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



 
                  MEDPAC'S ANNUAL MARCH REPORT TO THE

                 CONGRESS ON MEDICARE PAYMENT POLICY

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


                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 17, 2009

                               __________

                            Serial No. 111-7

                               __________

         Printed for the use of the Committee on Ways and Means




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20402-0001



                      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
CHRIS VAN HOLLEN, Maryland
KENDRICK B. MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky
             Janice Mays, Chief Counsel and Staff Director
                   Jon Traub, Minority Staff Director

                                 ------                                

                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 WALLY HERGER, California, Ranking 
MIKE THOMPSON, California                Member
XAVIER BECERRA, California           SAM JOHNSON, Texas
EARL POMEROY, North Dakota           PAUL RYAN, Wisconsin
RON KIND, Wisconsin                  DEVIN NUNES, California
EARL BLUMENAUER, Oregon              GINNY BROWN-WAITE, Florida
BILL PASCRELL, JR., New Jersey
SHELLEY BERKLEY, Nevada

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 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.
                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

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

                       SUBMISSIONS FOR THE RECORD

Betty Waite, Statement...........................................    70
Carlo J. DiMarco, Statement......................................    71
Chris Doherty, Statement.........................................    72
Christopher R. Blagg, M.D. and Robert S. Lockridge, M.D., 
  Statement......................................................    72
Medical Rehabilitation Providers Association, Statement..........    75
The American Health Care Association, Statement..................    77
Val J. Halamandaris, Statement...................................    79


                  MEDPAC'S ANNUAL MARCH REPORT TO THE



                  CONGRESS ON MEDICARE PAYMENT POLICY

                        Tuesday, March 17, 2009

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                   Washington, D.C.

    The Subcommittee met, pursuant to notice, at 10:07 a.m. in 
1100 Longworth House Office Building, Hon. Fortney Pete Stark 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 10, 2009
HL-1

                 Chairman Stark Announces a Hearing on

                  MedPAC's Annual March Report to the

                  Congress on Medicare Payment Policy

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
the Medicare Payment Advisory Commission's (MedPAC) annual March Report 
to the Congress on Medicare Payment Policy. The hearing will take place 
at 10:00 a.m. on Tuesday, March 17, 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.
      

BACKGROUND:

      
    MedPAC advises Congress on Medicare payment policies. MedPAC is 
required by law to submit its annual advice and recommendations on 
Medicare payment policies by March 1, and an additional report on 
issues facing Medicare by June 15. In its reports to the Congress, 
MedPAC is required to review and make recommendations on payment 
policies for specific provider groups, including Medicare Advantage 
plans, hospitals, skilled nursing facilities, physicians, and other 
sectors, and to examine other issues regarding access, quality, and 
delivery of health care.
      
    In announcing the hearing, Chairman Stark said, ``MedPAC's 
recommendations help us keep Medicare working well for providers, 
beneficiaries, and taxpayers. MedPAC's guidance is critically important 
to Congress as we craft legislation to strengthen and improve Medicare 
and consider comprehensive health care reform.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on MedPAC's March 2009 Report to the 
Congress on Medicare Payment Policy.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
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From the Committee homepage, http://waysandmeans.house.gov, select 
``Committee Hearings''. Select the hearing for which you would like to 
submit, and click on the link entitled, ``Click here to provide a 
submission for the record.'' Once you have followed the online 
instructions, complete all informational forms and click ``submit'' on 
the final page. ATTACH your submission as a Word or WordPerfect 
document, in compliance with the formatting requirements listed below, 
by close of business Tuesday, March 31, 2009. Finally, please note that 
due to the change in House mail policy, the U.S. Capitol Police will 
refuse sealed-package deliveries to all House Office Buildings. For 
questions, or if you encounter technical problems, please call (202) 
225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
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files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
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Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
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these specifications will be maintained in the Committee files for 
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    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone, and fax numbers of each witness.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.

                                 

    Chairman STARK. Good morning. First of all, I hope you will 
forgive my coughing and wheezing here. It sounds worse than it 
is.
    First of all, I would like to welcome the new Members of 
the Subcommittee, but the only ones I can find are Mr. Herger 
and Ms. Brown-Waite. Welcome. Our new Members have yet to 
arrive.
    Thank you for attending today and join me in welcoming 
Glenn Hackbarth, Chairman of the Medicare Payment Advisory 
Commission, affectionately known as MedPAC.
    Glenn's tenure as Chairman is coming to a close later this 
year, although we are hopeful there may be an opportunity to 
extend his tenure at least for another year because I gather 
the plans to find a replacement have kind of fallen apart. We 
could do a lot worse than having Glenn stay with us for a 
while.
    Also, the staff of MedPac and the Commission, I am not sure 
all of you know, but the Commission is broadly representative 
of providers of all types, regions, rural, inner city, profit, 
not for profit.
    It is as representative a board, I think, as we could find 
in looking at our health delivery system.
    We have a busy year ahead of us. In order to reach those 
goals, we are going to have to get through some tough issues, 
and a lot of sacred cows are going to be on the table.
    Many in the provider community will balk at some of 
MedPAC's recommendations, but too often, we get twisted up in 
provider complaints saying they cannot possibly sustain a 
market basket shave or refinement in their payment systems.
    That is why it is good to have MedPAC remind us of how high 
some of the margins get or how out of kilter the payment system 
is, and that your job is to ensure that Medicare maintains 
access and is a prudent purchaser of medical care.
    Improvements to Medicare and reforms to the program must be 
and will be part of this year's larger health reform agenda, 
and if we are to improve the value of our health care dollar, 
we need to be smarter purchasers, and the delivery system 
reform begins here with the public health insurance program 
like Medicare.
    Medicare cannot do the job on its own. We will not get 
widespread delivery system changes if the private sector is not 
pushed to modernize as well, which is another reason we need a 
public health insurance plan to compete with the private 
options in a reformed system.
    We have no system, no mechanism, really no authority to 
directly push the private sector to make delivery system 
changes or reforms, and to address the rising costs other than 
to lead by example in the public health insurance programs and 
require the private plans to compete.
    We can draw some lessons from the need for a public health 
insurance system with our experience from Medicare Part D, 
which has no public option and is generally a mess.
    I look forward to working with my colleagues here on the 
dias and getting input and advice from Mr. Hackbarth and the 
MedPAC staff.
    I would yield to Mr. Herger for any comments he would like 
to make.
    Mr. HERGER. Thank you, Mr. Chairman. I join in welcoming 
you back. Good to see you back here in the chair. We certainly 
all wish you the very best and continuing recovery.
    Mr. Chairman, MedPAC's March report to Congress illustrates 
why we must approach health care reform very carefully and 
thoughtfully.
    We do not need to look any further than the Medicare 
Program to see that the Federal Government has often shown 
itself to be incapable of accurately and appropriately 
administering health care programs.
    MedPAC has once again identified a number of areas where 
the Medicare Program is significantly over paying for services. 
MedPAC describes Medicare's $10 billion a year hospice benefit 
as ``lacking the data vital to the effective management of the 
benefit.''
    According to MedPAC, Medicare over payments to home health 
agencies have averaged 16.5 percent since 2002. MedPAC also 
found that Medicare has over paid free-standing skilled nursing 
facilities by more than ten percent for the last seven years.
    MedPAC states that indirect medical education payments are 
set at twice the amount of the costs they are intended to 
cover.
    Similarly, MedPAC feels that the key factors determining 
reimbursement rates for diagnostic imaging services are nearly 
twice as high as they should be, leading to incentives for over 
use.
    Let us not forget that the chief counsel at HHS, Office of 
Inspector General, recently said ``A lot of career criminals 
and organized crime officials have decided that building a 
Medicare fraud scam is far safer than dealing in crack or 
dealing in stolen cars and is far more lucrative. Right now, it 
is a good bet that you can take millions from us and chances 
are you are not going to get caught.''
    We will hear Mr. Hackbarth talk a lot today about 
efficiency. I think it is abundantly clear that the Medicare 
Program is far from being efficient.
    Then there is the other side of the coin, the side that we 
explored at last week's hearing, how Medicare significantly 
under pays physicians and hospitals.
    Over the last 10 years, MedPAC reports that the Medicare 
has paid physicians just 80 percent of private insurance rates. 
Similarly, MedPAC predicts that hospitals' Medicare margins 
will be negative 6.9 percent this year.
    It is not rocket science to figure out that somebody else 
is carrying Medicare's water and subsidizing these drastic 
under payments. This somebody else is 160 million Americans 
with private health insurance.
    Because of Medicare's under payments to hospitals and 
physicians, those with private health insurance are paying $49 
billion more each year.
    Medicare is not alone. The Government's other large health 
program, Medicaid, under pays physicians and hospitals by $40 
billion annually. Hospitals and physicians have to turn to 
those with private health insurance to fill the $89 billion 
hole left by Medicare and Medicaid.
    As a result, a recent report by Milliman found that the 
average private health insurance policy for a family of four 
cost $1,800 more than it should.
    If you are still not convinced that Medicare's 
reimbursement system is broken, The Lewin Group found that if 
the Democrats' proposed Government run health plan paid its 
providers Medicare rates, 120 million Americans would lose 
their current health insurance and be forced into the 
Government run health plan.
    I would strongly urge my friends on the other side to 
consider the evidence we will hear today about the significant 
problems in the Medicare Program before trying to force 120 
million Americans who currently have private health insurance 
into another Government run health plan.
    Mr. Chairman, I and my colleagues await your call to 
improve our Nation's health care system. We all agree that we 
must make health insurance more affordable for all Americans.
    Let us focus on areas where we can find agreement from 
expanding preventive care and chronic disease management to 
eliminating waste, fraud and abuse.
    Who knows. This may build the goodwill that could lead to a 
truly bipartisan health reform proposal.
    Thank you, Mr. Chairman.
    Chairman STARK. Thank you, Mr. Herger.
    Glenn, why do you not go ahead? We will let you run over 
the 5 minutes as you are our only witness. I know you have some 
slides and some things that you would like to present to us.
    Why do you not go ahead however you would like.

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

    Mr. HACKBARTH. Thank you, Chairman Stark and Ranking Member 
Herger, and Members of the Subcommittee.
    I am pleased to be here to present and discuss MedPAC's 
March 2009 Report on Medicare Payment Policy.
    Our report includes recommendations for payment updates for 
fiscal year 2010, updated information on Medicare Advantage and 
Medicare Part D, recommendations on public reporting of 
financial relationships among drug and device manufacturers, 
health care organizations, and physicians, and recommendations 
for reform of Medicare's hospice payment system.
    To very quickly summarize, MedPAC recommends rate increases 
for hospitals, physicians, ambulatory surgery centers, dialysis 
facilities, and long term care hospitals.
    We recommend rate freezes for skilled nursing facilities 
and in-patient rehab facilities. We recommend a rate reduction 
for home health agencies in Medicare Advantage plans, and a 
significant redistribution of payments for physicians and 
hospices.
    In total, our March report contains 22 recommendations. On 
those 22 recommendations, there were roughly 350 votes cast by 
Commissioners. Of those roughly 350 votes, only four were no 
votes and three were abstentions.
    As Chairman Stark indicated, MedPAC has 17 Commissioners. 
Eleven of us have experience in health care delivery as 
clinicians, executives, or board members, including six MedPAC 
Commissioners who are trained as either physicians or as RNs.
    Five MedPAC Commissioners have experience in the management 
of private health plans. Four have experience in the Federal 
Government, and some of us have experience in all three.
    In addition to that, we have several Commissioners who have 
distinguished records in academia who contribute to the 
intellectual rigor of our work, and last, but certainly not 
least, we have an exceptional staff led by Mark Miller.
    Why do I emphasize the credentials of the Commissioners? 
The point I want to make is that for the most part, we are from 
the health care system. As such, we recognize the talent and 
commitment of the professionals who serve within that system. 
We are not outsiders, critics who have no appreciation of the 
challenges of being on the frontline.
    That is not to say that our recommendations are necessarily 
correct. We are fallible like everybody else. We may be right 
in some cases and wrong in others.
    What is clear is that if we are wrong, it is not because we 
are inexperienced or lack a stake in a successful health care 
system.
    Medicare is an indispensable part of American health care, 
not only has it financed care for many millions of senior and 
disabled Americans, it has helped finance investments in health 
care delivery that have benefited all Americans.
    Medicare, however, is unsustainable in its current form. To 
make it sustainable, we must slow the increase in costs while 
maintaining or even improving quality and access.
    That in turn will require both restraint on payment 
increases under Medicare's current payment systems, as well as 
a significant overhaul of those systems.
    In particular, MedPAC believes we must invest in rebuilding 
the nation's deteriorating system of primary care. Abundant 
research shows that a strong system of primary care is 
essential for a high performing health care system.
    In addition, we must move beyond Medicare's largely fee-
for-service payment system to one that better rewards both 
efficiency in the use of limited resources and better 
coordination of care.
    Our current system is not only expensive, it can be 
dangerous, especially for patients with multiple chronic 
illnesses of which there are many in the Medicare program.
    Having spent 15 years in Government service, as well as ten 
years in private health plan and medical group management, I 
know that changing payment systems is complex, and it takes 
time and resources to develop, test, implement and refine new 
payment methods.
    Moreover, as you well know, the process is controversial 
because changing payment systems, reforming payment systems, 
inevitably entails a redistribution of resources and income 
across physician specialties, across provider types, and even 
across geographic regions.
    This complexity and difficulty must not deter us from the 
task. After all, the only alternatives will be higher taxes and 
premiums, including a growing burden on the next generation, 
fewer benefits, and unnecessary pain and suffering for 
beneficiaries who depend upon us.
    As always, Mr. Chairman, MedPAC stands ready to assist the 
Committee in any way that we can.
    With that, I am happy to talk about our specific 
recommendations.
    [The prepared statement of Glenn M. Hackbarth follows:]
               Statement of Glenn M. Hackbarth, Chairman,
           Medicare Payment Advisory Commission, Bend, Oregon

