ``The Path to a High Performance U.S. Health 
System, a 20-20 Vision and the Policies to Pave the Way.''
    There are five key strategies in the commission's report: 
affordable coverage for all including an insurance exchange 
that gives employers and individuals choices of private plans 
and a new public health insurance plan that would change the 
way the insurance markets work, fostering competition, enhanced 
choice, while preserving, as Representative Camp stressed, 
employment-sponsored insurance.
    The second strategy is aligning incentives to reward 
physicians, hospitals, and other providers for the results we 
would like to achieve and enhance value moving away from fee-
for-service payment.
    The third strategy is changing the healthcare delivery 
system to reward accountable, patient-centered, coordinated 
care. The four step strategy, which the Congress has already 
moved forward on with the American Recovery and Reinvestment 
Act, is to provide the support to hospitals and physicians that 
they need to provide benchmark levels of high quality care by 
investing in infrastructure and information, promoting health 
and disease prevention.
    The fifth strategy is leadership and collaboration among 
private and public stakeholders to achieve these goals.
    As Representative Stark stressed, the exact numbers can 
differ depending upon whose models are being used, but The 
Lewin Group estimated for the commission the following effects 
of this set of strategies.
    It would lower the annual rate of increase from 6.7 percent 
a year to 5.5 percent a year.
    The effect of slowing the growth and health spending would 
be a cumulative $3 trillion in savings to the health system 
from 2010 to 2020. Employers would share in this savings. 
Employees would share in this savings. Employers would save 
$321 billion over that period, which would provide needed 
relief to struggling businesses.
    State and local governments that are hard hit by the 
economic crisis would save $1 trillion over that period of 
time, and families would save $2.3 trillion or $2300 per family 
in 2020 alone.
    As the central source of financing for coverage, the 
Federal Government's cost would increase during early years--
the net cumulative cost to the Federal Government of the PATH 
framework over the 2010 to 2020 period would be $593 billion.
    Most of the Federal expenses would occur in the early years 
as a result of initial investments. These up front investments 
yield a substantial return for the nation, resulting in nearly 
offsetting all of the increased annual Federal spending, 
compared to baseline projections by 2020.
    Most importantly, the PATH framework would benefit patients 
achieving near universal coverage, improving choices. It would 
increase those covered by employer coverage from 164 million to 
196 million. It would improve coverage or make more affordable 
coverage for over 130 million individuals.
    The U.S. needs to find its own unique path forward building 
on the strengths of our public and private health insurance 
system, fostering competitive market forces in the public 
interest, aligning incentives to reward value.
    The result of this would be bold change on behalf of the 
entire population. The President has called for such bold 
change, has advocated the creation of a health reform reserve 
fund, which if included in budget resolution, would provide the 
essential start for reform.
    Medicare can innovate, but it cannot go it alone. Reforms 
to bend the cost curve and improve coverage for those under 65 
must be a part of an overall system approach to change. The 
cost of inaction is high. We really have a historic opportunity 
and a clear path forward to a high performance health system.
    Thank you very much.
    [The prepared statement of Ms. Davis follows:]


    Chairman RANGEL. We have with us an expert in healthcare. I 
will ask Congressman Reichert to tell us more about him.
    Mr. REICHERT. Thank you, Mr. Chairman.
    I am very pleased to be able to introduce a constituent of 
mine today, John Pickering. Mr. Pickering is a principal and 
consulting actuary with the Seattle Office of Milliman.
    He has a Bachelor of Science Degree in Mathematics from 
Central Washington University, and just to take a moment to 
boast a little bit, the same university my son received his 
mathematics degree from.
    He also has a BA in Communications from the University of 
Washington, more than 10 years of health actuarial experience, 
and he currently resides in Sammamish, Washington, grew up in 
North Bend, Washington, all within the Eighth District of 
Washington State.
    I am very much looking forward to hearing his ideas on how 
we can improve and reform our current healthcare system.
    Welcome, Mr. Pickering.


    Mr. PICKERING. Thank you, Representative Reichert, for the 
introduction, and thank you, Chairman Rangel, Ranking Member 
Camp, for the invitation to testify this morning.
    I am John Pickering, a principal and consulting actuary 
with Milliman in Seattle, and I appreciate the opportunity to 
contribute to the healthcare reform dialog.
    Milliman is the largest actuarial employer in the country, 
with offices in approximately 30 U.S. cities. In healthcare, we 
work with health plans, providers, employer groups, and 
Government entities nationwide.
    We recently conducted a study of hospital and physician 
payment rates among Medicare, Medicaid, and commercial payers 
at the request of AHIP, the American Hospital Association, the 
Blue Cross Blue Shield Association, and primarily Blue Cross.
    I will summarize the findings of our study in my testimony 
today. My goal is not to advocate for or against any specific 
reform proposal, but rather to help inform the debate.
    We measure the cost shift as the change in provider payment 
that would be required by Medicare, Medicaid, and commercial 
payers, such that all three would pay equivalent rates. 
Together, these three main payer types must also cover the 
unpaid costs for services for the uninsured.
    Chart 1 presents our findings for hospitals. This is based 
on 2006 data.
    We estimate that on average, hospitals had a negative 9.4 
percent margin on Medicare patients, a negative 14.7 percent 
margin on Medicaid patients, a 23.1 percent margin on 
commercial patients, and a negative 25.1 percent margin on 
uninsured and other Government patients.
    These combine for an overall operating margin of 3.8, with 
the Medicare, Medicaid, commercial subtotal operating margin of 
    In order for each hospital to achieve consistent margins on 
Medicare, Medicaid and commercial business, we estimate 
Medicare and Medicaid combined would have needed to pay an 
additional $51 billion, and commercial payers would have paid 
$51 billion less.
    This would amount to an 18-percent reduction in commercial 
payment rates.
    Table 2 presents our findings for physicians. This is based 
on 2007 data.
    The values in Chart 2 represent relative payment levels. 
1.0 represents the weighted average of all three payers. We 
estimate that Medicare paid 11 percent less than the average, 
Medicaid paid 40 percent less than the average, and commercial 
payers paid 14 percent more than the average.
    In order for each to pay the average rate, Medicare and 
Medicaid would have needed to pay an additional $38 billion and 
commercial payers would have paid $38 billion less. This would 
represent a 12-percent reduction in commercial payment rates.
    Chart 3 summarizes our cost shift estimates. In total, we 
estimate the cost shift burden on commercial payers is 
approximately $89 billion. This calculation of the cost shift 
is revenue neutral to hospitals and physicians.
    We have held the total payment to providers constant, but 
reallocated the source.
    These cost shift estimates are not based on our opinions of 
an appropriate payment level, but rather our measurement of the 
magnitude of the current differences in rates.
    The impact of the cost shift varies geographically and by 
provider. Hospitals vary in their patient mix. Those with 
higher percentages of Medicare, Medicaid and uninsured patients 
face a bigger burden.
    Hospitals also vary in their cost efficiency. Some 
hospitals are able to make a positive margin on Medicare.
    The payment rate differential puts pressure on commercial 
premiums. Chart 4 presents our estimates of the cost shift 
impact on a typical family of four in an employer sponsored PPO 
    The left side of the chart presents the total annual 
healthcare cost for this family, including premium and cost 
sharing, such as deductibles, co-pays and co-insurance, and 
split between amounts paid by the employer and the family.
    The right side of the chart represents the amount that is 
due to the cost shift. In total, we estimate that if the cost 
shift were eliminated, healthcare spending for this family of 
four would be reduced by almost $1,800 per year or 10.7 
    We were able to evaluate hospitals' margins going back to 
1995. Chart 5 presents the results.
    Commercial margins bottomed in 1999 and have increased 
since. Medicare margins peaked in 1997 and have since declined. 
Medicaid margins began declining in 2003.
    The rising commercial margin indicates that the trends in 
payment from commercial payers have exceeded the trends in 
hospital operating costs. This excess trend has been one 
component in commercial premium trends in recent years.
    While my comments today are focused on the financing of 
healthcare, I also want to acknowledge the importance of 
improving the efficiency in the delivery system.
    To be successful in the long term, reform must address both 
the financing of care and the cost efficiency in quality of 
care delivery.
    Thank you.
    [The prepared statement of John M. Pickering follows:]


