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


 
  MAKING HEALTH CARE WORK FOR AMERICAN FAMILIES: SAVING MONEY, SAVING 
                                 LIVES 

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 2, 2009

                               __________

                           Serial No. 111-27


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov

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                    COMMITTEE ON ENERGY AND COMMERCE

                 HENRY A. WAXMAN, California, Chairman

JOHN D. DINGELL, Michigan            JOE BARTON, Texas
  Chairman Emeritus                    Ranking Member
EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
RICK BOUCHER, Virginia               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
GENE GREEN, Texas                    STEVE BUYER, Indiana
DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
  Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California               MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
JANE HARMAN, California              LEE TERRY, Nebraska
TOM ALLEN, Maine                     MIKE ROGERS, Michigan
JAN SCHAKOWSKY, Illinois             SUE WILKINS MYRICK, North Carolina
HILDA L. SOLIS, California           JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
JAY INSLEE, Washington               MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin             MARSHA BLACKBURN, Tennessee
MIKE ROSS, Arkansas                  PHIL GINGREY, Georgia
ANTHONY D. WEINER, New York          STEVE SCALISE, Louisiana
JIM MATHESON, Utah                   PARKER GRIFFITH, Alabama
G.K. BUTTERFIELD, North Carolina     ROBERT E. LATTA, Ohio
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont

                                  (ii)
                         Subcommittee on Health

                FRANK PALLONE, Jr., New Jersey, Chairman
JOHN D. DINGELL, Michigan            NATHAN DEAL, Georgia,
BART GORDON, Tennessee                   Ranking Member
ANNA G. ESHOO, California            RALPH M. HALL, Texas
ELIOT L. ENGEL, New York             BARBARA CUBIN, Wyoming
GENE GREEN, Texas                    HEATHER WILSON, New Mexico
DIANA DeGETTE, Colorado              JOHN B. SHADEGG, Arizona
LOIS CAPPS, California               STEVE BUYER, Indiana
JAN SCHAKOWSKY, Illinois             JOSEPH R. PITTS, Pennsylvania
TAMMY BALDWIN, Wisconsin             MARY BONO MACK, California
MIKE ROSS, Arkansas                  MIKE FERGUSON, New Jersey
ANTHONY D. WEINER, New York          MIKE ROGERS, Michigan
JIM MATHESON, Utah                   SUE WILKINS MYRICK, North Carolina
JANE HARMAN, California              JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
JOHN BARROW, Georgia                 MICHAEL C. BURGESS, Texas
DONNA M. CHRISTENSEN, Virgin 
    Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
  






















                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     1
Hon. Nathan Deal, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     2
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     4
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................     5
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     5
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     6
Hon. Phil Gingrey, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     7
Hon. Lois Capps, a Representative in Congress from the State of 
  California, opening statement..................................     7
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................     8
Hon. Kathy Castor, a Representative in Congress from the State of 
  Florida, opening statement.....................................     8
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     9
Hon. Janice D. Schakowsky, a Representative in Congress from the 
  State of Illinois, opening statement...........................     9
Hon. Bruce L. Braley, a Representative in Congress from the State 
  of Iowa, opening statement.....................................    10
Hon. Tammy Baldwin, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    10
Hon. Betty Sutton, a Representative in Congress from the State of 
  Ohio, opening statement........................................    11
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, prepared statement..............................   149

                               Witnesses

Jonathan Skinner, Ph.D., Professor of Economics, The Dartmouth 
  Institute for Health Policy and Clinical Practice..............    12
    Prepared statement...........................................    15
Christine K. Cassel, M.D., President and CEO, American Board of 
  Internal Medicine and Abim Foundation..........................    24
    Prepared statement...........................................    27
John Goodman, Ph.D., President and CEO, National Center for 
  Policy Analysis................................................    34
    Prepared statement...........................................    36
Bruce Sigsbee, M.D., M.S., President Elect, American Academy of 
  Neurology......................................................    44
    Prepared statement...........................................    46
Dennis Smith, M.P.A., Senior Research Fellow in Healthcare 
  Reform, The Heritage Foundation................................    53
    Prepared statement...........................................    56
Jerry Avorn, M.D., Professor Of Medicine, Harvard Medical School.    67
    Prepared statement...........................................    70
Paul Ginsburg, Ph.D., President, Center for Studying Health 
  System Change..................................................    93
    Prepared statement...........................................    96
Regina Herzlinger, Ph.D., Professor of Business Administration, 
  Harvard Business School........................................   104
    Prepared statement...........................................   106
Ronald Bachman, F.S.A., M.A.A.A., Senior Fellow, Center for 
  Health Transformation..........................................   132
    Prepared statement...........................................   135
Diane Archer, J.D., Director, Health Care Project, Institute For 
  America's Future...............................................   137
    Prepared statement...........................................   139

                           Submitted Material

Article entitled, ``Study Finds Many on Medicare Return to 
  Hospital,'' April 2, 2009, The New York Times, submitted by Mr. 
  Pallone........................................................   155
Letter of April 1, 2009, from the State of South Carolina to Mr. 
  Deal, submitted by Mr. Deal....................................   157
Statement of the National Home Infusion Association, April 2, 
  2009, submitted by Mr. Engel...................................   159
Statement of CHRISTUS Health System, April 2, 2009, submitted by 
  Mr. Deal.......................................................   164


  MAKING HEALTH CARE WORK FOR AMERICAN FAMILIES: SAVING MONEY, SAVING 
                                 LIVES

                              ----------                              


                        THURSDAY, APRIL 2, 2009

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:07 a.m., in 
Room 2123 of the Rayburn House Office Building, Hon. Frank 
Pallone Jr. (chairman) presiding.
    Members present: Representatives Pallone, Dingell, Green, 
DeGette, Capps, Schakowsky, Baldwin, Matheson, Castor, 
Sarbanes, Sutton, Braley, Deal, Shimkus, Shadegg, Pitts, 
Burgess, Blackburn, Gingrey, and Barton (ex officio).
    Staff present: Karen Nelson, Deputy Staff Director for 
Health; Karen Lightfoot, Communications Director; Jack Ebeler, 
Senior Advisor on Health Policy; Stephen Cha, Professional 
Staff Member; Tim Gronninger, Professional Staff Member; Purvee 
Kempf, Counsel, Anne Morris, Legislative Analyst; Virgil 
Miller, Legislative Assistant; Camille Sealy, Detailee; Miriam 
Edelman, Special Assistant; Lindsay Vidal, Special Assistant; 
Alvin Banks, Special Assistant; Allison Corr, Special 
Assistant; Brandon Clark, Minority Professional Staff Member; 
Marie Fishpaw, Minority Professional Staff Member; Clay 
Alspach, Minority Counsel; Melissa Bartlett, Minority Counsel; 
and Chad Grant, Minority Legislative Analyst.

          OPENING STATEMENT OF HON. FRANK PALLONE, JR.