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    Chairman STARK. Thank you. The health insurance industry 
has commissioned a variety of reports that reference a cost 
shift to private health plans from Medicare and Medicaid.
    I notice that nowhere do they ever suggest that perhaps the 
private plans are paid too much, rather than Medicare paying 
too little. I can understand why they would not want to raise 
that issue.
    Last week, we heard the argument from an actuary whose 
report was paid for by AHIP and Blue Cross, and you mentioned 
this so-called cost shift in your March report.
    Can you explain MedPAC's view of this argument and whether 
it is supported by your research? When others do this analysis, 
are they analyzing what is the right price for Medicare?
    Mr. HACKBARTH. Our concern, Mr. Chairman, is that overly 
generous private payments drive up costs and that flows through 
and affects the Medicare system.
    We see evidence of that in two types of data. If you look 
over time at the relationship between hospital margins from 
private payers and Medicare costs, if you look at that as a 
time series, looking back a couple of decades, you see era's 
where the payment from private plans are high, that has a 
negative effect on Medicare margins. Medicare margins turn out 
to be low.
    The other look at it that we did was to look among existing 
hospitals and look at those that are under financial pressure 
and those that are not.
    By being ``under financial pressure'' we mean institutions 
that do not have the luxury of having generous payment from 
private insurers, who feel a lot of pressure to control costs. 
Their costs are significantly lower than institutions who have 
generous private insurance payment to support their operations.
    It is about a 10 or 11 percent difference. The ones under 
financial pressure are able in fact to control their costs and 
reduce their costs when they need to.
    Of course, the next logical question to ask is is that 
lower level of costs consistent with providing a high quality 
of care to Medicare beneficiaries.
    What we did was look at hospitals and identify a group of 
efficient hospitals that have both low cost and high quality 
scores on issues like mortality and re-admissions, and we found 
that in fact, there are institutions that are able to combine 
low cost with high quality.
    Our statutory charge, assignment that the Congress has 
given to the Commission, is to identify payment rates for the 
Medicare Program that are consistent with the efficient 
delivery of health care services.
    Looking at all these different types of evidence, we 
conclude that the problem is not that Medicare rates are too 
low and we think they are consistent with the efficient 
delivery of services.
    One last point on the cost shifting issue. In order to be 
able to shift costs to increase charges to private insurers, a 
hospital would need to have market power. It would need to have 
some leverage to say oh, we are not getting enough from 
Medicare, we are going to charge you more.
    If an institution has that sort of market power, it raises 
the question of well, what if Medicare increased its rates, 
would they automatically reduce the rates for private insurers? 
If they have substantial market power, sufficient market power 
to shift costs, as is alleged, it is not at all clear to me 
that higher Medicare rates would result in lower rates to 
private insurers.
    For profit hospitals will seek to maximize their profits. 
Not for profit hospitals will seek to maximize their revenues 
so they can do good things with it.
    Higher Medicare rates, it is not at all clear to me that 
leads to lower private insurance rates.
    Chairman STARK. In your first chapter of the March report, 
you pointed out that while public and private programs have 
both seen rapid growth in spending, Medicare's spending per 
enrollee has historically grown more slowly than the private 
insurers' spending per enrollee.
    What accounts for Medicare's better cost containment or 
slowing of its rate of spending growth, and do you think some 
of Medicare's innovations such as prospective payment, have 
contributed to this?
    Can we solve the problem of rising health care costs by 
looking at Medicare in isolation, or do we have to combine the 
whole thing, look at Medicare and the private plans?
    Mr. HACKBARTH. If you are referring to a graph that is in 
our report, as I recall, it looks at the rate of increase in 
Medicare costs compared to private insurance costs, going back 
for 30 or 40 years.
    If you study that graph, what you see is that in 
particular, since the 1980s, the Medicare rate of growth has 
tended to be lower than the rate of growth in insurance costs 
in the private system.
    Of course, the significance of the 1980s was the advent of 
the prospective payment system for hospitals, and then ensued 
from that a series of other changes as well, prospective 
payment systems and the like.
    The one exception to that general trend is in the mid-
1990s, when in fact the growth in private insurance costs were 
lower than Medicare's. You will recall, of course, that was the 
period of managed care and active management of health costs by 
private insurers.
    If you look at the whole picture on average, as you say, 
Mr. Chairman, the Medicare rate of increase is somewhat lower.
    There is some disagreement. You can find experts on both 
sides. Some are saying well, it is really not an apples to 
apples' comparison because of differences in the benefit 
structure, and then others say well, even if you account for 
that, it is still true.
    I am not sufficiently expert on the technical things to 
judge those two. The data do show a lower rate of increase in 
Medicare.
    Chairman STARK. Thank you. Mr. Herger, would you like to 
inquire, sir?
    Mr. HERGER. Thank you, Mr. Chairman.
    Mr. Hackbarth, last week, you sent the Committee a 
statement questioning the findings of a Milliman report. This 
report concluded that because Medicare and Medicaid under paid 
physicians and hospitals, these providers charged those with 
private health insurance more for their services.
    As a result, the annual cost of private health insurance 
for the average family of your is nearly $1,800 more expensive.
    Your statement did not question the cost shift resulting 
from Medicare's $14.1 billion under payment to physicians, nor 
did it analyze the Medicaid's $40 billion under payment to the 
physicians and hospitals.
    You stated that Medicare reimbursements to physicians have 
been 20 percent below market rate for the last decade. Reports 
show that Medicaid pays physicians just 44 percent below 
private insurance rates, and pays hospitals 33 percent below 
the market rate.
    Nearly 60 percent of hospital discharges are Medicare and 
Medicaid patients.
    Surely, you cannot believe that these significant under 
payments are not affecting the private insurance rates.
    Mr. HACKBARTH. Let me just start by clarifying that the 
statement that was submitted for the record last week was not a 
specific rebuttal of the Milliman report. That analysis was 
done in advance of the publication of the Milliman report.
    Indeed, this argument that I just described a few minutes 
ago about cost shifting is one that we have been making for the 
last three or 4 years. This is not a new issue for us.
    In fact, this argument goes way back. Back in the 1980s, I 
worked at what was then HCFA, now CMS, and cost shifting was a 
huge debate.
    I just wanted to be clear that the material that was 
submitted last week was not a rebuttal of Milliman. It was 
material that is in our March report. It is based on analysis 
that we have been doing for several years.
    Mr. Herger, as you said, our analysis focuses on hospitals 
and the reason for that is on hospitals, we have cost data to 
do the sort of analysis that I described a minute ago. For 
physicians, we do not have cost data.
    We cannot do the efficient physician analysis in the same 
way that we just did the efficient hospital analysis that I 
described earlier. That was the reason for not focusing on 
physicians.
    As you point out, we find that Medicare rates for physician 
services overall are about 80 percent of those of the private 
carriers that we used as benchmarks. That figure has been 
relatively stable in recent years. It is actually higher than 
the number was back in the 1990s.
    Medicare rates have increased relative to private insurance 
rates since the 1990s.
    I would also point out that 80 percent is the overall 
average, that it varies by type of service. For evaluation and 
management services, the ratio is more like 88 percent, not 80 
percent.
    It still raises the question are Medicare rates too low or 
are private insurance rates too high. We think the Medicare 
rates are adequate and consistent with the efficient delivery 
of services. We do think there is a mal-distribution of the 
payments. We do think the payments for primary care ought to be 
higher and payments for some other services should be lower.
    We do not see the need for an across the board large 
increase in Medicare payments to physicians.
    Mr. HERGER. Again, it is hard for me to understand how you 
come to this with such a huge disparity, 33 percent below 
market rate for hospitals and physicians, 44 percent.
    This is a huge disparity. You mentioned yourself--you do 
not see cost shifting because of this?
    Mr. HACKBARTH. The analysis that we focused on is whether 
the Medicare rates are sufficient for the efficient delivery of 
services. We believe they are, both for hospitals and for 
physicians.
    Mr. HERGER. Is that because they are getting their money 
some place else? You are giving this much. The services are 
being completed, but they are not being completed because of 
what you are paying them. They are being completed because the 
shift is going to the hospitals and the physicians.
    Mr. HACKBARTH. We believe that the Medicare rates are 
sufficient for the efficient delivery of services. Clearly, it 
is beyond dispute that private insurers pay higher rates.
    Mr. HERGER. What if we took private insurers out of the 
picture and it was only the money coming from Medicare/
Medicaid, would you still think that would be enough to keep--
--
    Mr. HACKBARTH. Yes, we would.
    Mr. HERGER. You do?
    Mr. HACKBARTH. Yes. We think health care costs in the 
United States are too high.
    Mr. HERGER. I do, too. I think it is because of fraud and 
abuse. I think it is because of lack of torte reform. I think 
there is enough other areas there why it is too high.
    I respectfully strongly disagree with you, but thank you. 
Thank you, Mr. Chairman.
    Chairman STARK. Thank you, Mr. Herger.
    Mr. Doggett, would you like to inquire?
    Mr. DOGGETT. We can base our health care policies on 
methodology and on ideology or we can base them on facts. I 
appreciate, Mr. Hackbarth, the work that you and your 
Commission do. I think your work by its very nature never makes 
those most directly affected happy because we cannot assure 
coverage for more people unless we address the issue of cost 
containment, and you do that, and I do not always agree with 
every single recommendation, but I do appreciate the way you 
approach this issue.
    Mr. HACKBARTH. Thank you.
    Mr. DOGGETT. Let me ask you to focus on a couple of 
specifics. One of those is long term care hospital patient 
criteria. As you know, Congress mandated CMS to produce some 
patient criteria and facility criteria regarding when it is 
appropriate to use long term care hospitals.
    I know there are some at CMS that are skeptical that it is 
feasible because of the difficulty of setting the criteria that 
would identify a patient uniquely qualified.
    It seems to me the real question is which patients are 
appropriate for care. Which patients would benefit from the 
level of care that is higher and more expensive at a long term 
care hospital.
    I would just ask you to react to whether it should be 
feasible to establish criteria that will help define which 
patients will benefit from care at long term care hospitals.
    Mr. HACKBARTH. We believe the answer is yes, that not only 
is it feasible but necessary. We fully support the 
Congressional mandate to CMS that they develop such criteria.
    Let me just describe our reasoning for a second. The 
challenge in post-acute care, the broad category that we use to 
describe home health care, skilled nursing, facility care, long 
term care hospitals, in-patient rehab, these are all types of 
care that patients generally get after a hospital admission.
    They are out of the acute hospital and they need some 
additional care. Where do we get it best? The overall problem 
that we have in post-acute care is that we fear too many 
patients are going to very expensive sorts of institutions, 
like long term care hospitals or in-patient rehab hospitals, 
when in fact they could get equally good care, equally good 
results at lower cost institutions, a combination of skilled 
nursing facilities and home health.
    When we look at long term care hospitals, which are very 
expensive institutions, we want to make sure that the only 
patients who use that resource are the ones that absolutely 
need it.
    Hence, we think it is important to define eligibility for 
that service based on specific criteria, not just for the 
patients, but then also criteria on what the institutions need 
to be able to provide.
    It is not an easy task but it is an essential task. 
Otherwise, we run the risk of spending a lot of money on 
patients who could be served equally well some place else.
    Mr. DOGGETT. You believe CMS can and should undertake that 
task of defining those criteria for individuals and for the 
facilities?
    Mr. HACKBARTH. We do.
    Mr. DOGGETT. Let me turn to another area of what I 
personally think is waste and abuse within the Medicare system 
to which some of our colleagues seem to be totally blind.
    That is in the pharmaceutical industry. The pharmaceutical 
companies are not doing enough, in my opinion, to reveal their 
financial relationships with physicians. I know several of them 
have been turning their public relations' effort toward new 
codes of ethics in an effort to preempt Congressional action.
    Why are not those voluntary actions sufficient? Why is some 
further action here necessary?
    Mr. HACKBARTH. As you know, there are close and in some 
cases complex relationships between physicians and 
pharmaceutical manufacturers, device manufacturers and others.
    We want to be clear that we do not think those are 
necessarily inappropriate. Involving physicians in the 
development of new drugs and devices is an entirely appropriate 
and natural thing to do.
    Mr. DOGGETT. You just believe they are insufficient?
    Mr. HACKBARTH. We believe it needs to be transparent, and 
the connection, Mr. Doggett, to the voluntary guidelines is 
without data systematically collected, we cannot monitor 
adherence to voluntary guidelines.
    Mr. DOGGETT. Exactly. You have to have them both.
    In that regard, if you look at Part D and our experience 
with it as reflected in your work, excluding the people that 
get extra help, looking at the rest of the Part D population, 
as I understand it, 93 percent of the people covered by Part D 
have had a premium increase. They are paying more for drug 
coverage this year than for last year.
    In theory, competition was supposed to provide those folks 
more choices and they would be able to switch to lower cost 
plans. That has not worked in fact, has it?
    Mr. HACKBARTH. There have been generalized increases, if 
that is what you mean. Premiums in general are going up.
    Mr. DOGGETT. They are going up. I think we can learn from 
the experience of Part D in recognizing how vital it is to have 
a public plan option in any broader health care reform we do, 
because we see that relying exclusively on competition among 
private plans and Part D has not held premiums down. They 
continue to increase.
    Thank you very much. Thank you, Mr. Chairman.
    Chairman STARK. Mr. Thompson, would you like to inquire?
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Hackbarth, thank you for being here. I want to just 
pick up where my colleague left off on the Medicare Part D, and 
specifically on the issue of specialty tier drugs, the idea 
that these companies can move certain drugs into a higher tier 
which requires a huge co-pay provision.
    From where I sit, it looks to me as though it is an effort 
to cherry pick the healthier patients and at the expense of 
those who really need a more expensive drug, not a choice that 
they are making, but they have whatever type of ailment/disease 
that requires these more expensive drugs, and they are being 
shut out and they are being precluded from being able to get 
the medicine that they need.
    It seems terribly dishonest, and I thought there was a 25 
percent co-pay provision, and it looks like they have figured 
out a way to skirt that.
    I would like to hear your opinion of what is going on.
    Mr. HACKBARTH. Clearly, the high co-pays on specialty tier 
drugs represent a significant financial burden on patients with 
serious illnesses and who need those drugs.
    That burden, of course, is limited by the availability of 
the catastrophic coverage under Part D, so cost sharing is 
capped after some limit. They must incur significant out of 
pocket costs until they get to that cap.
    As to whether this is an effort to cherry pick, it well 
could have been that, although it has become so generalized 
now, almost all the plans are doing it. Its effectiveness as a 
way of cherry picking has been diminished by its pretty much 
universal use.
    This sort of high cost sharing, cost sharing can be an 
useful tool potentially if people have a choice. If they have a 
choice of another drug that is equally effective and lower 
cost, you might say well, there ought to be high cost sharing 
on something that is unproven but much more expensive.
    That is not what is happening here. This is high cost 
across the board for people that are dependent on high cost 
drugs.
    Mr. THOMPSON. Do you have any recommendation on this?
    Mr. HACKBARTH. We have not looked at that issue 
specifically, Mr. Thompson, to make recommendations.
    Mr. THOMPSON. Can you? Would you? Will you?
    Mr. HACKBARTH. We exist to serve you folks. We would be 
happy to look at it.
    Mr. THOMPSON. Thank you. At the risk of sounding like a 
broken record, I want to return to something that I have talked 
to you about in the past and just about everybody else with an 
oar in the water on this, and that is the gypsy.
    As you know, I represent part of one county, Sonoma County 
in California, that is at an incredible disadvantage, and they 
find themselves competing against the San Francisco market 
because of the inadequate rate that they get. It is very 
difficult for them to operate.
    GAO and CMS have both made recommendations as to how to 
deal with this. I wonder if you have recommendations or you 
could comment on the ones that have already been made.
    Mr. HACKBARTH. I believe it was 2007, we sent a letter with 
CMS suggesting that they look at two possible alternatives. As 
I understand it, they are looking at those alternatives as well 
as some others.
    The basic challenge, as you know, Mr. Thompson, in this 
area is you have these geographic adjustment factors, and in 
some cases in the past----
    Mr. THOMPSON. It is not just California.
    Mr. HACKBARTH. It is not just California.
    Mr. THOMPSON. Across the country.
    Mr. HACKBARTH. To varying degrees, it is an issue across 
the country. The troublesome situation is where one locality 
has high cost and low cost areas within it, so there is a lot 
of diversity within the existing locality.
    The payment level is an average of the high cost and the 
low cost, so the high cost people feel disadvantaged and the 
low cost people are relatively advantaged.
    You can address that be redefining the boundaries, but 
these are geographic indexes which means that they need to add 
up to one, it is a zero sum game. When you redefine the 
boundaries, you can create new winners and losers.
    The impact of any particular proposal on your counties, for 
example, is very much a function of the specifics of the 
recommendation.
    Mr. THOMPSON. You do not have any silver bullet?
    Mr. HACKBARTH. We do not have a silver bullet for sure. We 
did make two proposals back in 2007, and I would be happy to 
follow up with you on exactly what our proposals were and how 
they would affect your counties.
    Mr. THOMPSON. You had mentioned earlier the issue of low 
cost/high quality institutions. Are there not other outside 
factors that contribute? How are you going to measure for that 
and how can you use one model and try to duplicate that in 
another area?
    For instance, some of us were at a breakfast today where we 
heard that hospitals are looking at--hospital planners are 
looking at obesity rates and then deciding that is where they 
are going to build hospitals because they see that as a future 
growth area for medical problems.
    If you are dealing with an area that has a community that 
has poor health indicators, you are not going to be able to 
flip a low cost/high quality model into that area and be 
successful.
    Mr. HACKBARTH. Yes. The analysis that I referred to is 
looking specifically at hospital costs per admission. It is not 
looking at the overall rate of obesity or other illnesses or 
other health issues in the community.
    It is looking at once a patient is admitted, what are the 
resources required to treat that patient successfully.
    As I said, we found on a per admission basis, there are 
institutions that do very well on quality scores using far 
fewer resources than average.
    Mr. THOMPSON. Thank you.