    Chairman RANGEL. Mr. Pickering, you have heard the 
testimony of Karen Davis, and most everybody that I have talked 
with believes there should be an option for the potential 
patient for a public plan.
    I think your position is that a public plan would increase 
the premiums and the cost of the private plans. Is that your 
    Mr. PICKERING. It could. I believe it could.
    Chairman RANGEL. You do not believe there is any room for 
compatibility and competition and wider choice for the 
potential enrollee in healthcare?
    Shelley Berkley said at a meeting we had today, our people 
out there, they do not care whether it is Medicare, Medicaid, 
private, public. All they want is the assurances that if 
something happens to them or their loved ones, that they can 
get affordable healthcare, quality healthcare.
    That is what most, not Republicans, not Democrats, not 
people from rural areas, that is what the average human being 
    Do you believe that you could draft if commissioned a plan 
that would include the public option?
    Mr. PICKERING. That would be a challenge.
    Chairman RANGEL. Well, you are a professional. If you knew 
that it was going to happen, and you can say I do not think it 
is a good idea, and we say that is nice, but it is going to 
happen, do you believe you could have one that would be fair 
and equitable to the private providers?
    Mr. PICKERING. Let me outline what I think one main concern 
would be. If the public plan paid at Medicare payment rates, 
which are significantly below, in most geographic areas, what 
commercial payers pay, and it varies geographically across the 
country, but in areas where commercial payers currently pay 
much higher rates, and if a public plan came in at Medicare 
rates, I think it would be very difficult for the commercial 
plans to compete.
    Could we devise a way around that?
    Chairman RANGEL. Yes--no. That is the question; yes.
    Mr. PICKERING. I hope so. I do not know the answer to that, 
but I hope so.
    Chairman RANGEL. I do not understand why you would assume 
that the private companies would be asking for more, or that a 
public company would be asking for less.
    One, the public plan would be under serving the Government 
taxpayer if they were asking for less than what they should. 
Two, it is possible that the private plan would be 
    If we had this type of thing, you and I would want the 
providers to know that they are getting an equitable 
reimbursement where they monitor each other, public and 
    Mr. PICKERING. I think one issue is we do not have price 
competition at the provider level. We only have price 
competition at the plan level.
    For example, consumers are shielded from making choices of 
providers on price, such that if the public plan paid a lower 
rate to providers than the commercial plans could, it would be 
very difficult for the commercial plans to compete on premium 
with the public plan.
    Chairman RANGEL. If the insurance markets were reformed 
such that plans could no longer underwrite, would that help 
plans lower their administrative costs?
    Mr. PICKERING. It potentially could. Any insurance reform 
we would hope would be based on sound insurance and actuarial 
principles. Right now in the market, if we look at the 
individual market, plans need to medically underwrite so they 
do not get selected against.
    If a plan gets too much adverse selection, its claims costs 
will grow and it could face what we call a death spiral, where 
they retain only their sickest members and their premium 
becomes unaffordable.
    It is a challenge to payer availability with affordability.
    Chairman RANGEL. It seems that with your reputation and 
that of your firm as you were introduced, that you welcome 
    Mr. PICKERING. Certainly.
    Chairman RANGEL. You believe it could be handled if it had 
to be?
    Mr. PICKERING. Yes.
    Chairman RANGEL. I yield to Mr. Camp.
    Mr. CAMP. Well, thank you, Mr. Chairman.
    Your report really talks about the fact or explains that 
every American with private insurance is really paying a hidden 
cost or hidden tax on their health insurance because healthcare 
providers shift some of their financial losses onto them.
    The Lewin Group did a study and said that as a percentage 
of private payments for services, Medicare, Medicaid under paid 
hospitals 71 to 67 percent, and under paid physicians 81 to 56 
    Can you explain why this cost shift occurs?
    Mr. PICKERING. Yes, and let me very briefly outline by 
``cost shift'' what I am talking about. It is not just losses 
on the public programs.
    In our program, when we are talking about cost shift, we 
are looking at the difference in payment rates from the overall 
combined average of commercial, Medicare, and Medicaid.
    In those terms, when you think of why the cost shift 
exists, you need to think of why are payment rates different 
for Medicaid, Medicare and commercial plans.
    There are several reasons. First off, commercial plans are 
the only entities that need to negotiate rates with providers. 
The Medicaid fee schedule is administratively set as is the 
Medicare fee schedule, for the most part. The managed Medicaid 
and Medicare will negotiate.
    Medicare and Medicaid are obviously very large programs. 
Negotiating power between hospitals and physicians and health 
plans will come into play in terms of raising commercial 
payment rates.
    Also, providers' attitudes toward participating in Medicare 
and Medicaid. Many providers have as part of their mission to 
serve the whole community, so regardless of low payments, they 
do want to serve these individuals.
    For Medicaid and SCHIP, many providers consider that as a 
replacement for uninsured, such that they will accept low rates 
on Medicaid because if Medicaid were not there, there would be 
the uninsured.
    There are legitimate reasons for price differences between 
Medicare, Medicaid and commercial plans. What employer groups 
have been concerned about in recent years is those rates have 
been widening, putting more pressure on employer premiums.
    Mr. CAMP. Assuming we all want to have people keep their 
coverage if they like it, I do not see how the introduction of 
a Government run health plan actually lends itself to that 
    You point out that Government run health programs, like 
Medicare and Medicaid, under pay providers, and then providers 
charge more for their services to those with private insurance 
to make up for the lost revenue.
    Will not the introduction of a Government run plan using 
similar payment policies make it more difficult for employers 
to continue to offer health insurance and will not employees 
find it more difficult to pay for or afford their current 
coverage if we expand Government run care?
    Mr. PICKERING. I believe that could be the case. I think 
there are a few dynamics that could happen. If we consider a 
public plan in direct competition with the commercial plan, 
again, in an area where right now commercial payers pay higher 
rates to providers then the public plan would, when the public 
plan comes in, it will have a large advantage because its 
premiums would be lower.
    People shift from the commercial plan to the public plan. 
The providers are now paid the lower public plan rates. There 
are a few options that could happen.
    One is those providers could then shift the costs to the 
remaining commercial population. They could try to. Those 
providers could become more cost efficient to make a margin 
under the lower rate, or those providers could simply make less 
money than they had been making, potentially a loss.
    In the market today, we do believe that many providers and 
many health plans do shift those costs onto the commercial 
    The dynamic may be different if the commercial market were 
competing directly with the public plan. The commercial payers 
then may be less willing to pick up that excess cost, because 
the dynamic then would be they would be raising their premiums 
or their costs and therefore their premiums even higher above 
the public plan, making them even less competitive.
    It may raise premiums. It may squeeze providers.
    Mr. CAMP. Thank you. Thank you, Mr. Chairman.
    Chairman RANGEL. The Chair would like to recognize the 
Chairman of the Subcommittee on Health for the remainder of the 
hearing. Chairman Stark?
    Mr. STARK [presiding]. Thank you, Mr. Chairman.
    Two things. First, I wanted to go back to Mr. Camp's 
concern earlier on in his opening remarks about the 160 million 
or however many people get their insurance currently through 
their place of employment.
    You have an illustrative list of financing mechanisms, and 
one of them is capping the employer tax exclusion. I caution 
and I think join with Mr. Camp, about doing anything that 
undermines the existing coverage for the individuals who 
receive their health coverage through their employer, and I 
would hope as we work to work on reform and finance it, we 
could build on what works.
    Should we be concerned about the effects of capping the 
employer exclusion on existing coverage and then what happens 
to employer sponsored insurance under the plan you have 
    Ms. DAVIS. The commission did not endorse specific revenue 
measures, so it provided for the Congress' and the public's 
information estimates of what revenues would be generated.
    I think your concern that any cap on employer benefits 
might well lead employers to drop coverage and to erode, in 
fact, the employment based coverage that we would like to 
preserve as one of the essential strengths in our system.
    By offering competition and choices, by letting employers 
either directly purchase coverage or bring their employees into 
a national health insurance exchange with many more private 
plans, and a public health insurance alternative, employers 
could in fact find more affordable choices. Employees could 
find more affordable choices.
    Our estimates are that the number with employer sponsored 
coverage would increase from 164 million to 196 million.
    On the other hand, private plans could compete with that 
and hold onto much of that business.
    The first point I think it is really important that the 
Committee understand is this is in the context of health 
insurance for everyone.
    The Urban Institute estimates there is $122 billion more 
revenue that would flow to providers as a result of covering 
the uninsured.
    In addition, the commission's PATH framework recommends 
bringing Medicaid rates up to Medicare levels. That is another 
20 to $30 billion.
    If one really believes in the cost shift argument that we 
have heard from Mr. Pickering, then providers should be 
reducing their prices to commercial insurers, and that will 
bring commercial insurers down because they do not have to 
cross subsidize the care of the uninsured. They do not have to 
cross subsidize lower payment rates from Medicaid.
    The second point, private insurance administrative costs go 
down when they offer plans through the national health 
insurance exchange. They do not have the high administrative 
costs that they have when they have to market individually to 
small businesses and individuals.
    Private insurers can compete more effectively by 
eliminating the cost shift of the uninsured, if it exists, the 
cost shift from lower Medicaid payments, and the lower 
administrative costs.
    Private insurers bring to the table many inherent 
strengths. We need to tap into those. Yes, a public health 
insurance plan has the advantages of being a single set of 
benefits available nationwide, will never go away, and having 
leverage over provider payments, but private insurers can 
innovate. They can use utilization management. They can have 
variable benefit designs. They can select certain groups of 
hospitals or doctors that have higher quality or are more 
    Mr. STARK. Thank you. I appreciate that [continuing]. I 
recognize Mr. McDermott to inquire.
    Dr. MCDERMOTT. Thank you, Mr. Chairman.
    Dr. Shaw from Harvard described a single payer plan as a 
single set of benefits with a single source of funding. I 
understand that has been sort of discarded in many minds in 
this Congress.
    What is hard to understand is the French for 8 percent of 
GDP provide the best healthcare in the world, but we spend 16 
percent of GDP and have worse results than they have in France. 
That is according to the World Health Organization.
    It is hard to see why we step away from that. Let us talk 
about the plan that The Commonwealth Fund has put on the table.
    Is it possible to control costs without a robust public 
program, to compete with the private sector that has been 
unable to control costs over the last 50 years?
    Ms. DAVIS. Mr. McDermott, that is a very important point. 
We are at 16 percent of GDP. Actually, almost 17 percent now 
and headed to 21 percent. Other countries cover everyone at 
about half the per capita cost of the U.S.
    We need an uniquely American solution, and this building on 
the best of public health insurance and private insurance, 
giving employers and individuals that choice to tap into it.
    What our estimates show is if you do not have a public 
health insurance plan offered to really create this competitive 
dynamic, instead of saving $3 trillion over this period, one 
would save three-quarters of a trillion. That is real money. It 
is markedly less.
    Employers would pay much more without the option of this 
dynamic change in the insurance market, so instead of saving 
$231 billion, they would spend $900 billion. It is in an 
employer's advantage to have access to premiums that take 
advantage of innovative payment methods, that take advantage of 
lower administrative costs.
    Dr. MCDERMOTT. Can I then explore the public option? My 
biggest fear is that the public option will become the dumping 
ground for the expensive patients while the insurance industry 
continues to siphon off those who are not sick or ill or in 
certain categories, that will make it possible for them to be 
profitable, leaving the Government with all the sick patients, 
the chronic patients with diabetes, the chronic patients with 
asthma, all those cases, all the deliveries. Let us get those 
out so we do no have to worry about any high cost deliveries.
    How do we prevent that from happening in the exchange that 
you are creating here? I think that is the real crux of what is 
going to happen.
    Industry wants to off load their costs. They do not care 
where they off load it. If they can off load it to a private 
company, that is fine, or if they off load to the public, that 
is fine.
    We are going to get stuck, I think, with the high cost 
patients. It is part of the reason why we have the cost shift 
in Medicare. The private sector did not want old people, so the 
Government took them. The private sector did not want poor 
people, so the Government took them.
    We have had all the high cost patients and we are heading 
for another trench of them, it seems to me, unless we design 
this very carefully.
    Ms. DAVIS. That is a very important point. There are two 
things that are essential to do. The first is to set rules on 
the sale of private insurance inside the exchange and outside 
the exchange.
    Dr. MCDERMOTT. Nationwide insurance rules?
    Ms. DAVIS. Nationwide. They must take everyone and they 
must charge the same premium regardless of the health status, 
so not charge the sick more. It is called a community rating, 
guaranteed issue in the insurance industry.
    Those rules are absolutely important to prevent the kind of 
risk selection dumping that you are talking about.
    The second thing that is important to do is what is called 
risk adjustment. If chronically ill people prefer a public 
health insurance plan because it is more innovative about 
rewarding medical homes, rewarding hospitals for controlling 
chronic conditions, then we want to make sure premiums are not 
higher as a result and they are risk adjusted.
    Those two protections are very important.
    Dr. MCDERMOTT. Does this imply that we are going to take 
health insurance regulation away from the states and we will do 
it at the Federal level?
    Ms. DAVIS. In this framework, there needs to be national 
rules that set a minimum standard on the conduct and sale of 
insurance, and particularly, the key ones are exactly what you 
have pointed to.
    Same premium for everyone regardless of health status. It 
can vary by age, if you want to have age bands. That you have 
to take all comers. It has to be open enrollment, guaranteed 
renewal. You cannot get rid of people because they got cancer.
    Those protections are very important.
    Dr. MCDERMOTT. The patient bill of rights is basically what 
you are saying has to be built into this?
    Ms. DAVIS. We will never have security and affordability 
for American families if we let discrimination against the sick 
continue in insurance markets.
    Dr. MCDERMOTT. Thank you.
    Mr. STARK. Mr. Herger?
    Mr. HERGER. Thank you, Mr. Chairman.
    One principle the President has repeatedly stated and that 
I fully agree with is that people who like the coverage they 
have should be able to keep it.
    Mr. Pickering, I think it is very important that we are 
hearing your testimony on the cost shifting that occurs as a 
result of inaccurate payments by Government run plans.
    The 22.7 million Californians who have employment based or 
individual coverage are paying a hidden tax, probably even 
higher than the 1,788 average you cited, since California has 
the lowest Medicaid payment rates in the country.
    I am afraid there is a real danger of making this hidden 
tax higher when we talk about placing more people in Government 
run programs.
    Mr. Pickering, The Lewin Group has estimated that if a 
Government run health plan which reimbursed providers at 
Medicare rates were created, nearly 120 million individuals 
would be forced out of their current health insurance and into 
the Government plan.
    If this new Government run health plan was created, would 
not the current cost shift be made worse, leading to even 
higher costs for those who wanted to remain in their current 
private health plan, and what effect would this have on 
employers who want to continue offering health insurance?
    Mr. PICKERING. The one thing we know for sure from our 
study is that right now, the commercial plans are paying higher 
provider payment rates.
    If we assume 120 million people shift from those higher 
commercial rates to lower Medicare rates, we are putting 
tremendous pressure on the providers who accept those new 
patients at Medicare rates. Obviously, their revenue is way 
    What options do they have? Try to raise more revenue from 
the one source where they can negotiate more revenue, which is 
the remaining commercial population.
    Become more efficient, if they can, or lose money.
    A change of this magnitude, 120 million people, I would 
worry that shifting the cost onto the remaining commercial 
population may not be tenable, just because it would be too 
large of an amount.
    I think in this scenario, it is difficult to know what the 
outcome would be, but I think there would be tremendous 
pressure on these providers.
    Mr. HERGER. Your last two options, that they are going to 
lose money or skimp, is that not really unrealistic that they 
would do this? You cannot lose money. The Government, we know, 
can continue losing money. That is why we deficit spend. A 
private company cannot continue doing that very long, or if you 
skimp, people are going to move away from your plan.
    Is that not in reality correct?
    Mr. PICKERING. Yes, I agree. The hope is that they could 
improve their efficiency of delivery of care. Is that feasible? 
Maybe, maybe not. Right now, a lot of physicians balance their 
caseloads with Medicare, Medicaid and commercial with the 
commercial to offset the low payments.
    Hospitals will try to attract higher paying commercial 
patients for the same reason. If that higher paying segment 
goes away, those providers need a new strategy or they need to 
readjust to lower revenue expectations, which may mean losses.
    I agree you cannot have losses forever.
    Mr. HERGER. With that in mind, does it not seem totally 
unrealistic that somehow these independent companies and health 
plans, private, can compete with the Government who can go 
indefinitely losing money, as we have been doing in the past?
    Just on the surface, is this not just completely out of the 
realm of reality?
    Mr. PICKERING. In this case, I do not think it would be the 
Government that would be losing money. It would be the 
providers who are accepting that Government payment rate.
    Mr. HERGER. I guess I am switching the question a little 
bit here. The whole idea is that we are going to have 
competition from the Government. In reality, it is impossible 
for the private sector to ever compete with the Government 
because the Government does not have to show a profit. They can 
indefinitely, as we have shown we are doing, run a deficit, 
where a company cannot.
    Mr. PICKERING. I agree. Even if the Government does run a 
break-even on the plan, I think it would be very difficult in 
many geographic areas for commercial plans to compete, just 
because in many geographic areas, it is not feasible for a 
commercial plan to try to negotiate rates at 100 percent of 
Medicare. They just cannot do it.
    Mr. HERGER. Difficult, but I would even say impossible. 
Thank you very much.Thank you, Mr. Chairman.
    Mr. STARK. Thank you. Mr. Lewis, would you like to inquire?
    Mr. LEWIS. Thank you very much, Mr. Chairman. Let me thank 
each of you for being here this morning.
    It is no secret and I have said it last week and I will say 
it again today, I believe healthcare is a right and it is not a 
privilege. As a nation, we have a moral obligation to provide 
healthcare for all of our citizens.
    Today, many of our citizens are one illness away from 
losing everything. Every day people put off going to a doctor. 
Even when they know they are in pain, they know they cannot 
afford to see the doctor. They cannot afford the treatment for 
whatever is wrong.
    This should never happen in our country; never.
    This hearing is an important first step as we start the 
process of making healthcare available to all Americans.
    I want to thank you for your studies, your reports. I think 
when historians pick up their pens and write about this period, 
they would have to say that the studies and the reports made a 
lasting contribution to moving us down the road toward 
comprehensive healthcare for all of our citizens.
    Dr. Davis, why is having a public plan so important? Can we 
actually change the way healthcare is delivered and save money, 
save dollars without a public plan?
    Ms. DAVIS. It absolutely is essential to getting the kind 
of performance we want. If we do not, we are going to continue 
the way we are. I think what we have heard from Mr. Pickering 
is the insurance companies do not think they can change the way 
they pay providers, do not think they can achieve efficiencies.
    We have to have a different kind of system. We are talking 
about slowing the increase from 6.7 percent to 5.5 percent. 
Providers have more revenue. Every year, they have more 
revenue. They get paid for the uninsured. They do not get paid 
now. They get paid decent rates for Medicaid.
    Most importantly, they get rewarded for providing better 
care. They get medical home fees under Medicare, Medicaid, the 
public health insurance plan, for all the patients that sign up 
with their practice. They get rewarded. They get additional 
payments if those patients are up to date with preventive care, 
if they have their chronic conditions controlled.
    Hospitals get rewarded if they have fewer re-admissions, 
fewer complications, patients going back into the emergency 
room or back into the hospital after they have been discharged 
because they did not know what to expect and how to take care 
of them.
    Unless we change fundamentally the way we pay providers, as 
would happen under Medicare, Medicaid, the public health 
insurance plan, private insurers are going to continue the way 
they are now.
    If they see the light as they did sometimes with Medicare's 
physician payment methods in the past, and adopt those methods, 
then we can have even bigger change. Otherwise, we are just 
going to continue.
    Who is going to pay? Families are going to continue to pay. 
Businesses are going to continue to pay. We are going to have 
higher Federal budget cuts.
    The Federal budget cost of covering the uninsured would 
double without a public insurance plan. You do not want to 
bring the uninsured in at high commercial premiums and at high 
provider payment rates.
    It is a very important option, a plan, a choice, to have 
available in the insurance exchange to make sure that their 
scheduled dollars are used efficiently to cover the uninsured 
and improve coverage for the under insured.
    Mr. LEWIS. Dr. Davis, in Mr. Pickering's testimony, he 
talked about a cost shift from public payers to a private plan. 
Maybe, Mr. Pickering, you can correct me. I believe your report 
was financed and commissioned by the insurance companies.
    Do you have any reaction to that? It seems like that may be 
a little vested interest there.
    Ms. DAVIS. I think there are three concerns I have about 
Mr. Pickering's report. The first is it does not assume we 
cover the uninsured or improve Medicaid rates. If we did that, 
most of this cost shift goes away.
    If providers get $122 billion for the uninsured, if they 
get 30 or $40 billion more from Medicaid, the $80 billion they 
have in their study is wrong.
    The second problem is they assume the current levels of 
payment of providers are right. In fact, if you look over a 
longer historical period, from 1980 through the current period, 
hospital margins are higher than they have been historically.
    What the MedPAC study shows, that the Chairman referred to, 
is that hospitals that are under some economic pressure find 
ways of being more efficient. When money is rolling in where 
commercial payers are paying at high rates, then they can find 
ways for using that revenue. You need some economic pressure to 
promote efficiency.
    The third point that I would say is that this is an 
arithmetic study. It is not a behavioral study. It does not 
look at what would commercial insurers do. Would they cut 
premiums if Medicare were to pay more. Would they cut premiums 
if Medicaid were to pay more, or would they pocket the 
    The truth of the matter is the insurance industry is very 
concentrated in many geographic areas. Sometimes you have one 
company selling most of the business, over half of the business 
in a state.
    In fact, in nearly every state in the U.S., three companies 
or fewer control over half of the enrollment.
    One important reason to have a public health insurance plan 
available in the exchange to employers is that it is a 
counterbalance to undue market power by insurance companies or 
by providers that may be the only system that is available in a 
geographic area.
    By setting a price mark with this public health insurance 
plan, we can foster competition and real choice.
    Mr. LEWIS. Dr. Davis, my time has expired. The Chairman has 
been quite liberal for me. I do not know if Mr. Pickering wants 
to respond.
    Mr. STARK. We will have lots of time. I recognize Mr. Neal. 
I am going to ask some of my colleagues on the other side, Dr. 
Ayanian has raised this issue also in his testimony about how 
the under insured exacerbate the cost for the insured in many 
communities. I hope we will not overlook that.
    Mr. Neal, would you like to inquire?
    Mr. NEAL. Thank you, Mr. Chairman.
    Dr. Ayanian, the Massachusetts' model has drawn a 
considerable amount of attention everywhere. The end result is 
97 percent, I think, of the citizens of Massachusetts are now 
covered under the Pioneering plan.
    What are the lessons learned, what are the legitimate 
criticisms of the initiative?
    Dr. AYANIAN. You raised an important point about the 
Massachusetts' health reform being a potential model for the 
    Our Committee was commissioned to look at the consequences 
of un-insurance. We were not asked to look at specific 
    I think the conclusions we drew by consensus from the 
evidence that we have in front of us is that regardless of the 
way we choose to extend coverage and finance coverage for all 
members of the population, what is critically important is that 
we make that coverage available to everyone.
    Our Committee followed an important landmark report that 
was issued by the Institute of Medicine in 2004 titled 
``Insuring America's Health, Principles and Recommendations.''
    Our work endorsed the findings of that previous Institute 
of Medicine Committee, which asserted and endorsed that 
coverage should be universal, it should be continuous, it needs 
to be affordable to individuals and families, affordable and 
sustainable to society, and promote health and well-being 
through access to high quality care.
    To the extent that any solution or approach is developed to 
this problem of large numbers of uninsured we have in our 
country and the severe health consequences that we find when we 
have looked at the medical evidence and the scientific 
evidence, it really needs to address these principles.
    The Massachusetts' model is one important example where we 
are moving very close to universal coverage, and we hope to 
learn much more from that experience going forward.
    Mr. NEAL. Thank you. Dr. Davis, would you like to comment?
    Ms. DAVIS. I agree completely.
    Mr. NEAL. Mr. Pickering, would you like to comment on the 
Massachusetts' model?
    Mr. PICKERING. I agree. It seems like a great success in 
reducing un-insurance.
    Mr. NEAL. Just a thought. The success at least initially of 
the plan, it largely is a reflection of the fact that the 
business community and the labor community as well as the 
consumer, they all came together to find some common ground on 
the way forward.
    In the end, everybody accepted something they did not like.
    Mr. STARK. A mandate?
    Mr. NEAL. A mandate. In that instance, I think you could 
make the argument that after a lot of careful negotiations, a 
lot of pretty hot rhetoric, there still was an opportunity to 
go forward.
    Mr. STARK. How did the costs come out in the Massachusetts' 
    Mr. NEAL. Maybe Dr. Ayanian would give a better response to 
    Mr. STARK. If the gentleman would yield. I am sorry.
    Ms. DAVIS. Mr. Kingsdale, the head of the Commonwealth 
Connector, made a presentation to our commission, and in fact, 
premiums went down for many of the people who had this greater 
variety of plans available through their connector.
    Obviously, the total costs went up because far more people 
got covered than they ever thought they would reach, but if you 
look at the premiums, if you look at the cost per person, that 
was in fact in many cases lower.
    Mr. NEAL. Mr. Chairman, during the year, you receive a 
statement and a reminder from the Department of Revenue. All 
you have to do is indicate if you have private insurance, where 
you have it.
    Ms. DAVIS. That is a very important way in which a national 
plan could be administered, something like a 1099-G form, like 
they use in Massachusetts, to document they have coverage, and 
if you do not have coverage, get enrolled in automatically 
using the tax system to help facilitate that, and facilitate 
income related premium assistance to make premiums affordable 
for lower income taxpayers.
    Mr. NEAL. Thank you, Mr. Chairman.
    Mr. STARK. Thank you. Mr. Johnson, would you like to 
    Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate that.
    My understanding was that the premiums in Massachusetts 
went way up and then they dropped, but not below what they were 
before. I question that statement.
    I think all my colleagues on this side of the aisle want to 
have every American in the country have access, get them access 
to healthcare, health insurance.
    However, I would also think that everyone would agree that 
not all health insurance is created equal.
    How many people in this room would trade their current 
health insurance policy to enroll in a Government run program 
like Medicaid?
    While I am at it, I might add that you have not talked 
about CMS at all. They have not done their job very well. They 
are always two or three years behind on their statistics. 
Probably under your Government insurance idea, they are going 
to have to increase their oversight.
    While we can listen and talk about studies that show health 
insurance helps people be healthier, I think we need to talk 
about what kind of coverage is Congress going to decide is the 
type of coverage that is good enough for all Americans.
    Dr. Ayanian, when the Institute of Medicine did their 
review of the literature, did they distinguish whether an 
insured person had private insurance, Medicare or Medicaid when 
you looked at the health outcomes?
    Dr. AYANIAN. We reviewed nearly 100 studies on this topic 
that have been published in the last 5 to 7 years. Many of 
those studies included both public and privately insured 
people, comparing them to the uninsured.
    Some studies focused particularly on the privately insured 
population relative to the uninsured.
    What we found, and I think you raise an important point, it 
is not just having an insurance card but it is what that 
insurance card covers, what it gives you access to.
    It is very important, for example, for the people with 
chronic conditions, what we might think of as the silent 
killers in the American population, high blood pressure, 
diabetes, or unrecognized heart disease, there are many things 
that medical care can do very effectively to identify health 
risks early on, to treat those risks and reduce the chance of 
costly complications like heart attacks, strokes, kidney 
    For the most part, the research literature that we 
identified was comparing people who had any insurance to no 
insurance. There was a clear message there, that no insurance 
is the wrong level of coverage, and there is no doubt about 
that from a health perspective.
    We also learned from the studies that as medical care has 
made more progress, in fact, we run the risk of the gap between 
the uninsured getting larger in terms of the health 
consequences. As we get better at treating depression, 
diabetes, and heart disease, or detecting cancer at an early 
stage when we can cure it, that is the kind of coverage that we 
need to give people access to.
    In the existing studies, sometimes that coverage is 
available through public programs, sometimes through private 
programs. In either case, it is better than being without 
insurance at all.
    Mr. JOHNSON. Thank you. I do not think we have to look very 
far to see there is a difference in health outcomes as you 
indicate based on what kind of insurance you have.
    In this area alone, there have been children who have 
literally died from a toothache because even though they had 
health insurance, Medicaid, in these examples, they did not 
have access to a doctor.
    The Medicare Program is showing similar signs. I have heard 
of seniors who have become eligible for the Medicare Program 
and cannot find a doctor who will take new Medicare patients. 
That is a problem across the country, I think.
    I think this Committee will be doing a disservice to our 
constituents if we did not just talk about getting people 
insurance without discussing what type of insurance we are 
going to be offering.
    Ms. Davis, The Commonwealth Fund included a Government run 
plan in their reform proposal; is that right?
    Ms. DAVIS. The framework, it creates a national health 
insurance exchange. It does offer private plans and a public 
health insurance plan. People can keep what they have if they 
want to keep what they have.
    Mr. JOHNSON. After your proposal is fully implemented, how 
many Americans would be enrolled in some sort of Government run 
healthcare program?
    Ms. DAVIS. It depends on whether the private insurance 
industry continues premiums going up the way they are, but if 
they respond to the competition, they could hold onto market 
    In the worse case, 105 million would still have private 
coverage, largely sponsored by employers, either purchased 
directly by employers or choices that they pick once they are 
involved through the national health insurance plan.
    Mr. JOHNSON. That is private plans. How many in Government 
    Ms. DAVIS. The balance of the working age population, 
setting Medicare and Medicaid aside, about 35 percent of the 
population would be in a private plan, 34 percent in the public 
health insurance plan. That is the worse case scenario.
    That assumes insurance companies do not respond to the 
competition, do not take advantage of some of their inherent 
strengths. So, roughly equal.
    Mr. JOHNSON. Thank you. I do not know. I think 188 million 
is what you said earlier, which includes Medicare, Medicaid and 
SCHIP that would be insured under a Government plan.
    Ms. DAVIS. About a fourth of the population are covered by 
Medicare and Medicaid. Some of those now covered by Medicaid 
actually go into the employer plans because they have premium 
assistance to help afford their share of the coverage. Others, 
of the uninsured, about 26 million would get coverage through 
the national health insurance exchange, have these various 
plans available to them, about 13 million would go into 
    Medicaid stays at about the same, going from 42 million to 
49 million on balance. Medicare stays at about the same, going 
from about 39 million to 42 million.
    The public programs, the current programs, stay about the 
same. Private insurance, again, this is assuming they do not 
respond to competition, continue business as usual, premiums 
continue to go up the way they have been going up, then private 
insurance would have about 105 million of the working 
population market, public plans would have just a little bit 
less. Private would have 109 million and the public health 
insurance plan would have 105 million.
    Mr. JOHNSON. Okay. My time has expired. Thank you, Mr. 
    Mr. STARK. Thank you, Mr. Johnson. Mr. Becerra, would you 
like to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. Thank you for your 
testimony. We appreciate you helping us kick off what we hope 
will be a series of great hearings to try to take us to a place 
where we really do reform this healthcare system and make it 
far better.
    It sounds to me like from what I am hearing more and more, 
that we should rest reform of our system, not someone else's 
system, not some other country's system, but our American 
healthcare system.
    We should rest it on a few fundamental pillars. One is 
consumer choice. All of us as Americans who seek out healthcare 
should have a choice. If you like who you have, you like your 
health insurance, you should get to keep it. Maybe we will even 
make it cheaper for you because we will make it more efficient.
    No free riders. We should all share in this responsibility, 
and everyone should participate. You have some that say I do 
not need to, I am still young and healthy. You may get hit all 
of a sudden by a car and all of a sudden, you are our 
    Everyone should participate, no free riders. Of course, no 
lemons. None of us wants to find out that we are paying $5.00 
for an aspirin tablet when we go to the hospital. No one should 
be asked to pay for anything less than quality healthcare.
    Those seem to be three very fundamental pillars that we 
should all really seek to achieve when we talk about healthcare 
    On the issue of choice, which also includes the issue of 
competition, we want to make it robust. Consumers should be the 
ones that choose who their doctor or provider is. It should not 
be the other way around.
    In that regard, I would like to ask Mr. Pickering a 
question. You talk about this cost shifting and why we should 
not have a public health insurance option. Most Americans would 
say I want to have as many options as I can, I will select. Do 
not tell me I cannot have this option. Let me decide if I want 
that option or not.
    It sounds like you are saying, no, let us not give folks 
that particular option. Do you believe that today we should 
eliminate Medicare?
    Mr. PICKERING. No.
    Mr. BECERRA. No. That is a public health insurance plan 
that seniors get today. Some 48 million seniors rely on 
Medicare. That is a public health insurance plan.
    Do you think the Veterans' healthcare services through the 
Veterans' Administration that our men and women of uniform who 
are now veterans receive should be eliminated?
    Mr. PICKERING. No.
    Mr. BECERRA. That is also a public health insurance plan, 
is it not?
    Mr. PICKERING. Yes.
    Mr. BECERRA. You would want to tell veterans, you can 
choose, there is a private health insurance plan out here, you 
can choose that, or if you happen to have access to the 
Veterans' Administration's hospitals and doctors, you can 
choose that. We leave it to the veterans to decide where they 
go; right?
    Mr. PICKERING. Yes.
    Mr. BECERRA. To seniors, a senior can collect--use their 
money to buy a private health insurance policy today or can 
choose to use the Medicare Program that is available to a 
senior today, some 48 million seniors.
    That is a choice they should get to make versus any of us; 
    Mr. PICKERING. Agreed.
    Mr. BECERRA. My question is why is it okay for seniors to 
have all that choice, why is it okay for veterans to have that 
choice, but not to decide to allow all those Americans who we 
are trying to bring into the system so we can make it far more 
efficient and cost less, that they get to have that choice of 
deciding whether it is a private health insurance plan or some 
public health insurance plan that might be an option to them as 
well, something similar to Medicare, and Medicare for middle 
aged Americans.
    Why would you want to limit an American's choice to a 
Medicare type health insurance plan?
    Mr. PICKERING. It is not that I would want to limit the 
choice, but I fear that with the current payment structures of 
private plans versus a public plan, that the private plans 
could not compete against those rates.
    Mr. BECERRA. Because of what you call the ``cost shift?''
    Mr. PICKERING. Could I draw one distinction? It is 
interesting, in the Medicare Advantage program, you have the 
Government plan, traditional Medicare, competing against the 
managed care plans. Most of those managed care plans are able 
to contract at approximately 100 percent of Medicare with 
providers because providers will accept that from Medicare 
    It is not the same situation on the commercial side right 
now in the country.
    Mr. BECERRA. Actually, it is interesting you would bring up 
the private for profit health insurance plans that participate 
through the Medicare Advantage program within Medicare because 
in a way, you have a private plan within a public health 
insurance program, Medicare.
    Everything I have seen shows that those private for profit 
health insurance plans within the Medicare system actually get 
reimbursed at higher rates than those doctors and hospitals 
that are going through traditional public health insurance plan 
options within Medicare.
    That would seem to me to actually show the cost shift going 
in the opposite direction of where you are saying that right 
now, we are shifting cost from the public sector, the public 
health insurance plans, to the private plans, when in fact you 
have the Medicare Advantage program, which actually shifts the 
costs from taxpayers--from the Medicare private for profit 
plans to the taxpayers.
    I know, Mr. Chairman, my time has expired, if I could make 
this last point.
    I should take you down to Los Angeles where I live. In my 
County of Los Angeles, the County hospitals take care of any 
number of people. Only 8 percent of the people that come in 
through the doors of the County hospitals in Los Angeles are 
covered by private for profit health insurance plans in 
combination with Medicare.
    What I see, at least in Los Angeles, is that public health 
insurance plans and options are subsidizing private for profit 
health insurance plans that are unwilling to offer plans to the 
poor or the sicker Americans, and as a result, the public 
hospitals and these public health insurance plans are having to 
take the burden of the fact that the private for profit health 
insurance plans are not yet willing to take all these millions 
of Americans.
    I would actually say you should take a closer look at your 
study. It looks to me like the cost shift is occurring in the 
private for profit health insurance plans, shifting costs onto 
the taxpayers who end up paying through these public hospitals 
or through programs, public health insurance programs like 
Medicare and Medicaid.
    Thank you. I thank the Chairman for the time.
    Mr. STARK. Thank you. Mr. Doggett, would you like to 
    Mr. DOGGETT. Thank you very much, Mr. Chairman, and thanks 
to all our witnesses for your testimony this morning, although 
I believe my questions will be directed just to Dr. Davis.
    We have focused this morning on the millions, but I think 
it is important to keep remembering the way this crisis is 
affecting the lives of people across the country. I was 
reminded about that again last week when I had communications 
that I received from neighbors in Austin, Texas, and the 
stories of two women.
    One, a younger woman, Lisa Elmore, wrote me about her 
experiences as an employee at a small business in Austin that 
had several employees that were of child bearing age. Because 
of the high cost of premiums, the small business could not 
afford insurance.
    The first time that she got ill on that job, she said she 
just toughed it out, missed some days of work, but could not 
afford to see a doctor. The second time, she went to several 
clinics because her problems were so severe, and finally was 
able to go to a local clinic, a wonderful facility called 
People's Clinic in Austin, that tries to serve the uninsured, 
and does a really good job at it.
    She said but then the prescriptions that she had to buy, 
since she was uninsured, she had to pay the highest price for 
prescriptions. It took most of her income.
    It really set her back significantly to have to delay care 
and then to have so much of her income taken by healthcare.
    The other woman is an older woman, and her son, John Mason 
from Austin, wrote me about his 62 year old mother who like so 
many others in this terrible economy we inherited from the last 
Administration, lost her job after 29 years.
    She had a heart attack and subsequent bypass surgery, and 
she has never smoked. She followed her doctor's dietary 
suggestions. She is without insurance to cover the problems 
that she has, and now if she is able this late in life to get 
another job, her preexisting heart condition will weigh against 
    He says it is truly sad that after three decades of service 
to one company, my mother is now frightened that she will no 
longer be insurable since she had this heart attack and a 
stroke, these kind of problems.
    I think, Dr. Davis, that your study confirms, does it not, 
the urgency of addressing this issue not next year but this 
year as President Obama has fortunately indicated he wants to 
    Ms. DAVIS. Absolutely. President Obama said it was these 
kinds of stories that he heard on the campaign trail that broke 
his heart. I think they illustrate much of what is wrong with 
the current system.
    When people work for a small business and that small 
business cannot afford to provide insurance or has to drop the 
coverage or has very limited coverage, the uninsured pay a 
higher price than anybody else for prescription drugs, for 
physician visits, for hospital care, because they do not get 
the discounts that people who are covered by either a public 
health insurance plan or by Medicare.
    Older adults, a woman 62 years old with a heart condition, 
has very few affordable options available to her. She is not 
going to qualify for insurance on the individual market, and 
Mr. Becerra is absolutely right, that is a cost shift from the 
private sector to the public sector.
    They are the only ones that will take the disabled. They 
are the only ones who will take children who have developmental 
disabilities. The sickest tend to eventually find themselves 
onto Medicare or Medicaid, but for the disabled, this woman 
would have to wait 2 years, really two and a half years to 
qualify for Medicare as a disabled person.
    She cannot find a plan that will take her at all, she 
certainly cannot find a plan at an affordable premium.
    We must act and must act now.
    Mr. DOGGETT. Mr. Becerra just pointed out when John Mason's 
mother is three years older, she will be eligible for a public 
option. If she were a veteran, she would be eligible for a 
public option.
    It is difficult to understand the resistance of some 
people. I think it is based more on ideology than reality to 
providing a public alternative.
    You responded to Dr. McDermott and his questions earlier, 
but if the goal is to contain costs and assure coverage options 
for everybody in America, is not having a public option, a 
public plan, essential for reform of our healthcare system?
    Ms. DAVIS. Absolutely. It really goes right to the heart of 
it when you consider disabled and older adults. Let them buy 
into Medicare early. Eliminate the 2 year waiting period for 
the coverage of the disabled when they need coverage the most 
to treat their cancer, to recover from a heart attack.
    Mr. DOGGETT. Mr. Chairman, you have had an excellent bill 
to do just that. Let me just say in conclusion that I think 
adding to what Mr. Becerra said, we have already excellent 
evidence on the importance of the public health option under 
Medicare, under Medicare Part C, we have the public option.
    Under Medicare Part D, we have not had it. Medicare Part D 
began with many plans. It is now consolidating, the rates are 
going up. The Subcommittee on Health that you chair has studied 
the many problems with Medicare Part D.
    I think it is amazing that anyone would look at the Part C 
experience versus the Part D experience on prescription drugs 
and not feel that any plan that omits the public option is just 
not much of a plan.
    I yield back. Thank you.
    Mr. STARK. Thank you. If you want to talk more about my 
great bills, I will yield to you for some more time.
    Mr. STARK. Mr. Linder, would you like to inquire?
    Mr. LINDER. Thank you, Mr. Chairman.
    Mr. Pickering, we have heard a lot about options today. 
Consumer choice, let the individuals make their choice, give 
them options and let them make their choice.
    For the last 40 or 50 years in the private healthcare 
market, who made the choice? The consumer or their employer?
    Mr. PICKERING. The employer.
    Mr. LINDER. With all the choices in the world, that 
consumer is still going to go with what their employer decides 
to pay for?
    Mr. PICKERING. Yes.
    Mr. LINDER. Kaufman Rand has done a study on how much it 
cost businesses to provide healthcare for their employees. 
Among all firms, it is 7 to 10 percent of the payroll costs. 
Among smaller firms, it is 11 percent of payroll costs. Among 
half of all small businesses, they pay 10 percent plus of their 
payroll costs to provide health insurance for their employees.
    This proposal suggests, that Dr. Davis has put forth, that 
the penalty for those companies not providing health insurance 
will be 7 percent of their payroll costs.
    If you were the owner of that business and you are paying 
10 percent now and you could get out of it for 7 percent and 
let the taxpayers pick it up with a Government run program, 
what would you do?
    Mr. PICKERING. You will tend to find employers dumping 
their plans.
    Mr. LINDER. In large numbers, right now, about 120 million 
people say they are satisfied, but of those 120 million people, 
a very small percent are going to get any choices at all; is 
that not correct?
    Mr. PICKERING. I believe so.
    Mr. LINDER. The employers are going to make that choice for 
    Mr. PICKERING. Yes.
    Mr. LINDER. Dr. Davis, you said under the worse case 
scenario, one-third of Americans would be in private plans and 
two-thirds would be in Government plans. You said that is only 
if the private plans do not respond to competition.
    They do respond to competition in the private sector today, 
but if you are suggesting they have to respond to competition 
in a Government program that is subsidized by taxpayers and 
mandates, how can they compete?
    Ms. DAVIS. First of all, the private plan administrative 
costs go down through the exchange. For this small business you 
are talking about, now they are paying for firms under 50 
employees, 22 percent in administrative overhead. For those 
under ten employees, 31 to 36 percent of the premium goes for 
administrative overhead.
    If they buy even a private plan through the exchange, that 
will drop to 12 or 13 percent.
    Mr. LINDER. Or they can go to 7 percent and dump it on the 
    Ms. DAVIS. They are required to either provide coverage----
    Mr. LINDER. Let me talk about another worse case scenario.
    Ms. DAVIS. Or contribute to a fund.
    Mr. LINDER. Another worse case scenario was in 1965. 
President Johnson was proposing both Medicare and Medicaid. 
There were questions as to the cost of those programs down the 
road. He said using easily quantifiable user statistics, I can 
tell you that by 1990, Medicare will cost $9 billion and 
Medicaid will cost $1 billion, and we are a wealthy nation and 
we can afford that.
    Those easily quantifiable user statistics disappeared when 
other people were paying the bills. Medicare cost about $100 
billion plus and Medicaid costs about $76 billion.
    How comfortable are you with these worse case scenario's 
and your user statistics?
    Ms. DAVIS. I think one lesson from Medicare and Medicaid is 
that we cannot accept the delivery system the way it is now. We 
need to change away from fee-for-service payments that was the 
basis of Medicare, which was built on the private insurance 
methods when Medicare came in, to new methods that really 
reward physicians for controlling chronic conditions, new 
methods that reward hospitals for keeping people well after 
they leave the hospital.
    We know what trend we are on now. That is why we cannot 
afford to continue. There are potential savings from these new 
models of payments. There are potential savings from new 
methods of care where people enroll with a physician practice, 
and really hold providers accountable for both giving good 
care, great outcomes, but prudent use of resources.
    Mr. LINDER. What you are talking about is potential savings 
in a variety of areas as long as the Government has enough 
people to oversee the doctors and tell them how to do it, but 
none of that adds to the options or choices of consumers.
    This program is going to drive people out of the private 
markets and into Government run healthcare, and you and I both 
know it.
    I yield back, Mr. Chairman.
    Mr. STARK. Thank you, Mr. Linder. Mr. Pomeroy, would you 
like to inquire?
    Mr. POMEROY. Mr. Chairman, I would, and I thank you for the 
    I used to be a state insurance commissioner. I have spent a 
lot of time thinking about these options. I believe that a 
public plan option within the exchange is a very important part 
of the program.
    As outlined by The Commonwealth report, there is a very 
important relationship to whether a public plan is available 
within the exchange and our ability to get coverage to those 
who do not have it, so we can get coverage to those who do not 
have it, allow people to keep what they have if they want, give 
them another option if they want, and that is how it all hangs 
    I really do believe that failure to have the public plan is 
going to raise real questions about whether we can do the job 
we want to do in getting coverage to those who need it and do 
not have it.
    There are some other things where I believe we could all 
agree, and I would hope my friends on the other side as well, 
and that is incentive reform within medical care delivery to 
improve outcomes and achieve some cost efficiencies.
    Mr. Pickering, I noticed in your last line of testimony, 
you seem to allude to this possibly being an area of common 
ground. ``To be successful in the long term, reform must 
address both the financing of care and the cost efficiency and 
quality of care delivered.''
    What do you mean by that?
    Mr. PICKERING. I believe in the country today, our 
healthcare system is very fragmented, when you look at some of 
the best practice private plans out there, there are integrated 
delivery systems that deliver the best care for the lowest 
    I think we need to try to model reforms to integrate the 
rest of our delivery system.
    Mr. POMEROY. I am very proud to represent an area that has 
largely integrated systems, five of the six large medical 
centers in the state I represent are integrated, the primary 
care focus. You are absolutely right.
    The Medicare data is showing we are achieving high outcomes 
from the lowest costs in the country.
    Dr. Davis, what can we do to evolve our care delivery 
systems along this way?
    Ms. DAVIS. Absolutely. One of the main thrusts would be to 
encourage the growth of private integrated delivery systems. We 
took our commission, as you know, to North Dakota, looked at 
the very fine results that you are getting with many of the 
integrated delivery systems in North Dakota.
    In fact, our estimates are that if 50 million people would 
enroll in these private integrated delivery systems, and they 
have the ability to both improve care by the way they control 
chronic conditions in your state and have lower costs--right 
now, a small business often does not offer these community 
health plans that are aligned with integrated delivery systems.
    They can only offer one choice. Once the employer decides 
to take their employees into the exchange, they have access to 
all of these community integrated delivery systems.
    Those systems do not have to invest in marketing, sales 
people to go out and visit all these small businesses. All of a 
sudden, they have access to a much broader enrollment market 
and they are the ones that are going to thrive in this kind of 
    Mr. POMEROY. One question I have involves the evolution of 
our reimbursement system. It literally is a stunning disparity 
in reimbursements. I am not just talking about under payment in 
certain parts of the country, but just the cost for which 
Medicare pays for care on a per capita basis.
    2005 data shows that a Medicare enrollee in Miami, Florida 
involved $14,000 in healthcare costs. In Rapid City, South 
Dakota, it was $5,000.
    This is a program for the country, but basically we feel 
like we are surely not reaping the kind of support that goes to 
other parts of the country. There must be something going on 
that is driving this differential in cost that is not related 
to quality of care delivered.
    In fact, from an outcome analysis, if I can make any sense 
of it at all, it is the more it cost, the worse it gets. The 
lower it cost, the better it gets.
    Dr. Davis, how does Commonwealth try to address this over 
payment? How do we ever get this straightened out?
    Ms. DAVIS. Absolutely. We have a map of the United States 
that shows those areas, that over 125 percent of the median in 
Miami shows up in red. For North Dakota, you will be pleased, 
all of North Dakota is white and under 105 percent of the 
    I think we have to look at things like our update policy in 
Medicare and look at how we reward areas that have done a good 
job of integrating care, controlling chronic conditions, and 
apply some economic pressure in these areas that as you say are 
two, almost three times as high in terms of Medicare spending.
    Mr. POMEROY. Thank you, Mr. Chairman.
    Mr. STARK. Thank you, Mr. Pomeroy. Mr. Thompson, would you 
like to inquire?
    Mr. THOMPSON. Yes, thank you, Mr. Chairman. Thank you for 
holding the hearing.
    I would like to thank Mr. Pickering for his comments about 
the VA medical system and the importance of keeping that. As a 
disabled war veteran, I have used their services in the past, 
and sometimes use them currently. It is an outstanding public 
system. I think everybody recognizes the importance of 
maintaining a public component to our delivery of healthcare.
    I also recognize that we need to change the way that 
medical care is delivered in this country if we are ever going 
to get our arms around this enormous problem.
    I appreciate the commitment that this Administration has 
made to doing just that.
    Dr. Davis, your study also speaks to this. I would like to 
just focus on one aspect of that needed change, and that is the 
expansion of preventive healthcare in healthcare today.
    I think it is extremely important to do a lot more to 
provide preventive healthcare for children, to make sure we can 
detect problems before they become acute and more harmful and 
more expensive, but also an expansion of preventive healthcare 
for adults.
    The good example is ``The Welcome to Medicare'' program and 
how we really need to grow that and make sure folks get the 
screening necessary that go into that.
    The IOM report talks about the access to preventive 
healthcare without healthcare insurance and how that is 
    Dr. Davis, I would like to hear what your recommendations 
are to ensure that we can implement a much more comprehensive 
preventive healthcare system here in this country.
    Ms. DAVIS. Absolutely. That has to be a very key part, as 
Dr. Ayanian said, and research has shown investing in 
preventive care can have payoff's in terms of better health. It 
can also improve the health of older adults as they go onto 
    In terms of the framework that is set forth here, there are 
a couple of things that try to focus on prevention. First, the 
public health insurance plan would lower any cost sharing for 
preventive services. Just as you have done with Medicare, to 
make sure people are getting colon cancer screening, getting 
breast cancer screening, the cost sharing for that would be 
    The second thing it does is this emphasis on a medical 
home. North Carolina has shown that if you pay physician 
practices the medical home fee and you provide support from 
nurses to work with families, that you can reduce pediatric 
asthma hospitalization rates.
    That type of intervention, the medical home investment, 
nurses to work with families, can work.
    In addition, we include in our plan moneys that would go to 
state and local government to work with schools on childhood 
obesity, to work on smoking cessation programs, make it easier 
for employees to participate in those kinds of programs.
    Mr. THOMPSON. Thank you. Dr. Ayanian, the IOM study talks 
about the effects of the un-insurance and communities that are 
impacted differently in regard to--I think you say small 
    I represent a rural district. We have, I think, the same 
barriers to access to expensive and specialty type care.
    How do we address that issue in rural and small 
communities, I guess?
    Dr. AYANIAN. What we find based on the available research 
is that communities, large or small, rural or urban with high 
    Mr. THOMPSON. Under served.
    Dr. AYANIAN. Under served, basically, with high rates of 
un-insurance, the insured population in those communities can 
be adversely affected.
    There are strains on the healthcare system, particularly 
for services that require a high initial investment, such as 
trauma care, cancer care, and advanced cardiac services for 
people with heart disease.
    When those fixed costs are high and there is a lower rate 
of insurance in the community, the hospitals in those 
communities are less able to invest in the services for the 
whole community, both uninsured and insured. Doctors are less 
willing to locate to those communities.
    That can play out in trauma care, for example, if a 
hospital is the trauma center for a region, and there is a 
large proportion of uninsured individuals in that area, it is 
harder to obtain the types of specialists, such as 
neurosurgeons or orthopedic surgeons that we all need when 
someone is in a severe motor vehicle accident, for example.
    In short, people can be affected in those communities with 
high rates of un-insurance. We also find that insured people in 
survey data are less satisfied with the care they are getting.
    We commissioned some research by Mark Pauly, a health 
economist at the University of Pennsylvania, and Jose Pagan at 
the University of Texas. Their work shows that insured people 
in those communities are less satisfied with their access to 
care and their quality of care because of these financial 
strains in the system.
    Mr. THOMPSON. The greater the expansion of the risk pool, 
the better the services and the lower the costs?
    Dr. AYANIAN. That is right.
    Mr. THOMPSON. Thank you very much. I yield back.
    Mr. STARK. Thank you. Mr. Tiberi, would you like to 
    Mr. TIBERI. Yes, Mr. Chairman.
    Dr. Davis, I represent a district in central Ohio. For 
years, I have had hospital officials and docs complain to me 
about Medicare reimbursement rates, Medicaid reimbursement 
rates. Your plan appears to acknowledge a portion of this by 
increasing Medicaid reimbursement rates to the Medicare rates. 
Why did you do that in your plan?
    Ms. DAVIS. Thank you. Obviously, Medicaid has been a 
problem, as we have seen from the study that Mr. Pickering has 
talked about. It has underpaid to the point that doctors don't 
participate. We think it's very important to bring Medicaid 
payment rates up to the Medicare level.
    It is also important to address the imbalance in the 
Medicare Program. I think it's clear we underpay for primary 
    So, what this proposal would do would be to have a 5 
percent increase in primary care, office visits, called 
evaluation and management services. It would also provide a 
medical home fee to primary care physicians.
    Nonetheless, having said that, the MedPAC study shows that 
nearly all doctors now participate in Medicare, and it's easier 
for a Medicare beneficiary to get a specialist appointment, and 
    Mr. TIBERI. Did you just acknowledge, though, that you--did 
you say that primary care docs are under-reimbursed for----
    Ms. DAVIS. Primary care physicians are underpaid, in my 
view, by Medicare, as well as by commercial insurers that 
follow Medicare payments. But they pay a bit more than 
Medicare. They pay a lot more than Medicare for specialists. 
So, they kind of perpetuate that imbalance between primary care 
    Mr. TIBERI. Dr. Pickering, isn't that essentially what you 
have testified to, that--the fact that Medicare and Medicaid 
reimburse less, and therefore there is a cost shifting to help 
the hospitals and providers recoup some of that loss?
    Mr. PICKERING. Yes, that's exactly the cost shift.
    Mr. TIBERI. Can you expand on it, what's happening out 
    Mr. PICKERING. Yes. In many communities--take my hometown 
of Seattle--public--or, excuse me, commercial plans would pay a 
doctor around a, I don't know, $52, $53 conversion factor. What 
that means is that, for an office visit, maybe they pay $70, 
whereas Medicare might pay $50.
    Now, different health plans will pay primary care and 
specialist care potentially different rates. But, across the 
board, commercial plans will pay both primary care and 
specialty care at--significantly higher than Medicare.
    Now, I do want to stress it will vary, geographically. 
There are some areas in the country where commercial plans pay 
on par with----
    Mr. TIBERI. So, if I run a hospital, a non-profit hospital 
in Columbus, Ohio, today, and essentially I am losing money on 
Medicaid and Medicare reimbursements--which I have been told 
happens--and I am making up for that with private insurance 
reimbursement, under--and I don't want to put words in your 
mouth--but under your thought or study, you're saying that if 
we expand public options, Government options, the more 
Government options crowd out the private options, the more 
difficulty it is going to be for the private options to 
continue, and the more difficulty it's going to be for 
hospitals and certain providers to survive.
    Mr. PICKERING. That's right, that's right. As they have 
less people enrolled in the commercial plans that are 
effectively subsidizing the public plans, you have less money 
going to the providers. As providers face more financial 
pressure, they need to either become more efficient, or put an 
even higher burden on their remaining commercial membership.
    Mr. TIBERI. Or, we could substantially increase 
reimbursement rates for Medicaid and Medicare to providers, 
hospitals, docs.
    Mr. PICKERING. Yes. For example, like an FEP plan pays much 
higher rates than Medicare.
    Mr. TIBERI. How much higher?
    Mr. PICKERING. FEP pays commercial rates. It's administered 
by Booz and other plans around the country.
    Mr. TIBERI. That would go to both hospitals and primary 
care and specialty docs?
    Mr. PICKERING. That's correct.
    Mr. TIBERI. Across the board?
    Mr. PICKERING. Mm-hmm.
    Mr. TIBERI. One final question across the board. I just 
want to see if you guys acknowledge this number. I got a U.S. 
Census stat that says in 2006 20 percent--nearly 20 percent--of 
the uninsured in America--this is a U.S. Census Bureau stat--
lived in-households that had an income, IRS income limit, of 
$75,000 or above.
    So, nearly 20 percent of the uninsured Americans lived in a 
household where the income was $75,000 or above. Can you 
    Ms. DAVIS. That's roughly right. About a third have incomes 
below the poverty level, about another third below twice the 
poverty level, which, for a family, would be about $45,000. So, 
yes, there are about 10, or maybe it's as high as 20, who have 
incomes above $75,000.
    But with premiums now being $15,000 a year, or $13,000, for 
a family, even a family with $75,000 income, they would have to 
    Mr. TIBERI. I don't want to have a debate with you about 
it, I just wanted to know if you thought that number was right.
    I have run out of time. Mr. Chairman, thank you.
    Mr. STARK. Thank you. The Committee will recess for 45 
minutes. My understanding, there are three votes. Give the 
witnesses a chance to stretch. We could have some more, but we 
will come back at 12:45.
    In the meantime, if Mr. Larson would like to inquire, he 
can proceed.
    Mr. LARSON. Thank you, Mr. Chairman. Let me thank you and 
the panelists for their very thoughtful presentation, and their 
responses to Members' questions.
    My question, sir, for Dr. Karen Davis, Dr. Davis, in my 
state of Connecticut, we have lost more than 40,000 jobs this 
last year, and have already lost over 3,500 this January. When 
we talk about portability in healthcare----
    Mr. STARK. If our guests could--if they are rushing for 
lunch, if they could do so quietly, so that our witnesses and 
the Members could hear, we would appreciate it. Thank you very 
    Mr. LARSON. Usually, when we're talking about portability, 
we are talking about people moving from one job to another. 
What are some of the ways that you would propose to make sure 
that someone who has lost their job, especially in this kind of 
economy, can maintain their insurance coverage at a rate that 
they can afford? The stories about COBRA coverage being just 
out of reach for so many begs this question.
    Secondly, one of the biggest causes of bankruptcy in this 
country is medical debt. For many of my constituents, having a 
serious health condition that has led to financial ruin, even 
if they had health insurance, how would this new system be 
designed to deal with catastrophic health events, and how much 
of the burden of paying for catastrophic healthcare costs would 
fall to the Government or the private sector?
    Ms. DAVIS. Well, I think your district is feeling the pain 
that a lot of American communities are feeling with the severe 
economic crisis, unemployment over 8 percent, and we don't know 
where it's going.
    So, portability of coverage is very important. Under the 
PATH framework that we put forward today, eventually about 70 
percent of the workforce, the employers would buy the coverage 
through the exchange, and so people in those kinds of 
employment situations could hold on to their coverage, and 
wouldn't have to change because they've lost their job.
    But you are pointing to the affordability of the premium, 
and that----
    Mr. LARSON. Also to the fact that if you don't--if you are 
unfortunate enough not to have another job, but you still have 
a family, and you're existing under COBRA payments, how do you 
envision those payments being affordable payments, as we go 
    Ms. DAVIS. So, what this does is set a ceiling on the 
premium as a percent of income. So, in the lowest two tax 
brackets, you would never pay more than 5 percent of your 
income toward the premium. The rest would be provided through 
general tax revenues.
    For the other tax brackets, it would be--10 percent of 
income would be the maximum you would have to pay for premiums. 
The benefits would be based on what Members of Congress have, 
the standard option Blue Cross Blue Shield, Federal employees 
benefit. So, it's comprehensive, doesn't make you bankrupt when 
you have a serious illness. So, it's both comprehensive 
benefits, and premium assistance that guarantees that you're 
not paying more than a reasonable share of your income.
    Mr. LARSON. Now, for those, how does this plan envision 
dealing with catastrophic health occurrences, and 
    Ms. DAVIS. There is a ceiling on out-of-pocket expenses, 
again, modeled on the standard option Blue Cross Blue Shield. 
So, it's roughly $5,000 for an individual, $7,000 for a family. 
The deductible is $250 a person, $500 for a family, basically 
about 25 percent coinsurance for drugs, 10 percent for 
physician services, but a ceiling on out-of-pocket costs on 
something like $7,000 per family, and a ceiling on your premium 
obligation as a share of your income.
    Mr. LARSON. Dr. Ayanian, I--what are some of the 
proposals--of your proposals--to create incentives, in terms of 
prevention and wellness?
    Dr. AYANIAN. Our Committee reviewed the evidence on the 
types of preventive services that make a difference for 
children and adults. So, for children, for example, 
immunizations, basic dental care, well child screenings, 
preventive asthma care to keep kids healthy at home, as opposed 
to getting sick and ending up in emergency rooms and hospitals.
    We know that those problems are much more common for 
children when they're uninsured. When coverage is expanded to 
uninsured children, their risk of those problems goes down.
    Similarly, for adults, we know that there are a number of 
very important medical services: cancer screenings, screening 
for cardiovascular risk factors, and diabetes----
    Mr. LARSON. Is there a cost benefit analysis to that, in 
terms of the direct correlation between prevention, wellness, 
and preventative care, and what the cost savings is, or----
    Dr. AYANIAN. I can't put an exact number on it for you, but 
we know, from a number of studies, that when children or adults 
get effective preventive services, particularly those with 
chronic conditions, we're preventing more immediate 
complications. There is primary prevention for the long term, 
and there is secondary prevention for people who already have 
an established condition, such as diabetes or heart disease.
    We know that when we provide them with the right preventive 
services, their risk of complications goes down, and their risk 
of the costs associated with those complications also goes 
    Mr. LARSON. Thank you, Doctor.
    Mr. STARK. Mr. Blumenauer, would you like to wind up this 
    Mr. BLUMENAUER. Thank you. Thank you very much, Mr. 
Chairman, and I do appreciate that--the testimony that has been 
advanced. I think we are getting the context here that is going 
to be extraordinarily useful.
    I have two questions that I would put. There may not be 
time for you to elaborate, but there seems to be a straw person 
reflexive challenge that is being posed to this, in terms of 
the threat to the private insurance system that we have now 
through employers.
    Dr. Davis, can you just summarize the downward trajectory 
that this current system faces for the threats to private 
employer-provided insurance if we don't have a comprehensive 
approach like you're describing?
    Ms. DAVIS. Absolutely. If we stay on our current course, we 
are going to go from 46 million uninsured to 61 million 
uninsured. Nearly all of that is the erosion of employer 
    So, businesses need effective competition that will slow 
the growth of private insurance. It's not an option, to 
continue on our current path.
    Mr. BLUMENAUER. Okay. I appreciate your saying it again, 
but that is something that seems to--needs to be like a beacon. 
We are in a downward spiral now. The status quo is no longer 
the status quo. It's higher copayments, it's worse service, and 
it's less coverage.
    Ms. DAVIS. Absolutely.
    Mr. BLUMENAUER. The other straw man that seems to be 
established is this fear that--the comparative effectiveness 
research. Somehow, if we find out and document what works, that 
that's going to lead to unacceptable intrusion into the 
practice of medicine.
    I am reintroducing legislation on end-of-life treatment, 
where right now Medicare doesn't even pay a doctor to talk to 
families about the choices they face. Too often, people are 
steered to intensive, invasive, disruptive, expensive treatment 
that doesn't add to the quality of life, doesn't even extend 
life, at great expense.
    Can you speak for a moment to the benefits of our actually 
doing this comparative research, so that we know what we're 
getting into?
    Dr. AYANIAN. Certainly I can address your question, as a 
practicing physician, myself. My colleagues and I--I practice 
in the Boston area, and have colleagues around the country--we 
want the best possible evidence to serve our patients. It's 
difficult for any individual physician to know what the best 
way is. We learn from studies of many patients, and comparing 
different treatments.
    Personal experience of a talented physician is obviously 
important, but the best medical care comes from blending that 
clinical experience with effective evidence, scientific 
evidence, about what works, and the relative pros and cons of 
different treatment options.
    So, I think, in terms of developing a more efficient and 
equitable healthcare system, anything we can do to improve the 
quality of the evidence for making medical decisions will 
benefit our patients.
    Mr. BLUMENAUER. Mr. Chairman, I appreciate the hard work 
that you have been doing. I am hopeful that we are going to be 
able to actually do a little evidence-based research ourselves, 
look at what is happening to the system, look at realistic 
options, give people more choices, more ammunition.
    I am convinced that we can meet our goals, save money, 
improve the quality of healthcare in this country, in a way 
that's entirely consistent with what the stated goals are. But 
somehow people talk past each other. I appreciate your 
    Mr. STARK. Well, thank you. I look forward to your 
assistance. We will now recess. It will probably be closer to 
1:00 before we get back. I will see if the staff can find the 
witnesses some refreshments, and we will see you in about 45 
    Mr. STARK. We will resume. I guess I--it would be Mr. 
Pascrell's turn to inquire on our list, here. If you would 
like, Bill? Would you like to?
    Mr. PASCRELL. Thank you, Mr. Chairman. Thank you to the 
panel. You did an exquisite job this morning. I have some 
    Just very briefly, Dr. Davis, where does chronic illness--
you know, asthma, be it diabetes--there is 133 million 
Americans have at least 1 chronic disease. Where does it fit 
into your plan of trying to find meaningful health reform? Very 
briefly do this, because there is only a certain amount of time 
that we have.
    Ms. DAVIS. I think chronic care, and improving chronic 
care, is really at the heart of health reform. I think it's the 
real potential for savings, and the real potential for better 
    Only 40 percent of people with hypertension have their 
hypertension detected and controlled. What we would build into 
the payment reform is accountability for working with patients 
on those conditions. They would get a medical home fee, they 
would get bonuses if they have a high proportion of their 
patients with those chronic conditions controlled. So, a----
    Mr. PASCRELL. So, chronic disease is at the very heart? If 
we don't address that, we're not really going to get to 
meaningful health reform.
    Ms. DAVIS. Absolutely.
    Mr. PASCRELL. I'd like to--you know, we could spend a whole 
many hours on that subject, alone. Let me move on to my second 
subject, here.
    The--I want to ask this question of Mr. Pickering. Some of 
the Members have referred to the area, already. I want to bring 
the example of Medicare part D into this. I find it a 
fascinating subject. It's providing a vital benefit to our 
Nation's seniors, but I still believe it has some serious 
    So, choice is a good thing, but we may have too much of it 
in part D. Each region has at least 45 plans to choose from, 
and as many--there is a couple of regions--one of the regions 
goes up to 57 plans. So, an issue brief created by the 
Commonwealth Fund last year found that the complexity and 
variation in Medicare part D may prevent people from finding 
the plan that best fits their needs. Please follow me.
    I firmly believe that we must have a minimum set of 
benefits to make our promise to cover even the sickest 
individuals. But the term ``actual equivalence'' leaves a bad 
taste in my mouth. I can only speak for myself. So, it leaves 
the door open for insurance plans to tweak their benefit 
structures to attract a healthier mix of people, and leave 
behind the sick ones.
    So, here is my question. In providing individuals with a 
choice of private insurance plans, we want to avoid some of the 
design flaws of Medicare part D, the prescription drug plan. 
How can we make a large number of plan choices transparent and 
easy to understand? Are there any mechanisms we can use to 
remove the incentives for insurance companies to cherry-pick 
the system? I want to ask you that question.
    Mr. PICKERING. Okay. Yes, let me first address part D. 
It's--I do want to work on Medicare Advantage bids. The 
actuarial equivalent is a very real standard. It's very 
confusing, but it's real. Let me go to the meat of your 
    When--how do we have a large range of plans, and avoid 
cherry-picking? I think we need sound insurance principles. We 
need to avoid adverse selection.
    Mr. PASCRELL. We need to avoid what?
    Mr. PICKERING. Adverse selection. So, for example, now, in 
the individual market, if we don't have an individual mandate, 
and sick people can sign up for coverage, they will tend to 
sign up, healthy people will tend to not sign up, and then you 
spiral the premium. So, you know, we just need to make sure 
that we get our insurance principles accurate.
    In terms of interpreting the benefit, you know, I think 
that's something that plans should always strive to offer. The 
Medicare part D certainly can be difficult. I know I've helped 
my parents get through it, and it hasn't been the easiest thing 
in the world, but----
    Mr. PASCRELL. It hasn't been the easiest thing in the 
world, but I want to avoid those flaws.
    How would you answer that question, Dr. Davis?
    Ms. DAVIS. First of all, I think a public health insurance 
plan should have a defined benefit, as I suggested, modeled 
out. It doesn't--well, it's clear, so every--in every place 
people know what it is, and know what it covers. So, having a 
comprehensive benefit package that's guaranteed.
    The second would be information that lets people compare 
plans. We found, in the Medicare part C, that some of the plans 
were charging $40 a day for radiation treatment. Well, you 
didn't know you were going to--you didn't know that provision 
was in there, and that you could pay more in a Medicare 
Advantage plan, than you were paying in Medicare, itself.
    So, I think some standardization is going to be required on 
the benefits, and clear information, so that people can 
    Mr. PASCRELL. Finally, do you agree that the major core of 
debate around reform of the health system will--is going to 
center around the question of defined benefit?
    Ms. DAVIS. I think there are many issues, but I do think 
having a standard benefit that applies everywhere as a minimum 
is important. We have suggested the standard option Blue Cross 
Blue Shield package and the Federal employees plan.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Mr. STARK. Thank you. Ms. Brown-Waite, would you like to 
    Ms. BROWN-WAITE. Thank you very much, Mr. Chairman. I would 
like to hear from all three of you on this issue. I have the 
highest number of people on Medicare, not just in Florida, but 
of any Member of Congress.
    So, many of my constituents are very happy with Medicare 
Advantage, and they tend to, very often, be the poor seniors, 
the disabled. The reason why they are happy is either it pays 
part B for them, which is over $80 a month savings, and/or 
offer gym plans, silver sneakers, you name it. They have all 
sorts of benefits for the seniors, certainly part of any well 
care plan of preventative illness that we would want to have.
    What do you say to the--those currently on Medicare 
Advantage, and well over--approaching 30 percent of my seniors 
are on Medicare Advantage. What do you say to them when those 
benefits of being on Medicare Advantage may not be there 
through a Government plan? Because they are saving upward--
almost $90 a month, right now. So, how do you break the news to 
people who--my, how times have changed, people are really happy 
in the Medicare Advantage plans.
    So, if we can start, anybody want to jump in here?
    Ms. DAVIS. Well, certainly, I think we need to address the 
fact that Medicare benefits really aren't adequate for all 
Medicare beneficiaries. So, what the PATH framework does is 
improve Medicare benefits for all Medicare beneficiaries, 
again, up to this standard Blue Cross Blue Shield option, and 
the Federal employees plan.
    So, the fact that now we have a very high deductible in 
Medicare for hospital services, that would be eliminated. You 
would get a single, consolidated deductible that was more 
affordable. So, improving benefits for all Medicare 
beneficiaries is the first step.
    The second is to----
    Ms. BROWN-WAITE. But, ma'am, first of all, I don't have the 
Federal plan. Second of all, it doesn't offer to have any kind 
of reimbursement for part B. In addition, you know, the 