    Mr. Pallone. The meeting of the subcommittee is called to 
order.
    Today we are having our final hearing in this series on 
marking healthcare work for American families, and today we 
will examine how to get more value out of our healthcare 
dollars by improving quality and lowering costs. Earlier this 
week the Department of Health and Human Services issued a 
report on rising healthcare costs and the impact these costs 
are having on American families, businesses, and the Federal 
Government. According to this report the U.S. spent $2.2 
trillion on healthcare in 2007, or $7,421 per person, and this 
comes to 16.2 percent of the gross domestic product, which is 
nearly twice the average of other developed nations.
    If healthcare costs continue to grow at the current rate, 
they will account for 25 percent of GDP in 2025, and 49 percent 
in 2082. Clearly, this level of healthcare spending is simply 
not sustainable. So we need to figure out to change the 
trajectory of healthcare costs. Bending the cost curve even the 
slightest degree will help mitigate further growth and generate 
significant savings to our healthcare system. The difficult 
part is figuring out how, and that is why we are here today.
    Part of the problem is how we pay for healthcare services. 
There is an old saying that you get what you pay for. In this 
country we pay for the quantity of healthcare services 
provided, not the quality of the service. So it should come as 
little surprise that as utilization rates increase, healthcare 
costs rise and quality suffers.
    But this isn't the story across the board. There is a lot 
of variation in the delivery of healthcare throughout our 
Nation. In parts of the country certain healthcare services are 
seeing tremendous growth and utilization. Yet in other parts 
there are concerns that patients aren't receiving enough of 
recommended care. So we need to understand better what explains 
this variation and how it is impacting our healthcare system in 
terms of both cost and quality.
    Significant work has been done in this area by researchers 
at Dartmouth, including Dr. Jonathan Skinner, who we will hear 
from today. I think it is also important to note that these 
problems are prevalent throughout the healthcare system. A lot 
of people like to point to public programs like Medicare and 
Medicaid and use them as a scapegoat for healthcare costs run 
amuck, but the challenges we face with costs and quality aren't 
endemic to just public programs. Private insurers and employers 
must also begin to rethink the way they pay for healthcare 
services. Changes to Medicare payment policies can help drive 
that change.
    And finally, I want to mention that we will also be 
examining the role of transparency when it comes to the 
delivery and purchasing of healthcare services. This has been a 
priority for our Ranking Member, Mr. Deal. I agree that 
consumers have the right to know what they are paying for when 
they see a doctor or enter a hospital, but that right also 
extends to other areas such as purchasing healthcare coverage. 
I think we need to be cognizant that transparency, while 
certainly a good thing, does have its limits. It is not 
realistic to expect transparency to be a panacea to controlling 
healthcare costs. Some, if not most, patients simply won't be 
in the position to use this information or shop around for the 
best healthcare.
    I want to thank our witnesses for being here today. I am 
looking forward to your testimony.
    And I now recognize Mr. Deal for the purposes of his 
opening statement.

             OPENING STATEMENT OF HON. NATHAN DEAL

    Mr. Deal. Thank you, Mr. Chairman. I want to thank you, and 
I want to thank the witnesses in both panels today for your 
appearance.
    Certainly the first panel today will raise a number of 
issues facing Congress. Chronic care is consuming a larger 
share of healthcare spending, treatment remains uncoordinated 
and oftentimes duplicative as a result of fragmented care and 
escalating costs threaten the coverage of millions of American 
families.
    I am particularly appreciative that the chairman is willing 
to hold a panel hearing today on the second panel relating to 
healthcare transparency. As most of you know, I am currently 
making final revisions to my legislation Healthcare 
Transparency Act of 2009, which seeks to address many of the 
issues stemming from the exorbitant cost of medical items and 
services. My legislation addresses a core problem in our 
healthcare delivery system, which affects millions of American 
families.
    Medical bills remain the leading cause of personal 
bankruptcy in this country, and with these concrete hard facts 
in mind it bears asking why anybody would want to inhibit more 
transparent fair price healthcare market, fair prices in the 
healthcare market.
    I have some charts, and I am going to ask if someone would 
put those charts up while I make a few more statements. The 
first reaction of many people in Washington would be to create 
thousands of pages of new pricing regulations to help solve the 
problem. I want to make it clear that I believe the best 
solution would be to simply follow President Obama's call for 
increased transparency and require any healthcare provider 
receiving federal funding to publicly disclose the price they 
charge to uninsured, to under-insured, and other self-pay 
patients. Given the efficiency created in today's internet-
based marketplace, particularly as the healthcare industry 
makes dramatic steps towards wide adoption of HIT and EMR 
technologies, the task would be simple and would empower 
millions of Americans with critical information about the cost 
of their healthcare.
    Another equally important component of the proposal would 
be to require health insurance companies to provide more 
information to patients before services are rendered. As you 
know, there are a number of factors which affect reimbursements 
provided by insurers such as deductibles, co-pays, and co-
insurance rates and whether or not the provider is established 
as an in-network or out-of-network provider. And I think people 
should know before they receive the services exactly what those 
services are going to cost.
    Now, the charts that you see here are pictures made by 
staff members on a trip to Tanzania, Africa, and they are in 
Tanzanian shillings, and one United States dollar equals 
approximately 1,300 Tanzanian shillings. Now, the brown chart 
there is taken at a community hospital in Tanzania, and it is 
in, the chart is located in the front of the reception area at 
the hospital. As you might be able to translate there, 
ultrasound there is the equivalent of costing four U.S. 
dollars. Now, that is a little deceiving because the GDP and 
the gross domestic product of Tanzania is very low.
    The white chart is a list taken outside the outpatient ward 
at a community health clinic. Now, it seems a little bit 
surprising to me that in what we would definitely call a third-
world country their people going to their health providers have 
the right to know what the cost of their services are going to 
be, and they are publicly posted. I challenge you to find very 
many comparable environments in the United States where these 
prices are posted for the public to know before they receive 
the services, and think that is a shame and something that 
should be addressed, and we hopefully in this healthcare reform 
that we will undertake will have the opportunity to do that. We 
shouldn't criticize third-world countries when they have 
greater transparency than we do.
    So thank you, Mr. Chairman. I appreciate your indulgence, 
and thank you for having both of the panels here today.
    I yield back.
    Mr. Pallone. Thank you, Mr. Deal. Our Chairman Emeritus, 
Mr. Dingell.

           OPENING STATEMENT OF HON. JOHN D. DINGELL

    Mr. Dingell. Thank you, Mr. Chairman, and I commend you for 
holding today's hearing.
    In the healthcare reform debate which we are now engaged 
everybody can agree on at least two things; we must reduce the 
cost of our healthcare system so that it doesn't bankrupt our 
families and businesses and even government at all levels, and 
we must increase the quality of care so that we can get a 
better value for our dollar. This means a way must be found to 
see to it that we can control these costs and reduce the 
acceleration in growth of the costs that is moving forward.
    The cost of our healthcare system is an unsustainable path, 
and we must now act to bend the cost curve before it is too 
late. We have created a system that makes money by running more 
tests, doing more surgeries, prescribing more drugs, even if 
the data doesn't back up the particular course of treatment, 
and of course, it involves buying large amounts of enormously 
expensive equipment as essentially a business promotion device.
    One of our primary goals in drafting healthcare reform 
legislation will be to provide ways to incentive value of care 
over volume of care. We must reform our healthcare system in a 
way that rewards providers for quality healthcare, reduces the 
number of hospital re-admissions, incentives primary care, and 
moves providers in the direction of creating integrated 
healthcare systems. And wellness must be a concern of ours as 
we go about this business.
    We must recognize the need for consideration of evidence-
based data in determining treatment plans in an effort to 
highlight treatments which are most cost effective. We should 
not be led to believe that only the most complex and most 
expensive procedures are the most effective. Most times this is 
not the case.
    Studies show that standardizing certain procedures can save 
lives. For example, training staff on a simple matter like 
proper hand-washing procedures is still one of the best ways to 
prevent hospital-caused infections. Marking surgical sites on 
the patient's body is another way to reduce medical errors, and 
this committee has had to address questions involving 
amputation of the wrong leg or removal of the wrong breast from 
patients in treatment errors of the most outrageous sort.
    Pre- and post-surgical checklists ensure that patients are 
receiving the best practices as developed by the medical 
community instead of invariability and quality of care are a 
necessity.
    Finally, we must create transparency in the healthcare 
marketplace. Transparency efforts must include a wide variety 
of information that allows patients, consumers to make well-
informed decisions about insurance plans, services, and 
providers. A national health insurance exchange could be a very 
helpful event in this regard. Such an exchange which would 
offer a range of private insurance options in addition to a 
public insurance plan could simplify paperwork and make the 
difference among plans, including costs and services offered 
more transparent to the advantage of the patients and to the 
advantage of the system.
    I look forward to hearing the testimony of our witnesses 
today about how we can improve the quality of our healthcare 
system, while also reducing the overall costs. Their incitement 
will be valuable in our meeting of the challenges ahead of us.
    I thank you, and I yield back the balance of my time.
    Mr. Pallone. Thank you, Chairman Dingell.
    The gentleman from Illinois, Mr. Shimkus.