    Chairman STARK. Thank you. Mr. Johnson, would you like to 
inquire?
    Mr. JOHNSON. Thank you, Mr. Chairman. Appreciate it.
    You said you had 17 members on your panel. Do they 
represent all sections of the country?
    Mr. HACKBARTH. As well as you can with 17 members. We 
cannot represent every constituency, but as Mr. Stark said, we 
have a range of people from urban areas and rural areas and the 
like.
    Mr. JOHNSON. Do you have some Texas guys on there?
    Mr. HACKBARTH. No, but we have----
    Mr. JOHNSON. That is enough.
    Mr. HACKBARTH. We have South Dakota and we have a member, 
George Miller, who for many years ran small rural hospitals in 
Texas. He keeps us filled in on Texas.
    Mr. JOHNSON. Are you in favor of free enterprise?
    Mr. HACKBARTH. I am, absolutely.
    Mr. JOHNSON. In Medicare Part D, as I recall, the option 
for a while was to have the Government dictate the cost of 
prescription drugs. I recall it was about $32 or something like 
that. Those rates have gone down now in Medicare Part D, which 
would suggest to me that free enterprise is working in that 
particular program.
    Would you agree or did you all discuss that?
    Mr. HACKBARTH. We think the jury is still out overall on 
Part D. Certainly, there have been very important successes. As 
you say, we have covered a lot of people and at a cost 
significantly lower than initially estimated. That is very good 
news, indeed.
    As was indicated earlier, the prices have started to go up. 
That could be the result of a lack of power in the competitive 
forces, or it could be that more Medicare beneficiaries are 
getting the drugs that they need to treat serious chronic 
illness.
    One of the areas that we know drugs can help is in reducing 
hospital admissions and more expensive care for patients with 
chronic illness.
    To the extent that we are more successful in getting more 
Medicare beneficiaries on those drugs, prices are going to 
rise.
    I would say the single biggest thing that I worry about, 
Mr. Johnson, in the context of Part D is what we do about sole 
source drugs that are very, very expensive, of which there are 
more and more.
    It is not clear to me how private insurers are going to 
cope with that problem with the amount of bargaining leverage 
that they have.
    That is the single biggest concern I have about Part D.
    Mr. JOHNSON. Thank you. When you all consider the question 
of increases, how do you discuss it among yourselves so that 
you know that you are coming up with the right decision?
    You told me you believed in free enterprise, yet here we 
are as a government trying to dictate what the pricing is going 
to be.
    Do you all discuss that among yourselves?
    Mr. HACKBARTH. Are you talking about Part D now or other 
Medicare services?
    Mr. JOHNSON. Overall Medicare.
    Mr. HACKBARTH. The analysis that we go through, we look at 
a variety of factors. Where available, we look at cost 
information. We look at access to care. We look at access to 
capital for the institutions affected. We look at quality of 
care. We do not base our decisions or recommendations to the 
Congress on any one factor, but it is a series of factors.
    Mr. JOHNSON. It seems to me that there are not any two 
hospitals alike. I do not know how you find a glove that fits 
them all. The various parts of the country are different. That 
is why I asked you if you had somebody representing every part 
of the country. No two parts of the country are alike as far as 
medicine is concerned, from a doctor, hospital or prescription 
standpoint.
    I think you would agree with that. Do you not?
    Mr. HACKBARTH. In fact, Medicare makes many adjustments to 
reflect the different circumstances of hospitals. We do not pay 
a fixed flat rate. We pay one that reflects not just the 
diagnosis of the patient but also the severity of their 
illness. We make a lot of geographic adjustments. We have a 
series of special payment systems to meet the needs of small 
isolated institutions.
    It really is not an one flavor, fits all.
    Mr. JOHNSON. You indicated to me you did not have anybody 
from Texas. Do you have anybody from Alaska on your board?
    Mr. HACKBARTH. No, we do not.
    Mr. JOHNSON. It seems to me those are the two largest 
states in the country and you do not even represent them on 
your board. I cannot see how you can be a positive influence 
toward the system without that representation.
    Thank you very much, Mr. Chairman.
    Chairman STARK. I might suggest that if you need any 
information on Baylor Medical School, Mr. Johnson is an expert, 
and he would be glad to counsel you at any time that you need 
help in understanding anything there is to understand about 
Baylor.
    Mr. HACKBARTH. I will keep that in mind.
    Chairman STARK. Mr. Pomeroy, would you like to inquire?
    Mr. POMEROY. I would. Thank you, Mr. Chairman. Thank you 
for being with us today.
    You have indicated that--I am terribly concerned about our 
inability to get a hold of costs, which the increases have been 
inexorable.
    When I was an insurance commissioner in the 1980s, it was 
12.4 percent of GDP. We were fearful of it turning to 15 
percent by the turn of the century. Here we are at 16.7 and 
heading due north.
    Your report, I believe, indicates that some of the 
strategies on cost containment would involve elevated roles of 
the primary care physician, that some of the best value 
achieved across the systems is based on the evidence presently 
available to MedPAC is primary care centered integrated 
systems, meaning better outcomes at lower costs.
    Would you care to elaborate on that?
    Mr. HACKBARTH. Yes. We absolutely do believe, Mr. Pomeroy, 
that a strong primary care system is essential. As I said in my 
opening statement, there is lots of research that demonstrates 
that fact. I would be happy to discuss it.
    In order to increase payment for primary care, we have made 
several different types of recommendations. First, we have 
recommended a change in how the relative value units are 
calculated. I would be happy to discuss that in more detail.
    Second, we recommended basically a bonus payment for 
primary care physicians. It would be an add-on payment.
    Third, we have advocated a large scale pilot of the medical 
home idea, which as you know, is a key element of which is to 
say in addition to making fee-for-service payments to primary 
care physicians, we also ought to make a lump sum per patient 
payment that they can use to finance staff, information systems 
and the like, to better coordinate the care for Medicare 
beneficiaries.
    We think we need to change payment on all three of those 
levels.
    Mr. POMEROY. Even in the medical school at the University 
of North Dakota, with a residency geared at family practice, we 
have something like one of five students selecting that option.
    Are we educating too many specialists at the expense of an 
insufficient number of primary care physicians?
    Mr. HACKBARTH. The numbers of medical students electing to 
go into primary care has dropped alarmingly, at a very rapid 
rate in recent years.
    The fact is we are producing way too few primary care 
physicians for our future needs.
    The factors behind that decline, more than one thing is at 
work, we think the income level for primary care is certainly 
one of those things, and that is why we have recommended these 
changes.
    Mr. POMEROY. Adjusting those relative values?
    Mr. HACKBARTH. Yes. It would be too simplistic to say that 
oh, we do these things and that is going to solve the problem.
    Mr. POMEROY. I do accept that, although without getting at 
the reimbursement question or maybe even medical education cost 
issues in more dramatic ways, you are not going to make much 
headway. What has happened has been dramatic. We need something 
dramatic to turn it around.
    Mr. HACKBARTH. Right. This sort of payment change is a 
necessary condition to get more primary care. It is not a 
sufficient condition.
    Mr. POMEROY. Some of the places where we are seeing the 
greatest achievements of integrated systems with primary care 
emphasis are in some of the areas of lowest reimbursement in 
the country, compared to for example, Rapid City, $5,281, to 
Miami, Florida, per capita expenditure per enrollee, $14,359, 
almost triple.
    Would it make sense by way of updates to basically enhance 
the update for lower cost systems relying on this kind of 
modeling and begin to penalize the updates on high cost systems 
that do not reflect this type of care and are not achieving 
adequate outcomes for their people?
    Mr. HACKBARTH. Yes. There has been considerable discussion 
recently of the notion of accountable care organizations, which 
are the sort of organizations you describe, organizations that 
integrate primary care with specialty and hospital services and 
could assume responsibility for both clinical outcomes and 
financial responsibility for defined patient population.
    Medicare's current payment systems do not recognize 
accountable care organizations. There are no special payment 
provisions for them.
    MedPAC is in the process of analyzing how we might alter 
Medicare's payment systems to support that sort of organization 
that you describe. For a variety of reasons, it is not as 
simple as you or I would like it to be. We are looking for the 
right payment mechanism to reward that sort of activity.
    Mr. POMEROY. Thank you. I yield back my time, Mr. Chairman.
    Chairman STARK. Mr. Kind, would you like to inquire?
    Mr. KIND. Thank you, Mr. Chairman, I would, and I welcome 
the Chairman and your testimony here today.
    Just to pick up on the line of questioning that Mr. Pomeroy 
was just on, I truly believe that one of the keys to any health 
care reform that we do around here is not just dealing with 
coverage but also linking cost with quality of care that exists 
out there.
    MedPAC has in this report and in previous reports, too, 
kind of touched upon it, but in a glancing sort of way, when 
you look at the regional variations with the quality of health 
care that is being performed out there.
    What I want to ask you about is your thoughts on where we 
go forward with comparative effectiveness research, evidence 
based research, and the role and the importance that is going 
to play in any health care reform proposal.
    Just today, I think I read a report online that Consumer 
Reports now will be releasing a list of drugs that they 
recommend, based on comparative effectiveness research. 
Medicaid programs from various states have utilized this in 
order to reduce costs. Private health plans, too, are looking 
at it.
    I wanted to get your reaction or MedPAC's perspective on 
the role comparative effectiveness is going to play with health 
care reform and potential cost savings that does not jeopardize 
the quality of care at the end of the day.
    Mr. HACKBARTH. Yes. We think comparative effectiveness 
research is a critical piece of health care reform. Information 
about what works is essential for physicians and patients as 
well as for public and private insurers.
    The private marketplace has not and will not produce that 
research in adequate amounts. A public role in financing that 
research is essential in our view.
    Comparative effectiveness research is one of the few pieces 
of what has been labeled ``health care reform'' that has the 
potential at least to affect the long term rate of increase in 
costs.
    The long term rate of increase is heavily influenced by the 
way technology, new technology, comes into the system, and how 
it diffuses through the system.
    Too often right now, the door is wide open to new 
technology. It is not carefully evaluated before the fact or 
even after the fact, and it just spreads. It is used in cases 
where it may be very expensive but not all that effective. We 
need research to make better decisions.
    I would make one last point. MedPAC's view is that the use 
of that information ought to be de-centralized. We do not 
envision one Federal bureaucracy saying here is the right 
answer for every question in medical care. We think the use 
ought to be de-centralized, physicians and patients, private 
insurers, public insurers, all acting independently, making the 
best judgments they can.
    Mr. KIND. Mr. Hackbarth, let me ask you this. Obviously, 
there have been some concerns being raised already and we had a 
little bit of that debate in the context of the recovery in the 
Investment Act, where $1.1 billion was allotted in that for 
comparative effectiveness and it will be going to the Health 
Care Research and Quality Agency, NIH, HHS, to kind of disperse 
it and get these studies in place.
    How do you address the concern that some might have that 
this is only going to lead to rationing, this is only going to 
be about costs and not quality outcomes, especially concerns 
being raised within the pharmaceutical industry and the medical 
technology manufacturers right now that are apparently very 
scared on how this information will be used?
    Mr. HACKBARTH. Right. What we need is information on 
effectiveness, set aside cost for a second. We need better 
information about what works. In our view, we are not going to 
get that unless we make this sort of public investment in the 
research.
    I can sympathize. I think we call sympathize with people 
who are concerned about the potential for rationing. We can all 
envision ourselves as the patient, or a loved one being the 
patient, and in that case, of course, we want the best possible 
care, damn the cost. That is how we would all act as 
individuals.
    We are also taxpayers. We are all also premium payers to 
private health plans. From my perspective, we are also all 
parents or grandparents, and we have a next generation or two 
to worry about.
    As we think about this sort of investment, we should not 
just put on the patient hat or potential patient hat and say 
oh, all decisions ought to reflect that, we need to reflect the 
patient perspective, the taxpayer perspective, and the parent 
perspective, protecting the future generations.
    Mr. KIND. You think establishing the research that shows 
the best outcomes, evidence based, presenting that information 
to patients and doctors, that these are rational actors and 
they will make decisions accordingly?
    Mr. HACKBARTH. Yes. Just to give one example. Tom Dean, a 
physician on the Commission from South Dakota, as a practicing 
physician, he wants this information. He wants better 
information about what works so he can do a better job for his 
patients.
    Mr. KIND. Great. Thank you.
    Mr. HACKBARTH. That is the most basic level.
    Mr. KIND. Thank you, Mr. Chairman.
    Chairman STARK. Thank you. Mr. Nunes, would you like to 
inquire?
    Mr. NUNES. Yes, Mr. Chairman. I appreciate the time.
    Mr. Hackbarth, I come from a region, San Joequin Valley of 
California, where we historically have lower reimbursement 
rates. We are having trouble recruiting specialists and even 
doctors. Many of the doctors in my district are becoming older 
and we are seeing more and more doctors basically coming from 
foreign countries locating here.
    I think that raises several questions in my mind about the 
rate of Medicare reimbursement levels.
    If you look at--the first question is if you look at the 
1980s and if you adjust it for inflation, I believe the doc's 
are making less today than they were inflation adjusted back to 
the 1980s. Is that accurate?
    Mr. HACKBARTH. I do not know whether that is true or not, 
Mr. Nunes.
    Mr. NUNES. I am pretty sure it probably is. If you look at 
the hospitals that are operating in these low and negative 
rates for the non-Medicare margins, and the theory that I think 
you have suggested or MedPAC has suggested is if Medicare 
simply paid less, that the hospitals would become more 
efficient at delivering care, it seems kind of crude, it does 
not seem to me like this is a workable solution, at least in my 
district. I think we have tried that and what we are seeing is 
as I stated in my opening, a problem with recruitment and a 
problem getting specialists.
    It seems like the more you cut, the harder it becomes. I 
guess my question is if we want to improve efficiencies, is 
cutting these Medicare payments truly the best way to do it, 
essentially rationing care, which is what you were talking 
about earlier, and is there a better way that we could provide 
this care?
    Mr. HACKBARTH. Yes. Let me start with a distinction. You 
began by talking about the particular problems of a rural area 
and attracting physicians, especially specialty physicians. 
That is a different sort of issue than the issue of the overall 
Medicare payment rate.
    Let me address them in turn. In terms of having payment 
rates that are adequate for the special circumstances of a 
rural area, on the hospital side, Medicare has a series of 
different payment policies to try to help small institutions, 
especially those that are isolated, for example, the critical 
access hospital provision where we pay 106 percent of costs for 
institutions that quality as critical access. Medicare has 
tried to address those.
    With regard to physician payments in Medicare, there are 
some special adjustments for rural areas in the physician 
payment system as well. There is a 10 percent bonus payment for 
health profession shortage areas. There is a floor--I do not 
want to get too bogged down on the details--a floor on the work 
value in the physician payment system that elevates payments in 
many rural areas.
    Mr. NUNES. At the most basic level, Mr. Hackbarth, if you 
look at--truly, my area is not very rural any more. We have 
some large places. Fresno is not exactly a rural area any more.
    Overall, what you are suggesting or what MedPAC is 
suggesting is basically lower reimbursement rates, and my 
example is we have kind of tried that in my district and it 
does not appear to be working, so the larger question is where 
are we headed with all this?
    Mr. HACKBARTH. Earlier with Mr. Johnson, we were talking 
about competitive markets and in fact, I do believe in 
competitive markets and want to use them where we can.
    Competitive markets can be pretty harsh, too. In fact, we 
all see evidence of that every day. Many Americans losing jobs 
or having their wages reduced or losing their health benefits 
because of intense competition in competitive markets.
    What we need to do in Medicare's administered price systems 
is apply the same relentless pressure. It is not always a 
pretty process. It does not mean that everybody is going to be 
happy, but we know both in competitive markets and administered 
price systems, it is that pressure which causes people to make 
the hard decisions necessary to improve efficiency.
    Mr. NUNES. We will see if that works. I do not think it has 
worked too well in my district. I guess we will find out.
    Thank you, Mr. Hackbarth. Thank you, Mr. Chairman.
    Chairman STARK. Thank you. Ms. Berkley, would you like to 
inquire?
    Ms. BERKLEY. Yes, and thank you, Mr. Chairman, for holding 
this hearing. Thank you very much for being here. I appreciate 
it.
    I think we all appreciate that if health care spending in 
our country continues to rise at the current rate as we baby 
boomers reach retirement, that the promised benefits under 
Medicare are unsustainable. I appreciate the efforts of the 
Administration to move us in a direction of sustainability.
    My district has the fastest growing senior population in 
the United States. I represent the urban core of Las Vegas. We 
have no option but for Congress to take steps to ensure that 
seniors are able to see a doctor and receive appropriate care.
    I agree with many of the recommendations in the report, but 
there are some things that I would like to share with you, my 
experience, and in the interest of full disclosure, I am 
married to a nephrologist and my daughter is a primary care 
physician, who just started practicing 6 months ago.
    According to the report, Medicare payment rates are about 
80 percent of the private insurance payments. What our 
experience has been in my husband's practice is the private 
insurance companies are pegging their reimbursement to whatever 
the rate of Medicare is.
    When he and I were dating, I was running for Congress for 
the first time, so about 12 years ago. He would bring HCFA 
regulations on our dates, not the most romantic.
    Mr. HACKBARTH. Sounds like fun.
    [Laughter.]
    Ms. BERKLEY. A party every night. I am an attorney by 
profession, and I could not figure out those HCFA regulations 
to save my life. I believe that a lot of doctors down code 
because the computer automatically kicks out the higher codes.
    They may have expended a great deal of time and effort and 
expertise in providing care for their patient, but knowing that 
it is going to be more trouble than it is worth, they are not 
doing the higher codes, they are doing the lower codes, so 
right away, their reimbursement is less.
    I would like to have you answer and I would like to finish 
my thoughts and then perhaps you could answer, what effect do 
you think allowing the proposed cuts to the physician fee 
schedule to go into effect would have on a patient's ability to 
continue seeing their doctor?
    I do believe that some of the recommendations in the report 
require more scrutiny. For example, I support increasing 
incentives for primary care physicians. However, I do not agree 
that these incentives must or should be provided by lowering 
reimbursement to other providers.
    I can tell you from personal experience, my daughter is 
very conscientious. She is in the first six months of her 
practice. She works very, very hard. She works 12 hours a day, 
and deserves to be compensated for her work.
    Her 60-year-old father leaves the house by 7:00 every 
morning and I do not see him until after dinner. He is still on 
call on the weekends. Did not finish his training until he was 