wellness plan of, for example, being able to go to the Y for a 
senior, YMCA, use their pool, all their exercise equipment, et 
cetera, and/or saving $80 a month on part B, that means a lot.
    So, those benefits aren't available in the traditional Blue 
Cross Blue Shield plan.
    Ms. DAVIS. Right. Now, we need better premium protection. 
So, that part B would be $100 a month, in addition. For those 
who buy Medigap, they might be paying over $2,000 a year for 
that supplemental coverage.
    What this does is to say for any low-income senior, they 
wouldn't pay more than 5 percent of their income for their 
premium, for a middle-income senior, no more than 10 percent of 
their income for the premium.
    Certainly if a plan wants to go beyond the standard 
benefits to include fitness incentives, and they do that on a 
level playingfield because they're more efficient, or they've 
got a more innovative way of controlling a chronic condition, 
then they could use those efficiencies to improve benefits.
    Ms. BROWN-WAITE. Could I hear from the other members?
    Mr. PICKERING. Yes. I think you have seen seniors vote with 
their feet. Medicare Advantage plan has had tremendous 
membership growth. I think plans have done a nice job of 
recognizing benefits that seniors want, and delivering them in 
an efficient manner.
    One element of the program that enables them to do so are 
the risk-adjusted payments, such that the sicker people have a 
risk score, and the plan is paid based on the risk score. So, 
it's paid on a true expected value of that person's cost. 
That's--also affects a lot of dual-eligible beneficiaries, 
people who are eligible for both Medicaid and Medicare.
    Now you ask, you know, what happens if we take those 
benefits away? You know, one way that plans have been 
delivering those additional benefits, which are great for the 
seniors, is that the payment rates to the plans have been 
higher than fee-for-service payment rates, based on MedPAC. So, 
it's--you know, I think it's a fair policy question. Do we want 
to pay that extra amount over the fee-for-service benchmarks, 
or do we not?
    Ms. BROWN-WAITE. Well, would the question also be fair to 
ask, do we want to have healthy seniors, and seniors who are 
able to--and people on Medicare, not just seniors, but everyone 
on Medicare--able to save the part B premium cost? You know, 
that's an offset that I think that we need to address.
    I can just tell you that the--and there are about--there 
are a lot of Members of Congress who have a high number of 
people on Medicare Advantage. You know, it's going to be a 
very, very difficult sell to say, ``Oh, by the way, we're no 
longer going to be having the plans be able to pay part B for 
you and/or an exercise plan, which is going to keep you healthy 
and perhaps out of the hospital, and your diabetes under 
control, and your weight, et cetera.'' So, that's not going to 
be a real easy sell.
    Mr. STARK. Thank you. Mr. Kind?
    Mr. KIND. Thank you, sir [continuing]. It's good to have 
you back in the seat again. I want to thank the witnesses for 
your testimony today.
    Dr. Davis, let me start with you. First of all, I want to 
thank you for the work that the Commonwealth Fund--to lay out a 
kind of a road map on what healthcare reform should look like. 
I enjoyed the conversation that we shared at the White House 
during the fiscal responsibility summit that we both went to 
just a couple of weeks ago.
    But let me just get back to an issue that Mr. Pomeroy 
raised a little bit earlier with you all. Here is my concern. 
You know, when we discuss healthcare reform, different people, 
different groups, hear different things. For some, it means 
getting universal coverage. For others, it means cost 
    Here is my concern. I don't think we can do coverage 
without also doing cost at the same time, or it will become 
unaffordable very, very quickly. I think for too long--Mr. 
Pickering, I want you to address this issue, as well--but for 
too long, we have had a healthcare incentive-based system, a 
reimbursement system, that's been focused on quantity, instead 
of quality. I think that's the real dynamic that we have to 
    The golden grail of any healthcare reform is, yes, 
coverage, making sure everyone has access to affordable plans. 
But it's also improving quality and saving costs at the same 
time. If we can't do that working together and moving forward, 
it's going to be very tough to pull this off at the end of the 
    That gets me back to the geographic variation issue, where 
I come, too, from an area where we have had high quality of 
care, based on any standard of measure throughout the country, 
yet it's one of the most lowest reimbursed areas in the entire 
nation, too. I hear some of the same concerns with private 
payers and private plans, about the cost shifting that's going 
    But, Mr. Pickering, isn't it--your theory is that, because 
Medicare under-reimburses, that cost gets shifted onto the 
private plans, and that's why having some type of public health 
plan option out there is very dangerous, because, with the 
current payment rates, that cost is just going to continue to 
be shifted to private plans.
    But the very premise of that is assuming that, at the end 
of the day, we're going to have the same payment rates, we're 
going to have the same type of reimburse incentives that exist 
today. I refuse to accept that premise, as we move forward with 
healthcare reform.
    So, would you then agree that, if we can change the 
incentive, move to an outcome or performance-based, quality-
based system, as opposed to the one that's based on utilization 
and consumption, as it is today, that that would change the 
dynamic, then, when it comes to private health plans, as well?
    Mr. PICKERING. I think we definitely need to change the 
payment methodology. I think you would still have a problem 
of--let's say we move away from fee-for-service, and move to 
bundled payments.
    Well, when we do that, quite often when we make a 
transition like that, we will do revenue neutral, right? So, in 
the first year----
    Mr. KIND. Right.
    Mr. PICKERING [continuing]. It's an amount of money to the 
    In that scenario, then, if we had a commercial plan that 
was paying the provider 150 percent of Medicare to start with, 
they're still going to be paying Medicare, you know, 150 
percent of Medicare, in the new system. So, somehow we need to 
figure out, if we put a public plan up against a private plan, 
how to level that playingfield.
    Mr. KIND. Right, and I would agree with that. When I'm 
talking about the reimbursement, I'm not just talking about 
Medicare and Medicaid reimbursement, but private reimbursement, 
as well. Because if we're going to do this, we're all going to 
have to do this together. You can't have one system of 
reimbursement in the public sphere, and then an entirely 
separate one in the private sphere.
    Dr. Davis, you are shaking your head.
    Ms. DAVIS. Absolutely. I think it's imperative that we 
address coverage, quality, and cost simultaneously, and not 
just do one.
    We need to get--move away from fee-for-service volume 
payment to value for what we're paying. There is nothing to 
trigger that in the private insurance market, unless there is 
this alternative of the public health insurance plan. I mean, 
private insurers have had the option all along to move to these 
methods. So, I think Medicare needs to lead.
    But the main point that I want to just stress is that 
provider payment goes up. It goes up 73 percent over this 
period from 2010 to 2020. It goes up 5\1/2\ percent every year. 
Granted, that's lower than the 6----
    Mr. KIND. But the rate of growth would be different.
    Ms. DAVIS. But we eliminate uncompensated care. We 
eliminate underpayment by Medicaid. That's a tremendous boost--
    Mr. KIND. Right.
    Ms. DAVIS [continuing]. To providers. It gives them time 
    Mr. KIND. Here is the rub, and here is my additional 
concern. You know, in order to get to a quality-based incentive 
system, as opposed to quantity right now, you've got to get the 
HIT built out, it's got to be interoperable, you've got to do 
the comparative effectiveness studies. That's going to take 
    So, are we going to be getting too far out ahead with 
reform, dealing with coverage before the rest has a chance to 
catch up?
    Ms. DAVIS. Well, we do have a gradual phased-in schedule 
for the Congress to consider.
    First of all, this opened up initially the exchange and a 
public health insurance plan to just small firms with 100 or 
fewer employees, in the third year 500 employees. That really 
gives providers a time when they're getting extra revenue from 
coverage of the uninsured, Medicaid reforms, to really position 
    On the payment reforms, the bundled payment for hospital is 
also phased in gradually. It starts with just the hospital 
piece, then adds post-acute care, and then, eventually, in 
2016, adds the physicians' inpatient services.
    So, yes, we need time. But we need to get started, and we 
need to start now.
    Mr. KIND. Great. Thank you all. Thank you, Mr. Chairman.
    Mr. STARK. Ms. Berkley, would you like to inquire?
    Ms. BERKLEY. Yes, I would, Mr. Chairman.
    Mr. STARK. Okay.
    Ms. BERKLEY. Thank you very much for staying. I am not 
addressing--I have some random musings, and then I have a 
couple of questions. Whoever would like to answer them is very 
    I think we have a wonderful opportunity to expand coverage, 
slow the growth of health expenditures, and improve quality. We 
have a system now that the hospitals hate, the doctors hate, 
and the patients hate. In addition to all of that hate, it's 
unsustainable. We spend a fortune in healthcare, and we don't 
get the best bang for the buck, certainly, in the 
industrialized world.
    In the State of Nevada, I represent Las Vegas, where 70 
percent of the state population is--we have one of the highest 
uninsured rates in the country. I think we're ninth highest. 
That doesn't give me a great feeling, to be in that position.
    The state budget is in a mess, so Medicaid is kaput. The 
reimbursement is so low, you know, you can't make it up--you 
can't see a lot of patients and lose money on each patient and 
make it up in volume. It just doesn't work that way. So, many 
of my doctors just are no longer accepting Medicaid patients.
    Before the cut, the physician reimbursement cut that we 
reversed several months ago, I had people in the medical 
community calling me and saying, ``Look, I--if you cut this by 
10 percent, I can't take any more Medicare patients. I'm not 
going to cut the ones I have, or stop seeing them, I just can't 
take any more.'' If I've got the highest senior--growing senior 
population in the United States, short of going to medical 
school myself so when I go home on weekends I could care for my 
constituents, there is no one that is going to be able to take 
care of them.
    Now, in the interest of full disclosure, my husband is a 
nephrologist, my daughter is a family practitioner. She does 
not make enough money, and he is not real anxious to give up 
some of his to supplement hers. I think that's a problem, when 
you're coming up with how you're going to take care of the 
family physicians. You can't keep robbing Peter to pay Paul. It 
doesn't work that way.
    Having said all that, we need to do something about the 
SGR. If we don't fix this, we have a 20 percent cut coming up, 
and that is impossible to lay on the doctors. We are going to 
need to do something about that.
    The other thing is--and I said this in the library before 
we got started--the way we do healthcare in this country, in my 
opinion, is ``bass ackward''. We put a fortune into end-of-life 
care, keeping people alive with extraordinary means. We should 
be changing the paradigm, and putting our healthcare resources 
into early detection and prevention of diseases. We will keep 
people healthier, they will live longer, and we will save 
billions of dollars of taxpayers' money if we can change the 
    Having said that, it makes no sense to me--and I'm just 
about to reintroduce legislation--let me give you an example. I 
have osteoporosis. My husband had a machine, a bone density 
machine, a DEXA machine, that I tried. That's how I discovered 
that I had the osteoporosis. Now I'm taking Fosamax, I'm taking 
hormones. I'm never going to have a straight back, but I'm not 
going to have the broken bones that both my grandmothers 
suffered, because they didn't even know they had osteoporosis.
    However, the cuts--reimbursement cuts to doctors for their 
bone density test was cut in half. The result of that is many 
doctors have taken out their machine. Now, the cost of treating 
osteoporosis patients that break bones and have other side 
issues is astronomical, and this is something that we can stop 
with the proper early detection of the disease.
    Do you think, one, what are we going to--the two questions: 
what are we going to do at the SGR, and what are we going to do 
to ensure that doctors get ample reimbursement so they can 
continue doing tests like the DEXA test to identify problems 
before they get out of hand?
    Ms. DAVIS. Well, that's a great question. Certainly, as I 
understand it, the President is trying to address the SGR in 
his budget, realizing that it's really accounting gimmicks, and 
that we might as well be honest, that we weren't really going 
to be able to enforce that provision.
    I think your point about osteoporosis prevention is very 
well taken. I just heard yesterday about Kaiser Permanente in 
southern California having had an aggressive osteoporosis 
identification and management program, having resulted in 
reduced broken bones. So, they've got studies that now document 
that effect.
    So, one can do that either by rewarding integrated delivery 
systems that participate in a national health insurance 
exchange. One can do it by rewarding patients--for what 
proportion of their patients do they really screen for, get 
extra money if they do that.
    I do think we are probably going to have to pit your 
daughter against your husband, and improve primary care 
compensation. On average, primary care physicians in this 
country make about $180,000 a year. Most of the specialists, 
you know, are averaging around $300,000 to $400,000 a year. 
That's the differential that exists.
    Mr. PICKERING. May I add one thing on there? The other 
thing we can do on the machine, if we put the choice back in 
the patient's hands, as opposed to the plan level, if we let 
the patient choose what was valuable to them, you want to pay, 
you know, $20 for a copay to use the osteoporosis machine, it 
should be available to you. You should be able to vote with 
your feet, that you want that.
    I think if we put pricing in plans where members are--have 
cost sharing that reflects price differences that providers can 
set, you know, a doctor can choose to be paid more with the 
member bearing that extra cost. So, if you want to go see that 
doctor, that's available to you.
    Right now, the plan pays--Medicare will pay all the doctors 
the one set fee schedule, and then there is no consumer choice.
    Mr. STARK. Thank you all. Mr. Davis, Kentucky, would you 
like to inquire?
    Mr. DAVIS of Kentucky. Thank you, Mr. Chairman. Two things 
I might highlight that have not been mentioned in this dialog 
at all that kind of underpin where I'm going to go with my 
question is when we talk about qualities, or quality outcomes, 
I have a lot of professional experience in that arena--not in 
medicine, certainly, but out in industry.
    But the--we have--get into this idea that somehow 
compensation is unjust if it is dealing with high-risk 
    The other area related to this is we haven't addressed 
liability reform, which is at the core of many of the reactive 
procedures that are driven by Medicare. I have lived this with 
my mother for a year-and-a-half of her life at the end, and saw 
the incredible procedures that were unnecessary that were done 
to her, so doctors could get paid, and also avoid liability.
    But here is the problem you run into. If you go into a 
quality situation--and what we haven't talked about is, 
unlike--or not unlike what happened in New York in the 1990s, 
where cardiac surgeons, to be top-rated, had to turn away high-
risk patients. So what you saw were--the people being downrated 
were those who were actually practicing their Hippocratic oath, 
and trying to treat people.
    There are--I think some premises I want to get a little 
explanation on from you all, and I would appreciate that, just 
being a simple manufacturing guy here--but nobody remotely has 
mentioned the gross inefficiencies of the CMS, which runs on a 
1960 system architecture. There is no way that they can 
implement a system for which they are not now equipped. The 
regional RIOs can do it at a local level, but the state can't. 
You know, we're dealing with high fixed costs and overhead that 
are imposed on the delivery system, no matter what.
    Secondly, Mr. McDermott made a statement that I have to 
disagree with, saying that France has the highest healthcare 
quality in the world at less than half of the GDP contribution, 
or impact, than the United States does. But what France doesn't 
have is the R&B and exportable job creation capability and 
technology that we have had, nor the speed of delivery, and 
they have a rationed care system. I think their cancer patients 
would probably rather be treated in the United States, with the 
unlimited potential.
    The concern--I think a lot of our Members here are 
disdaining actuarial rules. It's kind of like a pilot who 
decides not to trust the instruments in a storm. Eventually 
there is going to be a sensory illusion about the system that 
you're part of, and you're going to crash, which leads me to 
one real question here.
    For the commercial sector to work, they've got to be able 
to market. To not market is not--it guarantees that eventually 
they're going to be consumed by the state which holds this, 
because those 61 percent of people who have private pay 
insurance also happen to make up more than the number of people 
who actually pay taxes in this country, the overwhelming 
majority of whom pay for their coverage.
    They also underpin and subsidize the public sector 
healthcare delivery. That can't be denied. To say it's the 
inverse, as one of my colleagues suggested, doesn't fly with 
just simple math.
    I guess this is the question that I come down to. If any of 
the premises that I have shared are correct in this--and 
virtually everything is coming just from historical fact here--
how do you justify these conclusions, that going to this public 
system will, in fact, reduce cost?
    I don't see that, because what we're actually doing is 
heaping a burden on--at the same time, saying we're going to 
compensate the providers for a quality outcome that, in many 
treatment modalities, is guaranteed not to happen by dealing 
with this high-risk aspect. I want to see how the Government 
can do a more efficient job at the provision of healthcare than 
the private sector can, once you remove the economic incentives 
for individuals.
    Ms. DAVIS. You know, the two strong advantages of the 
public health insurance plan are lower administrative costs, 
    Mr. DAVIS of Kentucky. Reclaiming my time, as somebody who 
has dealt with the computer systems on healthcare in the large 
corporate world, how do you reduce that cost without changing 
the CMS system itself, which is flawed?
    Ms. DAVIS. Medicare doesn't advertise, it doesn't pay 
commissions. It doesn't pay, I grant, a profit to----
    Mr. DAVIS of Kentucky. Okay. Reclaiming my time, again, 
you're right. They don't pay commissions, they don't pay--they 
don't advertise. But the one thing they do do is impose a 
percentage cost on the cost of operations of a medical office.
    Each medical practitioner that I know of that ran an 
independent practice had to hire one more staff member to do 
HIPAA compliance when that was put into force by the CMS in 
April of 2003. So, no, they don't advertise, but they have 
imposed increased costs on the medical practices and on an 
exponential order of magnitude on the hospitals. Now, tell me 
how that reduces costs for compliance.
    Ms. DAVIS. I think we do have to worry about administrative 
costs on physicians. We funded a study, and the biggest single 
cost on physicians are all the different formularies they have 
to deal with in private plans. They have pharmacists calling 
them up, saying, ``Your patient is not covered for this drug, 
can you prescribe a different drug?''
    So, there are high administrative costs. But a lot of that 
comes because we're not willing to standardize. If we can 
standardize, we can strip out a lot of that administrative 
    Mr. DAVIS of Kentucky. Based on that, would you say that 
two things have to happen? Would you agree that the CMS needs 
to be dramatically reformed in its process, and we need to 
impose realistic liability protections for our providers?
    Ms. DAVIS. I am very supportive of both. I think we need 
liability for providers. That's recommended in our plan. I 
think we need to give CMS the resources it needs to do the job.
    Mr. DAVIS of Kentucky. Would you agree CMS could be better 
performed if it were downsized?
    Ms. DAVIS. I think, in fact, they are understaffed. To take 
on the responsibilities that we need them to take on, they need 
to be modernized with their information systems. They need to 
recruit top talent. But I wouldn't do that by downsizing them.
    Mr. DAVIS of Kentucky. Just as a closing statement--you 
don't need to reply to this--but while I would suggest that the 
use of modern technologies would, in fact, not require a lot of 
the redundant non-value-adding procedures that our providers 
are forced to go through, to comply with, that are generated 
from this end.
    I think every sector of private industry has demonstrated 
that you can actually redirect those personnel to actual value-
adding services, instead of non-value-adding compliance.
    Thank you. I yield back.
    Mr. STARK. Thank the gentleman. Ms. Schwartz, would you 
like to inquire?
    Ms. SCHWARTZ. Thank you, Mr. Chairman. I appreciate this 
first hearing. We're going to hopefully be engaged in serious 
dialog about how we're going to accomplish about our--what we 
talked about, our dual goals here, which is to contain costs 
for everyone.
    We have heard the President say, and we have said, that 
cost to the Federal Government, to families, and to businesses, 
both financial and personal ones, are serious and they're 
unsustainable. We could do better. We know we can.
    I would say that we have actually made some really good 
progress in just the last few weeks. In the last 6 weeks, we 
have done more on healthcare than the last 8 years, and we 
should be extremely proud of that.
    But what we do know is that we--and I will mention an 
expansion of CHIP to four million more children in this 
country, so what you talked about, getting children health 
coverage, is extremely important. Health IT, enormously 
important to getting the efficiencies and duplications out of 
the system, and being able to make sure we're more efficient. 
Better quality care is extremely important, and what I think 
you mentioned, Dr. Davis, certainly the very fragmented health 
system that many of us live with.
    I represent a part of Philadelphia and a part of the 
suburbs of Philadelphia. We are extremely proud of our 
hospitals and our physicians. Yet, I know there are strong--
well, in too many sectors of the city that lack primary care 
providers, lack OB/GYNs, that people are not getting the 
primary care they need. It's pretty inefficient. We're all 
paying for that.
    So, the first step that--I wanted to ask you about just two 
things. If we were going to expand coverage, we have to contain 
cost, and we have to really change the incentives in our 
delivery system. That's the first thing.
    We had already talked a bit about health IT, talked about 
some of the other--folks had mentioned about primary care 
physicians. I would like you to just elaborate a little bit on 
other efficiencies. How do we get more primary care physicians? 
It's--payment is part of it, but incentivizing them, making 
sure we incentivize, medical homes are more integrated, systems 
of care, interoperability of information is extremely 
important. But so is the way we manage chronic diseases, and 
how physicians relate to patients. You might want to mention 
patient responsibility in all of this, too, and the ability to 
do that.
    If we have time--and I'm just going to just put this out 
there, it's a second question--is to--the fact that our 
insurance system now has been really quite--well, I hope that 
Mr. Pickering is wrong, and that our commercial insurance 
providers, in fact, can step up to the plate and make real 
    I think if I was an insurance company--and I am not--I 
would be extremely upset and disappointed about your testimony 
that they are unable to respond to changes in the medical 
system, the efficiencies, reformulating how they reimburse, 
really dealing with changes that we would hope they can.
    I hope you're wrong. I think that we can see a competitive 
private-public partnership, and I hope that we will.
    But there are clear problems with coverage, and I don't 
think this has come up at all in this hearing yet. Waiting 
periods, pre-existing condition exclusions, lack of portability 
of coverage I think was mentioned, just about the 2-year wait 
to get on a public plan for disability. This really--the 
increasing number of patients who have to pay out of pocket for 
preventative services, so they delay it, particularly in a 
downturned economy. They don't have the money to do that, and 
they wait to be able to provide--to get the kind of care they 
    So, with that, if you could just specifically--and I guess 
I will just start with Dr. Davis, and then I would ask you, 
Doctor, to talk as well about the need for delivery system 
reform, about the need for insurance reform, so that: we can 
get the coverage we need; when we get insurance it means 
something to people, it's useful; and that, when we have 
insurance coverage, there are actually providers there that can 
help us be able to stay healthy, stay well, and reduce the 
duplications and expenses that we know exist in the system.
    Ms. DAVIS. Absolutely. I think we need both insurance 
reform and delivery system reform, and you have ticked them 
    I think the design of insurance, so that there are such 
high deductibles people can't afford preventative care, we've 
been going in the wrong direction. As you said, lack of 
portability. HIPAA provides some protection, but that's 
certain-sized firms.
    We need to make sure that people can keep their coverage 
when they change jobs----
    Ms. SCHWARTZ. So, is that Federal conditions?
    Ms. DAVIS. Yes.
    Ms. SCHWARTZ. We have to make some Federal rules about 
this, so that everyone is--actually knows--they can expect 
certain protections?
    Ms. DAVIS. Absolutely.
    Ms. SCHWARTZ. Okay.
    Ms. DAVIS. That they will not be discriminated against 
because of their health problems.
    On the delivery system reform, I think everything you've 
said about--primary care physicians need time to do care 
management, care coordination, work with patients with chronic 
conditions. We need to reform the payment to reward that.
    Ms. SCHWARTZ. So, in other words, we should actually pay 
them for that?
    Ms. DAVIS. Pay them for that. As well as a team approach to 
care--and I think doctors can't do it alone, they need to be 
able to hire nurses, pharmacists can play a role.
    Basically, primary care works best if it's part of a larger 
system. Some people call it a medical neighborhood, but 
certainly an integrated delivery system that can provide 
support to those practices, provide them with IT, provide them 
with care redesign, make sure that those specialty referrals 
happen easily and smoothly. That's all part of the broader 
system reform.
    Mr. STARK. Thank you.
    Ms. SCHWARTZ. Thank you.
    Mr. STARK. Mr. Davis of Illinois may inquire.
    Mr. DAVIS of Illinois. Thank you very much, Mr. Chairman. 
Let me just say that I think, first of all, that the best and 
most effective way to deal with the issues we've been 
discussing is to have a national health plan, one that 
everybody is in, and nobody is out. I think, once we do that, 
and make it seamless, we will find that many of the problems 
we're discussing will actually go away.
    Let me also say it's my belief that the most effective 
things that we have seen that have helped provide healthcare to 
low-income people in this country has been Medicare and 
    It is also my belief that community health centers are the 
most effective instruments that we currently have to provide 
cost-effective quality healthcare to large numbers of low-
income and poor people.
    My question, actually, is to you, Dr. Davis. Would you see 
the expansion of this network of clinics throughout the country 
fitting into a plan that would increase access seriously, and 
thereby reduce the numbers of people who are uninsured in this 
    Ms. DAVIS. Absolutely. I think our network of community 
health centers is a vital care delivery system in many low-
income neighborhoods. I think they need the support to upgrade 
their services to this level that we call a patient-centered 
medical home. We are funding community health centers to do 
exactly that, enabling them to take a team approach to care, to 
have services available. But it's a very important part of 
this, and we would certainly see in a plan, designing payment 
systems that reward community health centers for taking on that 
    You also stressed the importance of Medicaid. We have 
talked a little bit about Medicaid--maybe doesn't pay as well 
as Medicare. But it is the safety net for our Nation's most 
vulnerable, sickest, poorest people, and it's vital that that 
program be maintained for those who are the poorest of the 
    Mr. DAVIS of Illinois. Thank you very much. Let me ask you, 
Mr. Pickering, many people feel that there is a great deal of 
waste and inefficiency in our current healthcare delivery 
    If you had to pinpoint some of the places where some of 
that waste might be, where would you look?
    Mr. PICKERING. I think the biggest amount of waste is in 
overutilization. As actuaries, we create what we call cost 
models, where we have a very detailed snapshot of delivery of 
care, breaking out inpatient hospital, outpatient hospital, 
various physician services. We look at utilization per 
thousand, average cost per service. It gives us the total cost.
    What we see when we look at the best managed health plans 
out there, comparing them to loosely managed health plans, is a 
dramatic difference in utilization. That's directly a cost 
savings, if you can achieve that lower utilization. Usually you 
see quality scores correlated with the lower utilization from 
those organizations that are able to deliver it.
    So, I think that's the biggest opportunity, is to optimize 
    Mr. DAVIS of Illinois. I hope I get a chance to get back to 
that in a second.
    But let me ask you, Dr. Ayanian, obviously Massachusetts 
has the highest number or percentage of its population that has 
health insurance. Are you aware of any studies that have 
compared the health status of the population there, or the cost 
with what's being paid overall for healthcare in other places?
    Dr. AYANIAN. In our Committee's work, we completed our 
review before some of the newer evidence was available from 
    What we did find, though, was from a whole series of 
studies, and much stronger studies of what happens, for 
instance, when Medicaid and CHIP coverage has been expanded for 
children, that access to care improves, as well as some 
important health outcomes, like avoiding hospitalizations for 
asthma. Those hospitalizations are reduced among kids with 
asthma who were previously uninsured.
    So, I think there are clear indications that bringing 
everybody into the insurance system and providing good 
preventive and primary care can avoid some of these costly 
complications that are not good for patients and their 
families, and they're not good for us as a society, and as a 
nation, especially when they're avoidable.
    Mr. DAVIS of Illinois. Do you think that might reduce cost? 
I mean, we talk a great deal about cost, and we talk about cost 
containment. Do you think that might, in a real sense, when we 
get to the real bottom line, reduce costs?
    Dr. AYANIAN. It's a very important question. What we strive 
for in healthcare is cost-effective care. Are we getting good 
value for the money we're spending?
    There are occasions where we can prevent complications, and 
it may actually be cost saving. Most of the time, what we're 
striving for, though, is to achieve cost-effective care, 
meaning that, for the dollars that we're spending, we're 
getting good value, in terms of the health outcomes.
    We know, from a series of studies, that extending insurance 
coverage, and covering effective primary and preventive 
services gets us that good value. We may have to pay a little 
bit more, but we get much more, in terms of a return in 
improved health outcomes for children that can be lifelong, and 
then improved health outcomes for the working-age population 
that can help them to be more productive and have a higher 
quality of life.
    Mr. DAVIS of Illinois. Longer life. Thank you so much. I 
appreciate your answers, all of you.
    Mr. STARK. Thank you. Mr. Reichert, would you like to 
    Mr. REICHERT. Yes, sir, Mr. Chairman. Thank you. First of 
all, all of here on this Committee come from all different 
walks of life, so we come at the questions in a little bit 
different way. My background was in law enforcement for 33 
years, and I saw a lot of things. I certainly agree with the 
statement that, Doctor, you made in your study, ``Lacking in 
healthcare is hazardous to your health.'' I have seen it over 
and over and over again in my past profession.
    So, I have some questions that center around the--your IOM 
report. It doesn't make any specific recommendations about the 
shape healthcare reform should have. But you recommend to the 
President and Congress that we need to do something now. It's 
urgent that we do something now.
    I really have a concern--and I'm going back to someone's 
earlier question about waste, fraud, and abuse--and 
overutilization is one of the things mentioned already. How do 
you propose--and maybe all three of you could respond to this--
to address the issue of overutilization, or waste, fraud, and 
    In my opinion, if we get the Government more involved, we 
have more waste, fraud, and abuse.
    Dr. AYANIAN. From the standpoint of an effective healthcare 
system, the theme has already been emphasized. But I would just 
echo it, that coordination of care is where we can achieve 
greater efficiency.
    So, when we have a fragmented healthcare system, when 
people are moving in and out of insurance, or unsure what's 
covered, or needing to stop in the middle of a treatment 
process when they reach financial barriers, that's when we have 
an inefficient and fragmented system.
    So, in order to achieve the health benefits that our report 
outlines that can come with expanded coverage, that coverage 
has to emphasize doing what's effective and doing it in an 
efficient manner. We do that by having primary care and 
specialty care working together, by having team-based care, 
using nurse practitioners, nurses, nutritionists, pharmacists. 
We have a great deal of expertise in our healthcare system; we 
don't always piece it together well----
    Mr. REICHERT. Just to interrupt, so coordinated care, I get 
that, and all three--I think all of us would agree with that.
    Health IT plays into that, right? So, we've got $20 billion 
we want to spend in the stimulus package on health IT, but 
we're going to do that by September and October, and we don't 
have a plan. We don't even know if it's going to be 
interoperable, but we're going to spend $20 billion. Can anyone 
address that issue?
    Ms. DAVIS. Well, I think it's very important that Congress 
has designated those funds in the American Recovery and 
Reinvestment Act. I think----
    Mr. REICHERT. Do you think October is too early, though, to 
allocate those funds, those $20 billion?
    Ms. DAVIS. I think it's----
    Mr. REICHERT. Are we ready for that much money out there?
    Ms. DAVIS. I think it is going to take that kind of 
investment to----
    Mr. REICHERT. I do, too. But the timing----
    Ms. DAVIS. But you're right, you're right about the 
    Mr. REICHERT. Yes, ma'am. Thank you.
    Ms. DAVIS. It's got to have decision support, so that 
physicians know what the latest evidence is, as they are 
prescribing a treatment, and it has to have a health 
information exchange network that pulls data from all the 
    Mr. REICHERT. How long do you think that might take? Could 
we do that in the next 10 months, 8 months?
    Ms. DAVIS. I think we can set out the standards for what we 
want in----
    Mr. REICHERT. Should we have a national standard?
    Ms. DAVIS. In terms of the characteristics of the systems, 
I think what you've charged the office of the national 
coordinator for information technology, to have those standards 
by 2010, is a realistic goal.
    I have certainly seen these systems in countries as small 
as Denmark, where they have 98 percent of their physicians on 
these systems. All of a patient's tests, hospital records, 
specialist consults are all right there. They are able to do 
disease registries, they know their diabetic patients who are 
out of control, and can bring them in.
    So, there are models out there that we can learn from. So, 
I think it's very definitely a step in the right direction.
    Mr. REICHERT. I know a lot about interoperability, coming 
from the law enforcement world, and I know we weren't ready for 
some of the money that came out. I saw cities, police 
departments purchase systems for a million dollars, and a year 
later not work, and that's what I am concerned about.
    I agree with you, that we need health IT, and it needs to 
be interoperable, and we need to be talking with each other. I 
also agree that it would help coordinate care, it would help 
eliminate some of the waste, fraud, and abuse. But I just--I 
feel very strongly that we don't have a system in place yet to 
spend that $20 billion. I am very concerned about that.
    I also want to touch on, Dr. Davis, your proposal would 
require every American to purchase a health insurance plan. 
There is, for all intents and purposes, a mandate to carry car 
insurance in this country, but yet 16 percent of Americans 
don't carry car insurance.
    How, when I was a cop, you know what I would do, is when a 
person got into an accident, I would write them a ticket for 
not having car insurance, or you know, in the event of another 
stop, I might be able to get that information and write a 
citation. How do you enforce that, that mandate, that every 
person have health insurance?
    Ms. DAVIS. Some countries, again, we can learn from. 
Netherlands and Switzerland have a mandate. They get all but 1 
percent enrolled, so they do have problems with not everyone. 
We can use the tax system, so people verify their insurance 
coverage every year, when they file their personal income 
taxes. It may still not catch some non-tax filers.
    Certainly in Massachusetts, where they have had the 
individual responsibility, they have gotten the rates up to 97, 
98 percent insured. So, I don't think we're actually going to 
get to 100, but I think we can get to 99 percent, by building 
on some administrative----
    Mr. REICHERT. Thank you for your answer. Thank you, Mr. 
    Mr. STARK. Thank you, Mr. Reichert. Mr. Davis of Alabama, 
would you like to inquire?
    Mr. DAVIS of Alabama. Thank you. Thank you, Mr. Chairman. 
Let me, if I can, Dr. Davis, start with you, and ask you to 
react to a couple of points.
    I don't, by any means, want to adopt the ideology or the 
theology of my friends on the other side of the aisle, who I 
think are skeptical at the notion of a public plan for 
ideological reasons. But I do want to pick up on some practical 
concerns they have raised that I think are actually worthy of 
some examination.
    Let me lay out one real-world political scenario that I 
think is likely to happen here. Let's assume that your plan, or 
something like it, were to pass the Congress. There would be 
intense political debate around it. As a practical matter, the 
opposition would beat up this public plan. They would talk 
about it as something that wasn't providing the highest kind of 
quality, something that wasn't providing the highest levels of 
efficiency. That would be the lines of political debate that 
would go in this city, and, I suspect, around the country.
    So, as you lay out, and as we think about the incentive 
structure for someone to opt into the public plan, as opposed 
to opting into a private plan, I almost think that we have to 
factor how people are going to think about the public plan 
after the political debate, and after there has been a 
systematic effort to discredit it. That strikes me as 
    Would either you or Mr. Pickering like to comment on that 
very practical political aspect of this?
    Ms. DAVIS. Well, I think we heard at this hearing that 
Americans want choices. They would appreciate having the choice 
of a public health insurance plan. Medicare is very highly 
rated by its beneficiaries. We have done surveys of older 
adults. They would like to be given the choice of buying into 
Medicare early.
    I think our whole experience with Medicare, that, yes, 
physicians expressed some concern about were they going to be 
paid enough, and it turned out they did very well under these 
    So, I think that people are satisfied with the quality of 
coverage, with their access to services through public health 
insurance. We have got a lot to build on. But I think what we 
want is the best of both, we want----
    Mr. DAVIS of Alabama. Let me interrupt you for 1 second, 
and make sure I'm driving this point home. There has not been a 
public attack on Medicare for 43 years in this country. So, 
that's why Medicare enjoys a certain political sustainability 
and durability; it's not under public attack.
    As a practical matter, even if this plan or something like 
it were to pass, it would be, I suspect, with an enormous 
amount of political baggage around it that doesn't exist. It's 
not tied around the ankles of Medicare right now. I do think we 
have to think about that, because I think everyone on the panel 
agrees that we have to have an incentive structure for a 
diverse group of people, in terms of their healthcare going 
into a public plan, so it doesn't simply become a receptacle 
for people who have chronic diseases, or are low-income.
    I would submit that, if we do anything like this, we have 
to wrestle with what the public plan will look like after it's 
been represented, or misrepresented, in the public debate. Will 
it be less attractive? Will certain kinds of people be less 
drawn to it? Will the public debate and the advertising around 
it create perverse incentives for certain healthy, wealthy, 
affluent people to opt into a private plan? All of those are 
factors that I think may alter the incentive structure in ways 
beyond cost.
    Now, there is one other factor that we would focus on. It's 
not just critical and important to have a level playingfield, 
in terms of regulations, and in terms of cost structure. I 
think we're also going to have to grapple with the preemption 
    Hypothetically, if there was a Federal standard that 
obviously covered the public plan, and if some of these private 
plans were more governed by state standards, that seems to be 
another thing that we would have to grapple with, to make sure 
that you didn't have an incentive structure for certain kinds 
of plans, to not participate in this consortium or network you 
    Do any of you want to speak to that issue, how we level out 
the preemption issues, and the whole question of Federal versus 
state law?
    Ms. DAVIS. Well, you raise good points. But what we know 
isn't working, and that's the system now. So, universally, the 
polls show that people want change.
    In Massachusetts, which moved to their system in 2006, 
polls are very high. People are very satisfied with what 
they've done there. I think it does require an ongoing 
education campaign, so people know what the truth is about the 
program. But those who now see that they have economic 
security, they have choices, they have good benefits, you're 
going to see much higher levels of satisfaction than we find 
    Mr. DAVIS of Alabama. Well, my time is up, Dr. Davis, but I 
would just summarize with this observation. I am not quite as 
sanguine as you are about comparing this to Medicare, because 
Medicare is an accepted, established, entrenched plan that has 
not come under attack in the public debate since 1965.
    As a practical matter, there would be an enormously 
contentious political debate around this plan. Whatever we 
passed would already be discredited in the eyes of significant 
numbers of people in the country. I think, as we think through 
the whole incentive structure, that's a really, really big 
problem, how we deal with the potential baggage that would have 
attached to a public plan. But my time is up.
    Mr. PICKERING. May I just--just one thing? You mentioned we 
don't want the public plan to become a dumping ground for the 
sick, and the private plans to become a place where the healthy 
    I definitely agree with that. I don't know if, in the plan, 
we have risk-based funding, like we have in Medicare Advantage 
where, you know, a chronically ill person who is going to use a 
lot of healthcare resources, their health plan gets more money 
for them. They don't pay more premium, but their health plan 
gets more money. I think you would definitely want to consider 
something like that, so that plans could focus on carrying for 
the sickest without being penalized.
    Mr. STARK. Thank you. Mr. Etheridge, would you like to 
    Mr. ETHERIDGE. Thank you, Mr. Chairman. Let me thank each 
of you for being here. You know, we come to this place after 
the issue has been raised during a Presidential campaign to a 
high level at a time when the economy was in a different place 
than it is today.
    I say that because, even then, the public was engaged in 
either one of two things. They neither had healthcare and 
wanted it, or what they had was so expensive, and the copays 
and deductibles are so high, they felt they still weren't 
getting the benefit of any insurance.
    Well, today we find ourselves in a little different place. 
The economy is in a different situation. For instance, in my 
home state of North Carolina, they have just released the new 
unemployment rates today in North Carolina. Our jobless rate 
has now jumped to a 26-year high of 9.7 percent. In the last 
month, it was--it became one of the highest top six in the 
country, in terms of unemployment. In the last 12 months, it is 
number 1 in the nation, in terms of the amount of job loss from 
January of 2008 to January of 2009.
    I say that in context, because I think this is sort of 
where we are in a lot of other places. As Mr. Reichert said, 
from having been in education and state superintendent, and so 
many times we talk about children having healthcare and the 
need for it, and that is absolutely true, but the last time I 
checked, most children come from homes somewhere. If the 
families don't have the health insurance, it's awful hard, even 
when it's made available through state, local, Federal, 
wherever, for children to be able to engage in it, because if 
parents don't have it, they may not get the attention they 
    So, my question is they get hit twice. They've lost their 
job, and in a lot of cases now, they've lost their healthcare. 
We are helping in the recovery package with COBRA, but for some 
of these families COBRA is very difficult because they've lost 
their job and, in some cases, they may not have unemployment 
    So, Doctor, let me ask a question to you this way, because 
I think the issue currently--and I think we have to deal with 
where we are, so we can get to where we want to get to, 
wherever that place may be.
    Can you describe to us some of the issues that individuals 
face when they're trying to buy a policy today in the 
marketplace? I think it's helpful for us to sort of be reminded 
of that one more time.
    Dr. AYANIAN. Our report addressed a number of those issues. 
For example, we heard the story earlier about a 62-year-old 
constituent who had had a heart attack and had lost her 
insurance, and she was essentially counting the days until she 
could qualify for Medicare at age 65.
    So, people with any sort of acute or chronic condition, if 
they aren't eligible for employer-sponsored coverage, and don't 
have a low-enough income to qualify for a current public 
program, they are really very much on their own and adrift. And 
if they try to buy insurance on their own in the non-group 
market, it may not be available to them, or may not cover the 
pre-existing conditions for which they most need the insurance. 
Or, if it is available, the premium may be so expensive that 
they can't afford it, that it just crowds out the rest of their 
    There are clear examples where people are losing coverage 
when they lose jobs, unless, for example, low-income children 
can qualify for the children's health insurance program. We 
know from previous Institute of Medicine work, that when 
parents and children are covered together--I think that you 
were referencing this--that parents use the system more 
effectively, both for themselves and for their children. So, 
there is a positive spillover effect there across the family, 
when the whole family is covered.
    So, these are just some of the ways in which a weakening 
economy is going to make the health insurance crisis worse for 
families and people losing their jobs.
    Mr. ETHERIDGE. Dr. Davis, I represent an area that is 
probably representative of America. We have urban and rural.
    One of the real problems we face is that, as we try to 
address--we have in the past, I think, with Medicare Plus 
Choice, it became Medicare Advantage, et cetera. Insurers sort 
of rushed in to sign up beneficiaries, and then sort of backed 
out of that market when the margins really didn't--were high 
enough to be where they wanted to be.
    In some regions of the country they have only one option in 
a plan, which creates some problems.
    My question to you is how would the Commonwealth Plan serve 
rural communities, and ensure access? Because access is 
critical, as well as containing that cost. If you don't have 
access, you don't have to worry about the cost.
    Ms. DAVIS. Absolutely. You couldn't be more right. One of 
the advantages of having the public health insurance plan is 
that you've got a guaranteed, secure, stable option that is 
available everywhere.
    As you say, private insurers will move in and out of 
markets, depending upon whether they calculate they can make 
the kind of return for their shareholders they want to make. 
So, it's very important to have a public health insurance 
choice that's available, particularly in the kind of rural area 
that you've mentioned.
    Mr. ETHERIDGE. Thank you, Mr. Chairman. I yield back.
    Mr. STARK. Mr. Boustany, would you like to inquire, sir?
    Dr. BOUSTANY. Thank you, Mr. Chairman. You know, as a 
cardiac surgeon with over 20 years experience in an academic 
center, public hospitals, and a very successful private 
practice, I would talk at length about the problems with the 
healthcare system, both in the private and the public sector.
    My friend earlier--from Alabama--mentioned that he thought 
that those of us on our side have an ideological skepticism. I 
would submit that I have a very deep skepticism of having a 
Government plan competing with private plans, for a simple 
reason, and that is, what's in the interest of the patient, in 
terms of high-quality medicine?
    Now, a couple of things I want to point out. One, we have a 
significant longstanding and extensive liability with Medicare 
and Medicaid, and that has to be addressed. There are no plans 
to do that.
    So, as we look at a plan that will potentially push more 
people from the private sector into the public sector--and, Dr. 
Davis, the Lewin Group that contributed to your research has 
concerns that 120 million Americans would lose their current 
private coverage under your plan--there is a real problem here. 
We need to be careful with this, in the interest of real 
quality patient care.
    Secondly, access to a doctor-patient relationship is very 
different than coverage. I know Dr. Ayanian knows that, as a 
practitioner. There is a profound difference. One of the things 
that is missing in all of our Government plans to a large 
degree right now--in Medicare, Medicaid, and SCHIP--is a 
difficulty in developing the doctor/patient relationship. There 
are access problems to the doctor, and the development of that 
kind of relationship, in all three of those programs. It's 
worse in some than others, but it's there in all of them.
    One of the things that we know, in addition to this, is 
we've got a significant shortage of healthcare providers 
looming, and getting worse. Dr. Ayanian, if you would speak to 
Dr. John Mayer at the Brigham Hospital, a cardiac surgeon, he 
would be the first to tell you that half of the cardiothoracic 
surgery spots in the country did not fill last year. That's 
half of 139 training spots. If we don't have cardiac surgeons, 
cardiology programs go away, pulmonology programs go away, 
intensive care units tend to disappear.
    We also, at the base, are losing our primary care and our 
general surgeons. Rural care is going to suffer. If we don't 
have the providers, we've got a problem. That's another major 
issue that relates to reimbursement.
    Currently, the healthcare system is basically a price-
controlled system across the board. Medicare rates are 
determined very arbitrarily. In the private sector, they are 
pegged at some multiple of Medicare. This is creating a severe 
distortion throughout the healthcare system that is hurting 
access to developing a doctor/patient relationship.
    So, I guess my question would be that if we shift patients 
from the private sector into Government-run healthcare, which 
is going to happen, what are we going to do about the longer 
waiting lines, and the difficulty in gaining access to 
developing a doctor-patient relationship, which is the essence 
of quality, where prevention and screening and early detection 
really take place?
    Dr. AYANIAN. I will speak to the importance of the 
healthcare provider community: the physicians, the nurses, the 
people on the front lines. You and I have experience in 
practicing ourselves, and collaborating with our colleagues. 
While this debate, for most of today, has been about 
    Mr. BOUSTANY. Coverage.
    Dr. AYANIAN [continuing]. And coverage, and that's 
critically important, I think it's clear that the provider 
community--the doctors, the hospital leaders, the nursing 
leaders--need to be brought into this, and we need--and we have 
had some discussion today about not just reforming the 
insurance system, but reforming the delivery system. Ideally, 
our healthcare system works best when those two systems work 
together, as opposed to in opposition to each other.
    So, it's clear from the work that we've done at the 
Institute of Medicine, that we need both pieces. We need the 
coverage, because without coverage it's very, very difficult to 
even have a chance at getting that effective doctor-patient 
relationship that you're highlighting----
    Mr. BOUSTANY. But what I'm pointing out is that, as we work 
on coverage, we have to keep our eye on the ball, and make sure 
that the access to doctor-patient relationship is also given at 
least equal treatment, if not more, because some of these 
coverage decisions, I am fearful, are going to lead to severe 
access problems, which we are already seeing today in the 
current healthcare system.
    Dr. AYANIAN. So, I think that just underscores that we need 
a very thoughtful approach. It can't just be expanding 
coverage, and then sort of into----
    Mr. BOUSTANY. That is what----
    Dr. AYANIAN. A system that is malfunctioning.
    Mr. BOUSTANY. That's what I find missing in much of the 
debate we have had, and in the proposal put forth by the 
Commonwealth Fund. It's a very deep concern to somebody who has 
had extensive experience with this at the ground level.
    The other thing is there was some mention of alignment of 
incentives, which is critically important. There are so many 
legal impediments to doing this in healthcare today, that this 
is another issue that I think needs to be addressed if we're 
going to actually get to that point of quality. I see that my 
time has expired, and I----
    Mr. STARK. I thank the gentleman, and I would ask if Mr. 
Levin wants to inquire.
    Mr. LEVIN. Thank you very much. Welcome. A long day for 
    By the way, I haven't been able to be here the entire 
hearing, but I did hear some discussion about IT, and I just 
wanted to indicate, based on what I've heard from across the 
board in the health field, as well as my own family's 
experience, I think there is a thirst for information 
technology. I do believe that the money that was appropriated 
is an absolutely essential break-through. I have confidence it 
will be administered effectively.
    So, let me just ask, and Dr. Davis, I will start with you, 
and others may want to comment. There has been some--a lot of 
discussion about a public plan. I heard it suggested that maybe 
its nose may be bloodied so much that people won't be attracted 
to it.
    I don't think that's true. I remember when I was first 
here, or a few years after that, there was some discussion 
about Medicare, and some complaint about the new system. Some 
seniors were not entirely happy with it. But those problems 
were straightened out, and the DRG turned out to be workable.
    So, I really think one of the basic issues is not whether 
there will be public support for a public ingredient, but 
whether the support might sooner or later be so strong that 
there wouldn't be private competition, that it would become 
essentially the only option, or the main option that was 
exercised. I think we need to get right at that, because I 
think, underlying the arguments against this plan, in part, is 
the belief that what we're starting with here is what we would 
necessarily end up with, alone.
    So, Dr. Davis, do you want to start talking about the whole 
relationship between the public and private sector under this 
    Ms. DAVIS. Well, I think the most important point to stress 
is that nobody loses coverage. People have choices, and they 
only change coverage if they feel that what they're changing to 
is better or more affordable.
    I think that having a public health insurance plan provides 
a challenge to change business as usual in the private 
insurance industry. I met last week with the executives of the 
Wellmark Blue Cross Blue Shield plan of Iowa and South Dakota. 
Their board has given them a charge to have their premium trend 
be equal to the consumer price index. So, they are on a journey 
to get premium increases down to the same as general inflation.
    I think we're not suggesting something as tight as that, or 
as ambitious as that, but certainly a plan like that would fare 
very well in a national health insurance exchange, where the 
goal is to slow spending to five-and-a-half percent a year, 
substantially above the consumer price index.
    Private insurers have strengths. There are ways that they 
can adapt to this. First of all, they can pay according to 
these innovative methods, so it can't just be Medicare, 
Medicaid, and a public health insurance plan.
    In addition, if something better comes along, they can be 
very quick to innovate and test that. They can modify benefit 
designs if there is a change that attracts individuals to their 
plans. They can have effective utilization management.
    So, some think it means the demise of private coverage, and 
we will just march toward public coverage. I think we will have 
a healthy balance between the two, and they will both find the 
kinds of patients, the kinds of enrollees, that are attracted 
to the strengths that they bring to the table.
    The main thing is to change competition in the insurance 
market, so that everybody is bringing value-added, they're 
bringing what they do best that winds up getting us better 
value for the dollars we're spending.
    Mr. LEVIN. Well, put. I have less than a minute, too. Mr. 
Pickering or Dr. Ayanian, either of you want to quickly 
    Mr. PICKERING. I will quickly comment. If it happens that 
the public plan is so good that everyone wants in, well, that's 
a good problem to have. I guess you lose the value of 
competition to drive future efficiency, but you have succeeded 
in creating a good public health plan.
    Mr. LEVIN. Gee, I hope your message is heard. I think Dr. 
Davis indicates that the competition is likely to continue, and 
would be healthy for health.
    Dr. Ayanian, do you want to--I have 15 seconds, less than 
    Dr. AYANIAN. Just to echo that the important issue here is 
to get people covered, from the Institute of Medicine's 
perspective, that the longer we wait to achieve that goal, the 
more negative health consequences that we're going to 
experience among Americans. And for the country as a whole, and 
that has a real human cost that we need to keep our eyes on, 
and keep as a motivation, going forward.
    Mr. LEVIN. Thank you for this excellent hearing.
    Mr. STARK. Thank you. Mr. Meek, would you like to inquire?
    Mr. MEEK. Thank you so very much, Mr. Chairman. I thank our 
witnesses for being here, and monitoring the hearing. I must 
say, from Florida, as you know, we are almost ground zero, as 
it relates to healthcare. I think it will be a big part of 
healthcare reform.
    I wanted to ask a question about doctors, and how you think 
we will be able to meet the demanding needs of doctors right 
    In Florida, the average age of the doctors that are there 
that are what you may call general docs that deal with issues, 
primary doctors that are dealing with a number of individuals 
in Florida that are getting older and older--we had physicians 
in teaching hospitals, to allow more of those physicians to be 
authorized in the future to be able to meet the growing needs 
of Florida.
    I will tell you, in 15 years, many of our docs would have 
aged out. A number of them, as it relates to this healthcare 
reform, as we look at cost, will they be properly incentivized 
to be a part of any reform that we want to--we are trying to 
carry out right now, and also be willing to go into the medical 
profession in Florida or in other parts of the country?
    So, my question is mainly going down the line of how do we 
address the issue of the failing recruitment, I think, in 
getting more young doctors involved in the healthcare arena? 
Maybe you can answer that question.
    Dr. AYANIAN. Speaking from my perspective as a physician 
working in a teaching hospital--and, this is not directly 
addressed by the Institute of Medicine report--but I think we 
need to recognize that physicians are attracted to the field 
for the opportunity to be healers. Most physicians want to 
focus their energy and attention on taking care of patients.
    So, to the extent that health reform can reduce the 
administrative burdens on physicians, and free them up to focus 
more on what the calling of medicine is, there is, I think, an 
opportunity to make medicine and other health professions even 
more attractive to young people considering different career 
    So, that is, a perspective that I have, that if we can 
reduce some of the administrative hassles, and the 
fragmentation in the healthcare system, and develop a sense 
that everyone is a part of this, that all Americans are part of 
the system and can gain coverage, that makes the calling of 
medicine much more attractive.
    Mr. MEEK. When we talk about docs in Florida, we talk 
about--of course, in your report, you talk about the quality 
of--improving the quality of care. Many of the docs who I've 
spoken to are saying, ``Kendrick, I don't know who is going to 
come behind me to do this job under this environment.''
    As we look at opening this book of healthcare reform 
throughout the country, especially as it relates to coverage, 
as it relates to docs that are practicing outside of--you know, 
by themselves, will they be able to still be in the profession 
of providing medical care?
    Many rural areas, not only in Florida, but throughout the 
country, are finding themselves in a situation where they're 
traveling for miles and miles and miles, because no one wants 
to come to their community.
    So, I am--that's where I am trying to go. It's a broad 
question, but I'm just trying to go there, and how we can deal 
with it as a Committee, because sometimes we may lift the hood 
of a car, and may not necessarily twist a sparkplug the way 
it's supposed to be twisted to get, you know, the kind of fire 
you need to start the engine.
    So, that's a concern, and probably will be a--some dialog, 
because when you start talking about first controlling costs, 
and then trying to improve healthcare, you have to think about 
those that are in the healthcare profession, if they are going 
to be able to meet the requirements, or the threshold that we 
call ourselves, you know, reforming on behalf of the many.
    Insurance is another issue for many doctors, and something 
that we have been trying to address.
    So, I'm just trying to figure that out, because I feel that 
we have a lot of folks that are finding areas, and in this 
report, how we can do it. But those professionals that are 
there, especially the docs, it's important. We know nurses, 
shortages and all of that, but how do we incentivize them?
    Dr. AYANIAN. Well, and our report speaks directly to this, 
in terms of spillover effects.
    Mr. MEEK. Yes.
    Dr. AYANIAN. So, communities that have high rates of 
uninsurance are less able to attract physicians, and less able 
to attract high-quality providers to their communities, or to 
retain the ones that they already have. When healthcare systems 
or hospitals look to make investments, it's less attractive to 
them to make those investments in communities where there are 
high rates of charity care, and uninsured patients who may just 
not be able to seek care when they need it, and use those 
services to their benefit.
    So, clearly, there are these spillover effects that we 
could use in a positive direction, if we raised rates of 
insurance. Communities that currently have high rates of 
uninsurance would be better positioned to attract and retain 
the healthcare professionals and the medical services that they 
    Mr. MEEK. Thank you so very much. Looking forward to 
working with you. Thank you, Mr. Chairman.
    Mr. STARK. Mr. Roskam. Finally, sir, your patience and--
thank you for--would you like to inquire?
    Mr. ROSKAM. Yes, sir.
    Mr. STARK. Be our wrap-up?
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Mr. STARK. Thank you.
    Mr. ROSKAM. To all the witnesses, thank you very much. It's 
clear to me that you are thoughtful people that are taking on a 
very serious, complicated issue. I, for one--and I know I 
speak, I think, for everyone--really appreciate the depth of 
thought that you have given to this.
    You know, I was reflecting, Dr. Davis, in your conversation 
with the gentleman from Kentucky a couple of minutes ago. You 
talked about the liability reform side of things.
    We had OMB director Peter Orszag here last week, who shared 
with us a story of his own personal experience. It was kind of 
interesting. It's not often that people come before a House 
Committee and disclose medical information, but he said that he 
was a runner, and had recently had some sort of an episode with 
his leg or his knee, went to the physician, and the physician 
said, ``Yes, there is something going on, and let's do an x-
ray.'' The x-ray came back positive.
    My memory is that Director Orszag sort of resisted the 
physician's next line of diagnosis, which was an MRI. The 
director said, ``Well, what is that going to show me?'' 
According to him, the physician said, ``Nothing, really, but 
it's kind of what we do.'' The director was a little bit proud 
of himself, I must say, and he said, ``Well, I don't want that 
test. I will be okay,'' and off he goes.
    I thought about that a little bit, and I thought, you know, 
that's great. But what if it hadn't worked out well, right? 
What if the director had actually had some subsequent injury 
that got worse and worse and worse? You know, memory may fade 
about what that visit was actually like.
    So, I got to thinking, what would it be like if Marcus 
Welby, MD, was Dr. Orszag's physician, and it didn't work out 
well, and Dr. Orszag filed a malpractice case against Dr. 
Welby? I think this is a couple of lines in a cross examination 
that I would do, if I was the plaintiff's lawyer against Dr. 
    You can just imagine Marcus Welby on the stand, and you 
would say, ``Dr. Welby, Peter Orszag was your patient. Isn't 
that right?'' ``Yes.'' ``He came in, complaining of problems 
with his knee, isn't that right?'' ``Yes.'' ``They were enough 
complaints, Dr. Welby, that you thought it was wise to get an 
x-ray, correct?'' ``Yes.'' ``There were positive indications of 
trauma, isn't that right, Dr. Welby?'' ``Yes, there were.''
    "Your first instinct was to order him an MRI, isn't that 
right, Doctor?'' ``Yes.'' ``The reason it was your first 
instinct, Doctor, is because you have had the training, and 
it's the standard of care for reasonable and prudent physicians 
who are in your ordinary area of practice, isn't that right?'' 
``Yes. But he talked me out of it.''
    "Well, Dr. Welby, Peter Orszag never went to medical 
school, right?'' ``Right.'' ``He never had any residency 
training, correct? He has never seen a patient. He has never 
read the medical literature. So, you let yourself be talked out 
of a reasonable and prudent''--you see where I'm going with 
this? Okay.
    So, Dr. Davis, when you said that you were in favor of 
liability reform, I heartened a little, and I thought, oh 
great, you know, that's sort of an unconventional thing, coming 
from a Majority witness. I read the liability that you're 
proposing, and it's really not what the normal conversation 
about medical liability is.
    In other words, what you are doing is recrafting, in your 
words, ``enterprise liability to create an interlocking 
liability relationship between physicians and other entities,'' 
presumably hospitals and so forth. But you're not really--I 
mean, this plan is silent as to the duplication of testing, the 
defense of medicine that is sort of inherent in things. I just 
think it's important.
    Would you acknowledge that defensive medicine is driving 
costs up, and that that is something that has to be dealt with? 
Or--and just tell me if it's true--is the orthodoxy, from your 
philosophical point of view, is it impossible to contemplate 
that caps on non-economic damages makes sense in a system, when 
we're trying to control costs?
    Ms. DAVIS. Yes. Truthfully, I have never seen a good study 
on defensive medicine. People toss out numbers--a billion 
dollars--but when you look into them, the good data aren't 
    What I would recommend, and what we're funding to evaluate 
in the State of Washington, was legislation that gave 
protection to physicians in liability cases if they had 
systematically given their patients what is called shared 
decisionmaking, which is not just some advice that Dr. Orszag 
got, but, say, a video that explains very carefully the risk 
and benefits of getting surgery, not getting surgery, getting 
an MRI, not getting an MRI.
    If the physician has the patient be educated about their 
treatment options, the risks and benefits, then they are 
protected in liability situations, because they have at least 
informed the patient, the patient decided they didn't want the 
surgery, they didn't want that test.
    So, we are funding an evaluation of the effect of that on 
quality, on outcomes, on cost. But I think that is a very 
intriguing way--I certainly would favor that over something 
very crude, like caps on damages for pain and suffering.
    Mr. ROSKAM. My time is expired, but I am interested in 
following up with you, particularly about the definition of--
well, the nature of that protection, from a liability point of 
view, because, as you know, the devil is in the details on 
that. But thank you for your testimony today. Thank you, Mr. 
    Mr. STARK. I thank the gentleman. I would just point out 
that, in California, when we did cap it, they didn't lower the 
premiums to the doctors. The insurance companies charged more, 
but there was no real savings to the docs. So, a lot of that is 
how these caps are carried out.
    Mr. Camp.
    Mr. CAMP. I would just say, first of all, thank you all for 
being here. I think one of the concerns that many of us have 
with a Government option competing against private plans is 
that the private plans would all be required to meet the 
criteria set forth in the Government option, but wouldn't have 
the subsidy of the Government option. Therefore, over time, 
there wouldn't be any competition.
    I mean, there are no private plans for people over 65 for a 
reason. They can't do it. Yet, we know Medicare isn't always 
adequate, because 42 percent of seniors have Medigap insurance.
    The other concern is, I think, one that--the Government 
plan causes private plans to charge more. As more people would 
be eroding off private insurance and into the Government 
program, because there is cost shifting--and we have all 
agreed, at least certainly in Medicaid we can agree there is 
cost shifting, and there are seniors on Medicaid, and 
physicians certainly have that issue as well--then that further 
erodes, again, private insurance.
    For this--for us to really continue to have people have the 
insurance, that they not lose what they have, we cannot see the 
erosion of the private side.
    Now, I don't really see a way around that, frankly. Maybe 
it is that--and I guess I would like to hear you comment on 
that particular part--and maybe it is that the Government sets 
some basic criteria for plans, as opposed to being in the 
insurance business themselves, for those that are not on 
Medicare or Medicaid.
    I guess I would like to hear any comments that you might 
have on that. Anybody?
    Ms. DAVIS. It's late----
    Mr. CAMP. Yes, and thank you for all of the time you have 
spent this afternoon.
    Ms. DAVIS. It is late in the afternoon for an economic 
theory on cost shifting. What I use as a test is what does a 
payer pay enough to get the providers to participate? What 
Medicare pays is enough to get hospitals to participate. It's 
enough to get nearly all doctors to participate. It's not 
enough to get them to participate in Medicaid. So, that, to me, 
is a problem. I am comfortable with that kind of evidence.
    I personally don't think there is a strong empirical 
database that says if Medicare pays a lot more, if we pay for 
the uninsured, if we raise rates for Medicaid, that commercial 
insurers will cut rates, or that providers will be happy taking 
less money, because now they're getting a lot more money from 
Medicaid patients and from uninsured patients.
    But if you believe it, then private premiums should come 
down, not go up, because there is a huge infusion of funds for 
covering the uninsured, you know, $100 billion, and a huge 
infusion of funds for bringing Medicaid up to at least Medicare 
    Mr. CAMP. We have seen premiums go down in part D from 
where they were projected to be.
    Ms. DAVIS. Yes. So, unfortunately, in economics we never 
know what would have been the case if we hadn't done it, but 
you're right----
    Mr. CAMP. We had a potential amendment that the premium 
should be $35. Clearly, you can get a Medicare part D plan for 
much less than a $35 premium. So, that would have been the 
wrong approach.
    Ms. DAVIS. Right. My friends who are actuaries are very 
good at extrapolating trends. They sometimes miss turning 
points. Prescription drugs peaked at about the time the 
Medicare prescription drug law came in. So, they were 
projecting part D plans on the basis of that upward trend.
    So, whether they overestimated what the premium would be, 
and it came in lower, or whether it was the market working, I 
think they will never be able to----
    Mr. CAMP. Well, and some of that is the, you know, more 
extensive use of generics. I understand that. It's not all 
competition. In a sense it is, but there are other alternatives 
that have helped contribute to that. I will freely admit that.
    Ms. DAVIS. But I think the basic argument is that private 
plans should be able to participate with a public health 
insurance plan that pays fair rates, that they can adopt those 
rates if they want to in private plans, they can do something 
better than that if they want to, they can use all the other 
tools that are available to them that are unlikely to be 
adopted by a public health insurance plan, like selective 
networks, like utilization reviews, like benefit designs.
    So, certainly I think the worst case scenario is what you 
see in this report, that they just keep on charging what 
they're charging. But, even with that, they would still have 
over 100 million who are privately insured. Plus, they would 
have the business of paying the claims on all of those people 
covered through the public health insurance plan, just as they 
pay the claims under the Medicare Program.
    Mr. STARK. If everybody has inquired, I want to, first of 
all, ask the witnesses to raise their right hand and take a 
pledge that they won't tell any future witnesses how long you 
have to sit there on those hard chairs when you're a witness, 
but to thank all three of you for participating with us today.
    I think it has been a useful hearing, and I really thank 
you for your patience, your indulgence. I have enjoyed working 
with all of you. I hope we can have you back. Thank you very 
much, and----
    Chairman RANGEL. Hold it.
    Mr. STARK. Mr. Chairman?
    Chairman RANGEL. Pete had an idea that I hope might be 
receptive to you, and that is that if we get close to resolving 
this issue, whether we could have an informal roundtable 
without the mics and the testimony, including Republicans, to 
be able to, not in 5 minutes, but to get normal conversations 
about problems that all of you know that we're going to have.
    You, Karen, you have dedicated your life to this, and so 
we're going to staple you to the bill, and just send it to the 
floor. But we really want to thank you for sticking with us 
today. This is the first, I am convinced that we are going to 
work this out. Thank you so much.
    [Whereupon, at 2:41 p.m., the hearing was adjourned.]
    [Submissions for the Record follow:]
            Statement of America Health Care Association and
                  National Center for Assisted Living
    On behalf of the millions of caring employees within the long term 
care sector, and the millions of Americans who rely on these 
compassionate caregivers for essential care and services, the American 
Health Care Association and National Center for Assisted Living (AHCA/
NCAL), commend Chairman Charles Rangel (D-NY) and Ranking Member Dave 
Camp (R-MI) and the members of this committee for today's hearing on 
health reform in the 21st Century. As you consider expert testimony and 
review options regarding the reforms our nation must implement in order 
to expand coverage, improve quality and control cots, we ask that you 
keep one fact in mind--the majority of Americans will require long term 
care services at some point in their lives, which is why any national 
health reform plan must address long term care.
    The long term care sector is a significant contributor to the 
economic health of communities nationwide, and its stability is vital 
to stimulate economic growth, especially as the demand for long term 
care services continues to grow.
    Presently, long term care accounts for 1.1 percent of the nation's 
Gross Domestic Product (GDP)--$153.8 billion annually--with substantial 
economic impact in nearly every community across the country. With long 
term care facilities contributing to the employment of more than 4.4 
million individuals, the long term care sector represents one of the 
few growth areas in the U.S. economy. As a major driver of economic 
activity, the sector further supports more than $160 billion annually 
in labor income, and generated $56 billion in tax revenue in 2007 
Long Term Care--A Crucial Component of Healthcare Reform
    Americans are living longer and our nation's aging population is 
growing. Each year, more than 3 million Americans are cared for one of 
the nearly 16,000 nursing facilities in the United States with nearly 
80 percent relying on Medicare or Medicaid to pay for the care they 
need. Millions more of America's seniors depend upon care and services 
offered by assisted living communities or in their own homes. The 
demand for this kind of care is projected to more than double with as 
many as 9.3 million older Americans expected to rely on paid long term 
care services every year--either in a nursing facility or with paid 
home care--by 2040.
    Given this growing demand, it is imperative that all of us--
Government, providers, and consumers--work together to ensure that 
America's healthcare system can both meet the care needs of our frail 
and elderly while preserving individual choice, and be cost-effective 
and sustainable when demand for long term care and services will 
dramatically increase in the coming years. Nearly two-thirds of frail, 
elderly, and disabled residents who require nursing facility care--
about a million individuals on any given day--rely on Medicaid to pay 
for the care they need. Another 115,000 assisted living residents have 
their care services paid through Medicaid waivers. Yet, many states are 
finding it difficult to keep pace with those needs as Medicaid spending 
often consumes the largest share of a state's budget.
    Medicaid is the single largest purchaser of nursing home and other 
long term care services, a fact of great concern as future growth could 
mean state Medicaid programs may not be able to meet the care needs of 
patients in the years ahead. In 2004, nearly 1.7 million individuals 
relied on Medicaid to cover their nursing facility care. That year, 
Medicaid payments for nursing facility services exceeded $47 billion, 
which falls an estimated $4.6 billion shy of the actual cost of 
providing that care. Such disparity highlights the ongoing struggle 
that exists for Federal and state Governments to commit adequate 
resources to meet today's needs and tomorrow's expectations.
    Home and community-based services (HCBS) address the long term care 
needs of millions of Americans annually. Certainly, we believe that 
individual choice in the type and setting of long term care and 
services must be preserved, to include the availability of HCBS for all 
consumers. In fact, HCBS and facility-based long term care should be 
complementary to one another, as both fulfill unique needs for the 
consumer. Our concern is not about expanding the HCBS option to all 
Medicaid beneficiaries who meet the requirements for receiving 
facility-based care, but rather that such an expansion would come at a 
significant cost for state and Federal Governments that can ill-afford 
it. The Congressional Budget Office's Budget Options that was released 
in December 2008 analyzed this very proposal stating that, ``this 
option would increase Medicaid spending by approximately $20 billion 
over the 2010-2014 periods and by about $90 billion over the 2010-2019 
periods. That estimate incorporates a reduction in nursing home 
spending as a result of a modest decline--compared with current law--in 
the number of Medicaid beneficiaries who receive care in nursing homes 
and a subsequent increase in the number of individuals receiving 
HCBS.'' In short, according to CBO, expansion of HCBS would further 
contribute to the financial crisis facing the entire long term care 
sector and our nation at this time.
Person-Focused, Cost-Effective Reform Proposal
    In an effort to bring thoughtful ideas and potential solutions to 
the table, AHCA/NCAL and the Alliance for Quality Nursing Care have 
engaged Avalere Health to develop a comprehensive healthcare reform 
plan. Our proposal addresses the need for change--both in the financing 
and delivery of long term and post-acute care. Highlights of our 
proposal include replacing the current patchwork of financing with a 
voluntary Federal system; developing a new, Federal, catastrophic long 
term care benefit; enhancing private long term care financing; and 
streamlining our post-acute care delivery system. We believe that our 
plan would provide a single, unified method for maximizing individual 
preferences and program value, which ensures people are cared for in 
the most clinically appropriate, high-quality setting.
    In the coming weeks, Avalere Health will release an updated long 
term and post-acute care financing and coverage reform model that 
expands upon our existing proposal and includes conservative cost-
estimates that illustrate how this comprehensive reform plan would 
provide budgetary savings over time. We look forward to sharing that 
update with Chairman Rangel, Ranking Member Camp, and the members of 
this committee.
Quality--AHCA/NCAL's First Priority
    Long before the words quality and transparency were the catch words 
of the Federal Government and their oversight of healthcare, they were 
truly the compass for AHCA/NCAL and our member facilities.
    We have been working diligently to change the debate regarding long 
term care to focus on quality--quality of life for patients, residents 
and staff; and quality of care for the millions of frail, elderly and 
disabled individuals who require our services. We have been actively 
engaged in a broad range of activities which seek to enhance the 
overall performance and excellence of the entire long term care sector. 
While keeping patients and their care needs at the center of our 
collective efforts, we keep challenging ourselves to do better, and 
enhance quality.
Quality & Outcomes Are Improving
    The Online Survey, Certification and Reporting (OSCAR) data tracked 
by the Centers for Medicare and Medicaid Services (CMS) clearly points 
to improvements in patient outcomes, increases in overall direct care 
staffing levels, and significant decreases in quality of care survey 
deficiencies in our nation's skilled nursing facilities.
    A few examples which highlight some of the positive trends in 
nursing facility care according to data tracked by CMS:

      Nationally, direct care staffing levels (which include 
all levels of nursing care: Registered Nurses (RNs), Licensed Practical 
Nurses (LPNs) and Certified Nursing Assistants (CNAs)) have increased 
8.7 percent between 2000 and 2007--from 3.12 hours per patient day in 
2000 to 3.39 hours in 2007;
      The Quality Measure \1\ tracking pain for long term stay 
residents vastly improved from a rate of 10.7 percent in 2002 to 4.6 
percent in 2007--more than a 50 percent decrease;
    \1\ Quality Measures track nursing facility residents who have and 
are at risk for specific functional problems needing further 
evaluation. Improvements in these measures indicate positive trends in 
patient outcomes, but it is important to clarify that the quality 
measures do not reflect a percentage of the entire population, rather 
the percentage of those who are at risk and have the condition.
      The Quality Measure tracking the use of physical 
restraints for long stay residents dropped from 9.7 percent in 2002 to 
5.6 percent in 2007;
      The Quality Measure tracking pressure ulcers for post-
acute skilled nursing facility patients (many of whom are admitted to 
the nursing facility with a pre-existing pressure ulcer) improved by 23 
percent over the course of four years, from 20.4 percent in 2003 to 
15.8 percent in 2007; and
      Substandard Quality of Care Citations as tracked by CMS 
surveys were reduced by 30 percent in five years--from 4.4 percent in 
2001 to 3.1 percent in 2006.
      In January 2006, the Government Accountability Office 
stated that from 1999-2005 there was a nearly 50 percent decrease in 
the ``proportion of nursing homes with serious quality problems.''