             OPENING STATEMENT OF HON. JOHN SHIMKUS

    Mr. Shimkus. Thank you, Mr. Chairman, and one thing great 
about, especially this subcommittee is we have active members 
who are in the healthcare profession, doctors, we have got 
Lois, who is a nurse, and they really bring a great benefit of 
actually practitioners versus us who are just laypeople trying 
to figure out this very complex process. So I do--I have said 
it a couple of times, it is really a joy to be back on this 
subcommittee.
    The--I think there is a new concern. Mr. Deal in his 
opening comment talked about, you know, government forcing 
transparency because we are in the process of being a big 
payer, and as you see with the TARP and Wall Street bailout and 
GM now with the Administration being able to tell the CEO to 
leave, I would expect more of that for anybody who gets 
government money of any size, shape, or form. I am not sure 
this is good for the country, but we are in a new era. And so 
if you are getting government money, expect government to start 
making decisions all the way down as to one of the bills we had 
on the floor last night said that we may be able to determine 
the salary of the janitor in a corporation that accepted TARP 
money.
    So figure out how that is going to affect healthcare in 
this for the Medicare and Medicaid, and I think you have to 
look at it, because as most people say, Medicare and Medicaid 
is a driving factor on health insurance reimbursements. So you 
can't discard the underpayment by the government on these two 
provisions.
    I am not sure how much time--I don't know if I have gone 
that quickly, but if it is then I will yield back if--unless--
if you hit the timer.
    Mr. Pallone. Thank you.
    Mr. Green.

              OPENING STATEMENT OF HON. GENE GREEN

    Mr. Green. Thank you, Mr. Chairman. I want to thank you for 
holding this hearing today on the health reform and access to 
care.
    Currently there are 47 million uninsured in our country. 
Overall healthcare is consuming an ever-increasing amount of 
our resources. Healthcare estimates are now 16 percent of our 
GDP, and this rate could hit 20 percent by 2017, and as our 
chairman said, 25 percent later. Current estimates show that we 
are spending approximately $8,000 per person on healthcare per 
year. Unfortunately, we are paying more for the cost of 
healthcare but individuals are receiving less care for their 
money. Even though we have access to the most advanced 
technologies, fewer individuals seek treatment due to costs.
    The current economic times highlight the fact that more 
individuals are uninsured simply because their companies cannot 
afford health insurance or the employees cannot afford the 
premium. Premiums are high because we have a reimbursement rate 
policy, including SGR, which does not accurately cover the cost 
of treatment. We also have a fee for services to reimburse 
physicians for volume, which often rewards physicians who 
perform more procedures instead of focusing on better outcomes.
    As we work to improve our healthcare system we hope we will 
finally address our payment system to encourage better health 
outcomes and treatment. I believe this is the root of our high-
cost healthcare and unfortunately prevent individuals from 
having access to quality and affordable healthcare.
    I want to thank our witnesses for appearing today, and I 
look forward to the testimony. I would also like to submit on 
behalf of my colleague, Representative Engel, written testimony 
for the record from the National Home Infusion Association, Mr. 
Chairman, and I yield back my time.
    Mr. Pallone. So ordered without objection.
    The gentleman from Pennsylvania, Mr. Pitts.

           OPENING STATEMENT OF HON. JOSEPH R. PITTS

    Mr. Pitts. Thank you, Mr. Chairman, for convening this 
hearing.
    As we discuss healthcare reform, I can, I think we can all 
agree that patients should be more involved in their own care 
and treatment, but we will never drive down the out-of-control 
costs of healthcare if individuals do not take personal 
responsibility for their choices and behavior.
    Too often, though, individuals' hands are tied. In many 
cases they do not have the one tool that might arguably be most 
important for driving prices down and quality up, to helping 
them make the very best decisions for their own lives and that 
is information.
    What is the true cost of an emergency room visit or CT 
Scan? What about the same CT Scan in the country next door? Of 
the two hospitals nearest my home, which has a lower hospital-
acquired infection rate or a lower error rate during surgery? 
If I am a self-paid patient, what am I paying compared to the 
person next to me who has private health insurance? None of us 
would accept this lack of transparency in other areas of our 
lives. I can pick up items in a supermarket, compare them using 
nutrition labels, all the information I need to decide which 
item is healthiest is right there. We all know that knowledge 
is power, and that is why I commend Ranking Member Deal on his 
draft legislation, the Healthcare Transparency Act, designed to 
get consumers the information they need to make informed 
choices about their healthcare.
    Mr. Chairman, I look forward to hearing the thoughts and 
testimony of the witnesses and thank you and yield back.
    Mr. Pallone. Gentlewoman from Colorado, Ms. DeGette.
    Ms. DeGette. Mr. Chairman, I think this is a very important 
hearing, and I will waive my opening statement in order to get 
more time on questioning.
    Mr. Pallone. Gentleman from Georgia, Mr. Gingrey.

             OPENING STATEMENT OF HON. PHIL GINGREY

    Mr. Gingrey. Thank you, Mr. Chairman. We have heard a lot 
of testimony over these past few weeks concerning the critical 
problems our healthcare system is currently experiencing.
    Healthcare costs are rising faster than inflation and 
wages, and those costs create barriers to care for many, both 
insured, under-insured, uninsured, and of course, including 
lower-income families and those with chronic illness and the 
disabled.
    We do need to fix healthcare so that everyone has the 
ability to see a quality doctor or to receive life-saving 
treatment. We also need to reform long-term care, pay providers 
based on quality of care they give patients and not just 
volume. We need the in defense of medicine through meaningful 
reform and support the creation of a complete system of 
electronic health records. I think this goes hand and glove 
with my colleague from Georgia, Ranking Member Deal, on his 
Healthcare Transparency Act.
    This Congress is now on the verge of considering 
legislation that could fundamentally change the way we access 
healthcare in this country. Both sides of the debate want to 
make our current system of healthcare better. One side, though, 
believes that reform should happen through direct government 
control. The other side, our side, believes that in order to 
make our system better, we need to fundamentally strengthen 
what works in healthcare and strengthen the doctor-patient 
relationship.
    My hope is that this Congress works together in a 
bipartisan way to achieve meaningful reform that strengthens 
the doctor-patient relationship for every American and makes 
healthcare accessible and affordable for every American.
    Thank you, Mr. Chairman. I yield back.
    Mr. Pallone. Thank you.
    Subcommittee Vice Chair, Ms. Capps.

              OPENING STATEMENT OF HON. LOIS CAPPS

    Ms. Capps. Thank you, Chairman Pallone, and welcome to all 
of our witnesses, and thank you for taking the time to be with 
us.
    Today's hearing is particularly important because it asks 
the question that is at the heart of our health reform debate. 
How do we improve the health of Americans while decreasing the 
skyrocketing costs of healthcare? The answer lies in how we 
define and reward healthcare delivery.
    We must stop persisting with a complicated, cobbled-
together system that really basically treats illnesses. 
Instead, we need to create a streamlined and comprehensive 
system which at its core strives to prevent illness and 
maintain health.
    In order to make that change in healthcare we so 
desperately need, information-based, coordinated care that 
finds some way to reward prevention is important. This, I 
believe, is absolutely essential and a way to bring down costs 
as well.
    So I look forward to hearing from our witnesses today, and 
I yield back.
    Mr. Pallone. Thank you.
    The gentlewoman from Tennessee, Ms. Blackburn.

           OPENING STATEMENT OF HON. MARSHA BLACKBURN

    Ms. Blackburn. Thank you, Mr. Chairman. This has been an 
interesting, very interesting series of five hearings, and so 
you all are the ones that are going to finish this up for us 
today, and we welcome you all. I especially would like to 
welcome Mr. Smith, who is on the first panel and has been so 
diligent in helping me with healthcare issues in Tennessee, and 
I appreciate that. And Dr. Herzlinger, who has also been 
someone I have gone to for advice through the years.
    Because in Tennessee we have had the system of TennCare, 
and as many of you know and have heard me say during this 
series of hearings, the mismanagement, very serious 
mismanagement issues that surrounded this program have caused 
some serious financial budgetary implications for our State. 
And I am one of those that as we have worked through this 
hearing it has reaffirmed to me how important it is that we 
have consumer empowerment, transparency, increased 
accountability, and the healthcare delivery systems. Without 
that we are going to see continued mismanagement of programs 
such as the TennCare Program.
    Mr. Chairman, I will have to tell you the hearing title was 
curious to me, saving money, saving lives. I wish we had said, 
saving lives while saving money and expecting better outcomes 
in healthcare delivery.
    Welcome to you all, and I yield back.
    Mr. Pallone. Gentlewoman from Florida, Ms. Castor.