in his thirties, and deals with the sickest people in our 
country, and deserves to be compensated for his work as well.
    I know that in the State of Nevada, in my district, we do 
not have enough nephrologists, we do not have enough gastro 
guys, we do not have enough surgeons, and we do not have enough 
cardiac specialists or cancer doctors.
    The idea that we have an abundance of specialists and not 
enough primary care physicians, the reality is we need more 
primary care physicians, but I can tell you in Las Vegas, we 
have a serious shortage of nephrologists, and that is why my 
husband is still taking calls on the weekends.
    I also think we need to be careful about unintended 
consequences in implementing reforms, and let me give you an 
example.
    When Congress took a broad brush approach to lowering 
spending on imaging in 2005, it led to fewer seniors being 
screened for osteoporosis during visits to their doctors, 
simply because the physicians were unable to continue offering 
the service, it did not pencil out.
    I know because I have osteoporosis and if I did not have a 
doctor that had a bone density machine and said you know, while 
you are here, I want you to get on this machine, I would not 
have known until I probably started breaking bones.
    Seniors are not going to go to the hospital for a bone 
density test and they should not because it costs three times 
as much there than if their doctors get reimbursed adequately 
for a DEXA test.
    The Lewin Group estimated that if we restore payments for 
DEXA scans to their 2006 levels, it would actually save 
Medicare more than $1.1 billion over the next five years by 
preventing costly and devastating fractures.
    I cannot believe that does not go across the board to other 
imaging machines and procedures as well.
    I am very supportive of the health IT initiatives. I think 
it will help eliminate duplicative tests and other wasteful 
spending, while ensuring that patients receive recommended 
evidence based care.
    I know that my time is up. There are a number of other 
areas that I would like to discuss with you, but in 30 seconds, 
can you answer any of these questions that I posed?
    [Laughter.]
    Mr. HACKBARTH. I will go real fast. Private insurers often 
do use Medicare's physician payment system, which I think is an 
indication that sometimes the private sector is following 
Medicare. Medicare is a leader in payment innovation.
    Second, if you were referring to the 21 percent cut in 
physician fees and what the effect of that would be, very 
likely it would be a bad effect on access for Medicare 
beneficiaries, so we do not support that. We have recommended a 
modest increase for physicians.
    Third, you raised the issue of primary care going up at the 
expense of some specialties. What I would emphasize there is if 
you look at total Medicare physician expenditures, the share 
going to primary care has been shrinking, and the share going 
to specialists, sub-specialists of various types, has been 
increasing.
    You have to look at both the price and the volume and 
intensity of care provided. We have had a shift in income 
distributions within Medicare away from primary care toward 
sub-specialty care.
    Fourth, there are some other specialties, for example, 
general surgery, that we are worried about potential shortages. 
Those issues are not necessarily Medicare issues only, Medicare 
payment issues only. They are broad issues that go well beyond 
Medicare.
    I do not know about payment levels for bone densities, 
specifically. I would say that there are instances where 
Medicare over pays for equipment. For example, imaging 
equipment, expensive imaging equipment like MRI and CT.
    We make a recommendation in this report for reducing those 
rates because we think the payment rates are overly generous, 
and I could explain that if we have time.
    Ms. BERKLEY. Perhaps we can get together in my office and 
talk about these issues. My personal experience does not always 
track with the recommendations in the report.
    Mr. HACKBARTH. I would be happy to, yes.
    Ms. BERKLEY. Thank you.
    Chairman STARK. Mr. Pascrell, would you like to inquire?
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Mr. Chairman, I would like to take a slice out of this 
issue and speak of the health workforce issues, which I think 
are a critical part of what we are talking about today.
    I believe that the reform that we started to talk about 
last week will be meaningless without a health workforce that 
is both adequate in size and competency, competency, to respond 
to an increased demand and a new focus on efficiency, on 
outcomes, on prevention, on wellness, on coordination.
    Health workforce strength has important implications for 
health care costs. That is the conclusion I have come to. I do 
not know if that is the conclusion you come to.
    Mr. HACKBARTH. It does.
    Mr. PASCRELL. I introduced the Health Workforce Investment 
Act last year, for a comprehensive national framework for 
health workforce planning. The legislation provides tools that 
would allow us to collect the data that we need to identify 
health workforce problems, to formulate what we would consider 
to be comprehensive and effective policies to address these 
problems, set national goals and objectives for the future, and 
provide states with the leadership and flexible funding needed 
to address health workforce needs.
    In your report, you briefly mention that a portion of the 
hospitals' rapid cost growth has risen from fierce competition 
for nurses and other employees.
    Is it fair to say that health workforce shortages have the 
ability not only to restrict access and actually to affect 
quality, but also to increase costs?
    Is it possible to avoid these shortages along with other 
health workforce issues through a more comprehensive Federal 
approach to health workforce tracking and planning?
    Would you address that just for a moment?
    Mr. HACKBARTH. Mr. Pascrell, we have not looked 
specifically at the issue of workforce planning, as you 
describe it. I would agree, as I said at the outset, with your 
premise that the mix and number of people that we train does 
have a significant impact on both the cost and quality of the 
system.
    We have concerns about the current mix of people that we 
are training. We talked earlier about the too few primary care 
clinicians and too many sub-specialists.
    We also have some concerns about what they are taught.
    Mr. PASCRELL. Exactly.
    Mr. HACKBARTH. The emphasis in resident training is still 
very much in-patient, hospital, whereas more and more of health 
care is moving outside the hospital. Residents are not being 
trained in those locations.
    Mr. PASCRELL. It is not hyperbole when I have concluded 
through the preliminary data that I have seen that there is an 
essential connection between quantity, the number of people, 
whether we have enough or not, and the kind of training those 
people receive, and the cost of health care.
    If we do not address that, I think the rest of that reform 
is meaningless. Would you agree with that conclusion?
    Mr. HACKBARTH. Again, I agree that the mix of people that 
we train has a very important effect on quality and cost.
    Mr. PASCRELL. The second issue I want to address is the 
bundled hospital payments. There is a whole range of experts, 
including MedPAC, the Obama Administration and The Commonwealth 
Fund, and they recommended a move toward a payment bundling for 
episodes of hospital care.
    I believe there is room for efficiencies and quality 
improvement, that is what we are all here about, I guess.
    I am concerned that hospitals and particularly post-acute 
care providers may not be prepared for such a shift in the way 
we treat payments. Additionally, MedPAC outlines the challenges 
to placing patients in the most appropriate post-acute setting 
for their needs.
    I have gone through that situation with my own mother, who 
had an acute stroke last April, was given three weeks to live, 
and she just turned 95 last Sunday. We are hanging in there.
    From the hospital to hospice to acute care to the nursing 
home is a stretch, and we do not know in between what decisions 
are best for everybody.
    I do not feel comfortable penalizing a hospital without 
giving them the tools to positively change their delivery and 
their referral methods, particularly given the fiscal health of 
the hospitals.
    I have had one hospital close in my district just recently, 
and another one has filed for bankruptcy just last week.
    What design do you envision for a bundled payment system 
that best ensures hospitals and providers have adequate 
information and resources to avoid re-admissions, very 
expensive, and improved patient outcomes, and how can a bundled 
system ensure that the patients are referred to the most 
appropriate post-acute care setting?
    Mr. HACKBARTH. Let me start with a couple of facts about 
the nature of the problem. About 18 percent of Medicare 
hospital admissions are followed by a re-admission of the same 
patient within 30 days.
    Mr. PASCRELL. Within 30 days?
    Mr. HACKBARTH. Within 30 days, at an aggregate cost of 
about $15 billion.
    Mr. PASCRELL. Why is that?
    Mr. HACKBARTH. It happens a lot. In some cases, it is 
unavoidable, but we think there is evidence that in many cases, 
it is avoidable.
    Take a specific example, patients with chronic obstructive 
pulmonary disease, a common problem among Medicare 
beneficiaries. There is roughly a four fold difference between 
the hospitals with the highest re-admission rates and the 
hospitals with the lowest re-admission rates.
    That is very unlikely to be due to chance or circumstances 
beyond the hospital's control.
    Mr. PASCRELL. What is likely to be due to?
    Mr. HACKBARTH. We think that among the potential problems 
are very poor hand off's between the hospital and the attending 
physicians in the hospital and the patient's primary care 
physician, home health providers who are engaged in the care, 
information about what to do in certain circumstances.
    We pay them separately. We pay them in silo's and too 
often, they act clinically in silo's. They are out the door, it 
is not my problem any longer, it is somebody else's.
    The idea behind bundling is say look, it does not end when 
the patient is discharged. We need physicians, hospitals and 
post-acute providers to work together to assure the best care 
for the patient.
    Mr. PASCRELL. Thank you. Mr. Chairman, I think this is very 
fundamental to the issue of cost that we are struggling with. 
Now that you brought attention and many others have brought 
attention, so that we are not just concerned about finding the 
money to throw at the problems, but we are really trying to 
essentially reduce the cost of health care, I think these 
fundamental things are critical, and I would like to go into 
them further.
    Thank you, Mr. Chairman.
    Chairman STARK. Thank you. Ms. Brown-Waite, would you like 
to inquire?
    Ms. BROWN-WAITE. Certainly. Thank you very much, Mr. 
Chairman.
    Mr. Hackbarth, I have asked the staff to put up a slide. 
Earlier when you were speaking to Representative Nunes, you 
made a statement that we would be forcing people to make hard 
decisions.
    Obviously, rural health care, we all know, there had been 
an accessibility and certainly an affordability issue out 
there.
    If the Medicare Advantage plans pull out, people will be 
suffering in health care, in health care availability, and 
certainly cost. Many of them will not any longer have the 
availability of vision, dental, and Part D inclusion in 
Medicare Advantage.
    On the chart, and I believe there actually are two of them, 
it carefully shows that what people are going to have to make 
hard decisions about are going to be where they are going to 
come up with the additional money.
    For example, in one of my counties, it means they are going 
to be paying $126 more if Medicare Advantage pulls out. Mr. 
Pomeroy's Billings' folks will be paying $246 more a month, and 
Mr. Blumenauer has a county where they will be paying $234 a 
month.
    I am sure you did not mean that forcing people to make hard 
decisions, the people that would be making the hard decisions 
are the people in areas where those who have joined the 
Medicare Advantage plans are very happy with the additional 
services that they get as opposed to traditional fee-for-
service Medicare.
    When you look at these charts, and there are other Members 
of the Committee who also will be having their constituents 
being forced to come up with additional funding, how can you 
recommend cutting the Medicare Advantage reimbursement rate to 
fee-for-service when these additional services are provided?
    Unless there is a disease of the eye, eye vision coverage 
is not included in traditional Medicare fee-for-service, and 
certainly not dental, part B reimbursement, and the 
availability of drugs so that it is covered through the 
Medicare Advantage plan.
    We are able to quantify the additional cost. I would like 
to have your reaction to that.
    Mr. HACKBARTH. Can I put up a slide of my own?
    Ms. BROWN-WAITE. Sure.
    Mr. HACKBARTH. I guess this is going to take yours down. Is 
that okay?
    Ms. BROWN-WAITE. No, I would actually prefer mine to stay 
up.
    Mr. HACKBARTH. Then I will tell you what the numbers are. 
The added benefits that you referred to are benefits paid by 
the taxpayers. They are not paid out of efficiency of the 
private plans in question.
    Private plans says we are giving you these additional 
benefits, are we not great. On average, those benefits are not 
being paid by the private plan, they are being paid by 
taxpayers and other Medicare beneficiaries who are not in 
Medicare Advantage.
    Ms. BROWN-WAITE. Is it fair to say that they are being paid 
for by the taxpayers because of the higher reimbursement in 
order to get to some of these rural areas to have coverage?
    Mr. HACKBARTH. As I said earlier, in traditional Medicare, 
we have a series of payment provisions for both hospitals and 
physicians whereby we pay more for those providers in rural 
areas.
    Ms. BROWN-WAITE. Because there was no other way to get 
those services there. Let me ask you another question.
    Mr. HACKBARTH. I would like to be able to answer your first 
one.
    Ms. BROWN-WAITE. I certainly hope that the Chairman is 
going to allow me to continue.
    Mr. HACKBARTH. Okay. Go ahead.
    Ms. BROWN-WAITE. If the availability of private fee-for-
service plans is expected to drop substantially in 2011 when 
MIPPA provisions become effective, why do we not just wait and 
see what happens at that point before cutting plans even 
further?
    I would refer to page 268 in your report for that 
statement.
    Mr. HACKBARTH. If I may, Mr. Chairman, I am going to go 
back and finish my answer to the first question.
    Chairman STARK. Yes, by all means, go ahead.
    Mr. HACKBARTH. There are added benefits. They are paid for 
by the taxpayers and the way we are providing them through 
private plans is a very expensive way for the Congress to 
provide additional benefits to Medicare beneficiaries.
    In private fee-for-service plans, for example, we are 
paying over $3 for each additional dollar of benefits.
    If the Congress wishes to extend added benefits for these 
sorts of services, it seems to us that is your call, that is 
the Congress' responsibility, but in the interest of solvency 
of the Medicare Program and the interest of existing 
beneficiaries who have to finance this with their part B 
premiums, we ought to do it in the most efficient way possible, 
and Medicare Advantage is not doing that. It is providing added 
benefits paid by the taxpayers at a very high cost.
    Chairman STARK. Would the gentlelady yield?
    Ms. BROWN-WAITE. Yes, I will yield.
    Chairman STARK. Are they providing the benefits or offering 
them? We get mixed up. They offer benefits. We have no record 
as to whether they really provide them.
    Do people really use the gym or do they get the eyeglasses? 
They get $50 for a eyeglass. I do not know where you get 
glasses for $50.
    The question about what they actually provide may be 
different from an offering.
    If the gentlelady will continue to yield, 75 percent of the 
people in your district do not belong to Medicare Advantage, 
which means they are paying $3 a month more for the 24 percent 
in your district who do.
    Ms. BROWN-WAITE. Mr. Chairman, let me explain to you why so 
many of them do not belong, because they are public employees 
and if you belong--for example, I have so many retirees from 
New York State, from Mr. Pascrell's state, New Jersey, and 
those retirees--if they leave the retirement plan that they 
have and they go into a Medicare Advantage, they cannot get 
back into traditional Medicare.
    That is one reason why there is a reluctance. I know my 
husband considered it and he said well, you know, I just do not 
know if I want to be back in traditional Medicare at some time, 
so that is one of the reasons why there is a hesitancy there.
    Mr. Chairman, my husband is no longer with me. I hope that 
you are not laughing at my analogy of my husband, who was a 
public retiree. My husband passed away.
    There is a hesitancy there to go into a Medicare Advantage 
plan. In my district, because I have so many retirees from 
states and so many of them are former public employees, that is 
one reason why there is not that much utilization of the plan.
    Chairman STARK. You have the highest utilization of any of 
the Republicans.
    Ms. BROWN-WAITE. They tell me that. Yes, I know.
    My second question is why are we not waiting until your 
prediction of the private fee-for-service plans will drop 
substantially because if they drop, what is there?
    Mr. HACKBARTH. The reason is that we believe that we need 
the Medicare, both public and private plans. We support 
Medicare Advantage, but we need to offer beneficiaries a 
neutral choice between traditional Medicare and a private plan.
    We are now systematically encouraging people to leave 
traditional Medicare, which in many parts of the country is a 
low cost/high quality plan, to go into private alternatives 
that are much more expensive, and to provide additional 
benefits but only at a very, very high cost.
    Low cost areas of the country, I really sympathize. I am 
from Oregon. I am from one of those low cost/high quality 
states. I hear a lot from my friends in Oregon about how unjust 
Medicare is and in Miami, they get all these added benefits. I 
understand that and I empathize with that.
    Looking at the challenges facing the Medicare Program, we 
cannot afford a policy that takes Oregon and turns it into a 
high cost state. We need to level Miami down toward Oregon, not 
level Oregon up toward Miami, or we are doing a severe 
injustice to our children and grandchildren.
    We need a more efficient health care system. Medicare 
Advantage as currently structured is not moving us in that 
direction.
    Chairman STARK. Thank you. Mr. Becerra, would you like to 
inquire?
    Mr. BECERRA. Thank you, Mr. Chairman. Mr. Hackbarth, thanks 
again for coming. Thank you for the report. We will be talking 
quite a bit more as we move forward on the prospects for health 
care reform, so we thank you very much for the work that the 
Commission has done, and please convey to the Commissioners our 
gratitude for the work they are doing.
    A couple of quick questions. First, I think your report 
points this out as well, that we continue to fall behind when 
it comes to trying to provide modest income, disadvantaged 
communities with the health care resources they need to ever 
have quality health care, to be a healthy community, and 
whether it is in the rural poor areas of the country or the 
urban inner city areas of the country, there is just not enough 
access, especially to primary care physicians.
    One of the ways that we can try to tackle this is by trying 
to provide some type of loan deferment or loan forgiveness 
program for someone who is in medical school who decides to 
practice in one of these disadvantaged communities for a time, 
so they get some reward for it.
    I am wondering if there might be some other ways to try to 
go about that. My question specifically is do you think there 
might be something we can do within GME, graduate medical 
education programs, to try to help provide more incentive to 
graduate medical students who will go practice in disadvantaged 
areas and thereby increase, we hope, especially the supply of 
primary care physicians into these areas, so we can start them 
off on a healthy foot?
    Mr. HACKBARTH. Yes. Congressman Becerra, I want to thank 
you for raising the issue of disparities. Last year, and I 
think you will remember, Congresswoman Tubbs-Jones gave me a 
really hard time on this topic. She was right, that we have 
not--MedPAC has not in the past given sufficient attention to 
the issue, so we are beginning to do that. We have a way to go. 
She was right and I want to acknowledge that.
    Mr. BECERRA. In the spirit of her memory, I think we will 
continue to fight that as well, and I appreciate the words that 
you have offered in that exchange and subsequently, but please 
go ahead.
    Mr. HACKBARTH. On the issue of GME, in fact, at our meeting 
last week, we began what I think will probably be a series of 
discussions about GME and how Medicare supports GME, and how we 
could possibly use Medicare dollars to leverage changes in 
medical education.
    We are not yet at the point of conclusions, but I would say 
there are Commissioners who are interested in potentially using 
this leverage to alter the specialty mix, as discussed earlier, 
potentially you could use it to subsidize the cost of training 
for particular specialties or people who agree to locate in 
particular areas and serve under served populations.