    Satisfaction of patients and family members is a critical measure 
of quality. AHCA has recognized this vital link between satisfaction 
and performance, and has urged facilities to conduct such assessments 
for more than a decade. In recent years, we have encouraged facilities 
to use a nationally-recognized company, My InnerView, to conduct 
consumer and staff satisfaction surveys to establish a national 
database for benchmarking and trend analysis. Last year's independent 
survey of nursing home patients and their families indicates that a 
vast majority (82%) of consumers nationwide are very satisfied with the 
care provided at our nation's nursing homes and would rate the care as 
either good or excellent.
    The long term care sector remain committed to sustaining--and 
building upon--these quality improvements for the future.
Culture of Cooperation--Leading to Continued Improvement
    Positive trends related to quality are also evidenced by 
profession-based initiatives including Quality First and the Advancing 
Excellence in America's Nursing Homes campaign--both of which are 
having a significant impact on the quality of care and quality of life 
for the frail, elderly and disabled citizens who require nursing 
facility care.
    Quality First, which was established in 2002, set forth seven core 
principles that reflect long term care providers' commitment to 
continuous quality improvement, leadership and transparency. This 
profession-based initiative led not only to improvements in care and 
processes, but to the development of the National Commission for 
Quality Long-Term Care. In December 2007, the Commission released its 
final report which addressed four critical components of long term 
care--quality, workforce, information technology & financing. We 
encourage Congress to take the recommendations of this commission under 
consideration--and further investigate their feasibility.
    Quality First and other initiatives have been recognized by former 
Secretary of Health & Human Services Tommy Thompson, by former 
Administrator of CMS Dr. Mark McClellan, and by former CMS Acting 
Administrator Leslie Norwalk when she stated in a 2007 column she wrote 
for Provider magazine: ``Nursing home providers have been on the 
leading edge of this quality movement. Long before hospitals, doctors, 
home health providers, pharmacies, dialysis facilities and others came 
to the table, the nursing home industry was out front with Quality 
First--a volunteer effort to elevate quality and accountability . . . 
Quality measurement has worked in nursing homes Collaborating to 
measure quality of long-term care, report it, support it, and improve 
it--that's the best path to a high-quality, patient-centered, provider-
friendly system that everyone can afford.''
    AHCA is a founding partner of the Advancing Excellence in America's 
Nursing Homes campaign--a coordinated initiative among providers, 
caregivers, consumers, Government and others that promote quality 
around eight measurable goals. This campaign takes a step further than 
previous initiatives. It not only measures outcomes, but it establishes 
numerical targets and benchmarks. It also promotes best practices and 
evidence-based processes that have been proven to enhance patient care 
and quality of life.
    This voluntary initiative is working--and outcomes and processes 
are improving in the more than 7,000 participating facilities. Since 
the onset of the campaign, there has been progress among participants 
in reducing the incidence of pressure ulcers in nursing homes, reducing 
use of physical restraints, managing pain for long term nursing home 
residents, and managing pain for short stay, post-acute nursing home 
residents. Our association is diligently working to increase the number 
of facilities that actively participate in this program and embrace the 
concepts embodied in the Advancing Excellence in America's Nursing 
Homes campaign.
Reforming an Oversight System to Reward and Encourage Quality
    As well as including long term care in any dialogue addressing 
national healthcare reform, if we are truly going to be able to create 
a high performing long term care system, Congress must address 
regulatory reform. Today's regulatory and oversight system does little 
to recognize or reward quality outcomes. In fact, it defines 
``success'' and quality in a context that is often measured by the 
level of fines levied and the violations tallied--not by the quality of 
care, or quality of life, as was Congress' original intent in 
implementing the Nursing Home Reform Act.
    In fact, a January 2006 GAO report on nursing home oversight 
indicates that the nation's Survey and Enforcement System for nursing 
homes is consistently inconsistent, with significant variations from 
state to state. AHCA and our members have long maintained that a one-
dimensional, punitive approach does not get to the overall goal of 
achieving quality care.
    We believe that achieving a sustained level of quality care will 
only be fully realized when there is a collaborative effort to 
recognize and implement improved healthcare technologies and best 
clinical practices that are designed to improve and enhance patient 
outcomes. This type of culture change is essential to appropriately 
address the needs of a growing and changing patient population and a 
shrinking pool of caregivers.
    We believe that such a reformed, fair, and effective survey process 
should embody three guiding principles:

      Surveys should be fair, accurate, and consistent;
      Surveys should protect the health and safety of 
residents; and
      Surveys should focus on areas requiring improvement.

    Today, we know far more about promoting quality, and we have better 
tools with which to measure it than we did twenty years ago when the 
Nursing Home Reform Act was enacted. We need to intelligently change 
the regulatory process to allow and encourage us to use what we have 
learned--to place quality over process, care over procedure, and most 
importantly, put patients at the forefront.
    The fact is healthcare reform has been delayed--and long term care 
has been left on the sidelines--for far too long. Now is the time to 
change that fact. As you and your colleagues in Congress and the 
Administration take on the tough task of healthcare reform, the 
American Health Care Association and National Center for Assisted 
Living stand ready to work with you to achieve person-centered, cost-
effective, and sustainable long term care that is part of our nation's 
overall healthcare system.


         Statement of American Academy of Physician Assistants
    Physician assistants (PAs) are an important part of the solution to 
the health care workforce shortage.

      The physician assistant profession was created barely 40 
years ago in response to health care workforce shortage issues very 
similar to those being forecast today.
      PAs represent one of the fastest growing health 
professions. Today, there are nearly 75,000 PAs in clinical practice; 
40 percent (30,000) practice primary care medicine.
      The number of PAs practicing as part of a physician-PA 
team will soon exceed 100,000. We believe this to be a strong 
indication of the utility and attractiveness of such a young 
      The educational pipeline for physician assistants is 
shorter than for physicians. Graduate PAs can be in the field in less 
than three years.
      Accredited PA programs in universities and academic 
health centers produce close to 6000 graduates a year.
      Studies show that in a primary care setting, PAs can 
execute at least 80 percent of the responsibilities of a physician with 
no diminution of quality and equivalent patient care satisfaction.
      By virtue of PA education in primary care and the ability 
of PAs to work in all medical and surgical specialties, PAs expand 
access to care in medically underserved rural and urban communities.
      By design, the physician assistant profession extends the 
reach of medicine and the promise of health to the most remote and in-
need communities of our nation.

    In addition to the need to produce more primary care physicians, it 
is critical that Congress support expansion of PA programs as they 
develop strategies for addressing health care workforce challenges.

      Funds should be made available to PA educational programs 
to increase the PA workforce, which in turn, will extend physicians' 
ability to provide.
      The Title VII, Public Health Service Act's, Health 
Professions Program is successful in training health care professionals 
for practice in medically underserved communities. Funding for PA 
educational programs is woefully underfunded and must be increased.
      The single largest barrier to PA educational programs 
educating more PAs is a lack of clinical training sites. Attention must 
be directed to investing in the number of these sites, including loan 
repayment for preceptors in primary care medical practices and/or the 
increased use of VA facilities as clinical training sites for PA 
educational programs.
      Funds must be made available to increase the number of 
faculty at PA educational programs. Eligible PA students are being 
turned away because of the lack of faculty and clinical sites.
      Faculty loan repayment, including funding to attract 
faculty from diverse backgrounds, is also critical for PA educational 
      Federally supported student loans and increased 
opportunities through the National Health Service Corps are key to 
attracting PA students and clinicians to primary care.
      Graduate medical education funding should be used to 
support the educational preparation of physician assistants in 
hospitals and outpatient, community-based settings.

    Physician assistants are key to health care reform. However, to be 
fully utilized, current barriers to care that exist in Federal law must 
be addressed.

      The Medicare statute must be amended to allow PAs to 
order home health, hospice, and skilled nursing facility care, as 
welled to provide hospice care for Medicare beneficiaries.
      Medicaid should be updated to require states to reimburse 
all covered services provided by PAs under the fee-for-service plan. 
Additionally, Medicaid should recognize PAs as primary care case 
managers through managed care plans.
      The Federal Employee Compensation Act needs to be updated 
to allow PAs to diagnose and treat Federal employees who are injured on 
the job.

    Physician assistants must be fully integrated into new models of 
care, such as the primary care medical home and chronic care 

      Their orientation to team practice, their broad medical 
education, and orientation toward primary care make PAs a perfect 
addition to the management of patients in a primary care medical home, 
offering continuity, comprehensiveness, and coordination of care. In 
many rural communities, a PA is the only health professional available 
and is the primary care medical home.
      Likewise, PAs provide medical care to elderly populations 
and manage chronic medical conditions. PAs must be recognized in 
chronic care medical management and must be allowed to develop 
treatment plans for patients with multiple chronic care needs.
      Unless PAs are fully integrated into the primary care 
medical home and chronic care management models, health care reform is 
likely to pose new, unintended barriers to care for patients treated by 

    Additionally, the AAPA believes that a long range solution to the 
Medicare physician payment system must be part of health care reform.
    On behalf of the nearly 75,000 clinically practicing physician 
assistants (PAs) represented by the American Academy of Physician 
Assistants (AAPA), thank you for the opportunity to submit written 
testimony for the March 11 Hearing Record of the Ways & Means Committee 
on Health Care Reform.
AAPA Principles for Health Care Reform
    AAPA has a longstanding history of support for universal health 
care coverage. Among the Academy's key principles for health care 

      The AAPA believes the primary goal of a comprehensive 
health care system reform is to ensure access to quality, affordable, 
and cost efficient health care for all residents of the United States.
      The AAPA supports a health care system that will provide 
basic services to all residents.
      The AAPA supports health care that is delivered by 
qualified providers in physician-directed teams.
      The AAPA supports reform that confronts the limits of 
care and resources.
      The AAPA believes that fair and comprehensive reform of 
the medical liability insurance system is needed.
      The AAPA endorses system reform that enhances the 
relationship between the patient and the clinician.
Physician Assistants
    Physician assistants are licensed health professionals, or in the 
case of those employed by the Federal Government, credentialed health 
professionals, who

      practice medicine as a team with their supervising 
      exercise autonomy in medical decision making
      provide a comprehensive range of diagnostic and 
therapeutic services, including performing physical exams, taking 
patient histories, ordering and interpreting

    Laboratory tests, diagnosing and treating illnesses, assisting in 
surgery, writing prescriptions, and providing patient education and 

      may also work in educational, research, and 
administrative settings.

    PAs always work with physicians. However, this does not mean that 
the physician is necessarily on site, nor does it suggest that PAs do 
not make autonomous medical decisions. PAs employed by the State 
Department, for example, may work with a physician who is a continent 
away and available for consultation by telecommunication.
    PAs are located in almost all health care settings and in every 
medical and surgical specialty. Nineteen percent of all PAs practice in 
non-metropolitan areas where they may be the only full-time providers 
of care (state laws stipulate the conditions for remote supervision by 
a physician). Approximately 41 percent of PAs work in urban and inner 
city areas. Approximately 44 percent of PAs are in primary care. Nearly 
one-quarter of clinically practicing PAs practice in surgical 
specialties. Roughly 80 percent of PAs practice in outpatient settings.
    PAs are covered providers within Medicare, Medicaid, Tri-Care, and 
most private insurance plans. Additionally, PAs are employed by the 
Federal Government to provide medical care, including the Department of 
Defense, the Department of Veterans Affairs, the Public and Indian 
Health Services, the State Department, and the Peace Corps.
    AAPA estimates that in 2008, over 257 patient visits were made to 
PAs and approximately 332 million medications were written by PAs.
Overview of Physician Assistant Education
    Physician assistant programs provide students with a primary care 
education that prepares them to practice medicine with physician 
supervision. PA programs are located at schools of medicine or health 
sciences, universities, teaching hospitals, and the Armed Services. All 
PA educational programs are accredited by the Accreditation Review 
Commission on Education for the Physician Assistant, an organization 
composed of representatives from national physician groups and PAs.
    The average PA program is 26 months and is characterized by a 
rigorous, competency-based curriculum with both didactic and clinical 
components. The first phase of the program consists of intensive 
classroom and laboratory study, providing students with an in-depth 
understanding of the medical sciences. More than 400 hours in classroom 
and laboratory instruction are devoted to the basic sciences, with over 
70 hours in pharmacology, more than 149 hours in behavioral sciences, 
and more than 535 hours of clinical medicine.
    The second year of PA education consists of clinical rotations. On 
average, students devote more than 2,000 hours or 50-55 weeks to 
clinical education, divided between primary care medicine and various 
specialties, including family medicine, internal medicine, pediatrics, 
obstetrics and gynecology, surgery and surgical specialties, internal 
medicine subspecialties, emergency medicine, and psychiatry. During 
clinical rotations, PA students work directly under the supervision of 
physician preceptors, participating in the full range of patient care 
activities, including patient assessment and diagnosis, development of 
treatment plans, patient education, and counseling.
    After graduation from an accredited PA program, the physician 
assistant must pass a national certifying examination jointly developed 
by the National Board of Medical Examiners and the independent National 
Commission on Certification of Physician Assistants. To maintain 
certification, PAs must log 100 continuing medical education credits 
over a two-year cycle and reregister every two years. Also to maintain 
certification, PAs must take a recertification exam every six years.
    The majority of PA educational programs offer master's degrees, and 
the overwhelming majority of recent graduates hold a master's degree.
Title VII Support of PA Education Programs
    The Title VII support for PA educational programs is the only 
Federal funding available, on a competitive application basis, to PA 
programs. Unfortunately, the level of support has eroded from the 
highest level of $7.5 million in FY 2005 to $2.6 million in FY 2007.
    Targeted Federal support for PA educational programs is authorized 
through Section 747 of the Public Health Service Act. The funds are 
used to encourage PA students, upon graduation, to practice in 
underserved communities. These goals are accomplished by funding PA 
education programs that have a demonstrated track record of: placing PA 
students in health professional shortage areas; exposing PA students to 
medically underserved communities during the clinical rotation portion 
of their training; and recruiting and retaining students who are 
indigenous to communities with unmet health care needs.

    The Title VII program works.

      A review of PA graduates from 1990--2006 demonstrates 
that PAs who have graduated from PA educational programs supported by 
Title VII are 59% more likely to be from underrepresented minority 
populations and 46% more likely to work in a rural health clinic than 
graduates of programs that were not supported by Title VII.
      A study by the UCSF Center for California Health 
Workforce Studies found a strong association between physician 
assistants exposed to Title VII during their PA educational preparation 
and those who ever reported working in a federally qualified health 
center or other community health center.

    The PA programs' success in recruiting underrepresented minority 
and disadvantaged students is linked to their ability to creatively use 
Title VII funds to enhance existing educational programs. Without Title 
VII funding, many special PA training initiatives would be eliminated. 
Institutional budgets and student tuition fees are not sufficient to 
meet the special, unmet needs of medically underserved areas or 
disadvantaged students. The need is very real, and Title VII is 
critical in leveraging innovations in PA training.
Need for Increased Targeted Support for PA Education
    Federal support must be directed to PA educational programs to 
stimulate growth in the PA profession to meet the needs of universal 
health care coverage. Targeted funding should be directed to----

      The use of Title VII funds for recruitment and loan 
repayment for faculty in PA educational programs.
      Incentives to increase clinical training sites for PA 
      Federally backed loans and loan repayment programs for PA 
Eliminating Barriers to Care in Federal Law
    Eliminating current barriers to medical care provided by PAs that 
exist in the Medicare, Medicaid, and the Federal Employees Compensation 
Act (FECA) laws would do much to expand access to needed medical care, 
particularly for patients living in rural and other medically 
underserved areas.

      AAPA believes that the intent of the 1997 Balanced Budget 
Act was to cover all physician services provided by PAs at a uniform 
rate. However, PAs are still not allowed to order home health, hospice, 
skilled nursing facility care, or provide the hospice benefit for 
Medicare beneficiaries. At best, this creates a misuse of the patient's 
physician's, and PA's time to find a physician signature for an order 
or form. At worst, it causes delayed access to care and inappropriate 
more costly utilization of care, such as longer stays in hospitals. For 
patients at end-of-life, it creates an unconscionable disruption of 
      Although most States recognize services provided by PAs 
in their Medicaid Programs, it is not required by law. Consequently, 
some State Medicaid Directors pick and choose which services provided 
by PAs they will cover. Others impose coverage limitations not required 
by State law, such as direct supervision by a physician.
      Although nearly all State workers' compensation programs 
recognize the ability of PAs to diagnose and treat State employees who 
are injured on the job, the Federal program does not. As a result, 
Federal workers who are injured on the job may be rerouted to emergency 
rooms for workers' compensation-related care, rather than to go to a 
practice where the PA is the only available health care professional.

    The Medicare, Medicaid, and FECA statutes create Federal barriers 
to care that do not exist in State law. The barriers need to be 
eliminated to promote increases access to the quality, affordable 
medical care provided by PAs.
Integrate PAs into New Models of Care
    AAPA is concerned that health care reform could create new, 
unintended barriers to care provided by PAs unless special attention is 
devoted to ensuring that PAs are fully integrated into the medical home 
and chronic care coordination models of care.
    PAs always work with physicians, but in many rural and other 
underserved areas, the PA is the face of health care. The PA is the 
medical professional who develops the care plan and coordinates the 
care. PAs also own and/or provide care in rural health clinics and 
others settings that may serve as the patient's primary medical home. 
It is critical that the medical home and chronic care management models 
of care recognize the ability of PAs to develop and manage medical care 
plans, without unnecessary limitations. And, it is important that PA-
run clinics and practices be eligible for reimbursement from the new 
models of care.
Medicare Physician Payment Reform
    It is critically important that health care reform legislation 
contains a long term solution to Medicare's physician payment system. 
The current system is simply not sustainable, nor is it fair to the 
health care professionals who provide medical care for Medicare 


    Statement of American College of Obstetricians and Gynecologists
    On behalf of the American College of Obstetricians and 
Gynecologists (ACOG), representing over 53,000 physicians and partners 
in women's health, thank you for holding this hearing on health care 
reform. Women, the health care decision-makers of their families, are 
also health care purchasers, providers and patients, making them 
uniquely affected by our broken health care system. We look forward to 
working with the Committee to reform the health care system, and 
ensuring that health reform addresses the needs of women.
    ACOG applauds Representative Schakowsky for introducing, and 
Subcommittee on Health Chair Stark and Committee Member McDermott for 
being original cosponsors of H. Con. Res. 48, which calls on Congress 
to pass legislation within 18 months that recognizes women's health as 
an integral part of the health care reform puzzle. ACOG supports this 
goal through our Health Care for Women, Health Care for All Campaign.
    As women's health care physicians, we see first-hand why our Nation 
needs health care reform. We fight with insurers to ensure that our 
patients are covered for the care they need. We treat women without 
coverage and know that too many women with serious medical problems go 
without needed care. We see the effects of no prenatal care and the 
risks women face who have no screening or treatment for cancers. We're 
small businesses, too, and experience the problems of many others, in 
trying to cope with the rising cost of health insurance for our 
employees, and our families.
The Challenges:
  Women and Health Care Use & Outcomes
           Women have distinct health care needs and use more health 
        care than men throughout their lives, including regular visits 
        for reproductive health care. Women are more likely to seek 
        preventive and routine care, are more likely to have a chronic 
        illness that necessitates continuous health care, and are more 
        likely to take a prescription drug on a daily basis than men.

                  Uninsured women receive less preventive care, 
                are diagnosed at more advanced disease stages, receive 
                less therapeutic care, have higher mortality rates, and 
                are less likely to have a regular source of care.
                  Uninsured women are three times less likely 
                to have had a Pap test in the last three years and have 
                a 60% greater risk of late-stage cervical cancer.
                  Uninsured women with breast cancer are 30-50% 
                more likely to die from the disease.
                  13% of all pregnant women are uninsured, 
                making them less likely to seek prenatal care in the 
                first trimester of their pregnancies, less likely to 
                receive the optimal number of prenatal health care 
                visits during their pregnancies, and 31% more likely to 
                experience an adverse health outcome after giving 
                birth. Lack of prenatal care increases the risk of 
                preterm birth. In 2005, preterm birth-related costs in 
                the U.S. totaled over $26.2 billion; $51,600 for every 
                infant born prematurely.
                  Black women have higher fetal and infant 
                mortality rates than white women. In 2004, the fetal 
                mortality rate for black women was twice the rate for 
                white women (11.25 compared to 4.98 per 1,000 live 
                births and fetal deaths). Infant deaths in the first 
                month of life were 2.5 times more likely for black 
                mothers than white mothers (9.12 compared to 3.69 per 
                1,000 live births and fetal deaths).
                  Women with disabilities are less likely to 
                receive breast and cervical cancer screening than non-
                disabled women, and their reproductive health care 
                needs are often overlooked.
                  Employer-based insurance hampers lesbians 
                from accessing health coverage through their partners 
                since many companies do not recognize domestic 
  Women and Health Care Costs
                  Affordability is a key issue for women 
                because, on average, they have greater annual health 
                expenditures, but lower incomes than men. In 2007, the 
                median income for women was $35,100 to $10,000 less 
                than the median income for men.
                  Insured or not, women have greater out-of-
                pocket costs and face greater medical debt than men. In 
                2004, 1 in 6 women with individual health care coverage 
                reported that they postponed, or went without, needed 
                health care because they could not afford such health 
                  As a result, women are disproportionately 
                affected by higher medical costs that eat up more of 
                their wages. And, since women already pay 68% more than 
                men for out-of-pocket health care costs, due in large 
                part to reproductive health care needs, higher cost-
                sharing adds to an already serious financial burden.
                  64% of uninsured women are in families with 
                at least 1 adult working full-time. Health care costs 
                are increasingly unaffordable for working families and 
                employers, with employer-sponsored health insurance 
                premiums having increased 87% between 2000 and 2006.
                  Women also are financially vulnerable because 
                they are more likely to obtain coverage through their 
                spouse--putting them at risk in the case of divorce or 
                death of a husband or their husband's employer cutting 
                dependent coverage. Also, when a husband moves from 
                job-based coverage to Medicare, his wife, if not 
                Medicare-eligible herself, may lose her coverage at the 
                same time.
                  Women are more likely to find that maternity 
                and other services they need are not covered by their 
                  High-deductible health plans, so-called 
                ``consumer-directed health plans'' (CDHPs), offer lower 
                premiums than traditional insurance but with higher 
                cost-sharing requirements. These plans are often an 
                attractive option for young, healthy individuals who 
                are enticed by low monthly premiums, but maternity care 
                is rarely covered. While many CDHPs advertise first-
                dollar coverage for preventive services, a recent study 
                found that prenatal care was usually not considered a 
                preventive service, requiring considerable out-of-
                pocket expense. In addition, because pregnancy usually 
                spans 2 plan years, women often must satisfy two annual 
                deductibles before any costs are covered.
                  Women without group insurance face enormous 
                problems in obtaining and affording coverage in the 
                individual insurance market. Underwriting laws in most 
                states allow women seeking insurance coverage in the 
                individual market to be subject to higher costs because 
                of their gender or health status or face pre-existing 
                condition exclusions that limit their coverage for the 
                services they most need.
                  Exempted from the requirements of the Federal 
                Pregnancy Discrimination Act, small groups and 
                individuals may be denied coverage for maternity care, 
                or require the purchase of expensive riders for this 
                coverage, often more than a year in advance. Women who 
                are already pregnant or are in less-than-perfect health 
                may be denied coverage altogether.
The Solution:
           ACOG's Health Care for Women, Health Care for All Campaign, 
        describes reforms needed to give all women access to meaningful 
        and affordable coverage.
Elements of Reform
      Cover everyone: Health coverage should be accessible and 
affordable to everyone in the U.S., regardless of citizenship or 
residency status. If reforms are phased-in, universal coverage of 
pregnant women and infants should be the first priority.
      Guarantee Essential Benefits for All Women. Coverage 
Should Be Uniform and Affordable under All Insurance Nationwide: An 
insurance card does not guarantee access to needed services. Without 
coverage for the services they most use, underinsured women could face 
the same cost burdens as those without any insurance, with predictable 
results: delayed or missed care leading to worse health outcomes. 
Defining a core set of benefits will guarantee that no woman with 
insurance is denied basic care or burdened with the unaffordable out-
of-pocket or catastrophic health care expenses that drive millions of 
Americans into bankruptcy every year. A core benefit package will cover 
preventable and primary care services to keep women healthy and keep 
health care affordable. Coverage must include:

                  Primary and preventive services, including 
                family planning;
                  Pregnancy-related and infant care;
                  Medically and surgically necessary and 
                appropriate services in all health care settings, 
                including outpatient, hospital, nursing facility, 
                hospice, and at-home care;
                  Prescription drugs; and
                  Catastrophic care

      Engage employers, individuals and Governments: Build on 
the strengths of our private-public financing and delivery system with 
coverage requirements for employers and individuals and improved public 
coverage. Large employers should be required to offer insurance to 
employees who work more 17.5 hours per week and their dependants. Small 
employers would have a choice of providing insurance or paying a 
percentage of payroll to the public plan. All individuals would be 
required to have insurance, either through their employer or through a 
public plan.
      Make coverage affordable: Small businesses should be 
eligible to receive tax credits or subsidies to make insurance 
affordable. Self-employed and low-income families who are currently 
priced out of the health care market should be guaranteed an affordable 
Federal plan. Low-income employees should pay no more than 20% of their 
plan's premium cost. Private insurance market reforms should include 
guaranteed issue and renewability and community rating. Coverage should 
not be denied due to preexisting conditions and annual premium 
increases should be limited. Discrimination based on health status, 
gender and other factors must be eliminated. Emphasizing prevention, 
reducing administrative costs, and fixing our broken medical liability 
system can lower health care costs for everyone.
      Invest in Primary and Preventive Care: ACOG supports 
benefits that emphasize and promote prevention--especially prenatal 
care and contraception. Prenatal care and risk-assessment are critical 
preventive services for all pregnant women and contraception is a 
medical necessity for women during three decades of their life span and 
should be covered to the same extent as other prescription drugs and 
services. Costly and burdensome ``gatekeeper'' rules that deny or delay 
women's direct access to obstetric, gynecologic, primary care services 
must not be permitted.
      Support Continuity of Care and Pilot-Test a Women's 
Medical Home: A woman's initial contact with an ob-gyn typically begins 
a long-term physician-patient relationship in which the ob-gyn provides 
continuity of care from adolescence through the reproductive years and 
pregnancy, to menopause and beyond. Continuity of care--seeing the same 
health care provider over time--enhances quality of care and patient 
satisfaction. It has been associated with greater use of preventive 
care, improved communication between the patient and physician, 
improved adherence to medication instructions, and improved physician 
recognition of medical problems. A woman discusses some of her most 
personal and important health care concerns with her ob-gyn: what a 
family history of breast cancer means for her own health, her risk of 
cardiovascular disease, how to manage her weight, where to seek mental 
health counseling, how to have a healthy baby. A majority of women see 
an ob-gyn annually, and sometimes an ob-gyn is the only physician 
routinely visited. Young women ages 18 to 34 who see an ob-gyn for all 
their primary care needs report greater satisfaction with their care 
than women seeing only a generalist or both an ob-gyn and a generalist.

    Numerous legislative proposals were introduced in 2008 advancing 
the adoption of medical homes, but none explicitly refer to ob-gyns or 
women's health care. The Centers for Medicare and Medicaid Services 
(CMS) are beginning medical home demonstrations in 2010, with results 
expected in 2013. While ACOG believes that the medical home concept 
shows great promise in improving care coordination and health outcomes, 
wholesale adoption should be delayed until the results of current and 
future demonstration projects are evaluated.
    In the meantime, we urge the Committee to approve a women's medical 
home demonstration, to specifically test how and how well a medical 
home can addressing women's unique health care needs, using the 
principles below:

      A seamless continuum of care for women across their life 
spans: A medical home for women links wellness and preconception care 
with prenatal care and family planning; these are linked with medical 
care, screening and follow-up care for health needs later in life.
      Patient choice, affordability and access: Every woman 
should have open access to a medical home with a choice of qualified 
providers and in a variety of settings. Comprehensive integrated care 
is especially important for low-income women who are uninsured and 
      Accountable to women: Care is patient and family 
centered, culturally appropriate, structured to ensure women receive 
complete and accurate health information to make their own health care 
decisions, and structured to assure confidentiality so that teens and 
women seek needed care in a timely way.
      Team care led by a physician: The patient's personal 
physician leads a team that collectively takes responsibility for 
ongoing care. For many women, their obstetrician-gynecologist serves as 
their personal physician and is the only provider that women see 
regularly during their reproductive years.
      Care is evidence-based with continuous quality 
improvement: A medical home for women is structured to encourage health 
care providers to pursue practices that achieve evidence-based outcomes 
so that women will enter their reproductive years healthy, maintain 
their reproductive health, and age well.
      Investment in interdisciplinary health education and 
training of providers: To understand and fulfill the functions of a 
medical home, innovative models of interdisciplinary education are 
      Reimbursement that reflects the added value of a women's 
medical home: Reimbursement must reflect the costs of HIT, care 
coordination, additional staffing and other requirements needed to 
fully develop a women's medical home, and allow practices to share in 
any potential cost savings from the medical home practice model.
      Eliminate Health Disparities: Health system reform should 
recognize and eliminate disparities in health care coverage, treatment 
and outcomes related to a patient's culture, race, ethnicity, 
socioeconomic status, disability and sexual orientation. Ensuring 
comprehensive coverage for everyone will minimize but not eliminate 
health disparities, which often result from a complex mix of factors 
related to income, housing, personal safety, education, and job 
opportunities. All health care providers should provide high quality, 
compassionate and ethically sound health care services to all patients 
in need of care. Services should be culturally appropriate and based on 
specialty-developed best practice guidelines to eliminate variations in 
health care treatment. Further, the health care workforce should 
reflect our country's diversity, and disparities research should be 
funded and analyzed.
      Enhance quality and patient safety. Our health system 
should strive for continual quality improvement--through medical 
education, physician-driven quality programs, health information 
technology, and research to determine the most effective evidence-based 
treatments. Quality and safety reforms should always put our patients' 
welfare and best interests first.
      All health care facilities should operate internal 
quality assurance programs and health professionals should be licensed.
      Health care professionals and facilities should attend 
patient safety training in order to keep professional liability 
      State medical boards should strengthen their reviews and 
discipline low-quality providers.
      ACOG supports and agrees with the need for research to 
determine effective evidence-based interventions. Following are key 
principles to make sure that comparative effectiveness research (CER) 
results are useful in enhancing health-care quality and patient safety:

                  CER must address the specific and changing 
                needs of women throughout their lives.
                  CER findings must not lead to cook-book 
                approaches to coverage and payment, recognizing that 
                individual patients may need different care, 
                individualization that is best determined by the 
                patient's physician.
                  CER must promote the best clinical value of 
                treatment interventions, rather than restricting 
                payment to only the cheapest procedures.
                  Population differences--co-morbidities, sex, 
                race and ethnicity, and sub-populations, including 
                pregnant women and the elderly--must be incorporated in 
                the research design.
                  ACOG appreciates provisions within the 
                American Economic Recovery and Investment Act that help 
                usher in the widespread use of health information 
                technology. As long as interoperability and specialty-
                specific standards are developed and financial support 
                is provided to offset the large expense of acquiring a 
                system, adoption of health information technology has 
                the potential to reduce costs and improve patient care.