             OPENING STATEMENT OF HON. KATHY CASTOR

    Ms. Castor. Thank you, Mr. Chairman, and welcome to all the 
witnesses.
    You know, there is this great new technology that is 
available to members of Congress and others where we can hold 
telephone town hall meetings, and I did that Monday night, and 
the call goes out to everyone in your district, and they can 
just stay on the line or they can hang up if they are busy. We 
did it on the economy because folks are really struggling right 
now, and in my community where unemployment is over 10 percent 
and we have a very high foreclosure rate, I answered question 
after question on healthcare. The affordability, and we did 
this online poll where people can just press a button. Where do 
you get your healthcare, and we had one, we had about, we had 
over 4,000 people on the line, and it wasn't very scientific 
but most receive their healthcare through their employer, 
employer-based health insurance, but every question was we just 
can't afford it any longer. It is out of control.
    The parent who had healthcare through the employer but 
their son was blocked, prevented because of a pre-existing 
condition from participating, left them out, just completely 
out in the lurch. The retired school teacher who still has 
benefit through the school district is struggling with how to 
pay for prescription drugs, and that really hit home because 
that morning I was at a community health center with a pharmacy 
that had 340B pricing lowest, and I could not, I can't 
rationalize the difference there.
    So this is the front burner issue, and I look forward to 
your expert testimony and how we make healthcare more 
affordable for Americans. Thank you.
    Mr. Pallone. Thank you.
    Gentleman from Texas, Mr. Burgess.

          OPENING STATEMENT OF HON. MICHAEL C. BURGESS

    Mr. Burgess. I thank the chairman. We do have really a 
distinguished panel, two panels before us this morning. Of 
course, Dr. Goodman from down in North Texas, being a 
representative from Fort Worth, I won't say Dallas, but 
nevertheless I am so glad to see you here, because I think your 
wisdom will be great. Dennis Smith, obviously has been a great 
help to me in crafting some of these things. Dr. Cassel, we 
have crossed paths numerous times before and certainly 
appreciate your testimony this morning. Dr. Herzlinger, Ron 
Bachman, appreciate you being here as well.
    I support transparency and competition. I think our efforts 
must not drive behavior into the shadows but should truly try 
to better our care and empower the patient. If we want to move 
into a robust system of consumer-directed healthcare, clearly 
transparency is going to be a critical issue.
    I had introduced legislation on this in the last Congress 
and perhaps will do so again. I realize it is a somewhat 
contentious task when you are dealing with all the 
stakeholders, but I do believe it is worth the effort.
    Just a word on comparative effectiveness, I think we need 
to be realistic about how we use comparative effectiveness. 
Realistically, we need to use it as a reference for how 
physicians treat their patients, but it should not supplant the 
individual physician's judgment as a hard and fast rule for 
healthcare delivery.
    Let us not forget when Medicare was introduced some--in 
1965, that in the statute itself it said nothing in this 
legislation, shall construe that the Medicare legislation will 
interfere with the doctor's ability to treat the patient. I 
think we would be wise to keep that in mind today as we go 
through this.
    I will yield back the balance of my time.
    Mr. Pallone. Thank you.
    Gentlewoman from Illinois, Ms. Schakowsky.

         OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY

    Ms. Schakowsky. Thank you, Mr. Chairman.
    I just wanted to point out that no longer is the problem of 
the cost of healthcare, access to healthcare a reserve for the 
47 million people that don't have health insurance but is 
really affecting so many more.
    First, we know that only giving someone an insurance card 
is not going to fix our healthcare problems. The Commonwealth 
Fund estimates that 25 million insured people can't afford the 
gap between what their insurance covers and what their medical 
bills demand, and that number is growing exponentially every 
day.
    Second, in 2007, healthcare accounted for 17 percent of our 
GDP, but our healthcare system ranked last or next to last on 
five dimensions of a high-performance health system; access, 
efficiency, equity, quality, and healthy lives. And so we have 
to be starting to pay for quality care.
    And finally I want to talk about transparency. With all our 
current technological advances there is no reason why we cannot 
access information about insurance practices. As Diane Archer 
will outline in her testimony, it is impossible to hold 
insurers accountable without knowing, for example, how they 
calculate premiums and other cost-sharing requirements, their 
denial rates, loss ratios, their prescription drug rates, the 
in-network versus out-of-network care rates. My office recently 
met with a group of insurance agents who complained of being 
unable to get this type of insurance from insurance plans. That 
was insurance agents. How can insurance agents accurately 
represent and sell insurance products if they don't have all 
the relevant information consumers need to make coverage 
decisions.
    We can create a system that is not only accessible, one 
that is efficiently and properly focused on providing quality 
care.
    Thank you, Mr. Chairman. I yield back.
    Mr. Pallone. Thank you.
    Gentleman from Iowa, Mr. Braley.

           OPENING STATEMENT OF HON. BRUCE L. BRALEY

    Mr. Braley. Mr. Chairman, thank you for holding this 
hearing on the issues of cost and value in our healthcare 
system.
    Creating a healthcare system that emphasizes quality of 
care over quantity of patients seen has been a long-standing 
priority of mine. Studies regularly show that the State of Iowa 
ranks right at the top of our Nation in terms of quality of 
care, but Iowa healthcare providers receive some of the lowest 
Medicare reimbursements in the country. The current fee for 
service system incentivizes the quantity of patients seen over 
quality of care, which results in higher costs and an emphasis 
on the bottom line rather than patient outcomes.
    A system that provides clearance centers for quality of 
care would also improve access to care for patients in rural 
America. Despite the well-documented success of Iowa's 
healthcare system, Iowa healthcare providers lose millions of 
dollars due to outdated geographic practice indexes. These 
antiquated figures ensure that some parts of the country 
receive drastically-lower Medicare reimbursement rates than 
other parts and have led to a shortage of doctors and medical 
personnel in rural America. There is already a physician 
shortage in Iowa, and the existence of these gypsies provides 
further disincentives for treatment of those who need it most, 
Medicare patients.
    We need a system that emphasizes quality, efficient care 
with value-based measures. This will reduce costs and improve 
America's quality of care.
    And I yield back.
    Mr. Pallone. Thank you.
    The gentlewoman from Wisconsin, Ms. Baldwin.

            OPENING STATEMENT OF HON. TAMMY BALDWIN

    Ms. Baldwin. Thank you, Mr. Chairman. I really want to 
commend you, Mr. Chairman, for this series of hearings that you 
have held, making healthcare work for American families. We 
have touched on a wide array of issues of great importance as 
we look at national healthcare reform.
    Over a period of a few months President Obama during the 
transition invited Americans to host and participate in 
healthcare community discussions to talk about how to reform 
healthcare in American, and these discussions showed us, showed 
that more than anything Americans are worried about costs. And 
it is no matter whether they have insurance or not. The 
financial burden of healthcare is a daily concern. It is 
something that keeps them up at night.
    This situation obviously cannot persist, and we have this 
tremendous opportunity in front of us right now to reform our 
system and rebuild it for the next generation.
    And Mr. Chairman, I look forward to the opportunity to work 
closely with you over the coming months to produce 
comprehensive healthcare reform legislation that addresses 
these very significant concerns of our constituents. So thank 
you for this series of hearings and our hearing today. Thank 
you to our witnesses.
    Mr. Pallone. Thank you.
    Gentlewoman from Ohio, Ms. Sutton.