    There is a lot of money in the pot, so to speak, and ample 
reason to question whether we are getting what we want out of 
the system, what we need out of the system.
    Mr. BECERRA. If you just increase payments to primary care 
physicians, you may increase the pool or the supply of primary 
care physicians. That does not mean that those primary care 
physicians will go into the areas that are in most need of 
their services.
    Mr. HACKBARTH. Yes. I would say that when we talk about 
getting physicians to go into under served areas, whether it is 
Los Angeles or a rural area, that is an issue that goes way 
beyond Medicare. Medicare is a very important payer, the 
largest single payer, but for the typical physician, it is only 
a fraction of their income.
    We would need a more concerted approach to shift the 
distribution.
    Mr. BECERRA. That is right. For the most part, when we talk 
about the need for primary care physicians, if you are a 
senior, you are going to have access at one point or another to 
a physician in a far greater way than if you are a poorer adult 
or a child and do not have good access through any particular 
program, even Medicaid.
    You are right, but Medicare can help because there is a pot 
of money there that if we direct it the right way, it might be 
able to help solve that.
    Last question. I am a little stunned and disturbed by the 
level of increases we are seeing in costs within the Medicare 
Part D program, the prescription drug program.
    I think you point out that the average premium increase was 
about 24 percent. Part D, the prescription drug program within 
Medicare, does not have a public health insurance option that 
people in Medicare can choose from to get their prescription 
drugs. You go only within the private sector for that, those 
insurance options to plans that are out there for you for your 
prescription drugs.
    Two good questions and my time has expired. One, is it 
common for us to see 24-percent increases in premiums on the 
part A and part B side, on the doctor and hospital side of 
Medicare, and secondly, at this kind of rate, is that not a 
perfect example of why we need some kind of competitive model 
that gives us a chance to make sure that we do try to keep a 
lid on prices going up for consumers of that health care?
    Mr. HACKBARTH. You are right that the Part D premiums have 
increased substantially. It is not entirely clear why that is. 
Let me list a number of potential factors.
    One could be it is a by-product of pricing strategy that 
companies decided to low ball, aggressively price at the 
beginning of the program, to maximize their market share, and 
now that they have enrollees that are backing off and trying to 
recoup.
    A second potential factor could be that there is inadequate 
risk adjustment. We have been looking at the risk adjustment, 
Part D, and see some indications that for the high risk 
patients, it may be inadequate, and we have sent some data to 
CMS for them to look at.
    A third possibility, as I mentioned earlier, is that more 
people could be getting drugs. The whole purpose of this was to 
assure that Medicare beneficiaries had access to needed drugs, 
and we may be successful at that. More and more are getting on. 
That does not happen overnight. It takes some time, and that 
may be good news. It may help us hold down some other costs.
    These are mutually exclusive. It could be some combination 
of all these. It could be that a bigger and bigger share of the 
drug bill is moving toward very high cost single source drugs, 
biologics, for example, where private purchasers have great 
difficulty sitting across the table from a monopolist and 
negotiating a favorable price.
    As I say, it could be some combination of all those and 
there could be some additional factors as well. We will be 
looking as we get the claims information at trying to figure 
out exactly what is going on here.
    Mr. BECERRA. Do we seen in part A and part B the same 24 
percent increase in premiums?
    Mr. HACKBARTH. No, we do not.
    Mr. BECERRA. Final comment on whether or not if we had a 
public option available to Medicare consumers, that they could 
shop and have a way to try to have a better competitive price 
to choose from among the plans, if you had a public plan that 
was out there?
    Mr. HACKBARTH. Yes. We have not looked specifically at the 
issue of a public drug plan. I would say that in general we 
think that Medicare benefits from having both a public plan and 
private alternatives. We think they have different strengths 
and in some ways complimentary strengths.
    A public plan has economies of scale, lower administrative 
costs, and pricing power. Private plans have greater 
flexibility in payment methods, the ability to identify 
efficient providers.
    The solution is not one or the other. We need both.
    Mr. BECERRA. Right. Thank you so much. Mr. Chairman, thank 
you. I yield back.
    Chairman STARK. Mr. Yarmuth, would you like to inquire?
    Mr. YARMUTH. Thank you, Mr. Chairman. I appreciate the 
courtesy you have extended to a non-Member of the Subcommittee.
    I am a non-Member but health care comprises about 25 
percent of the economy in my district, in Louisville, Kentucky, 
so I am very much interested for my district, as well as for my 
role on the Committee.
    I have two quick questions about the bundling 
recommendations. One is my hospital companies tell me that one 
of the things that has to be accounted for in any bundling 
structure would be a difference in diagnosis.
    You mentioned COPD. If somebody came in with congestive 
heart failure, which has just by definition almost a greater 
incidence of re-admission, that the system should accommodate 
differences in diagnosis.
    Would you agree with that?
    Mr. HACKBARTH. Correct; yes. What we would envision is a 
diagnosis based system with severity adjustment, as we use for 
the basic Medicare payment system.
    Mr. YARMUTH. The second thing, the question of where the 
admission comes from is something that has also been raised to 
me, that many admissions are not directly by a physician to a 
hospital, some come from a skilled nursing facility, some come 
from home health, and so forth.
    How would that logistically work in terms of who would be 
responsible for administering the bundle in that case?
    Mr. HACKBARTH. One of the questions--we have recommended a 
pilot of bundling. One of the central issues is how to make the 
payment, to whom we should make the payment, and then it would 
be divided among participants.
    That is one of the questions that we think requires further 
investigation.
    The basic idea though is regardless of the source of 
admission, whether it is from a nursing home or from the 
community, that there be a fixed payment that covers physician, 
hospital, and probably the post-acute services for the 
admission.
    Mr. YARMUTH. Now, I have to make a disclosure similar to my 
colleague, Ms. Berkley. I worked for several years in the home 
health care business. My brother is a CEO of a home health care 
company. As I love my brother, I have been a long time 
stockholder of that company.
    I also am concerned because this is a company that is a 
significant employer in my district.
    The standards that you set in making the report say you 
want to increase the accountability of providers and the value 
of care, paper performance, measuring resource use, penalizing 
high re-admission rates, comparing effectiveness of treatments, 
all of which I think we would all agree with.
    In the case of home health care, it seems, however, that 
the report relates only to the margin of profit on its costs.
    Does margin really have anything to do with the standards 
that you mentioned in the overall goals of the recommendations?
    Mr. HACKBARTH. We think that the margins are important, but 
we do not think that is the only change that ought to be made 
in home health payments. In fact, we have advocated that the 
payments be adjusted for outcomes, for re-admission rates and 
discharge to the community out of home health altogether.
    We think there is a need for some quality adjustment in the 
payment system as well. Having said that, we think there is 
abundant evidence that the average rate is far too high.
    Mr. YARMUTH. Let me ask you two questions about that. Do 
you dispute the fact that there would be differences in margins 
between or among various providing groups, the hospital margins 
by definition cannot really be compared to home health or to 
long term acute care facilities and so forth?
    Mr. HACKBARTH. I am a lawyer by training and a health care 
manager. I am not an economist. I think economics would tell 
you that a low capital industry like home health, probably all 
other things being equal, would have lower margins in a 
competitive market than institutions that have substantial 
capital requirements.
    Mr. YARMUTH. I would think it might be exactly the opposite 
but we can debate that.
    Is it not true, that at least according to USA Today 
yesterday, home health care, a total cost expenditure by 
Medicare for home health was 16.5 or $16.6 billion in 1997 and 
is actually a little bit less right now, so in terms of a 
percentage of the overall expenditures, it has actually 
performed better in terms of a burden on the system?
    Mr. HACKBARTH. What has happened is that the product being 
offered has changed dramatically over that period of time. When 
the rates were initially set for our current payment system, 
the average number of visits per episode was about 32, and now 
we are down at about 22.
    What they are offering for the payment has declined.
    Mr. YARMUTH. Would there not be an issue of whether they 
have done a better job and that needs to be assessed in terms 
of ongoing reimbursement?
    Mr. HACKBARTH. Yes, and I agree with that, but I also agree 
that in a competitive marketplace, as the product changes and 
costs go down, payment rates follow, so the purchaser's share 
in those savings, the way the home health payment system is 
working right now, the product has changed, and all of the 
benefits of that are accruing to home health agencies and none 
of it accruing to the Medicare Program.
    We need to adjust the rates to reflect the changed product.
    Mr. YARMUTH. We can have an extended conversation on that 
later, but I appreciate the time, Mr. Chairman very much. Thank 
you, Mr. Hackbarth.
    Chairman STARK. Mr. McDermott, would you like to inquire?
    Dr. MCDERMOTT. Thank you, Mr. Chairman.
    It strikes me in listening to all this testimony that 
clearly the primary care aspect of health care has fallen into 
disrepute and it is not paid for and simply, as long as we have 
that situation, we are going to continue to have costs that run 
out of sight.
    That is why I propose that all medical schools, all state 
medical schools, be free, and that people be required then to 
pay back by four years of primary care.
    That alone will not fix the problem because there really 
does need to be some kind of medical home or bundling, as you 
are describing it.
    I brought an example. I think it says what is wrong with 
Medicare today. A 68 year old woman goes into a hospital with 
back pain. She stays there for 1 day being treated various 
different ways and examined, and goes out with a $10,759 bill, 
plus physician fees of more than $1,000 on top of that, plus 
laboratory fees.
    All she got at the end of the day was a shot for pain and 
that was the treatment, for which Medicare was billed $10,000. 
Two CAT scans, one MRI.
    My view of that kind of situation says if somebody walks in 
with a Medicare card and knows they can get it paid for by 
Medicare at some level, I do not know what Medicare actually 
pays--the hospital billed for the MRI $3,484. I do not know 
what your payment is. The CAT scan was $2,497. Again, I do not 
know what portion of that you pay.
    Clearly, when you are paying on a procedure basis, it pays 
to do procedures.
    I would like to hear where you are on the bundling question 
or the medical home. Mr. Yarmuth asked the question but who do 
you give it to and how do you give it to them, and where are 
you in either having pilot projects?
    Clearly, seniors mostly have chronic illnesses. They are 
not acute situations where you go in, do surgery and fix it. 
Most of what they are dealing with is diabetes, arthritis, back 
pain.
    You have to look at that episode and treat it globally 
rather than piece by piece by piece, or you get $10,000 in one 
day.
    Mr. HACKBARTH. Yes. The example that you cite, Mr. 
McDermott, and obviously I do not know the circumstances of the 
particular patient, but I dare say that a lot of physicians 
hearing that would raise their eyebrows and wonder what is 
going on.
    Dr. MCDERMOTT. I am a physician.
    Mr. HACKBARTH. I know you are. Why would a patient be 
admitted to a hospital for that sort of treatment?
    Dr. MCDERMOTT. Not admitted, kept in the emergency room all 
day.
    Mr. HACKBARTH. Kept in the emergency room. I am sorry. I 
misunderstood.
    In my prior life before becoming Chairman of MedPAC, I was 
CEO of Harvard Vanguard Medical Associates, a 600 physician 
multi-specialty practice in Boston, affiliated with Harvard 
Medical School.
    We were largely a prepaid group practice, and one of the 
benefits of that system is that our physicians would make sure 
the patients did not go to the emergency department for this 
sort of costly treatment if and when there is a better 
alternative available.
    That is an example of where a well structured Medicare 
Advantage program can create the proper incentive for people 
like my former colleagues to do the right thing for the patient 
and for the program.
    When we are outside of Medicare Advantage----
    Dr. MCDERMOTT. Let me just talk about Medicare Advantage 
because I can tell you what is going on in Seattle.
    Health maintenance organizations are taking the fee, 
keeping 15 percent for themselves, and giving the rest to 
doctors who will join the plan.
    Mr. HACKBARTH. Yes.
    Dr. MCDERMOTT. That is how they are getting them in, saying 
we will pay you more than Medicare pays you if you join us. If 
you are an ordinary person walking around looking for a doctor, 
you have to find a doctor who is in one of those plans because 
patients will not----
    Mr. HACKBARTH. I am not surprised by that example. What I 
would do is draw a distinction. I do think a well structured 
Medicare Advantage program has some advantage. The problem with 
the current system is that it is not well structured. We have 
payment rates that are far too high and that is what leads to 
what you are talking about.
    In traditional Medicare, one of the weaknesses of 
traditional Medicare is that nobody is responsible for the 
continuing care of the patient, which is what leads to examples 
like the one you cited.
    We have all these different payment silo's, one thing for 
the physician, one thing for the hospital, one thing for the 
post-acute providers.
    We need payment systems that bring them together and 
provide a mechanism for coordinating care and making sure that 
patient does not go to the emergency department when an office 
visit might do better.
    Medical home is potentially a vehicle for doing that. If we 
can get more Medicare beneficiaries connected with a primary 
care physician who is responsible for their ongoing care, not 
just 15 minute office visits, but their ongoing care, and pay 
that physician appropriately for doing that ongoing 
coordination of care, I think we could reduce the sort of cases 
that you are talking about.
    Dr. MCDERMOTT. Thank you.
    Ms. BERKLEY. Mr. Chairman, can I ask a question?
    Chairman STARK. Sure.
    Ms. BERKLEY. I do not know if it is a question or an 
observation. Where is the patient responsibility in any of 
this? You know, I cannot tell you how many times a patient 
misses a dialysis treatment, they get called, they do not 
respond to the telephone call, and a day and a half later, they 
are in the emergency room demanding dialysis, which costs 
considerably more in the emergency room than it does if they 
would have made their bi-weekly or tri-weekly appointment.
    When does it become not the doctor's fault that the patient 
is relapsing or getting re-admitted and more the patient's 
personal responsibility?
    Mr. HACKBARTH. Yes. I think that is a really important 
issue and the ideal relationship between the physician and the 
patient is collaborative. The patient has to help. They need to 
do some things for care to go well.
    It is not within Medicare's power to make patients 
responsible, but I think we can set up circumstances----
    Ms. BERKLEY. Sometimes not the doctors either.
    Mr. HACKBARTH. I think we can in some ways at least set up 
circumstances where there is a better opportunity for effective 
collaboration between physicians and patients.
    The medical home would be an example of that. It would 
allow physicians to spend more time with patients on education 
issues, and take the example of a patient who is receiving 
dialysis. If a patient in addition to having a terrific 
nephrologist has a very good primary care physician, some of 
that educational responsibility could be done by the primary 
care physician, supported by the lump sum payment that I 
referred to earlier, and the nephrologist will benefit from 
that as well.
    Ms. BERKLEY. I can tell you without fear of contradiction 
because I go on rounds with my husband, I listen to him counsel 
his patients about smoking, about obesity, about mild exercise, 
and I have seen these same patients walk out after dialysis and 
light up a smoke.
    If you think it is frustrating for you, you can imagine how 
it is frustrating for him.
    Mr. HACKBARTH. Absolutely.
    Ms. BERKLEY. Then when the patient becomes morbidly ill and 
they are on all sorts of machines, the family's first response 
is I do not care what you have to do, keep my husband, keep my 
wife alive, when they have done very little to keep themselves 
alive.
    The cost of providing that care is extraordinary. I do not 
know what the answer is.
    Mr. HACKBARTH. I wish there was a simple answer. I have 
worked with physicians throughout my professional career and I 
hear that from them over and over and over. I understand.
    Chairman STARK. Thank you. I am going to ask unanimous 
consent that we keep the record open so that we can send you 
some written questions, if you will.
    Did you have anything?
    Mr. HERGER. No, thank you.
    Chairman STARK. Thank you all, and again, Glenn, thank you 
very much for your patience with us.
    Mr. HACKBARTH. Thank you.
    Chairman STARK. The hearing is adjourned.
    [Whereupon, at 12:08 p.m., the hearing was adjourned.]
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    [Submissions for the Record follow:]
            Statement of Betty Waite, Medway Home Healthcare
    Please vote ``NO!'' to the proposed Medicare home health benefit 
cuts in the President's budget. These cuts will be devastating to our 
senior citizens, who are already struggling to pay for their medicines 
and health care. Working at a home health agency, I know first-hand 
that many seniors omit medications prescribed by their physician, 
simply because they have to choose between eating or buying a 
medication. If we make more cuts to them, it will seem like ``kicking 
them when they are down!''
    Also, I know from personal ongoing experience in dealing with 
Medicaid, how frustrating and time-consuming that process is. If 
Medicare becomes a continual ``fight'' to have coverage for home health 
benefits, we may as well ``write off'' our senior citizens! The time 
alone spent in trying to get acceptance for treatment, not to even 
mention the reduced payment, is enough to make agencies dread getting a 
Medicaid patient. If Medicare becomes the same hassle, I feel that home 
health agencies will begin to disappear. It just won't be worth the 
continual hassle, besides being unable to pay the employees for their 
services.
    If cuts must be made, make them in the right places rather than 
stripping our senior citizens of health services. Stop the benefits for 
all of the outsiders/aliens who come to our country and haven't paid 
their dues for benefits. Another solution that would immediately 
provide money is to make the elected officials--from the President on 
down--to live on Social Security and pay for their health care when 
they reach 65 years of age, just the same as the ``common'' person. 
There would be a much better understanding of the senior's problems if 
this were done!
    If home health benefits are decreased, the expense to seniors will 
show a drastic INCREASE overall. Home care manages numerous health 
problems with coordination among physicians, home care nurses, labs, 
therapies, etc., and the patient is never admitted to a hospital for 
the treatment. If home care disappears or is severely restricted, these 
seniors will have to be admitted to a hospital, which will certainly be 
more expensive than staying in their home and only paying for a 
particular service.
Recommendations: Congress should:
    1. Reform the Medicare home health payment model to achieve a more 
reliable payment distribution that reflects varying resource uses and 
costs incurred in producing care to individual patients.
    2. Reject any proposals to cut the home health market basket 
inflation update or impose additional rate reductions for home health 
agencies.
    3. Reinstate the 5% add-on payment for home health services 
provided to patients in rural areas.
    4. Block the home health case mix rate reductions and reform the 
regulatory process for evaluating case mix changes.
    5. Reject proposals to bundle home health payments into hospital or 
other provider payments.
    Thank you in advance for representing the home health agencies and 
employees. Please vote ``NO!'' to these restrictive changes to 
Medicare.