      Ensure Fair Reimbursement for Physician Services: 
Medicare pays physicians based on a complicated and flawed formula that 
threatens to slash physician payment by nearly 22% next year. The 
Sustainable Growth Rate (SGR), reduces physician payment when Medicare 
volume grows or for other factors over which physicians have no 
control, including the Gross Domestic Product and the high cost of 
physician-administered drugs. While each year Congress has stopped the 
pending cuts, the cost of permanently fixing the formula grows as well. 
Inadequate payment may cause doctors to stop accepting or to limit the 
number of Medicare patients they serve. Seniors and disabled 
beneficiaries may find it harder to find physicians in their areas or 
may have to wait longer for appointments. Congress must stop the cuts 
and include elimination of the payment formula in the overall health 
care reform plan. Physician payment should reflect the true cost of 
providing care to Medicare beneficiaries. Low reimbursement for 
services furnished to Medicaid beneficiaries also has the potential to 
hamper patient access to high-quality care. With Medicaid covering 
nearly 40% of all births and playing a critical role in pregnancy-
related care it is vital that physicians are reimbursed at a fair rate 
for their services.
      Medical Liability Reform: America's broken medical 
liability system fails both injured patients and their physicians. Many 
patients with legitimate injury claims never enter the civil justice 
system, while as many as half of the claims that do enter the system 
are without merit. The system fails to do what it is supposed to do: 
accurately and efficiently identify cases of negligence, fairly 
compensate injured patients, and promote patient safety. The current 
medical liability system is random, unpredictable and ineffective, and 
threatens women's access to health care.

    Good doctors who have been so important to their patients and their 
communities are dropping obstetrics, ending their surgical practice, or 
closing their medical practices completely. Medical students who love 
the idea of ushering tiny lives into this world are turning away from 
the litigious culture that surrounds ob-gyn. And America's women are 
left asking, ``Who will deliver my baby?''
    ACOG strongly supports comprehensive Federal legislation such as S. 
45, the Medical Care Access and Protection Act of 2009, to reform the 
system, including placing a reasonable cap on noneconomic damage 
awards, as has been accomplished in California and Texas. At the same 
time, we believe there is enormous benefit in exploring promising 
alternatives that would more fundamentally fix America's broken 
liability system, including health care courts and early offers 
demonstration programs. ACOG has supported health care courts and early 
offers for many years. These alternatives would help guarantee that 
injured patients are fairly, quickly, and fully compensated for their 
economic and noneconomic damages by taking claims out of the 
adversarial tort system and putting them into the hands of experts 
whose goals are fairness and patient safety.
    Thank you for holding this hearing on the importance of health 
reform which expands coverage, improves quality and controls costs. We 
look forward to working with you to reform the health care system in 
order to ensure comprehensive and affordable coverage for all.


                  Statement of American Federation of
                 State, County and Municipal Employees
    We submit this testimony on behalf of the 1.6 million members of 
the American Federation of State, County and Municipal Employees 
(AFSCME) for the official record of the House Ways and Means 
Committee's hearing on Health Reform in the 21st Century: Expanding 
Coverage, Improving Quality and Controlling Costs.
    The time for health care reform is now. President Obama delivered 
this message at the White House health care summit on March 5, as he 
has consistently throughout his presidential campaign and since taking 
the oath of office. We cannot wait while 46 million Americans lack 
health coverage, health care costs continue to spiral out of control, 
too many health plans do not provide comprehensive benefits, and our 
health care system often fails to deliver the high-quality care that we 
need. We must build on what works, including employer-sponsored 
coverage and public programs, and make the policy changes that are 
needed to reach our goal of quality, affordable health care for all.
Support Public Health Insurance Plan Option
    One key component of a reformed health care system is inclusion of 
a widely available public health insurance plan. Today, consolidation 
in the private insurance industry has greatly narrowed price and 
quality competition. The addition of a public health insurance plan 
would play an important role in broadening consumer choice. When either 
a public or private plan does not meet a family's needs, they can vote 
with their feet, the measure of true competition.
    A public health insurance plan option would also promote stability 
in the insurance market. Private plans often contract with new 
providers while dropping others, change benefits and cost-sharing, and 
sometimes move in and out of markets completely. This has the effect of 
disrupting care as well as results in unexpected increases in out-of-
pocket expenses. A public health insurance option will provide a 
guarantee to families that a high quality plan will be available no 
matter what happens to their private coverage.
    A public health insurance plan option alongside private insurance 
options would promote efficiency in the private market. Between 1997 
and 2006, per enrollee spending in private insurance grew 59% faster 
than spending in the traditional, Government-administered Medicare 
program. A comparison of administrative costs shows that Medicare 
spends about 2% for overhead, while administrative costs (including 
profits) in private group coverage runs 12% to 15% of cost. To curb the 
unsustainable growth in health care costs, private insurers must find 
efficiencies, and competition with a public health insurance plan would 
provide a strong incentive for them to do so.
    A public health insurance plan option would also improve health 
care quality and advance innovations. Currently, private health 
insurers have scant motivation to implement or improve disease 
management programs since they might become a magnet for sicker 
subscribers. Moreover, a financial disincentive exists to share best 
practices with those outside their network given competition for plan 
members. A new public health insurance plan would be well situated to 
be a leader in the adoption of evidence-based medical protocols, 
expansion of quality incentives, and development of innovative and 
transparent payment mechanisms. And, a public health insurance plan 
would help advance electronic medical records and the adoption of best 
    Extensive support exists for including a public health insurance 
plan as one option in an insurance exchange. President Obama has 
consistently expressed his support for a new public health insurance 
option as have health care leaders in Congress and respected 
researchers and academics.
    Karen Davis, President of The Commonwealth Fund, offered compelling 
testimony on this point at the March 11 hearing. She expressed her 
strong support for an insurance exchange with a choice of private plans 
and a new public health insurance plan, noting many of the same 
advantages we have expressed in this statement. In response to 
questioning, she also allayed the ``crowd out'' fear, citing the 
Commonwealth Fund's prediction that private insurance would continue to 
have a substantial share of an expanded market. Davis also noted that 
with a public health insurance plan option, our country would save $3 
trillion in health care costs by 2020, whereas without that option, 
cost savings would be $800 billion, less than one third of those 
    Further research demonstrates that the general public strongly 
supports a public health insurance option in health care reform. In 
fact, polling shows that three-quarters of voters supported a public 
health insurance plan option. This support crosses all political lines 
as well as among both urban and rural voters.
Build on Employer-Provided Health Care
    Any health care reform legislation must build upon the foundation 
of employer-sponsored coverage. Employers provide a ready-made, stable 
risk pooling mechanism, coverage with lower administrative costs than 
individual coverage, and the institutional skills and expertise to 
carry out complex negotiations with insurers that the average family is 
not equipped to perform.
    According to Government figures from 2007, 70% of the 253 million 
people with health insurance received at least some of their coverage 
through employers. Employment-based insurance covers three-fifths of 
the population under age 65. To ensure that individuals can keep their 
current coverage if they are satisfied with it, it is vitally important 
to adopt policies that do not cause erosion in employer-provided 
    Eliminating or weakening the tax exclusion for employer health 
coverage contributions would dismantle the employer-based system. The 
tax exclusion for health benefits has been in the Tax Code for over 50 
    The Commonwealth Fund's Davis warned in her testimony that capping 
the health benefits tax exclusion could result in employers dropping 
coverage entirely. As Subcommittee Chairman Stark noted at the hearing, 
we do not want to undermine employer coverage but rather build on what 
works when reforming the system.
    During his presidential campaign, President Obama called taxing 
employee health benefits ``the largest middle-class tax increase in 
history.'' Many employers also support retaining nontaxable health 
insurance benefits, viewing it as a valuable way to recruit and retain 
workers. The U.S. Chamber of Commerce opposes eliminating the tax 
exclusion of health benefits.
Employers' Responsibility to Contribute to the New Health Care System
    The ultimate goal of health care reform is quality, affordable 
coverage for all. Families, employers and the Government should share 
in the responsibility of contributing to the system through progressive 
financing. While our health care system is based on employer-provided 
coverage, some employers are shirking their responsibility. The fact 
that some employers do not provide health benefits creates an uneven 
playing field that puts responsible employers at a competitive 
disadvantage. In addition, the cost-shifting that occurs to pay for 
uncompensated care means that those employers who provide coverage to 
their workers are also helping to pay for the health care received by 
those working for employers who do not provide coverage. In 2005 it was 
estimated that this cost added $900 to the average annual premium for 
family coverage. No doubt the cost is much higher today.
    AFSCME urges Congress to support a ``pay or play'' approach where 
employers either provide a comprehensive set of benefits or make a 
substantial payment towards the cost of those benefits so their workers 
can obtain coverage.
    In conclusion, AFSCME very much appreciates that the Ways and Means 
Committee is focusing its attention on health care reform as an 
absolute priority this year. We look forward to working with you to 
enact legislation that will establish affordable coverage for everyone 
in a system that is adequately financed through shared responsibility, 
protects our employer-based system, provides comprehensive benefits 
that cover what people need, and includes the choice of a public health 
insurance plan.


            Statement of American Health Quality Association
    This statement is submitted to the Ways and Means Committee for its 
hearing, ``Health Reform in the 21st Century: Expanding Coverage, 
Improving Quality and Controlling Costs.'' The American Health Quality 
Association (AHQA) represents the national network of state-based 
Quality Improvement Organizations (QIOs). QIOs serve as contractors to 
the Centers for Medicare and Medicaid Services (CMS) and other public 
and private payers, purchasers, and providers seeking to improve 
outcomes across the continuum of health care delivery settings.
Reforming the Health Care Delivery System: Change Must be Built From 
        the Ground Up
    Health care in the United States is often justly criticized for its 
high cost and suboptimal performance in meeting the needs of the public 
and the expectations of health care professionals. Dramatic 
improvements in quality and efficiency are needed in daily health care 
operations. The change must take place at the ground level, where care 
is delivered. Health care reform must emphasize and support 
improvements in the quality and efficiency of care delivered across the 
range of settings, as well as transitions between those settings. 
Payment reform provides motivation and capital to encourage greater 
quality and efficiency among providers. However, payment reform alone 
cannot speed the pace of learning and implementation of best practices 
among competing providers. We believe the promise of health care reform 
will not be fully realized without a field force working with providers 
to accelerate the pace of learning and improvement in care.
    The QIOs are that field force of change management expediters. The 
national network of QIOs is a valuable public infrastructure, trusted 
by key stakeholders, experienced in responding to Federal direction, 
and effective in quality performance measurement, public education, and 
Overview: QIO Contributions to Reforming the Health Care Delivery 
    We propose five ways this field force of QIOs can speed the pace of 
improvement in the health care delivery system. The Medicare scope of 
work for the QIO program, and the Medicaid program's quality oversight 
system, should be expanded to satisfy the following aims:

      Ensure payment incentives do not unintentionally widen 
the quality gap between ``have'' and ``have not'' providers and 
      Assist health professionals in planning for, purchasing, 
and using health IT in daily practice to promote wellness, timely 
preventive care, and manage patients' chronic care needs.
      Support providers' incorporation of evidence-based 
comparative effectiveness findings into daily care practices.
      Link hospitals and providers of ambulatory care in 
community-based initiatives to improve the safety and reliability of 
transitions between care settings, reducing costly hospital 
      Analyze, report and explain how to use data on providers' 
quality performance to providers, practitioners, purchasers, and the 
Safeguard Against Inequitable Outcomes Resulting from Payment 
    Payment reforms have been widely discussed as a method to encourage 
providers to self-assess and publicly report quality performance. These 
are useful tools for bringing about awareness of clinical shortcomings 
and stimulating improvement. Providers serving patient populations that 
are well-insured, healthier, better-educated, or from a higher 
socioeconomic stratum are well-positioned to hire consultants or draw 
on shared corporate resources to respond to financial incentives for 
reporting and improvement. However, many providers are less able to 
compete for lucrative partnerships, academic affiliations, or attract 
better educated, well-insured customers seeking elective procedures. 
These providers include safety net providers, providers 
disproportionately serving vulnerable patient populations, small 
community hospitals and rural providers.
    These providers are likely to struggle to hire and retain the 
experienced staff and commercial consultants needed to lead 
implementation of cutting-edge, high-performance practices. Without 
special assistance, incentive payments are likely to widen the quality 
gap between the ``have'' and ``have not'' health care providers \1\ 
This problem will worsen if Congress finds it is necessary to enact 
budget-neutral incentive programs in which the cost of payments to 
those who qualify for incentives are offset by reductions in payment to 
those who do not.
    \1\ Vladeck. If Paying for Quality is Such a Bad Idea, Why is 
Everyone for It? 60 Wash. & Lee Law Rev. 1345, 2004; Cunningham et al. 
Caught in the Competitive Crossfire: Safety-Net Providers Balance 
Margin and Mission In a Profit-Driven Health Care Market. Health 
Affairs, August 2008; Chien et al. Medicare Care Research and Review, 
2007; Lewin and Baxter. Health Affairs, Sept/Oct 2007; Felt-Lisk. 
Making Pay-For-Performance Work In Medicaid. Health Affairs, June 2007; 
Casalino. Will Pay-For-Performance And Quality Reporting Affect Health 
Care Disparities? Health Affairs April 2007.

    Recommendation:  Special assistance should be offered to these 
providers by focusing Medicare QIO assistance on meeting their needs. 
In the area of public reporting, QIOs have been successfully providing 
assistance to Critical Access Hospitals (CAHs) for several years, 
resulting in steady growth in the number of CAHs reporting quality 
performance even in the absence of payment incentives offered to PPS 
hospitals. A number of studies strongly suggest that QIOs have 
effectively assisted providers in improving care (see appended summary 
of studies).

    While AHQA recommends making substantial QIO assistance available 
to providers and practitioners least able to qualify for incentive 
payments because of their size, funding, or service to vulnerable 
populations, we caution against unduly restricting QIO assistance so 
that it is available only to these providers. Both to improve equity 
and to permit effective learning techniques, it is important to permit 
QIOs to recruit significant numbers of high-performing providers to 
participate in quality improvement initiatives. This will ensure QIOs 
can engage both higher performing and lower-performing hospitals in 
learning collaboratives to share improvement strategies. This method 
aims to accomplish community-based quality improvement in which a large 
number of health care providers work together to offer patients the 
best possible care, raising the quality of care across the board and 
minimizing the likelihood that a consumer will choose or be referred to 
a low quality provider.
Implementing Health Information Technology and Health Information 
    Public policy debate about health information technology (HIT) has 
focused on the slow pace of adoption in the United States; a positive 
impact on the quality of care is generally assumed. While HIT been 
shown in several studies to improve processes of care where it is in 
place and used by clinicians,\2\ some studies have not confirmed this 
finding.\3\ Others note that while care processes may improve with use 
of HIT, there is still little evidence that HIT improves patient 
outcomes (other than in the care of end stage renal disease 
patients).\4\ In their recent study, Linder and colleagues found no 
association between ambulatory care quality and possession of EHR 
technology, cautioning that ``as EHR use broadens, one should not 
assume an automatic diffusion of improved quality of care--Policy 
makers should consider steps to increase the likelihood that further 
diffusion of EHR has the desired effect of improving quality of care.''
    \2\ Kawamoto et al. Improving clinical practice using clinical 
decision support systems: a systematic review of trials to identify 
features critical to success. BMJ Online, March 2005; Garg et al, 
Effects of Computerized Clinical Decision Support Systems on 
Practitioner Performance and Patient Outcomes. JAMA, 2005; 293:1223-
    \3\ Linder et al. Electronic Health Record Use and the Quality of 
Ambulatory Care in the United States. Archives of Internal Medicine. 
    \4\ Pollak. Effect of electronic patient record use on mortality in 
End Stage Renal Disease, a model chronic disease: retrospective 
analysis of 9 years of prospectively collected data. BMC Medical 
Informatics and Decision Making. 2007; 7:38
    The slow pace of HIT adoption is unquestionably a problem that 
calls for action. The American Recovery and Reinvestment Act (ARRA) 
took an important step in assisting providers afford the cost of EHR 
adoption. But physicians and health professionals lack training and 
experience in the process of evaluating their current care processes, 
conceiving a better way to organize their care teams, and retraining 
themselves to take advantage of the capabilities of new information 
systems. There is evidence many providers and office practices have 
purchased inadequate clinical decision support software (CDSS), or are 
not using their CDSS to improve care management despite having 
purchased a fully functional system.\5\
    \5\ Eccles et al. Effect of computerised evidence based guidelines 
on management of asthma and angina in adults in primary care: cluster 
randomised controlled trial. BMJ, 2002;325:941
    While the ARRA does contain technical assistance provisions for 
small physician offices, it will be vital for that technical assistance 
to be competent to aid physicians and medical practice staff through 
the entire change management process. Using the full capability of 
EHRs, including care management and improved health outcomes, requires 
a redesign of a practice's entire clinical workflow. There has been 
little in the way of technical assistance for small physician 
practices. Commercial consultancy firms have had little interest in 
serving typical office practices and small providers, even if those 
practices and providers could afford to hire them. This is unfortunate, 
because the majority of ambulatory care physicians work in practices of 
three or fewer physicians. Health care reform must ensure not only that 
EHRs are being purchased by small physician practices, but that their 
full implementation and use is being used to transform the quality and 
efficiency of care provided by the practice.
    QIOs worked with hundreds of hospitals and 3,600 physician offices 
from August 2005-July 2008, assisting them in re-designing their 
clinical workflow to incorporate HIT into daily practice. The QIO-
assisted practices exceeded expectations in using their EHRs for care 
management, and the QIO program influenced HIT vendors to make 
significant changes in their programming to enable physicians to 
generate care management reports. Demand was so strong that QIOs had to 
turn providers away. An independent evaluation found three-quarters of 
practices were satisfied with the QIOs' knowledge of technology 
options, their ability to appropriately assess the practice's 
technology needs, and their assistance in improving the quality and 
efficiency of care.6, 7
    \6\ Narayanan et al. 2007 Provider Satisfaction Survey Analytic 
Report to CMS. Westat, March 2008.
    \7\ Terry. EHRs: The feds get something right. Medical Economics, 
March 16, 2007.

    Recommendation:  Medicare should build on the success of the QIO 
program helping providers and practices plan for adoption of HIT, 
select software and hardware, and modify daily clinical workflow to 
incorporate technology into their caregiving. QIOs also help providers 
report their performance, supporting public accountability. QIO 
assistance should not be limited only to practices that already possess 
EHRs, as it is today, but should once again be made available to speed 
the pace of adoption and reduce the number of providers that fail in 
their implementation efforts.
Ensuring Implementation of Comparative Effectiveness Research Findings
    The Congressional Budget Office has reported that ``hard evidence 
is often unavailable about which treatments work best for which 
patients and whether the added benefits of more effective but more 
expensive services are sufficient to warrant their added costs'' and 
suggested that ``generating additional information comparing treatments 
would tend to reduce Federal health spending somewhat in the near 
term,'' though perhaps not enough to offset the costs of research in 
the short term.\8\ The Medicare Payment Advisory Commission (MedPAC) 
concluded that ``the Congress should establish an independent entity 
whose sole mission is to produce and provide information about the 
comparative effectiveness of health care services.'' \9\
    \8\ Research on the Comparative Effectiveness of Medical Treatment: 
Issues and Options for an Expanded Federal Role. Congressional Budget 
Office, December 2007.
    \9\ Report to Congress: Promoting Greater Efficiency in Medicare. 
Medicare Payment Advisory Commission, June 2007.
    However, most studies trace the poor performance of the current 
system to failures by health care organizations, providers, 
practitioners and even patients to routinely implement, day-in and day-
out, what is already known. The nation's continuing challenge is to 
move new research findings from the bookshelf to the bedside. 
Dissemination of comparative effectiveness research, too, is likely to 
languish on the bookshelf without a sustained national effort at 
incorporating that knowledge into the local, day-to-day clinical 
    QIOs are perfectly situated to accomplish this mission. Fostering 
integration of evidence-based medicine in everyday clinical care has 
been a primary purpose of the QIOs ever since the multi-state 
Cooperative Cardiovascular Project demonstrated in 1995 that QIOs 
improved use of evidence-based heart attack treatments and reduced 
mortality. Studies document that QIOs combine clinical expertise with 
change management to speed adoption of evidence-based medicine (see 
Appendix A).

    Recommendation:  The Medicare program should task QIOs to help 
physicians implement Comparative Effectiveness findings that the 
Secretary determines would yield clinically significant improvements in 
the safety or effectiveness of health care. The Secretary would be 
required to evaluate QIO work using measures that have been endorsed by 
the National Quality Forum.
Improving Transitions of Care and Reducing Readmissions
    MedPAC reported to Congress in 2007 that unsafe and poor quality 
care occurs with disturbing frequency as patients transition between 
care settings. One result is that about 18% of Medicare patients 
discharged from a hospital are readmitted within 30 days; MedPAC 
estimated three-quarters of those readmissions are preventable, adding 
$12 billion to Medicare costs.\10\ A similar proportion of patients 
discharged from a hospital experience an adverse event within 3 weeks 
of discharge from a hospital, with two-thirds of the problems being 
adverse drug events--most of them preventable.\11\
    \10\ Ibid
    \11\ Forster et al, The Incidence and Severity of Adverse Events 
Affecting Patients After Discharge from the Hospital. Annals of 
Internal Medicine, 2003; 138:161-167.
    Systems to follow up hospitalizations and assure that patients 
receive safe and effective care after being sent home or to a nursing 
home are generally lacking. Following up with these patients after 
discharge is currently no one's job; patients and families must manage 
these transitions for themselves. The skilled health professionals 
working in hospitals, nursing homes, home health agencies and in 
physician offices are isolated from one another in care ``silos'' and 
often don't understand what the ``downstream'' providers need in the 
way of information and follow up. ``Bundling'' payments to providers 
and practitioners could encourage a shared financial as well as 
professional interest in better linkage of care between settings. 
However, bundling methodologies are not yet ready; when they are, 
providers will implement them faster with assistance.
    For many years, QIO initiatives have focused on the hospital 
discharge component of care transitions. QIOs have helped hospitals 
more reliably give patients written discharge medication orders after 
hospitalization for heart attack, heart failure and community acquired 
pneumonia--to reduce the risk for readmission due to missing needed 
long-term drug therapy. Quality measures for these important hospital 
functions have steadily improved during this period. However, little 
has been done by QIOs or others to ensure that caregivers in the 
community have the information they need and are working together to 
provide timely follow up after a patient transitions from a hospital.
    In 2008, CMS launched 14 QIO pilots to improve critical aspects of 
care transitions. These projects include discharge instructions for 
hospital patients; follow up ``coaching'' phone calls after discharge; 
and convening of community-based workgroups of hospital, physician, and 
post-acute care provider staff who have informal referral relationships 
that result in them often treating the same patients. The QIOs 
introduce practices to ensure the timely flow of information between 
the providers and practitioners, and trigger timely follow-up, such as 
physician visits within a few days of discharge. Results from the 
initial pilot suggest dramatic reductions in rehospitalizations are 
being achieved. These initial results bode well for saving Medicare 
money through safer and better quality care.

    Recommendation:  Medicare should expand the current 14-state QIO 
project nationally to improve coordination and follow up of patient 
care as patients transition from one care setting to another.
Publicize and Promote Reliance on Quality and Cost Performance Data
    Currently, QIOs are founding members of twenty out of twenty-four 
chartered value exchanges (CVEs), entities designated by HHS Secretary 
Leavitt as community based partnerships to promote transparency in 
health care cost and quality. In several cases, QIOs are co-convenors 
of their local CVE organization.
    QIOs currently have extensive access to Medicare claims data, but 
operate under strong confidentiality requirements that prohibit the 
release of that data to the public or to other providers. The 
restrictions in current law exceed those governing private third party 
payers, which commonly share clinical data with physicians and others 
when needed to improve care or hold providers accountable. The QIO 
statute should be amended to allow QIOs to release aggregated de-
identified quality and cost data for hospitals, nursing homes, home 
health agencies and physician practices. Standards must set limits on 
this authority to ensure that only valid and reliable data is 
    Likewise, transparency data that is not explained or provided in a 
user-friendly manner will have little influence on patient decision-
making. QIOs can analyze and explain complex data to the public in a 
format tailored to their communities, while respecting the limitations 
of the data. QIOs should also ensure that providers have an opportunity 
to review their data first in order to validate it and learn from QIOs 
how to interpret and appropriately respond to quality performance 
feedback reports.

    Recommendation:  Include in the Medicare QIO contracts the 
responsibility to conduct claims data analysis on cost and quality 
performance, educate the public (working with CVEs and local partners) 
about what the findings mean, and work directly with providers and 
purchasers to improve care.
Studies of the Effectiveness of the QIOs in Promoting Population-based 
        Quality Improvement:
  An Annotated Bibliography
           In addition to targeted, case-based quality improvement, 
        since the launch of the Cooperative Cardiovascular Project in 
        the mid-1990s, QIOs have implemented community-wide and 
        statewide improvement initiatives to reduce the gap between 
        scientific evidence and daily clinical care.

          Although the IOM could not find national studies 
        published by late 2005 that proved QIO effectiveness to a 
        scientific certainty, a number of state and multi-state studies 
        published before and after the IOM review strongly suggest that 
        QIO technical assistance to providers is valuable in improving 
        the quality of care. 89% of respondents reported in a survey of 
        462 hospitals weighted to be representative that QIOs' 
        influence on their quality improvement activities were ``very 
        positive'' (59%) or ``somewhat positive'' (30%). (Medical Care 
        and Review, June 2008)
          Nationwide, physicians, nursing homes, and home 
        health agencies working intensively with QIOs achieved greater 
        improvement on 18 of 20 clinical quality measures than 
        providers that did not work intensively with a QIO. (Annals of 
        Internal Medicine, September 2006)
          33 hospitals reduced patient heart attack mortality 
        by 21% to 26% working with the American College of Cardiology, 
        the Michigan QIO, and supported by a local business coalition. 
        (Journal of the American College of Cardiology, October 2005)
          A national QIO project reduced hospital post-surgical 
        infections by 27%. The publication's editor called the outcome 
        ``a critical accomplishment in the surgical world, showing 
        measurable and consistent improvement in performance.'' 
        (American Journal of Surgery, June 2005)
          A QIO intervention improved the quality of 
        cardiovascular care for patients in 24 Massachusetts hospitals, 
        leading to ``enhanced adherence to prevention guidelines'' 
        associated with better patient outcomes. (Archives of Internal 
        Medicine, January 2004)
          QIO assistance to small rural hospitals substantially 
        improved pneumonia care in 20 rural Oklahoma hospitals compared 
        to a control group of 16 similar hospitals. Midway through the 
        project, the QIO brought their intervention to the control 
        hospitals, which improved to a similar degree. (Archives of 
        Internal Medicine, February 2003)
          QIO interventions improved quality of bypass surgery 
        in 20 Alabama hospitals over a two-year period, compared to 
        control hospitals. (JAMA, June 2001)
          QIO quality measurement and assistance to hospitals 
        improved adherence to evidence-based practice guidelines, 
        significantly reducing heart attack mortality in four states 
        compared to hospitals without QIO support. (JAMA, May 1998)


        Statement of American Society of Association Executives
    American Society of Association Executives.  The American Society 
of Association Executives (``ASAE'') is a Section 501(c)(6) individual 
membership organization of more than 22,000 association executives and 
industry partners representing nearly 12,000 tax-exempt organizations. 
Its members manage leading trade associations, individual membership 
societies, and voluntary organizations across the United States and in 
50 countries around the globe. We advocate for voluntary organizations 
so that they may continue to improve the quality of life in the United 
    Importance of Associations in Health Care Coverage.  From early on 
in America's history, associations have been key vehicles for 
delivering services and benefits such as health care. The belief that 
joining a membership organization enhances the personal and 
professional development of individuals and businesses and enhances 
access to a vast array of resources is at the core of all associations. 
Because of this, associations well positioned to play a critical role 
in providing health care insurance to millions of Americans.
    Because of the common interests of their members, associations are 
organized for greater purposes than merely selling insurance, a 
critical distinction in the debate over the underlying motivation in 
providing access to health insurance. Associations are not affinity 
groups or businesses with the goal of profiting from the insurance 
market. They are, however, structured to represent their members, and 
possess the infrastructure, administrative and communication 
mechanisms, and experience necessary to unify employers and employees 
into stalwart providers of health services.
    Despite these inherent advantages to associations as conduits for 
providing health care, very few associations currently provide health 
insurance to their members. This is due, in large part, to the myriad 
of Federal regulations surrounding the insurance market. In a 2006 ASAE 
health care survey, only 24% of over 1,000 association CEOs said that 
their association provides health insurance to members. However, 61% of 
respondents said that if Federal regulations that limited their ability 
to offer some insurance to members were removed, they would consider 
offering insurance to their members.
    The Small Business CHOICE Act of 2009.  The committee today is 
examining the best way to expand coverage and address the cost of 
providing health insurance. The small business sector is particularly 
affected by reality of high medical costs. Often, it takes only one 
employee's increased cost of medical care to send a business' insurance 
cost skyrocketing or, in some cases, to have their entire plan 
cancelled. To address the issues of coverage and cost, Congress must 
include specific relief for small businesses in any health care reform 
    ASAE supports the Small Business CHOICE Act of 2009 (HR 859), 
bipartisan legislation introduced February 4th by Representatives Nydia 
Velazquez, Sam Graves, and nine other cosponsors. ASAE is joined in 
supporting the legislation by the American Medical Association, the 
National Association of Realtors, the National Association for the 
Self-Employed, and the National Restaurant Association, among other 
    The Small Business CHOICE Act allows small businesses who belong to 
the same association or membership organization to form a 
``cooperative'' in the catastrophic health insurance market to provide 
excess claims insurance for the employees of the small business. The 
cooperative (whose standards will be established by the National 
Association of Insurance Commissioners) creates a captive insurance 
company in one state that pays benefits when the annual maximum for the 
primary care policy has been exceeded.
    Belonging to a cooperative would allow a small business to avoid 
sudden rate hikes in their insurance premiums, making the cost of 
providing insurance to their employees more affordable and readily 
available. With the cooperative assuming the costs that exceed the 
primary care limit, one high risk employee no longer makes providing 
insurance for employees an unaffordable benefit. Additionally, with the 
creation of a captive insurance company based in one state, the 
cooperative would not federally preempt state mandates and would still 
require primary care insurance to abide by state requirements.
    Supporters of this legislation recognize that this is not 
comprehensive health reform and that, if this legislation were passed, 
it would not solve all of the issues in the health care debate. The 
advantage of this bill is that it would provide immediate cost and 
coverage relief to a major segment of the business community. 
Catastrophic insurance companies exist and currently offer plans for 
associations; however, one small business or association buying 
coverage drastically increases their primary health insurance rates. 
Allowing for pooling in the reinsurance market levels the market with 
large corporations and gives small businesses better access to the 
health care options available to their larger competitors.
    Conclusion.  The ``Small Business CHOICE Act of 2009,'' introduced 
in the House in the 111th Congress by a bipartisan group of 
Representatives, would reduce the cost for providing employee health 
care for small businesses through pooling in the reinsurance market. 
The bill would create a captive insurance company whereby participants 
in the ``cooperative pool'' would abide by that state's mandates. 
Although the legislation is not comprehensive health care reform, it 
would provide immediate relief for small businesses in insurance costs 
that will help make health care coverage affordable and universal.