             OPENING STATEMENT OF HON. BETTY SUTTON

    Ms. Sutton. Thank you very much, Mr. Chairman, and thank 
you for holding this important series of hearings.
    Today's hearing, saving money, saving lives, will address 
the cost of healthcare and transparency in our healthcare 
system. You know, we have all, we are all aware that American 
healthcare is the most expensive in the world. The Kaiser 
Family Foundation's March, 2009, report on healthcare costs 
notes that the U.S. spends 90 percent more than any other 
industrialized country on healthcare.
    With such high costs one would think that our healthcare 
system would be exceptional, but as indicated in previous 
hearings there are serious access issues in this country 
resulting in 47 million Americans without healthcare. Families 
USA estimates that each day in Ohio two Ohioans die because 
they lack health coverage.
    I look forward to hearing from our panel today as they 
address ways in which our healthcare system can cut down on 
costs while maintaining and even enhancing quality. I also look 
forward to hearing from our panelists as they address the role 
of transparency in our healthcare system, and I thank you, 
again, Mr. Chairman, and yield back my time.
    Mr. Pallone. Thank you.
    Our Ranking Member, the gentleman from Texas, Mr. Barton.
    Mr. Barton. Mr. Chairman, I am just going to submit my 
statement for the record, but how can we oppose a hearing 
entitled, ``Making Healthcare Work for American Families: 
Saving Money and Saving Lives?'' Can't get any better than 
that.
    Mr. Pallone. Thank you for a compliment on our message.
    Mr. Barton. Glad to be here, and I want to especially 
welcome Mr. Goodman, who is a good friend of mine, and we are 
glad to have a conservative viewpoint on this panel.
    Thank you, Mr. Chairman.
    Mr. Pallone. I think that concludes opening statements by 
members of the subcommittee.
    We will now turn to our panel. A word of warning. We might 
have a vote and have to interrupt but hopefully we will get, 
you know, we will get through the whole panel.
    Let me welcome you and also introduce each of you. Starting 
on my left is Dr. Jonathan Skinner, Professor of Economics at 
the Dartmouth Institute for Health Policy and Clinical 
Practice. And then we have Dr. Christine Cassel, who is 
president and CEO of the American Board of Internal Medicine 
and the ABIM Foundation. Dr. John Goodman, who is President and 
CEO of the National Center for Policy Analysis. Dr. Bruce 
Sigsbee, President Elect of the American Academy of Neurology. 
Dennis Smith, who is Senior Research Fellow in Healthcare 
Reform at the Heritage Foundation. And Dr. Jerry Avorn, who is 
Professor of Medicine at Harvard Medical School.
    We have--each of you, we ask you to give 5-minute opening 
statements, which obviously become part of the record, and then 
when you are done, we will have questions from our members 
again.
    Dr. Skinner.

STATEMENTS OF JONATHAN SKINNER, PH.D., PROFESSOR OF ECONOMICS, 
    THE DARTMOUTH INSTITUTE FOR HEALTH POLICY AND CLINICAL 
    PRACTICE; CHRISTINE K. CASSEL, M.D., PRESIDENT AND CEO, 
 AMERICAN BOARD OF INTERNAL MEDICINE AND ABIM FOUNDATION; JOHN 
 GOODMAN, PH.D., PRESIDENT AND CEO, NATIONAL CENTER FOR POLICY 
ANALYSIS; BRUCE SIGSBEE, M.D., M.S., PRESIDENT ELECT, AMERICAN 
  ACADEMY OF NEUROLOGY; DENNIS SMITH, M.P.A., SENIOR RESEARCH 
FELLOW IN HEALTHCARE REFORM, THE HERITAGE FOUNDATION; AND JERRY 
   AVORN, M.D., PROFESSOR OF MEDICINE, HARVARD MEDICAL SCHOOL

                 STATEMENT OF JONATHAN SKINNER

    Mr. Skinner. Thank you, Mr. Chairman, and distinguished 
members of the committee for the invitation to join you today.
    Variations in per capita healthcare spending are now well 
recognized.
    Mr. Pallone. We will have you speak and then we will have 
to break after you. So please continue.
    Mr. Skinner. Less well known is that growth in spending has 
also varied dramatically across the United States as we have 
shown in slide one.
    [Slide shown.]
    Had Miami Medicare spending during 1992, to 2006, been as 
restrained as San Francisco's, its cumulative savings would 
have been enough to buy a new Cadillac Escalade for every 
elderly person in Miami, thus solving both the problems of 
Medicare and the problems of the auto industry.
    The variation in growth rates may appear small, ranging 
from 5 percent in Miami to 2.3 percent in Salem, Oregon, but 
compounding makes a huge difference. If all U.S. regions scaled 
back their growth rates by just over 1 percentage point as San 
Francisco already has done, the Medicare Program would save 
more then $1 trillion by 2023.
    What explains higher spending? Almost all of the 
differences in spending across both regions and academic 
medical centers are due to the greater use and what we refer to 
as supply-sensitive services.
    [Slide shown.]
    Next slide. Medicare royalties in higher-spending regions 
are hospitalized more frequently for conditions that could be 
treated outside the hospital, see physicians more frequently, 
are referred to specialists more often, and have more 
physicians involved in their care.
    And more care isn't always better care. Patients in high-
spending regions report being less satisfied. Physicians 
describe greater difficulty communicating with other physicians 
or maintaining adequate continuity. Health outcomes such as 
survival following a heart attack are no better or worse, or 
sometimes worse in high-spending regions.
    What is going on? We believe that the lower-quality care is 
largely because the payment system reinforces the fragmentation 
of care. Many medical decisions are in the gray area where 
judgment is required and physicians follow local norms. Income 
pressures on both hospitals and physicians motivate the 
purchase of new, profitable technologies and the referral of 
more patients to specialist or to the hospital.
    To discourage these expensive treatments with little 
benefits, it is important to get the prices right. But it is 
also important to pay attention to quantities. Until the 
Dartmouth Atlas came along, no one knew that an in Elyria, 
Ohio, the rate of cardiac stents, a common and expensive 
procedure to reduce blockage in the heart, was three times the 
rate in neighboring Cleveland and seven times the rate in 
Pueblo, Colorado.
    On average Medicare enrollees at the NYU Hospital spend 
more than a month of their last 6 months in a hospital bed 
compared to just 15 days at the University of Rochester. The 
current Medicare system is like contracting with a new 
homebuilder, agreeing on the price per square foot, but letting 
him decide whether to build you a mansion or a cottage.
    What is the solution? I think a necessary first step is the 
formation of accountable care organizations or ACOs. An ACO is 
a local network of providers that can manage the full continuum 
of care. It must be sufficiently large to accurately measure 
quality and expenditures, yet small enough to be manageable. 
Primary care or multi-specialty networks and intergraded 
delivery systems are all examples of shovel-ready ACOs. Our 
research has shown that the formation of ACOs would require 
little disruption of current physician referral patterns and 
that almost all physicians and hospitals could feasibly 
participate in such networks.
    My colleague, Elliott Fisher, has written about the path 
forward in creating these networks. I want to talk about the 
potential of ACOs in extracting some of that $700 billion in 
estimated waste for U.S. spending on healthcare.
    The obvious sources of savings are the high-cost regions 
where per capita Medicare expenditures are nearly double the 
national average. One could cap payments for a small number of 
outlier hospitals with off-the-charts expenditures or cut 
reimbursements for high-cost providers who don't participate in 
ACOs. I expect few hospitals will find these restrictions 
binding since there are so many avenues for high-cost hospitals 
to scale back spending and thus avoid penalties.
    Another approach is to restrain the growth rate in 
spending. Elsewhere, we have described a plan to share savings 
with ACOs able to ratchet back growth in healthcare costs. This 
approach encourages cost-saving technology and discourages 
investment in gray area healthcare with high-profit margins and 
uncertain benefits. These policies have the advantage of not 
penalizing even high-cost providers, but they do not deliver 
cost savings until future years.
    In sum, I believe that accountable care organizations are 
central to claiming some of that $700 billion in wasted 
healthcare spending. While I recognize the practical 
challenges, it is hard to see any other approach generating the 
magnitude of savings we need.
    [The prepared statement of Mr. Skinner follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Pallone. Thank you, Dr. Skinner.
    We have three votes, so probably about half an hour. Five? 
Five. OK then. We are talking about probably at least 45 
minutes, maybe even an hour. Maybe even an hour. But obviously 
we need you to stay here, so we will reconvene after the five 
votes.
    The subcommittee stands in recess.
    [Recess]
    Mr. Pallone. The subcommittee will reconvene. We left off 
with the--and I apologize. I thought an hour but it ended up 
being more like an hour and 15 minutes, I guess. We heard from 
Dr. Skinner, so next is Dr. Cassel.