Yours truly,
Betty Waite, RN
Medway Home Healthcare

                                 
    Statement of Carlo J. DiMarco, American Osteopathic Association
    The American Osteopathic Association (AOA) would like to thank you 
and Members of the Committee for the opportunity to provide comment on 
the recently released Medicare Payment Advisory Commission's (MedPAC) 
``Report to Congress: Medicare Payment Policy.'' Overall, we are 
encouraged by the Commission's attention to such issues as updates to 
the physician payment formula and the need to address the looming 
shortage of primary care physicians.
    The AOA applauds the Commissions recommended 1.1 Medicare physician 
payment update for 2010. Our priority remains the development and 
implementation of a comprehensive Medicare payment formula that 
eliminates the continued use of the flawed sustainable growth rate 
(SGR) methodology. However, we must ensure that access to physician 
services is not jeopardized as a result of the pending 20 percent 
reduction set to take effect on January 1, 2010. Additionally, we 
continue to strongly support increased payments directly targeted at 
primary care physicians. We believe that reform of the payment formula, 
creation of new delivery models such as the patient-centered medical 
home, and financial incentives will assist in the growth of the primary 
care physician workforce. The AOA continues to be supportive of budget 
neutrality; however, budget neutral adjustments should not occur within 
Medicare Part B. Application of such adjustments within Part B only, 
threatens access to other physicians and exacerbates workforce 
shortages in specialties such as general surgery. We would instead 
support a broader application of budget neutrality that would apply 
uniformly across all Medicare programs.
    The AOA is concerned by MedPAC's recommendation to reduce the 
indirect medical education adjustment (IME) in 2010 by 1 percentage 
point to 4.5 percent per 10 percent increment in the resident to bed 
ratio (Section 2a-2). Appropriate funding for graduate medical 
education (GME) is vital to building a more robust physician workforce. 
Many institutions, particularly in rural areas, struggle to maintain 
training programs at current funding levels. Given that studies show 
most physicians practice within 100 miles of where they received 
training, we believe that this proposal contradicts the Commission's 
stated goal of ensuring Medicare beneficiaries' access to care.
    The AOA strongly supports the Commission's recommended 0.6 percent 
increase in reimbursements for Ambulatory Surgical Centers (ASC). These 
facilities offer high quality patient care; often in otherwise 
underserved areas. However, ASC payments have not been updated since 
2003. Physician-led ASCs provide a high-quality, cost-effective 
alternative to inpatient hospital care for surgical services and, as 
such, should be reimbursed adequately for the efficient services they 
provide to beneficiaries.
    MedPAC's recommendation to address the issue of escalating costs 
associated with Medicare Advantage (MA) plans through the elimination 
of the stabilization fund for regional PPOs is a first step toward 
ensuring equity in reimbursements. We support an examination of the 
benchmarks used to evaluate MA plan bids; however, we caution Congress 
against excluding IME from the benchmarks, which would cut necessary 
resources for hospital-based GME programs. The AOA encourages lawmakers 
to engage in a meaningful discussion on the comparative abilities of 
Medicare Advantage and traditional Medicare in meeting the increasingly 
complex needs of a rapidly expanding population of seniors with 
extended life expectancy.
    The development of a quality incentive program proposed within the 
fee-for-service payment update recommendations presents an opportunity 
to improve the quality of care within hospital settings. However, we 
believe that the development of quality measures must be led by 
physicians with clinical expertise and that all measures should be 
adjusted for risk, patient compliance, patient mix and geography. The 
AOA looks forward to working with the Centers for Medicare and Medicaid 
(CMS) to establish a sensible quality incentive program that will not 
discriminate against physicians who provide care to high-risk patients.
    Again, we thank you for your attention to these issues and to the 
potential impact MedPAC's recommendations may have on physicians' 
ability to provide quality care.

Sincerely,
Carlo J. DiMarco, DO
President, American Osteopathic Association
C: Members, Ways and Means Committee

                                 
                       Statement of Chris Doherty
    COPY TO COME.

                                 
   Statement of Christopher R. Blagg, MD and Robert S. Lockridge, MD
    Thank you for this opportunity to comment on the Medicare Payment 
Advisory Commission's (MedPAC) March 2009 Report to the Congress on 
Medicare Payment Policy. Our particular concern relates to the section 
of the Report on outpatient dialysis services and home hemodialysis.
    One of us (CRB), a professor emeritus of medicine at the University 
of Washington and for many years the executive director of the 
Northwest Kidney Centers in Seattle, has been involved with home 
hemodialysis since the first patient was trained to use this modality 
at the University in 1964. The other (RSL) is a private nephrologists 
responsible for the largest nightly home hemodialysis program in the 
United States and a clinical associate professor at the University of 
Virginia.
    We appreciate that the section on outpatient dialysis services 
includes the comments that ``Home dialysis offers several advantages to 
patients . . .'' and ``interest in more frequent hemodialysis regimens 
has grown substantially during the past decade because of studies 
showing improved outcomes and quality of life.'' We have three concerns 
we believe are important for the Congress to understand if many more 
U.S. patients are to have access to the best dialysis care--home 
hemodialysis, and particularly more frequent and longer home 
hemodialysis: 1) as CMS develops its bundling program for dialysis 
reimbursement that this not adversely affect the use of home 
hemodialysis; 2) that reimbursement for training patients to do home 
hemodialysis be separate from the bundle and be set at an appropriate 
level; and 3) that reimbursement in the bundle is adequate to create an 
incentive for more frequent and longer hemodialysis. The first two of 
these issues are also of importance for peritoneal dialysis which is 
also a home treatment, but we leave this to be addressed by others.
A Brief History\1\
    Home hemodialysis was introduced in 1964 as a way of reducing the 
cost of dialysis so that more patients could be treated. It soon became 
obvious that it also provided much better patient survival, quality of 
life and opportunity for rehabilitation than conventional hemodialysis 
in a dialysis facility or hospital. The best results were seen in 
patients who dialyzed overnight three times a week. Prior to start of 
the Medicare End-Stage Renal (ESRD) Program in 1973, home hemodialysis 
was being used by 35 to 40% of the 10,000 or so dialysis patients in 
the United States. In fact, the rehabilitation of home hemodialysis 
patients and of patients with a successful kidney transplant and their 
ability to reintegrate into society and return to work or school or 
other activities was a significant factor in obtaining passage of the 
legislation.
    Following 1973, the use of home hemodialysis in the United States 
declined for a number of reasons--with near-universal entitlement the 
character of the patient population changed, with a rapid increase in 
diabetics and other sicker patients and in elderly patients; at the 
same time, for the first five years of the program home hemodialysis 
was inadequately paid for, while reimbursement for in-facility dialysis 
was very generous; new dialysis facilities proliferated rapidly, so 
providing much needed access to care; for-profit dialysis became an 
increasingly important source of dialysis care; and there was a 
shortage of physicians and staff with experience in home 
hemodialysis.\2\
    In the early 1980s Congress's concern about the declining use of 
home hemodialysis led to establishment of the composite rate equalizing 
reimbursement for home dialysis with that for center treatment, 
intended to provide a financial incentive in the hope of increasing 
home dialysis. However for other reasons, clinical as well as 
financial, the use of home hemodialysis continued to decline, so that 
by 2002 the USRDS reported there were only 1,756 such patients out of 
308,409 U.S. dialysis patients (0.57%).
    The situation began to change in the late 1990s with several 
developments including the growing realization that more frequent and 
longer hemodialysis dramatically improves patient survival, quality of 
life and rehabilitation, markedly reduces hospitalization and greatly 
reduces the frequency of symptoms during dialysis and the post-dialysis 
fatigue that over the years have come to be accepted as normal by U.S. 
patients dialyzing in centers and their physicians. At the same time, 
new patient-friendly equipment designed for home use was being 
developed and introduced. As a result of these and other reasons, the 
number of home hemodialysis patients has more than doubled over the 
last 4 years to approximately 4,300 patients in December 2008, an 
increase of about 30% over the number at the end of 2007, and the two 
largest for-profit corporations have actively begun to support home 
hemodialysis.
1) Conventional Home Hemodialysis
    Patients in the U.S. dialyzing in center three times a week 
generally receive a total of 11 to 12 hours of dialysis weekly. Home 
hemodialysis allows freedom to dialyze longer with a more convenient 
schedule, and it has been known since the 1960s that, in addition to 
the cost savings, the advantages of dialyzing at home include better 
patient survival and quality of life, increased independence, 
responsibility and confidence, flexible scheduling without the need to 
travel to a unit, comfort, convenience and less risk of infection. A 
study using 1994 USRDS data showed that the relative risk of death with 
three times a week home hemodialysis, adjusted for age, sex, race, 
cause of renal disease and comorbid conditions, was 42% lower than for 
patients dialyzing in a U.S. center.\3\ As of 2007, 841 of the 3.764 
U.S. home hemodialysis patients (22.3%) were on three times a week home 
hemodialysis.\4\ More recently it has become obvious that treatment at 
home also gives the opportunity for more frequent and/or longer 
hemodialysis.
    It is important that any bundling should continue the practice 
established with the composite rate more than 25 years ago that 
reimbursement for a home hemodialysis be equal that for a center 
hemodialysis so as to provide an incentive for patients to be offered 
home dialysis. While this had little effect for many years, the two 
major for-profit dialysis corporations are now actively pursuing more 
home hemodialysis.
2) Home Hemodialysis Training
    Since the start of the Medicare ESRD Program, reimbursement for a 
training hemodialysis has been fixed at $20 more than reimbursement for 
a conventional dialysis under the composite rate. This is grossly 
inadequate as training requires specialized nursing and other staff, 
space for training, and development and maintenance of a training 
program designed to provide patients with safe hemodialysis at home. 
Training usually takes from 4 to 6 weeks and at 3 dialyzes per week 
Medicare provides a supplement of $240 to $360 for completed training. 
Programs that train patients know that it costs $2,000 or more in 
excess of the Medicare reimbursement to train a patient. CMS may know 
what actual training costs are from existing facility cost reports, but 
this assumes uniformity of allocation of costs in the reporting and so 
it may be necessary to review this in more detail in a number of the 
larger home programs,.
    It is important that reimbursement for home hemodialysis training 
not  be included in the bundle, and that CMS sets reimbursement for 
this at an appropriate level if home hemodialysis is to increase.
3) Longer and/or More Frequent Hemodialysis
    It has been known since the 1960s that three times a week 8 hour 
dialysis at home or in a center provides much better patient survival 
and quality of life than three times a week center hemodialysis.\5\ It 
also greatly reduces the symptoms during dialysis and the post-dialysis 
fatigue that is associated with center hemodialysis as practiced in the 
U.S. so that recovery after dialysis is reduced from an average of 6 to 
7 hours to only a few minutes,\6\ reduces or eliminates the need for 
antihypertensive medications, slows the progression of coronary artery 
calcification, reduces the frequency of arrhythmias\7\ and unlike 
conventional in-center hemodialysis in the U.S. maintains normal 
nutrition over the years.\8\ This because the patient is getting 24 
hours of dialysis a week rather than the 10 to 12 hours a week 
typically received by a center patient. The more hours of dialysis a 
week the more the treatment comes to resemble the excretory effect of 
normal kidneys, and the longer dialysis avoids the rapid changes in 
fluids and electrolytes seen with conventional short dialysis that 
result in the symptoms patients experience during and after dialysis. 
Obviously this treatment is best carried out at home overnight, 
although some programs now provide three times a week overnight 
hemodialysis in center for some patients.
    It has also been known for some time that dialysis patient deaths 
and cardiac incidents are significantly more frequent on the day after 
the two day gap between treatments that occurs with three dialyses in 
the seven day week.\9\ This is addressed in some programs by providing 
alternate night home hemodialysis. As of 2007, 8% of home hemodialysis 
patients were on this treatment.\4\
    Over the last 10 or 12 years experience has been growing rapidly in 
the U.S. and elsewhere around the world with the striking added 
benefits of more frequent hemodialysis and there are now more than 
several hundred papers in the world literature. Although more frequent 
dialysis can be done in a center this results in logistical and 
scheduling issues and so again the obvious place for such treatments is 
the home. Typically the two modalities are short ``daily'' (5 to 7 
times a week) dialysis for 2 to 4 or 5 hours and long overnight 
``nightly'' (5 to 7 nights a week) dialysis for 6 to 8 hours. As of 
2007, 63.7% of U.S. home hemodialysis patient were on short daily 
hemodialysis and 6.0% were on long nightly dialysis.\4\ Both modalities 
have been shown to improve survival and quality of life even further 
than conventional three times a week dialysis--for example, the 
relative risk of death has been shown to be of the order of 60 to 70% 
less than that of U.S. center dialysis patients.\10\ These treatments 
have other benefits including a very significant reduction in 
hospitalizations and in erythropoietin requirements and, in the case of 
long nightly dialysis, elimination of the need to take phosphate 
binders. Most recently it has been shown in a large number of patients 
that patient survival with short daily hemodialysis is almost identical 
with the survival of patients with a successful kidney transplant from 
a deceased donor,\11\ and that survival with long nightly dialysis is 
similar.\12\ In fact, a few of these patients who have previously had a 
transplant that has failed have asked to be taken off the transplant 
list because they feel so well on more frequent dialysis. 
Interestingly, nephrologists who have seen the benefits of these 
treatments say that if they had kidney failure their choice of 
treatment would be long nightly hemodialysis or a transplant. Clearly 
increased frequency of dialysis and longer treatment hours both are of 
great benefit for patients and are best carried out at home--
emphasizing the need to encourage the use of home hemodialysis 
generally.
    Both short daily and long nightly hemodialysis very significantly 
reduce hospitalization days, but as this saving is in Part A Medicare 
it has not so far been regarded as an offset for the extra Part B 
Medicare costs associated with more frequent dialysis. Our estimate is 
that the extra costs in Part B are equivalent to an extra one to one 
and a half dialyses per week. Including more frequent dialysis in the 
bundle will consequently be difficult. We feel it most important if 
U.S. patients are going to have access to the best dialysis care, 
reimbursement must allow for more frequent and longer home 
hemodialysis.
    As the number of patients treated by more frequent hemodialysis is 
still small, less than 1.5% of all dialysis patients, we suggest the 
Secretary could be empowered to include specific reimbursement for this 
modality in the same way that adjustments are made for geographic 
factors, pediatric facilities and facilities situated in rural areas. 
This could then be modified later as more experience is gained.
    We thank you for considering our comments. If you have any 
questions or requests for more information we will be happy to respond.
Selected References
    1. Blagg CR: Home hemodialysis: `home, home, sweet, sweet home!' 
Nephrology (Carlton) 2005; 10: 206-214, 2005
    2. Blagg CR: What went wrong with home hemodialysis in the United 
States and what can be done? Hemodialysis Int 2000; 4:55-58, 2000
    3. Woods JD, Port FK, Stannard D, Blagg CR, Held PJ: Comparison of 
mortality with home hemodialysis and center hemodialysis: a national 
study. Kidney Int 1996; 49: 1464-70
    4. Lockridge RS Jr, Pipkin M: Short and long nightly hemodialysis 
in the United States. Hemodialysis Int 2008; 12: S48-S50
    5. Charra B, Calemard E, Ruffet M, Chazot C, Terrat JC, Vanel T, 
Laurent G: Survival as an index of adequacy of dialysis. Kidney Int 
1992; 41: 1286-1291
    6. Heidenheim AP, Muirhead N, Moist L, Lindsay RM: Patient quality 
of life on quotidian hemodialysis. Am J Kidney Dis 2003; 42(1 Suppl): 
36-41
    7. Ok E et al: JASN 2008; Abstracts F-FC314-317, 70A-71A
    8. Chazot G, Jean G: treatment time. Contrib Nephrol 2008; 161:154-
161
    9. Bleyer AJ, Russell GB, Satko SG: Sudden and cardiac death rates 
in hemodialysis patients. Kidney Int. 1999; 55:1553-1559
    10. Blagg CR, Kjellstrand CM, Ting GO, Young BA: Comparison of 
survival between short daily hemodialysis and conventional hemodialysis 
using the standardized mortality ratio. Hemodial Int 10: 371-374, 2006
    11. Kjellstrand CM, Buoncristiani U, Ting G, Traeger J, Piccoli GB, 
Sibai-Galland R, Young BA, Blagg CR: Short daily hemodialysis: survival 
in 415 patients treated for 1006 patient years. Nephrol Dial Transplant 
(epub 5/5/2008) 23: 3283-3289, 2008
    12. Pauly RP et al: No difference in survival between patients 
treated with deceased donor transplantation and nocturnal hemodialysis. 
Am J Transplant 2008; 8 (Suppl 2): Abstract 1598