                                         Argus Health Systems, Inc.
                                              Kansas City, Missouri
                                                     March 25, 2009
The Honorable Charles B. Rangel, Chairman
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington D.C. 20515

Dear Chairman Rangel,

    I am writing on behalf of Argus Health Systems, Inc. in response to 
the March 11, 2009, hearing held by the House Ways and Means Committee, 
Subcommittee on Health titled, ``Health Reform in the 21st Century: 
Expanding Coverage, Improving Quality and Controlling Costs.'' The 
hearing reviewed the need for comprehensive health care reform to 
improve coverage, reduce health spending and improve quality of care.
    Argus is a pharmacy benefit administrator that prides itself in 
providing independent pharmacy benefit services and aligning our goals 
with those of our health plan customers to better serve their plan 
members. Incorporated in 1988, the company is a subsidiary of DST 
Systems, Inc., the largest provider of third-party shareholder record 
keeping services in the United States today.
    Since January 1, 2006, Argus has been successfully processing 
Medicare Part D. Currently, we support approximately five million 
beneficiaries for 26 Medicare Part D accounts through our 
infrastructure programs with Part D plan sponsors. In 2008, Argus 
processed 310 million Part D claims on behalf of Medicare 
beneficiaries. Over 90 percent of our business is supporting large 
managed care plans.
    As President of Argus Health Systems, Inc., I would like to offer 
Argus' perspective regarding the importance of the pharmacy benefit in 
reducing costs and improving the quality of care when coverage is 
extended to all Americans. From my review of information available in 
the public domain, it appears that limited attention has been given to 
the ongoing role that prescription drugs play in contributing to 
healthier beneficiaries while containing costs elsewhere in the health 
    This apparent lack of inclusion may, in fact, be due to recent 
advances health plans and their pharmacy benefit administrators and 
managers have made in helping to contain prescription costs. As a 
result, this has not necessarily been a hot topic given all the 
competing issues in the health care reform debate. According to 
American Health Insurance Plan's (AHIP) analysis of 
PricewaterhouseCoopers' Factors Fueling Rising Healthcare Costs, 
prescription drugs account for 14 cents of each premium dollar while 
physician services consume 33 cents.
    Despite the lower contribution to premium costs, prescription drugs 
should not be discounted as a potential area for controlling costs. The 
pharmacy benefit drives the most frequent interaction people have with 
the health care system--at their neighborhood pharmacy. Its effective 
management is important to help control costs, whether through 
interoperable health care information technology integration, or 
through medication therapy management provided by the pharmacist.
    I am confident there are opportunities in a reformed health care 
system to manage prescription costs, while obtaining appropriate health 
Using PBAs and Transparency to Control Costs
    To align incentives with value and effective cost control, it is 
important to understand the differences between pharmacy benefit 
managers (PBMs) and pharmacy benefit administrators (PBAs) and to 
ensure that all pharmacy benefit vendors are acting transparently and 
without conflicts of interest. When considering reforms to implement in 
our health care system, I ask that Congress undertake a thorough review 
of the pharmacy benefit business practices prevalent today to 
understand how lack of transparency as well as conflicts of interest 
can drive up the cost of prescriptions for the beneficiary.
    One of the best definitions of transparency in the pharmacy benefit 
sector was provided by David Calabrese in Managed Care Executive, dated 
May 1, 2006.

           ``Transparency is a form of business practice involving full 
        disclosure of costs and revenues, allowing the customer to make 
        more well-informed decisions regarding purchases. In the PBM 
        industry, transparency lays the groundwork for more simplified 
        PBM-client business relations, more accurate financial modeling 
        and performance metrics and a greater comfort level among PBM 
        consumers. `Transparency,' however, is a relative term used 
        freely in the marketing efforts of many PBMs. The genuine 
        commitment to transparency lies in the actual business 
        practices the PBM invokes to support this claim. `True 
        transparency' is a model in which all PBM revenue streams 
        [drug-level rebates, funding of clinical programs, 
        administrative fees, service fees, management fees, research/
        educational grants, etc.] are fully disclosed to the payer; the 
        full value of retail and mail-order pharmacy discounts is 
        passed onto the client; data is shared with the client; and the 
        client is given ultimate decision-making control over its drug 
        benefit design and formulary management. It is this commitment 
        to true transparency which has begun to differentiate newer 

    ``Newer'' PBMs identify themselves as pharmacy benefit 
administrators and provide full disclosure of all fees and allow health 
plans to audit them. They pass through rebates to the beneficiary and 
share data with their health plan customers. PBAs work as 
administrative and advisory partners with their health plan customers, 
acting under their direction, and do not enforce a formulary or drive 
beneficiaries to mail order regardless of whether this is appropriate 
for them or not. The PBA value is proven and is less costly than 
services offered by PBMs where other conflicts between managing costs 
and managing profits might otherwise exist.
Improving Health Care Delivery through Health Information Technology
    To provide ``accountable, accessible, patient-centered and 
coordinated care'', the health care delivery system needs to be 
organized and redesigned to improve the patient experiences end-to-end, 
including via health information technology (HIT). Pharmacy benefit 
administration is a valuable tool in supporting these efforts with data 
exchange for medical and pharmacy claims integration. Pharmacy benefit 
administration provides one the best examples of how standards and 
standard processes have led to the use of advanced cost management 
techniques and data management and review that promote greater quality 
of care. Such standards have also provided a platform and foundation 
for pharmacists and prescribers to better serve beneficiaries through 
the use of readily available information. In addition to real-time 
point-of-sale prescription claims processing, several PBAs currently 
support the continued integration of functionality via batch and/or 
near-real time across all segments of the health benefit field. 
Additionally, PBAs support efficient medical care through use of 
medication history and by having diagnosis codes available at point-of-
sale, enabling pharmacists to provide additional and comprehensive care 
to the patient. Recent experiences in Medicare Part D with vaccine 
administration and Medication Therapy Management have also been 
successful and can be expanded to the general population.
Strengthen Decision-Making with Comparative Effectiveness Assessment
    To ``aim high to improve quality, health outcomes, and 
efficiency'', comparative effectiveness assessment is an important tool 
for improving clinical decision-making on behalf of patients, as well 
as to reduce costs. Argus supports funding for rigorous and independent 
(non-pharmaceutical manufacturer-based) research for prescription 
drugs, which will enable beneficiaries to receive the medication 
therapy they need. This type of research will allow for outcomes/
effectiveness research to be conducted by academic institutions without 
fear of reprisal or liability from pharmaceutical manufacturers. It 
will also ensure health care providers have solid evidence available, 
rather than marketing information, for delivering optimal care in their 
Containing Growth in Specialty Medications
    The utilization of specialty drugs continues to drive health-care 
costs. In 2007, CMS added the Part D specialty drug tier. According to 
information released by CMS in conjunction with the Symposium conducted 
on October 30, 2008:

           ``Specialty tier medications represent a limited number of 
        drugs that are used by a small proportion of enrollees. Overall 
        only 4.4 percent of enrollees used specialty tier drugs in 
        2007. Of those enrollees, 61 percent were LIS beneficiaries. 
        Expenditures for specialty tier drugs in 2007 accounted for 10 
        percent of total gross drug costs. Non-LIS enrollees pay 
        approximately 20 percent of the medication cost for specialty 
        tier medications, when all Medicare enrollees are included the 
        average amount paid is much less.''

    Due to the importance of these drugs for beneficiaries, as well as 
the contribution they provide to total Part D drug costs, Argus 
recommends that serious considerations, be undertaken to determine how 
to best manage costs in this class of drugs while taking advantage of 
the value these drugs may have in providing quality outcomes for 
    Thank you for taking the time to review these recommendations on 
how the pharmacy benefit can play an integral role with other steps 
being considered as part of overall health care reform. I commend the 
House Ways and Means Committee, Subcommittee on Health for holding this 
                                             Jonathan Boehm


                       Statement of Families, USA
    According to the U.S. Census Bureau, an estimated 45.7 million 
Americans were uninsured in 2007. This widely quoted number, which was 
derived from the Census Bureau's annual Current Population Survey 
(CPS), is designed to be an estimate of how many people did not have 
any type of health insurance for the entire previous calendar year. 
Although the CPS numbers provide a useful annual estimate of coverage 
and a tool that can be used to track trends in coverage from year to 
year, they are limited in their ability to paint a complete picture of 
the insurance crisis.
    Families USA conducted a study in order to take a closer look at 
the uninsured in America and to improve our understanding of how many 
people experience significant gaps in coverage. The Families USA study 
measured the number of uninsured people over a longer period of time 
than the CPS (two years in contrast to one). The Families USA study 
also measured people who were uninsured for different lengths of time.
    Our analysis yielded disturbing results: We found that 86.7 million 
people under the age of 65--one out of every three non-elderly 
Americans (33.1 percent)--went without health insurance for all or part 
of 2007-2008.
    By taking this closer look, we found that many more people were 
touched by a significant gap in health insurance than is reported by 
the CPS. These people are at risk, both in terms of their physical and 
their economic well-being, and they may be profoundly affected by being 
uninsured. No picture of the causes and consequences of being uninsured 
is complete unless it includes all people who experience a significant 
gap in health insurance coverage.
    This study's findings are based exclusively on data projections 
from the CPS as well as the Census Bureau's Survey of Income and 
Program Participation (SIPP) and the Medical Expenditure Panel Survey 
(MEPS) from the Agency for Healthcare Research and Quality.
Key Findings
One in Three Uninsured: 2007-2008
      86.7 million people under the age of 65 went without 
health insurance for some or all of the two-year period from 2007 to 
      One out of three people (33.1 percent) under the age of 
65 were uninsured for some or all of 2007 to 2008.
Number of Months Uninsured
      Of the 86.7 million uninsured individuals, three in five 
(60.2 percent) were uninsured for nine months or more. Nearly three-
quarters (74.5 percent) were uninsured for six months or more.
      Among all people under the age of 65 who were uninsured 
in 2007-2008, one quarter (25.3 percent) were uninsured for the full 24 
months during 2007-2008; 19.5 percent were uninsured for 13 to 23 
months; 15.4 percent were uninsured for nine to 12 months; 14.3 percent 
were uninsured for 6 to 8 months; and 20.1 percent were uninsured for 
three to five months. Only 5.4 percent were uninsured for two months or 
Work Status of the Uninsured
      Four out of five individuals (79.2 percent) who went 
without health insurance during 2007-2008 were from working families: 
69.7 percent were in families with a worker who was employed full-time, 
and 9.5 percent were in families with a worker who was employed part-
      In addition, 4.6 percent were looking for work.
      Of the people who were uninsured during 2007-2008, only 
16.2 percent were not in the labor force--because they were either 
disabled, chronically ill, family caregivers, or not looking for 
employment for other reasons.
Income Level of the Uninsured
      Three out of five individuals (58.7 percent) in families 
with incomes below the Federal poverty level ($21,200 a year for a 
family of four in 2008) went without health insurance in 2007-2008.
      More than half (52.0 percent) of individuals in families 
with incomes between 100 and 199 percent of the Federal poverty level 
(between $21,200 and $42,400 a year for a family of three in 2008) went 
without health insurance in 2007-2008.
      The likelihood of being uninsured decreases considerably 
with increased income, but nearly one in five (17.9 percent) people in 
families with incomes at four times the poverty level or above went 
without health insurance in 2007-2008.
Every Racial and Ethnic Group Is Affected
      Hispanics/Latinos, African Americans, and people of other 
racial or ethnic minorities were much more likely to be uninsured than 
whites: 55.1 percent of Hispanics/Latinos, 40.3 percent of African 
Americans, and 34.0 percent of other racial and ethnic minorities went 
without health insurance in 2007-2008, compared to 25.1 percent of 
      Although racial and ethnic minorities are more likely to 
be uninsured, whites accounted for nearly half (49.8 percent) of the 
uninsured in 2007-2008.
Every Age Group Is Affected
      Of the total 86.7 million uninsured people in 2007-2008, 
60.1 million were uninsured adults (between 19 and 64 years of age).
      The likelihood of being uninsured declined among adults 
as they grew older. The percentage who were uninsured was highest among 
19- to 24-year-olds (49.5 percent) and 25- to 44-year-olds (36.3 
percent). The percentage who were uninsured declined for 45- to 54-
year-olds and 55- to 64-year-olds, to 25.5 percent and 21.2 percent, 


                      Statement of J. Kirk Peffers
    Please bear in mind that the insurance industry has never healed 
anyone. It just takes 30% of health care dollars out of health care and 
denies permission for select health care to occur. It's an utterly 
useless middleman.


      Statement of National Association of Professional Employer 
    The National Association of Professional Employer Organizations 
(NAPEO) thanks the Committee on Ways and Means for the opportunity to 
submit this statement for the hearing ``Health Reform in the 21st 
Century: Expanding Coverage, Improving Quality and Controlling Costs''. 
NAPEO is the largest trade association for professional employer 
organizations (PEOs) nationwide, with nearly 400 PEO members operating 
in all 50 states, representing approximately 90 percent of the revenues 
of the $64 billion industry.
PEOs Help Small Business
    PEOs provide human resource services to their small business 
clients--paying wages and taxes and assuming responsibility and 
liability for compliance with myriad state and Federal laws. PEOs also 
provide worksite employees with access to 401(k) plans, health 
insurance, dental coverage, life insurance, dependent care and other 
benefits, which for many of these workers is the first opportunity that 
they have had to obtain these benefits through employment. The cost to 
small- or mid-sized businesses for individually establishing and 
administering this range of employee benefits is prohibitive. However, 
due to economies of scale and efficiency of administration, PEOs can 
make available diverse and improved employee benefit offerings.
    Between 1980 and 2000, the number of labor laws and regulations 
grew by almost two thirds, according to the Small Business 
Administration, which estimated that owners of small- or mid-sized 
business spend up to a quarter of their time on employment-related 
paperwork. PEOs offer their clients and worksite employees the services 
and expertise of a personnel department comparable to that found in a 
large corporation. Few, if any, small businesses can afford a full-time 
staff consisting of an accountant, a human resource professional, a 
legal compliance officer, a risk manager, a benefits manager, and a 
manager of information services. PEOs offer this expertise to their 
clients. While the owners of these small- and mid-sized businesses 
focus on the ``business of their business,'' PEOs assume the 
responsibilities and liabilities of the ``business of employment.'' Not 
only is the client company free to concentrate on its core business and 
increase profits, but it is better able to remain competitive by 
attracting and keeping the best employees with a benefit package 
comparable to a large employer. These advantages have led to a 
substantial growth in the PEO industry over the past two decades. 
Today, between 2 and 3 million workers are covered by a PEO 
PEOs Are Part of the Solution to Health Care Coverage
    NAPEO supports innovations in Federal policy that enhance the 
ability of small businesses to offer health benefits to workers. 
Working Americans deserve comprehensive, affordable health care, 
retirement savings plans, and other employee benefits for themselves 
and their families and many small businesses struggle to meet these 
    PEOs are part of the solution to healthcare access. PEOs are highly 
experienced in providing healthcare benefits for employees working at 
their small business clients. PEOs know the complex administrative 
tasks associated with providing health care to workers.
    The PEO business model is one innovation that should be part of any 
health care reform legislation. A recent NAPEO member survey 
demonstrated that PEOs have substantially improved the health benefits 
offerings at their small business clients. About half of surveyed PEOs 
indicated that 50% or more of their small business clients have access 
to a more extensive health care offering as result of the PEO 
engagement. Almost a third of PEOs indicated that 20% or more of their 
new clients did not provide health benefits prior to engaging the PEO.
    Among other benefits, PEO relationships serve to further an 
important policy goal of expanding access to quality affordable health 
care coverage. The average client of a PEO is a small business 
employing just 19 workers with an average salary of approximately 
$37,000 annually. Health care reform legislation must avoid unintended 
negative consequences to small businesses--such as limiting their 
ability to secure and offer health benefits to workers through a PEO, 
placing current coverage at risk or increasing insurance costs for 
small businesses.
Policy Issues
    The Committee will undoubtedly consider a number of policy 
proposals, including employer mandates, tax credits, association or 
regional health plans, and plan benefit design. NAPEO believes that a 
``one size'' fits all solution'' is probably not the best model. It is 
important to maintain the viability of existing successful models 
including the PEO model for providing health benefits to workers.
    This was accomplished successfully in Massachusetts, for example, 
when implementing regulations for that state's health care reform law 
were adopted recognizing the role of PEOs in worker health benefits. 
The intent was to ensure that small businesses that proactively covered 
workers in a health plan through a PEO relationship would not be 
penalized or receive disparate treatment. It is important that Federal 
legislation do the same--by making clear that if there is any employer 
mandate for coverage then it is the responsibility of the small 
business clients of the PEO to meet that mandate and also ensuring that 
workers in a PEO co-employment arrangement are appropriately attributed 
to the client for purposes of tax credits and any size of workforce 
    On the other hand, many PEOs sponsor a fully-insured health plan as 
part of the employee benefit package provided to small business 
clients. The application of any national small group plan design 
principles to these large PEO plans would negate the efficiencies of 
PEO health plan sponsorship. The result could be less rather than more 
coverage. PEOs bring essential benefits to worksite employees by 
aggregating a large number of workers from many small businesses. This 
is consistent with one objective of health care reform--to improve 
health insurance coverage of employees of small businesses. To 
undermine the successful PEO health arrangement works against these 
goals and would have the unintended consequence of leaving large 
numbers of employees searching for new health plan coverage.
    Improving health care access is an urgent national priority. For 
the small businesses that work with PEOs, clearly defining the relative 
roles and responsibilities of the PEOs and their small business clients 
will be critical to sustaining important health care coverage for 
millions of Americans. This balance was achieved in crafting rules for 
the 401(k) plans maintained by PEOs and we urge that analogous 
approaches be adopted as you consider a reformed health care system. 
NAPEO and its member companies are prepared to assist the Committee in 
exploring all options and innovations, including the PEO model as one 
path to maintaining and expanding health insurance coverage.


           Statement of the NATIONAL ASSOCIATION OF REALTORS
    The debate on health insurance in recent years has focused almost 
exclusively on the relationship between employers and employees, the 
deduction that employers receive for providing health insurance 
coverage and the exclusion from employees' income of health insurance 
benefits. A fair amount of attention has also been given to the 
challenges of small businesses that would like to provide health 
insurance, but are unable to do so. A third group in the workforce, 
however, has been consistently overlooked: the self-employed.
    The needs of the self-employed are particularly acute, as those 
workers must fend for themselves in the individual insurance market. We 
believe that the plague of uninsured workers will persist unless and 
until there are corrections to the dysfunctions in both the individual 
and small-group health insurance markets. That market presents itself 
as one in which there is no negotiating, no leverage, no economies of 
scale and absolutely no efficiency.
    Since 2003, self-employed individuals have been permitted to deduct 
from gross income the cost of their health insurance premiums. 
Regrettably, this provision benefits only those who can actually find 
and afford the insurance offered in the small group and/or individuals 
markets. We note, however, that tax benefits, no matter how 
thoughtfully crafted and designed cannot provide access to affordable 
insurance. A deduction is helpful, but only if insurance is available.
    Real estate agents, realty firm owners, their employees and other 
self-employed individuals will struggle to find health insurance 
coverage unless there are significant reforms to the individual and 
small group insurance markets. We do believe, however, that tax 
incentives for this segment of workers, coupled with mechanisms that 
would create insurance coverage gateways and/or additional pooling 
mechanisms would create a far more rational and effective system than 
current law.
Research Findings
    While NAR is currently in the process of updating our survey of the 
health insurance coverage of NAR's REALTOR members, our 2006 survey 
showed that 28% of our members have had no health insurance coverage 
from any source.\1\ By contrast, in 1996, only 13% of our membership 
had no coverage. In 1996 and in 2006, more than three-quarters of our 
members who had no health insurance reported that they were simply 
unable to afford what coverage they could find.
    \1\ As soon as the 2009 survey data are compiled, we will share it 
with the Committee
    A real estate brokerage firm is built on a model of a broker/owner 
and sales agents. Under Code Section 3508, the broker/owner may treat 
the sales agents as independent contractors, so long as certain tests 
are satisfied. Thus, the broker/owner is often a self-employed person 
whose business is conducted by other self-employed persons.
    To underscore the challenges our members who own realty firms have 
with finding health insurance, note that in 1996, 34% of real estate 
firms offered health insurance to their salaried employees. By 2006, 
this number had declined to only 13% of real estate firms. For these 
small businesses, as with individuals, the primary barrier to providing 
health insurance has been its cost.
    The Government Accountability Office estimated that independent 
contractors and self-employed workers comprised 30 percent of the 
American workforce in 2000. Some experts estimate that by 2010, 41 
percent of the U.S. workforce will be so-called ``free agent'' workers. 
We fear this shift in the composition of the workforce will be 
accompanied by increases in the number of the uninsured. Finding a 
solution to the insurance problem must become a top priority.
    NAR does not have the particular expertise that would enable us to 
provide a full-blown individual market reform model. The work we have 
done over the past six years and the reports our members have provided 
about their experience in the individual and small group health 
insurance markets do, however, furnish a basis for several 
    The self-employed must be able to enjoy the benefits of pooled 
risks, much as large group plans provide. Downsizing, changes in the 
economy and increases to the cost of coverage will likely deprive more 
and more workers any benefit of employer-provided insurance, thus 
forcing them into the individual market. Today, employer-provided group 
coverage is extended to groups of people whose sole common denominator 
is their employer. Enhanced risk-pooling opportunities in the 
individual market would facilitate greater market efficiency by 
combining groups of people whose sole common denominator is that they 
work for themselves. Pooled risk for individuals will also enhance 
economies of scale as insurance providers are able to consolidate and 
manage the expenses of administration, marketing and advertising.
    Whatever the name used--gateway, coordinator, connector, etc.--a 
mechanism is needed to bring insurers and self-employed workers and 
small businesses together. We believe that a private, public or joint 
private/public venture must be developed to put self-employed persons 
in a position where they can compare apples to apples in their analysis 
of a more complete range of insurers and insurance products.
    We do not seek a single-payer insurance system, nor do we seek a 
new entitlement. We do seek an official, reliable, regulated, 
information source (or sources) that will facilitate insurance market 
access for self-employed individuals. These workers need some sort of 
menu that could include information such as comparisons of available 
coverage options, identification of vendors that can provide various 
options and where to find those vendors, as well as some sort of 
approximate cost comparison data (current and/or historic).
    Stakeholders including (but not limited to) insurers, regulators, 
legislators, health policy advocates and consumers must grapple with 
the question of essential coverage. No single policy or list of 
mandates can satisfy the competing tensions between (a) assuring all 
desired (or desirable) coverage and (b) creating affordable products. 
We believe that it is difficult, but not impossible, for the 
stakeholders to come up with categories or guidelines that might 
distinguish among an array of coverage options. Such a drive toward 
consensus may provide consumers, including self-employed individuals, 
with the information necessary to make informed judgments and leverage 
to encourage insurers and regulators to provide or require an effective 
array of benefit coverage choices.
    Congress must address the challenges that the self-employed face in 
finding access to affordable health insurance. Maintaining a sensible 
tax regime for health insurance must remain an integral part of health 
insurance policy, but the only lasting resolution for health care 
access will come through reforming the individual and small firm 
insurance markets.
    Thank you for your attention, time and efforts on this most 
important issue. NAR and its members stand ready to work with you in 
the coming months to enact meaningful health care reform.


              Statement of Newbery, Ungerer & Hickert LLP
    I've taught health law and policy as an adjunct professor at 
Washburn University School of Law for five years, and before my first 
retirement last year, served as General Counsel and Senior Vice 
President of Blue Cross and Blue Shield of Kansas for 30 years. I am 
now engaged in the private practice of law, continue to teach, but do 
not represent any entity in the health insurance industry.
    I write the Committee today primarily with regard to the issue of 
making available a public option.
    Considering the utility of a public option--the reasons for 
interest in a public option program to be offered alongside employer-
sponsored or commercially-available nongroup health insurance--isn't as 
simple as it might seem, since it introduces different dynamics in the 
health insurance market.
    Without significant changes in state and Federal law, a public 
option (whether that public option is a Medicare-like program or a 
something that looks like the Federal employee health benefits program 
with coverage available from several private insurers) necessarily 
creates a circumstance of having two markets subject to different 
pricing rules and offering rules, and introduces dynamics that require 
significant attention to how insurance markets behave. It isn't as 
simple as letting people opt for a separate public program.
    A good starting point for thinking that through is the nongroup 
market. In most states today that is characterized by age rating and 
health underwriting, with insurers either rejecting or rating up 
persons with existing health conditions. If the public option is an 
alternative for all citizens, it is unlikely that it will involve age 
rating, and it will certainly involve guaranteed issuance of coverage. 
The natural result would be that younger or healthier persons would 
remain in the commercial market, while older or less healthy people 
likely would find the public plan more attractive (not incidentally, in 
some states that rely on risk pools for the uninsurable currently 
subsidized by assessments on insurers, the raison d' etre for such 
pools disappears and insurers might have an incentive to make their 
underwriting more strict than is currently the case, or to increase the 
slope of their age rating tables).
    The same effect would occur in most states for small groups. Most 
states, following the NAIC model, allow use of age, industrial 
classification and group size among other characteristics in developing 
rates for small groups. This results in enormous differences in 
premiums among small groups (and can result in enormous volatility in 
premiums for very small groups when, for example, a younger worker 
leaves and an older worker takes her place, or vice versa). Again, the 
incentive would be for employees in groups composed largely of older 
employees to seek coverage through the public plan.
    Those impacts would be magnified if health insurance remained a 
voluntary matter. That is, if there is no requirement to hold 
insurance, and the public option is a program involving flat community 
rating and guaranteed issuance of coverage, persons today in groups 
with high premiums, persons holding coverage through high risk pools, 
and uninsured persons who become aware of a condition creating a need 
for health services would move to the public option.
    It is difficult to fool markets. While having two differently 
regulated markets might not result in the paradigmatical death spiral, 
the risk sorting that would occur absent fundamental changes in rules 
applicable in the private market would result in significantly higher 
average claims expenses in the public market, and significantly lower 
average claims expenses in the private market, meaning higher premiums 
in the former, and increasingly higher as the effects of adverse 
selection are felt in the claims costs.
    To avoid that would require applying the same rules in all markets, 
displacing current state regulation with Federal regulation of rating 
and underwriting, particularly in the nongroup and small group markets. 
Guaranteed issuance of coverage in the nongroup market, a requirement 
in a few states, would be obligatory in all states. Age rating would 
have to be prohibited in the nongroup and small group markets (large 
groups might be a separate subject, although there are significant 
enough differences in the impact of age and health status among some to 
not disregard them): that is, one would have to be able to acquire the 
same coverage at the same rate, whether one did so through employer-
sponsored coverage or on an individual basis, just as one would have to 
be able to do so under the public option.
    But if that were the case--if all insurers were no longer sorting 
risks by health and age, were pooling claims costs among all insureds 
and creating a single flat community rate of the same kind a public 
option would involve--then what advantage would a public option 
provide? Would it reside in lower administrative costs? I suspect that 
in an environment in which insurers were not competing based on ability 
to select risks or on who could tailor their age slopes or industrial 
factors to get the best block of insureds, the basis for competition 
would be only administrative costs and the cost to the insurer of 
health care services. One would think that in such an environment, 
insurers would have strong incentives to become as lean as possible and 
to negotiate the best possible pricing mechanisms with health care 
providers (and perhaps not on per unit price alone).
    In the end, what is the purpose of a public option? Health 
insurance is available universally today, although in some cases, only 
through a high risk pool at a significant premium. If a public option 
is desirable as a mechanism to make coverage more affordable to persons 
whose rates appear unaffordable because they are older or sicker 
individuals or in an older, less healthy group, the same result can be 
obtained by changing the rules applicable to rating and underwriting by 
private insurers (which concomitantly requires elimination of separate 
rating and tax treatment of employer-sponsored coverage). If a public 
option is desirable to achieve lower administrative costs, changing the 
rules of competition among insurers by eliminating risk segmentation as 
a means of competition (which again requires elimination of separate 
rating and tax treatment of employer-sponsored coverage) achieves that 
    To avoid the effect of antiselection--of persons obtaining coverage 
under a guarantee issue circumstance, whether under a system relying 
solely on private coverage or one involving a public option--a mandate 
is obligatory, which carries with it the need for income-sensitive 
premium supports.
    If the purpose of a public option is to lower the primary input in 
the cost of health insurance--the cost of health care services--
eliminating risk segmentation as a means of competition among private 
insurers would cause them to focus more strongly on how they pay health 
care providers and what they pay for. Of course, if a public option 
relied on Medicare-style pricing for health care services, it would 
have an insurmountable competitive advantage over private coverage. 
That is, if the same rating and enrollment rules apply to the private 
market as apply to a public option (as they should, to prevent the 
public option from becoming a dumping ground for the old and the ill), 
that advantage in the cost of care would result in the public option 
having a significantly lower price for the same benefits as private 
insurance. But if that is either the desired or the practical outcome, 
there is no logical reason not to move directly to a single-payer 
    The reason not to move to a single payer system is the same reason 
to be wary about a public option: the country does not need to see the 
promise of universal coverage vanish again, as it did in 1993, under an 
onslaught of advertising and lobbying from those whose oxen would be 
gored, health insurers and health care providers.
    As is apparent from an article I published last year, ``The Pool of 
Bethesda: Equity, Political Problems and Reinsurance Solutions in 
Mandated Individual Health Insurance,'' 11 Quinnipiac University Health 
Law Journal 145 (2008), I find the rationalization of the insurance 
market and the Tax Code and the equitable approach to financing of 
health care in the Health Americans Act an attractive alternative.