                STATEMENT OF CHRISTINE K. CASSEL

    Dr. Cassel. Thank you, Chairman Pallone and Ranking Member 
Deal. I really appreciate the invitation to testify about 
approving healthcare value. My name is Christine Cassel. I am a 
board-certified internist and geriatrician and president of the 
American Board of Internal Medicine and ABIM Foundation.
    ABIM certifies about one-third of all practicing physicians 
in the United States. We have the largest of the 24 certifying 
boards that constitute the American Board of Medical 
Specialties. The certifying boards are independent, non-profits 
that do not accept industry funding. We test, monitor, and 
certify that individual physician specialists have the 
knowledge and skills required to practice in their designated 
specialty.
    Because growing research demonstrates that higher standards 
for doctors means better quality for patients, board 
certification standards are recognized as an important 
component of the accountability frameworks of both public and 
private payers.
    So I very much appreciate the committee's leadership in 
examining the link between quality, cost, and value in our 
healthcare system. I want to make three points in my testimony 
today.
    First, while there are abundant opportunities to improve 
value across the healthcare system, the gap is widest and most 
distressing among those with multiple chronic conditions and 
those facing the end of life. Second, well-designed delivery 
system innovations can help to close that gap, and third, the 
success of delivery system innovations stands or falls in large 
part on the shoulders of highly-trained and accountable 
physicians and teams of healthcare professionals.
    More than half of Americans have at least one chronic 
illness, and chronic diseases as this committee knows accounts 
for a third of the years of potential life loss before age 65 
and is the single biggest challenge in our growing elderly 
population. As we know, the problem is not the lack of 
spending. More than 75 percent of our $2 trillion healthcare 
bill is spent on chronic disease care. Too often the problem is 
failure to deliver the right care at the right time and 
importantly, to coordinate care across the complex care needs 
involving multiple providers and settings in a patient-centered 
way.
    In fact, according to MedPAC, Medicare could save $12 
billion a year by reducing unnecessary hospital readmissions, 
improving care transitions and care coordination, and enhancing 
primary care. A more patient-centered approach, especially to 
palliative and end-of-life care could also contribute greater 
value to our healthcare systems. Research shows that when 
patients' needs and preferences are the focus of care 
decisions, fewer resources are spent on aggressive and futile 
technical interventions. Patients receive more timely referrals 
to hospice care, and patients and their families have better 
quality of life in the days that remain.
    Payment reform needs to support the physician who has the 
skills, the evidence base, and the relationship to make this 
happen.
    As this committee also knows models to improve care for 
patients with chronic conditions and those at the end of life 
are now being developed and tested, and we are hearing about 
some of those today.
    In 2008, the American Board of Internal Medicine, along 
with ten other specialties, began recognition of a new 
specialty of medicine in palliative and hospice care so that 
patients and payers could be more confident of the provider's 
skills. Patient-centered medical homes also hold out the 
potential to simultaneously reduce costs and improve quality. 
The concept promotes efficient use of office practice design as 
well as professional recognition and remuneration of the 
primary care physicians and geriatricians who are needed to 
manage and lead such practices.
    However, these very same professionals are in very short 
supply. A study last year showed that 2 percent of graduating 
medical schools, graduating medical students expressed interest 
in seeking careers in primary care internal medicine. Given 
this reality medical homes and related models are going to need 
to make the very best use of the generalist physician skills 
that we can get to manage these complicated patients and to use 
the talent and experience of other members of the clinical team 
to support prevention and coordination. Those team skills are 
also not in common supply in our medical world or in our 
medical--or taught well in our medical schools.
    The medical home model to date has focused mostly on 
system-level improvements like health information technology. 
These are necessary, but they are not sufficient. For the 
medical home concept to deliver on its promise, the designers 
have to create incentives for long-term relationships and 
effective utilization of care between the highest-need patients 
and their physicians.
    Primary care and geriatric physicians will need the tools, 
both incentives and accountabilities, skills, and experience to 
support care coordination beyond the confines of their 
practices. The seven to ten to 15 other specialists that the 
patient is also seeing also need incentives to share the 
information that they have with that medical home, and the 
medical home also needs two-way communication, not just with 
physician specialist, but with hospitals, nursing homes, rehab 
centers, and other community resources.
    Finally, I would like to suggest that specialty board 
certification and maintenance certification offers a way to 
enhance, improve the physician's skills and to ensure that they 
can continue to keep up to date to manage complex patients. 
What we require of physicians to maintain their certification 
includes regular, formal skills testing, practice monitoring, 
and self-evaluation and quality improvement, including tests of 
diagnostic skills, clinical judgment, systems management, and 
the translation of medical knowledge and evidence into 
practice. All of these tools use national quality forum 
endorsed measures where they exist.
    Now all leading health plans put a premium on physicians 
who participate in this process in their reward and recognition 
programs. We have also been involved recently in discussions 
with Senate staff to recognize this process of maintenance and 
certification in the pathways within the Medicare PQRI Program, 
and we look forward to working with you and would ask the House 
leadership to give this idea similar consideration as a way of 
reducing the burden on doctors of redundant measurement 
requirements and a way of enhancing evidence-based approaches 
to setting levels for quality of care.
    So in conclusion stronger infrastructure, better 
connectivity, and physician payment reform are all essential 
elements of the patient center medical home, as well as 
effective healthcare reform. But at the end of the day my 
message to you is that the quality and value of healthcare for 
complex patients also rests in great part on the skills and 
judgment of the physician in relationship with the patient.
    Thank you very much.
    [The prepared statement of Dr. Cassel follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Pallone. Thank you, Dr. Cassel.
    Dr. Goodman.