                                 
       Statement of Medical Rehabilitation Providers Association
    On behalf of the medical rehabilitation providers and their 
patients, the American Medical Rehabilitation Providers Association 
(AMRPA) is pleased to provide this summary of key principles to be 
considered during the health care reform debate. AMRPA represents over 
350 inpatient rehabilitation hospitals, rehabilitation units, 
outpatient rehabilitation service providers, and several skilled 
nursing facilities providing medical rehabilitation services to over 
700,000 people a year. AMRPA looks forward to working with the Congress 
and the Administration in addressing the critical health care issues 
facing our nation.
    AMRPA members provide a wide range of medical rehabilitation 
services to all age groups, including a growing population of veterans 
with service-related injuries. Medical rehabilitation involves 
intensive rehabilitation therapy for individuals experiencing serious 
illness or injury, including stroke, spinal cord injuries, and 
traumatic brain injury (TBI), among others. The goal of medical 
rehabilitation is to maximize health, functional skills, independence, 
and participation in society. Our members' goal is to ensure that 
persons who experience these serious illnesses or injuries have access 
to medically necessary rehabilitation services, which enable patients 
to return to home, work, or an active retirement.
    AMRPA is conscious of the public's growing concern about the state 
of the American health care system. The millions of uninsured and 
underinsured individuals and high insurance costs for those without 
coverage demonstrate the inadequate access to quality, affordable 
health care.
    AMRPA is concerned that the health care reform debate has not 
focused adequately on the needs of medical rehabilitation patients. 
Medical rehabilitation can prevent people from being admitted to other 
settings, such as nursing homes, for costly long-term care and, in so 
doing, can produce tremendous health care cost savings.
    The American Medical Rehabilitation Providers Association has 
adopted principles for health care reform to ensure that the needs of 
people who have experienced an illness, injury, or health disorder, 
people with disabilities, and medical rehabilitation providers continue 
to be an integral part of the health care system.

      AMRPA believes that any health care reform legislation 
should: a) provide coverage without regard to age, income, disability 
or employment status b) allow individuals to retain the ability to 
choose their own health care providers across the continuum of care;

    c) ensure that persons of all ages and their families are able to 
secure health care insurance without being denied based upon pre-
existing conditions; and d) provide individuals with the ability to 
move between jobs without losing health care coverage.

      AMRPA believes that health care reform proposals should 
address the rapidly rising costs of health care delivery without 
compromising access to quality care. Health care reform legislation 
should ensure appropriate use of health care services and promote 
greater efficiency in the health care delivery system. Health care 
fraud and abuse contribute to the high cost of health care delivery. 
Administrative and regulatory complexities could be modernized through 
universal use of health information technology, including electronic 
medical records, by all provider groups. Medical rehabilitation 
providers should be compensated at fair and equitable rates in all 
settings throughout the continuum.
      Health care reform must correlate payment incentives to 
ensure that high quality care is provided. Payment incentives should be 
aligned to achieve optimum care for patients, rather than driving 
patients to a particular setting. AMRPA believes that data must be 
collected on the effectiveness of care. Improving the quality of care, 
through such key measures as quality of life and functional status, 
social and community participation, and outcomes reporting should be 
encouraged in the health care reform debate.
      Health care reform legislation must ensure continued 
access to medical rehabilitation services in settings appropriate to a 
patient's medical and functional needs.
      Preventive and primary care efforts should recognize that 
medical rehabilitation services prevent and reduce subsequent, more 
expensive medical care. Proposed health care reforms should recognize 
medical rehabilitation's efficacy in reducing the health care system's 
reliance on costly long-term care, as medical rehabilitation patients 
are able to return to productivity in the workforce and independent 
living. Over 80 percent of patients receiving medical rehabilitation 
services go home and return to work, school, or an active retirement. 
Case management must be a priority to ensure continued successful 
medical rehabilitation.
      Persons with functional loss must have access to medical 
rehabilitation services that are:

        (1) expert and based on the best available evidence; (2) 
        delivered in the medically appropriate setting; (3) focused on 
        prevention of medical complications; (4) intended to optimize 
        function; and (5) based on goals that are relevant to health, 
        function, activity and participation in society, not just 
        survival.

    Additionally, the President's Fiscal Year 2010 Budget Blueprint 
contains a proposal to bundle payments for acute and post-acute 
hospital care. Under the proposal, acute hospitals would receive 
bundled payments that cover both hospitalization and care from certain 
post-acute providers for the thirty (30) days after the 
hospitalization.
    AMRPA believes that bundling can result in an adverse effect on 
patient care, in terms of access as well as quality. Bundling as 
described creates a conflict of interest for acute care providers, 
giving them strong financial incentives to deny or abridge needed 
medical rehabilitation services. Acute care hospitals with, and 
especially those without, inpatient rehabilitation units will have an 
incentive to shorten or eliminate these services.
    The bundled payment system proposal should be examined closely, 
pilot-tested, and the problems presented must be resolved prior to 
implementation. This reform concept poses a variety of access, policy, 
data, and administrative issues that must be carefully evaluated and 
thoughtfully resolved. Simple identification of issues cannot solve a 
complex problem.
    Prior to implementing bundled payment rates, Congress should obtain 
extensive data on the clinical condition, costs, access and outcomes 
for potentially affected patients and post acute care providers. The 
ideal system would ensure access, preserve patient choice, align 
incentives for the patient's benefit, and improve outcomes.
    Medical rehabilitation providers should be compensated at fair and 
equitable rates in all settings throughout the continuum.
    In closing, the American Medical Rehabilitation Providers 
Association applauds the commitment to health care reform and is eager 
to work constructively with Congress and the Obama Administration to 
ensure access to medically necessary medical rehabilitation for 
Medicare beneficiaries, persons with disabilities and other Americans 
in need of this care.
Attachment A: Overview of Medical Rehabilitation
What are medical rehabilitation services?
    Medical rehabilitation is an integral part of the American health 
care system. Medicare rehabilitation services include the services of 
rehabilitation physicians (physiatrists and other rehabilitation 
trained and experienced physicians), rehabilitation nurses, 
occupational and physical therapists, speech language pathologists, 
respiratory therapists, psychologists, social workers, orthotists, 
prosthetists, audiologists, and other qualified rehabilitation 
professionals. These services and professionals are provided to people 
in order to minimize physical and cognitive impairments, maximize 
functional ability and restore lost functional capacity. Medical 
rehabilitation is most effective when applied during the acute stage 
soon after the trauma, be it illness or injury, has occurred or the 
condition has been detected. Each person is individually assessed, and 
a comprehensive multidisciplinary treatment plan is tailored to meet 
his or her goals.
Who benefits from medical rehabilitation services?
    Common conditions requiring rehabilitation are: stroke, brain 
injury, spinal cord injury, arthritis, cancer, neurological disorders 
such as Parkinson's and Cerebral Palsy, joint disorders, osteo and 
rheumatoid arthritis, joint replacements or amputation, sensory 
deficits, chronic intractable pain, heart attack, other major multiple 
trauma, Guillain-Barre, chronic pulmonary disease, as well as 
congenital or developmental disabilities. By minimizing the effects of 
limitations, medical rehabilitation improves the quality of life for 
these people and their families and eliminates the need for countless 
hours of care and expense.
Where are medical rehabilitation services delivered?
    Depending on an individual's medical and functional needs, medical 
rehabilitation services are delivered in a variety of settings, 
including rehabilitation hospitals, rehabilitation units in general 
hospitals, skilled nursing facilities (SNFs), comprehensive outpatient 
rehabilitation facilities (CORFs), rehabilitation agencies and clinics, 
patients' homes, through home health agencies, and residential 
rehabilitation centers. As of early 2008 there were 222 rehabilitation 
hospitals, 923 rehabilitation units, 516 CORFs, and over 15,000 SNFs 
certified under the Medicare program.
Who delivers medical rehabilitation services?
    These services are provided by physiatrists and other qualified 
rehabilitation physicians, occupational, physical and respiratory 
therapists, rehabilitation nurses, speech-language pathologists, 
audiologists, psychologists, social workers, orthotists, prothotists, 
recreation therapists, music therapists and rehabilitation counselors, 
supported by suppliers of rehabilitation technology, research, 
equipment and supportive services.
Who covers medical rehabilitation services?
    Medical rehabilitation services are a standard benefit in most 
health insurance packages currently offered by both public and private 
payers.
    Medicare--Medicare is a primary payer for medical rehabilitation 
services in an array of settings. It represents over 60% of inpatient 
rehabilitation hospital and unit revenues.
    Medicaid--For low income individuals, state Medicaid plans cover an 
array of rehabilitation services as optional Medicaid benefits. A 
number of states buy into Medicare to support services, but some states 
do not cover the deductible and co-insurance. This creates a financial 
impediment to access.
    Private Insurance--The private health insurance industry routinely 
offers coverage of medical rehabilitation services and assistive 
devices. Inpatient and outpatient rehabilitation services and sites are 
commonly covered by the Blue Cross/Blue Shield plans. However, some 
plans have coverage restrictions which undermine the effectiveness of 
the benefit.
    Managed Care--Most managed care plans cover some medical 
rehabilitation services as part of their benefit packages. Benefits are 
generally case-managed with stringent utilization oversight. 
Frequently, stroke patients who would achieve better outcomes in a 
rehabilitation hospital or unit are sent to a nursing home.
    Workers' Compensation--Medical rehabilitation services are an 
integral response to workplace injuries, facilitating the employee's 
return to productive employment.