                   STATEMENT OF JOHN GOODMAN

    Mr. Goodman. Thank you, Mr. Chairman, members of the 
committee. I promise to stay on time.
    All bureaucratic systems tend to show a similar pattern, 
whether it is the National Health Service in Britain or 
Medicare in Canada or the Texas Public School System or the 
U.S. Healthcare System. In all these systems what you tend to 
find is a sea of mediocrity punctuated by little islands of 
excellence.
    In healthcare people point out that if everyone in America 
went to the Mayo Clinic for his healthcare, we could cut the 
national healthcare bill by a fourth, and quality would go up. 
If everyone went to the Intermountain Hospital System in Utah, 
we would cut spending by one-third, and quality would go up.
    So invariably in all these systems people ask, well, why 
can't everybody else be like the islands of excellence. There 
are two characteristics of these islands. Number one, they tend 
to be randomly distributed, and that is because there is no 
reward for excellence and no penalty for mediocrity, and two, 
whatever makes them good is originating on the supply side of 
the market and not on the demand side. And the problem for us 
is that we don't understand why the good organizations are 
good, we don't know how to replicate them, and we don't have 
any model that tells us how to manipulate them.
    Now, despite this fact there is huge interest in pay for 
performance systems in Washington elsewhere around the country, 
and yet we have been doing this in education for almost 2 
decades now, certainly in my State of Texas we have been doing 
it, and I can't see that we have had any positive results.
    Now, if it is true that everything that anybody can point 
to that they like in healthcare is originating on the supply 
side of the market and no one can point to any example where a 
demand side reform is causing any commendable response, then it 
would seem to me that we ought to focus on how we get these 
kinds of supply-side changes, and I have three recommendations.
    First, we should stop penalizing what we like. When Mayo 
Clinic saves money for Medicare, it is losing money for itself. 
Same for Intermountain. When the Geisinger Health System, which 
was in the Washington Post just this week, offers a warranty on 
its heart surgery so that the buyer doesn't have to pay again 
if they screw up and there's a readmission to the hospital, 
Geisinger is saving money for Medicare, but it is losing money 
for itself.
    So we need to turn this around. Medicare ought to be 
willing to say at least we will pay 50 cents on the dollar when 
you are saving us money. So that is reform number two.
    The second thing Medicare needs to do is tell all the other 
hospitals what it has done. We want other hospitals to know 
that we have rewarded innovations that improve quality and 
reduce costs, and then invite all those other hospitals not to 
copy what Geisinger has done because we don't know that 
Geisinger is really doing it the best way, but to come forward 
with their own suggestions for repackaging and repricing their 
services.
    And number three, we need to extend this offer to every 
hospital, every doctor, everybody on the provider side. 
Medicare ought to be open for business. It ought to be open to 
hear from any provider who suggests a different way of being 
paid with three rules. Number one, cost to the government 
cannot go up, the quality of care to the patient cannot go 
down, and they need to tell us 6 months out or 12 months out 
how we are going to measure all this to make sure we have 
abided by rule one and two.
    This is a totally different approach then that pay-for-
performance approach. What I am suggesting is let the supply 
side of the market which knows far more than anybody on the 
buyer's side, let them to decide and propose how we improve 
quality and reduce costs and every doctor in America can think 
of ways that you can reduce costs and eliminate waste. It is 
just under the current system they have no incentive to do so.
    Both in education and healthcare we have the same 
fundamental problem. The entity that pays the bills is not the 
entity that benefits from the services, and that is the source 
of the inefficiency that we find. In healthcare wherever there 
is not a third party, wherever there is no Medicare, no Blue 
Cross, no employer, things actually work pretty well. If we 
look at those markets like cosmetic surgery, lasik surgery, the 
walk-in clinics in shopping malls, tele-doc, which does 
telephone consulting, the concierge stocks, medical tourism, 
and all these markets where it is just patient and doctor and 
no third-party payer. You always find price transparency, you 
often find quality transparency, you have cost control, you 
frequently have electronic medical records, electronic 
prescribing. Doctors often are using telephone, e-mail. In 
other words, doctors dealing with patients on their own tend to 
deal with patients the way other professionals; lawyers, 
engineers, accountants, and so forth, deal with their clients. 
We need to open up the supply side of the market and encourage 
this.
    This morning, Mr. Chairman, I have talked about freeing the 
doctor in this system. We also need to free the patient, and I 
have written about that elsewhere. Thank you.
    [The prepared statement of Mr. Goodman follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Pallone. Thank you, Dr. Goodman.
    Dr. Sigsbee.

                   STATEMENT OF BRUCE SIGSBEE

    Dr. Sigsbee. Good morning, Mr. Chairman, Ranking Member 
Deal, and members of the committee. I am here to talk about 
this morning or actually now this afternoon about how 
realigning incentives within the healthcare delivery system 
will lead to better quality of medicine and will service the 
Medicare population.
    As an introduction, I am a practicing neurologist. I am 
also medical director for a nearly 50-physician multi-specialty 
group and responsible for quality in that group, and I am also 
incoming president of the American, president elect of the 
American Academy of Neurology.
    Right now as many have already pointed out this morning we 
have misaligned incentives within the healthcare delivery 
system and payment structure. And in a very real sense we have 
procedure-centered care, not patient-centered care. And the 
focus should be on what is important for the patient, for the 
individual patient. I am not suggesting that we cut payment for 
proceduralists, but what I am suggesting is that we need to 
adjust the payment system so we have a balanced workforce.
    There are certain consequences of the current incentives 
that have been reviewed before, and I am sure you have heard 
testimony on, but at least from my own perspective as a 
neurologist where we are responsible for taking care of 
diseases that are important to the Medicare population such as 
Alzheimer's, ALS, Parkinson's, stroke, we are suffering the 
same workforce crisis that primary care is suffering.
    Also, intrinsic in the current fee schedule is actually not 
just a lack of incentive but barriers to quality. Certainly it 
is not all valued by the payment structure. I have had 
physicians tell me that they did not want to get involved with 
quality efforts because it took them away from revenue 
generated at activities.
    And also, if you look at it, ambulatory quality systems are 
still in their infancy. Unlike hospital quality systems that 
have developed over the last several decades, we are still 
trying to figure it out. It takes a great deal of effort and 
energy to make these systems work. And they also are quite 
costly. Health information technology is an important tool. You 
also need healthcare coordinators and others to really make it 
work.
    PQRI in my view is an abject failure. Pay for performance 
as it currently exists does not encourage, as it is viewed as 
ineffective quality measure, but quality can be done very 
effectively, and I would like to give you at least my own 
personal story on this. I am a member of a three-physician 
neurology group. We have a joint commission stroke center at 
our hospital. Before we went through the certification process, 
we thought we were doing a great job of taking care of stroke 
patients until we actually started measuring what we were 
doing, and we were not doing as well as we thought or expected 
of ourselves. By placing the quality systems in place, by 
constantly monitoring, by developing a system of care that 
includes EMTs out in the field, all the way through 
rehabilitation, we are taking very good care of those patients. 
We consistently exceed national stroke center benchmarks in 
terms of the quality of care that we provide. And it is that 
kind of in-the-community effort that is really required for 
effective health, for quality measures.
    And as far as an example, and to really look at a payment 
structure and at least in terms of the incentives, what is 
really important, and you have heard about accountable 
healthcare organizations, medical home, but what you are really 
trying to do is create a system where you are trying to incent 
the behaviors that are really important for patient care. 
Certainly productivity is important, not sort of the hamster 
mill of turning but you need certainly enough physician work to 
have access for the Medicare population. Quality is critical, 
patient satisfaction and really a good experience with the 
healthcare delivery system and confidence in the care that they 
are getting, but also you need to encourage the physicians to 
work on improving the systems of care. Care is no longer just 
one physician and one patient. It is across the whole system of 
care. For example, the stroke center, we have trained the EMTs 
so they can recognize stroke and deal with it appropriately.
    So you really have to have a whole system involved, and it 
has to be patient-centered care. And how do you create those 
incentives? There is a lot of discussion about healthcare 
delivery systems. In fact, in the last four or five years there 
has been a great deal of experience with creating physician 
compensation systems, which we are really talking about, and 
creating a balanced way of trying to incent physicians to do 
exactly the kinds of things that I am talking about.
    In fact, they have developed and most places that now 
employ large groups of physicians have moved to what they call 
a blended compensation system, which includes both a salary 
component as well as an at-risk component that can be 
determined not based on only productivity but also on quality, 
patient satisfaction, and also what is termed citizenship, 
which is contributing to healthcare delivery systems.
    And no matter what system you involve, if you don't 
implement the proper incentives in that system, it will not 
really be an effective way and really incurs the kind of 
healthcare that we would like. So based on this experience I am 
recommending that no matter what system we move ahead with that 
there be a blended payment structure that includes the right 
incentives which not only will be good in terms of cost control 
but will be good for patients.
    Thank you.
    [The prepared statement of Dr. Sigsbee follows:]

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    Mr. Pallone. Thank you, Dr. Sigsbee.
    Mr. Smith.