                                 
           Statement of The American Health Care Association
    The American Health Care Association (AHCA) which represents nearly 
11,000 dedicated long term care providers, commend Chairman Stark, 
Ranking Member Herger and the Members of this Committee for allowing 
our profession to express our views surrounding the Federal 
Government's approach to funding nursing facility care for our nation's 
seniors.
    We urge you to keep in mind that preserving adequate Federal 
Medicare funding in the FY 2010 budget will not just be a key factor in 
ensuring seniors retain access to quality long term care during today's 
challenging economic times, but also whether or not our profession will 
be able to continue successfully treating the changing patient 
population envisioned by all of us supportive of broad-based health 
care reform.
    In short, Mr. Chairman, the recommendations offered by MedPAC will 
undermine U.S. seniors care needs, jeopardize quality, destabilize the 
long term care sector, and is directly at odds with the economic 
stimulus objectives outlined by the Obama Administration and Congress.
Medicare-Medicaid Cross Subsidization Requires Realistic Solutions
    MedPAC's continuing and exclusive focus on Medicare ignores the 
real and growing interdependence between Medicare and Medicaid. While 
65 percent of skilled nursing facility patients rely on Medicaid to 
fund part, or all, of their nursing facility stay, those benefits 
account for only half of nursing facility revenues. Given that the 
prevalence of Medicaid patients in our nation's nursing facilities is 
four times that of the acute care sector, special consideration of the 
relationship between Medicare and Medicaid is highly relevant.
    In a recent letter to President Obama, U.S. Representatives Earl 
Pomeroy (D-ND), Shelley Berkley (D-NV), Shelley Moore Capito (R-WV) and 
Ginny Brown-Waite (R-FL) point out the vital fact that approximately 80 
percent of nursing home patients rely on Medicare or Medicaid to pay 
for their long term care, and that given that the fastest growing 
segment of our population is those 85 and older, our nation's need for 
long term care will continue to increase significantly. ``Providing 
appropriate funding for Medicare and Medicaid,'' they state, ``will 
ensure that this ever-increasing population will have access to needed 
long term care when the time arrives.''
    Continues the letter: ``Unfortunately, the Medicaid reimbursement 
for care at a skilled nursing facility (SNF) has long been inadequate. 
This funding shortfall has been calculated at $4.2 billion nationwide 
in 2008, or to put it another way, a loss of $12.48 per patient, per 
day. Medicare reimbursement supplements this perpetual underfunding and 
until the Medicaid shortfall can be addressed we ask that you consider 
the interdependence of these programs when finalizing your FY 2010 
budget proposal.''
    Mr. Chairman, the bipartisan observations offered by your 
colleagues in their letter to President Obama reflect the reality 
patients and providers face in the real world, and Medicare-Medicaid 
cross-subsidization issue is increasingly problematic for all 
stakeholders. The perilous state budget picture whereby seniors' 
Medicaid funds are being targeted for cuts makes this situation still 
worse.
    MedPAC's enduring failure to recognize the growing funding 
interdependence between Medicare and Medicaid should not prevent the 
Obama Administration and Congress from making rational, independent 
determinations regarding the importance of providing this vital annual 
cost of living adjustment.
    We strongly support a new provision in the recently passed 
Children's Health Insurance Program Reauthorization Act of 2009, which 
calls for establishing a Medicaid and CHIP Payment and Access 
Commission (MACPAC). Working constructively with both commissions 
regarding eldercare funding issues is key to ensuring that all Medicare 
payments are not considered in a vacuum and that all payers are 
recognized when it comes to nursing facility payments.
Medicare Increases Needed for Wage Increases, Investment in HIT & 
        Sustained Quality
    As the intent of the recently-passed American Recovery and 
Reinvestment Act (ARRA) is to create jobs and spur economic activity, 
MedPAC's recommendation in terms of SNF Medicare funding will do just 
the opposite--and besides derailing sector stability, will cause the 
loss of the very frontline care jobs key to the provision of quality 
care.
    Given the dramatic cost increases facilities face in key areas 
including labor, energy, and health information technology, the failure 
to recommend an inflationary market basket update defies common sense, 
and is wholly inadequate to sustaining care quality gains--especially 
as these cost increases stem from factors beyond providers' control.
    For example, the shortage of nurses and other direct care workers 
coupled with the fact that long term care must compete with other 
employers both within and outside the health care sector for these 
employees, contributes significantly to rising labor costs. When 
facility operating margins are further reduced, we are far less able to 
recruit and retain qualified care givers, modernize and refurbish aging 
physical plants and equipment, acquire and implement new technologies 
to accommodate advances in medical practices, and meet the increasingly 
complex care needs of an aging population.
    As illustrated in the chart above, the increases in nursing 
facility costs from 2001-2007 exceeded the increases in the market 
basket updates each year (FY 2002 to FY 2009). It is obvious that a 
full market basket update is critical to enabling nursing homes and 
Medicare to continue to move forward in providing quality services for 
our nation's most vulnerable citizens.
The Changing Role of the Nursing Facility
    A recent analysis of trends in New York State nursing home care is 
illustrative of the marketplace realities MedPAC routinely ignores. A 
2008 report from the United Hospital Fund documents the growing role 
skilled nursing facilities play as providers of short-term care for 
seniors continuing recuperation after a hospital stay.
    The report finds that the ``number of patients staying in a nursing 
home for less than two months more than tripled,'' from 1996 to 2005. 
In addition to this rise in short-stay patients, the study further 
concludes that, ``between 1996 and 2005, both long-term residents and 
short-term patients have become more disabled, and more of them are 
cognitively impaired. In 2005, there were also more mental health 
diagnoses among them than in earlier years.'' The authors suggest the 
findings of this study are representative of national trends. These 
facts further demonstrate why MedPAC's recommendations are out of touch 
with skilled nursing facility patient needs and desires.
    It is important to recognize the nursing home of the 21st century 
is far different from its predecessors, and while it's excellent news 
that patients are returning home more quickly, the nature of treating 
the older, sicker patients themselves is increasingly problematic in 
the face of possible Medicare cuts.
AHCA FY 2010 Budget Recommendations
    It is a public policy error for MedPAC to dismiss the Medicare-
Medicaid ``cross subsidization'' issue as irrelevant to the debate at 
hand. Based strictly upon the facts, market trends, and fiscal reality, 
MedPAC's recommendations should be rejected. AHCA supports the 
following:

      Congress should maintain the FY 2010 full market basket 
for skilled nursing facilities;
      Congress should amend MedPAC's charter to require the 
Commission to consider operating margins of all Government payers and 
the adequacy of all Government funding in making its recommendations. 
This approach will enhance economic stability and quality improvements;
      MedPAC should factor into its recommendations long term 
care's progress in improving quality. Funding volatility undermines 
providers' ability to remain focused on continuous quality improvement.

    At the end of the day, Mr. Chairman, the matters at hand are 
relatively simple: When Medicare funding for skilled nursing services 
is stable, quality of care and services improves. When Medicare funding 
is inconsistent and unstable--especially in the face of growing 
demand--our nation's long term care infrastructure deteriorates, to the 
detriment of every senior today and every retiree tomorrow.

                                 
Statement of Val J. Halamandaris, The National Association of Home Care 
                              and Hospice
    The National Association for Home Care & Hospice (NAHC) is the 
largest national home health trade association. Among our members are 
all types and sizes of Medicare-participating care providers, including 
nonprofit agencies such as VNAs, for-profit chains, public and 
hospital-based agencies and free-standing agencies.
    NAHC is pleased to submit this statement for the record to the 
Committee on Ways and Means Subcommittee on Health on the Medicare 
Payment Advisory Commission's (MedPAC) recommendations and report to 
Congress on home health care payment adequacies. In its 2009 report to 
Congress, MedPAC recommended that Congress eliminate the home health 
market basket update for 2010 and accelerate the application of the 
2011 coding creep adjustment proposed by the Centers for Medicare and 
Medicaid Services (CMS) for 2011 (2.71 percent) to 2010--reducing 
current rates in 2010 by 5.46 percent while not accounting for any 
inflation in costs. MedPAC also recommended that Congress direct CMS to 
rebase home health payments in 2011, using 2007 costs as a base. In 
September 2008, MedPAC recommended that there be trials to test out 
bundling of Medicare provider payments, such as post acute care 
payments, surrounding hospitalizations.
    NAHC believes that MedPAC's recommendations fail to address the 
true financial status of home health agencies. The recommendations are 
based on an incomplete analysis of Medicare cost report data that 
excludes a significant segment of home health agencies, ignores 
essential home health care service costs, and relies on a methodology 
that treats home health services as if they were provided by one agency 
in just one geographic area. If accepted, the MedPAC recommendations 
will severely compromise continued access to care.
    In specific response to the recommendations, we note the following:

      CMS administratively has promulgated a 2.75 percent 
across-the-board rate reduction for home health services for 2008, 
2009, and 2010, as well as a 2.71 percent cut for 2011. The 2.75 
percent cuts scheduled for 2008 and 2009 have been implemented. Over 
the next five years (2009-2013) these cuts will reduce outlays for home 
health by $7.59 billion unless Congress blocks them. These reductions 
are based on an unfounded allegation by CMS that case mix weights have 
increased without attendant changes in patient characteristics, 
referred to by CMS as ``case mix creep'' or ``upcoding.''
      In February 2009, the Office of Management and Budget 
included MedPAC's 2009 recommendations for deep cuts to home health 
care as part of the President's proposed FY 2010 budget. Over five 
years these harmful cuts would take more than $13 billion from the 
Medicare home health program. The Administration's budget also calls 
for the bundling of hospital and post acute care payments beginning in 
2013.
      MedPAC's proposed freeze in home health payments, coupled 
with the CMS regulatory payment reductions and rebased payment rates, 
would reduce home health payments by $550 million in 2010, by $2.5 
billion in 2011, and by $13 billion from 2010 through 2014. These cuts 
would come from a benefit that is about $15.5 billion per year ($2 
billion less than in 1997) and under control in terms of expenditure 
growth (see chart below).
      Currently, about one third of Medicare home health 
agencies (HHAs) have negative Medicare profit margins. The National 
Association for Home Care & Hospice (NAHC) has calculated that by 2011, 
nearly two-thirds of home health agencies will have negative Medicare 
profit margins if MedPAC's proposed freeze, accelerated CMS regulatory 
cuts, and rebasing of payment rates are implemented.
      MedPAC fails to evaluate the impact on care access that 
occurs with the current wide ranging financial situation of HHAs. 
Regardless of average margins, there is a wide range in agency margins 
and thus a wide range in impact that the proposed across-the-board cuts 
in payments would have. Additionally, there is no evaluation to date of 
the completely reformed home health payment model put in place in 2008. 
In the event that the wide range in margins continues, a more 
sophisticated payment model connecting payments to resource use should 
be developed. Otherwise, there will be large sections of the country at 
risk of losing all access to home health services.
      MedPAC's proposal to reduce home health payments is based 
on claims that home health agencies are making excessive profit margins 
on Medicare services. MedPAC's financial analysis of Medicare HHAs, 
projecting a 12.2 percent margin for 2009, is unreliable. First, it 
does not include any consideration of the 1,626 agencies (21 percent) 
that are part of a hospital or skilled nursing facility. In some 
states, hospital-based HHAs make up the majority of the providers (ND 
85.0 percent; SD 76.5 percent; MT 66.7 percent; OR 63.0 percent). 
Facility-based HHAs have an average Medicare profit margin of negative 
6.19 percent. Second, the MedPAC analysis uses a weighted average, 
combining all HHAs into a single unit, rather than recognizing the 
individual existence and local nature of each provider. It sees a 
single national profit margin for freestanding agencies as 
representative of over 9,700 very diverse HHAs. When all agencies' 
margins are included and given equal weight, the true average Medicare 
margin would be closer to 5 percent. About one third of home health 
agencies currently have negative margins. Third, MedPAC margin data 
fails to recognize many agency costs, including the cost of telehealth 
equipment, increasing costs for labor, emergency and bioterrorism 
preparedness, and system changes to adapt to the new home health 
payment changes.
      Home health agencies are already in financial jeopardy as 
a result of Medicaid cuts and inadequate Medicare Advantage and private 
pay rates. Ongoing study of home health cost reports by the National 
Association for Home Care & Hospice indicates that the overall 
financial strength of Medicare home health agencies is weak. The 
average all-payor profit margin for freestanding HHAs is reduced to 4 
percent when taking into account losses from non Medicare payors.
      Recent cost reports reveal that the average Medicare 
margin for rural agencies is negative 3.52 percent. The loss of the 5 
percent rural add-on payment for home health services in rural areas, 
which expired on December 31, 2006, has resulted in reductions in 
service areas, agency closures, and reports that some agencies had to 
turn away high resource use patients who are more expensive for 
agencies to serve. In many rural areas home health agencies can be the 
primary caregivers for homebound beneficiaries with limited access to 
transportation.
      The ``case mix creep'' adjustment ignores increases in 
patient acuity, particularly a significant increase in orthopedic and 
neurologically impaired patients requiring restorative therapy. These 
changes in patient characteristics are documented in a report from the 
Lewin Group and directly correlate with changes in case mix weights.
      CMS alleges that the entire change in the average case 
mix weights between 1999 and 2005 is the result of provider upcoding or 
factors unrelated to changes in patient characteristics. If this had 
occurred one would expect to see a significant increase in Medicare 
home health expenditures. In fact, as the chart below indicates, 
Medicare home health expenditures are far lower than the Congressional 
Budget Office (CBO) had expected under the new Home Health Prospective 
Payment System and are $2 billion less than in 1997.
      The MedPAC proposal to test the bundling of post-acute 
care services, including home health payments, needs to be defined. At 
this point, it appears conceptual rather than concrete in terms of the 
bundling operation. Depending on how a post-acute care bundling model 
is constructed, it could compromise both the quality and availability 
of home health care for Medicare beneficiaries. It may cause major 
disruption to the health care industry, be anti-competitive, increase 
the Federal regulatory burden and erect a new and unnecessary barrier 
to beneficiaries' access to quality care. If the bundling is 
administered by hospitals, there are additional issues of concern. 
Hospitals have no experience in the management of post acute care and 
no infrastructure to manage utilization review. Hospitals are the 
highest cost sector so this is not the place to locate efficiencies in 
post acute care. If bundled payments are considered, they should go to 
community-based providers that have a breadth of experience in 
providing post acute care and avoiding unnecessary hospitalizations.
      Medicare home health services reduce Medicare 
expenditures for hospital care, inpatient rehabilitation facility (IRF) 
services, and skilled nursing facility (SNF) care. For example, a study 
by MedPAC shows that the cost of care for hip replacement patients 
discharged to home is $3500 lower than care provided in a SNF and $8000 
less than care provided in an IRF, with better patient outcomes.
      With communication and technological advances over the 
last ten years, the home health community has pioneered leading-edge 
models and therapeutics to deliver comprehensive, high quality, patient 
centered care across the health care delivery system. These models lead 
to better patient care coordination, medication management, disease and 
chronic care management, and behavioral and preventative education. The 
innovative approaches of today's home health care show great promise in 
addressing many of the concerns associated with disparities in health 
care and access in rural communities.
      Home health agencies have already experienced a 
disproportionate amount of cuts in reimbursement as a result of the 
Balanced Budget Act of 1997 (BBA). Based on CBO's 1997 10-year 
projections of the impact of the BBA, Congress expected to reduce 
Medicare home health care outlays by FY 2006 from a projected $40.4 
billion to $33.1 billion. The Congressional Budget Office (CBO) now 
estimates that home health outlays for FY 2006 were in fact $13.1 
billion. This reduction was far in excess of the reduction originally 
envisioned by Congress.
      The number of Medicare beneficiaries receiving the home 
health benefit has dropped from 3.6 million in 2007 to 3.2 million. 
When the current home health prospective payment system (PPS) was 
implemented in 2000, CBO projected that Medicare would expend $23.3 
billion on home health care in 2007. Instead of $23.3 billion, Medicare 
spent $15.5 billion in 2007, $8 billion less than projected and $2 
billion less than in 1997. Home health care as a share of Medicare 
spending has dropped from 8.7 percent in 1997 to 3.6 percent today. By 
2016 OMB projects that it will drop to 3.0 percent.

    NAHC recommends that Congress should 1) Reform the Medicare home 
health payment model to achieve a more reliable payment distribution 
that reflects varying resource uses and costs incurred in providing 
care to individual patients; 2) Reject any proposals to cut the home 
health market basket inflation update or impose additional rate 
reductions for home health agencies; 3) Reinstate the 5 percent add-on 
payment for home health services in rural areas; 4) Block the home 
health case mix rate reductions and reform the regulatory process for 
evaluating case mix changes; and 5) Reject proposals to bundle home 
health payments into hospital or other provider payments.
    Mr. Chairman, NAHC appreciates the opportunity to provide these 
comments to the Committee on Ways and Means Subcommittee on Health on 
Medicare home health care payment adequacy. We look forward to working 
with the Subcommittee as it studies and considers NAHC's 
recommendations on MedPAC's report to Congress.

                                 
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