                   STATEMENT OF DENNIS SMITH

    Mr. Smith. Thank you, Mr. Chairman. It is a great pleasure 
to be with you again. First let me hasten to say new views, my 
testimony are my own. They don't represent the position of my 
current and certainly not the position of my former employer, 
the Federal Government.
    I do perhaps have a little bit different perspective than 
my colleagues here on the panel in terms of the experience of 
actually running these programs for the last 10 years or so of 
my life. It gives me perhaps a different perspective seeing 
Medicare and Medicaid, two government health plans, up close 
and personal.
    And one of the things that I think is striking to me is 
that they have to be part of the equation as well. Medicare and 
Medicaid account for approximately 45 percent of healthcare 
spending today. They are going to go up to 50 percent. So any 
idea that we can do this without involving, reforming the 
entitlement programs would seem to me it doesn't work.
    It has been 15 years since Washington tried this sweeping 
types of reform that is being currently discussed today, but in 
that time states have been trying to do this. We have states as 
diverse as California, Massachusetts, Oregon, Tennessee, 
Hawaii, Maine, and Washington have all struggled with universal 
care. I suggest that we learn from them since they have already 
tried it and see what lessons there are, and then certainly we 
have Medicaid itself, the experience of the last several years 
in dealing with the great growth in eligibility and Medicaid, 
et cetera. So there is a great deal to learn from.
    I think one of the things also is the expectations. Right 
now and I think in all of these states the promise was being 
made to the people not only those who were uninsured but the 
people who were insured as well. The promise to them was this 
was going to be cheaper for everybody, and everybody's going to 
save. We are hearing that today. The President has made the 
promise that the average family is going to save $2,500 on 
average. That is $2 trillion over a 10-year period of time. In 
recent, the last few weeks and months we have made commitments 
to spend another trillion dollars over 10 years on healthcare, 
so it seems to me right off the bat we are $3 trillion apart 
from where the American people think we should be in terms of 
addressing the issues of healthcare.
    Again, I think we need to try an approach of lowering the 
cost first then it will become more attractive to people and 
that they will actually purchase it. I think the experience 
especially in California and Tennessee are very important 
lessons of the day.
    First, dealing with the issue of mandates, what does that 
do to the cost of care. I think the discussion in California 
was very reflective since we have that in recent memory where 
you started off with mandates, mandate participation, then you 
were mandating a particular type of coverage, then you were 
also mandating how much people were actually going to spend on 
it. You became, you started a circular affect in which the 
mandates actually kept driving the price tag even higher yet. 
And I think that that in itself contributed in large part to 
why reform in California failed.
    Tennessee as well. Tennessee, the story of TennCare was not 
started as a healthcare issue. It was started as a budget 
issue, and accordingly, TennCare from the very beginning I 
think was crippled and doomed to failure. It took a lot of 
years. It spent a lot of money before the program itself was 
dramatically changed.
    So in terms of solutions, where do we look? From my way of 
thinking look at what model is actually being very successful 
in getting people covered, although in recent years we have had 
some struggle, but the dynamics anyway of employer-sponsored 
health insurance. What advantages do they have? First, they 
have the advantage of the tax code in which individuals have a 
tax advantage to buy it through the employer. So level the 
playing field between the individuals buying it on their own 
and individuals who are buying it through employers.
    Secondly, the dynamics of group purchasing. Individuals 
when they go to the marketplace on their own, they are all on 
their own. They are all by themselves. Well, in group 
purchasing, in employer sponsored, you are in a group. You get 
the discounts that is offered to the group, and you do not have 
the underwriting that goes on in the group setting.
    The entitlement reforms themselves, as I said, Medicare and 
Medicaid in my mind have to be a large part of it. My colleague 
at the end of the aisle talked earlier about the disparance in 
Medicare payments between Florida and hospitals, between 
Florida and San Francisco, but he didn't say why. The reason 
why is government actually interferes in the marketplace. We 
see time and time again in Medicare and in Medicaid where 
government artificially steps into the market, allows one 
hospital, for example, to leap three counties away so they get 
the higher reimbursement of an MSA from a higher payer.
    So we are interfering in the market all the time is part--
so I think part of the solution is resisting that temptation. 
We have plenty of quality initiatives in Medicare. We have got 
I think in many respects the things that we are discussing 
today have been discussed for a great, for a long period of 
time. There is in many respects nothing new under the sun in 
types of those issues, but I think the one thing that would be 
particularly helpful is transparency.
    People should know what they are actually paying for, what 
they are actually buying. We tried this in the Deficit 
Reduction Act of 2005, where we tried to bring transparency to 
prescription drugs and ended up being sued by the pharmacy 
community who didn't want those drugs to become public. So the 
transparency itself I think is a great advantage, a very 
important element that is absolutely missing.
    And finally I think the long-term care in Medicaid, we are 
unnecessarily paying, spending too much on long-term care for 
services that people don't really want. Talking to people with 
disabilities, they want to be in their own homes, in their own 
communities, not in institutional care. So we have to fix the 
F-map in Medicaid to rebalance the system.
    Thank you very much.
    [The prepared statement of Mr. Smith follows:]

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    Mr. Pallone. Thank you, Mr. Smith.
    Dr. Avorn.

                    STATEMENT OF JERRY AVORN

    Dr. Avorn. Mr. Chairman, members of the committee, thank 
you for the opportunity to testify today at this very important 
time for the Nation's healthcare system. My name is Jerry 
Avorn. I am a professor of medicine at Harvard Medical School, 
and for nearly 30 years my research has focused on the 
effectiveness, safety, and affordability of prescription drugs 
and how those drugs are used by doctors and by patients. I have 
taught and practiced geriatrics and primary care internal 
medicine at several of the Harvard teaching hospitals since 
1974, and I am the author of the book, ``Powerful Medicines,'' 
which deals with many of these concepts.
    We doctors badly need more information about the drugs we 
prescribe. Our ability to take the best possible care of our 
patients is severely hampered by a lack of this information. 
There is also a need for our patients to be astute consumers of 
the medical choices available to them, and the Nation 
increasingly expects those who pay for healthcare to be able to 
make the smartest possible choices. The information gap I will 
discuss today limits decisionmaking on all of these fronts.
    My history and by law the FDA is not mandated to evaluate 
new drugs or devices against other treatment options. Its 
enabling legislation requires it to approve a drug for 
marketing if the manufacturer demonstrates effectiveness, which 
may simply mean that it works somewhat better than a dummy 
pill.
    But I have never had a patient say to me, Dr. Avorn, please 
prescribe me something that is a little better than nothing. 
Patients and doctors want to know the best treatment for a 
particular condition, but that isn't the evidence that the pre-
approval testing system was ever designed to collect. Many 
observers feel that changing the legal standards for the drug 
approval process would be infeasible, and many others argue 
that it would be undesirable.
    In any case, once a product is marketed, important new 
information about its safety or effectiveness could be 
collected, which would be very important for doctors and 
patients to know about but which is beyond the purview of the 
initial approval process itself. Once a new product is on the 
market its manufacturer is likely to launch a massive sales 
campaign. The pharmaceutical industry spends much more of its 
revenues on marketing and on promotion than it does on research 
and development. The most costly new products are the ones that 
are most aggressively advertised to doctors and to patients 
whether they represent a real advance or not. A time-tested 
generic drug may be the most effective treatment for conditions 
like high blood pressure or diabetes, and generics often have 
the most well-established safety records as well and are likely 
to be the best value economically by a long shot.
    But the profit margins on generics are wafer thin, so their 
manufacturers don't have the resources to take out expensive 
ads on the evening news or to send perky salespeople to 
doctors' offices to offer us free meals and gifts to persuade 
us to prescribe those drugs.
    This skews the use of medications as well as other 
interventions towards the costliest choices, even when they are 
no better than the alternatives and may even be worse. Other 
economic incentives can take hold when expensive treatments or 
tests like chemotherapy or MRI testing become profit centers of 
their own for the doctors who prescribe them or order them.
    The manufacturers of drugs and devices are investor-owned 
companies, not public health agencies. That is not a moral 
judgment. It is just an economic fact. Given these companies' 
responsibility to maximize return to their shareholders, you 
would be naive to expect these companies to be a good source to 
fund and disseminate studies which could sink one of their 
products.
    There is a clear and embarrassing track record of drug 
makers actually suppressing the results of research if it 
showed problems with their products. This has happened with 
anti-depressants like Paxil, the cardiac surgery drug Trasylol, 
the cholesterol medication, Bacol, and many others. And there 
are examples of this problem from nearly every field of 
medicine.
    At the beginning of this decade my own research group 
wanted to study the apparent link between Vioxx and heart 
disease while that drug was still on the market. We had to seek 
funding for the research from its manufacturer, Merck, since 
there was so little federal support available to do this 
research. When our study found a clear link between Vioxx and 
heart attack well over a year before it was taken off the 
market, Merck tried to persuade us to deemphasize some key 
results, take a co-author off the paper, and then they 
dismissed the very methods that they had previously supported. 
Clearly this not the ideal way to fund studies of drug safety 
and comparative effectiveness.
    Until now it has not been anyone's job to determine how 
well alternative treatments work and how safe they are compared 
to each other. We are often totally in the dark as doctors when 
we try to choose between several drugs for the same condition 
since those studies are rarely done. Our patients probably 
think that we are playing with a fuller deck than we are. 
Perhaps members of Congress think so as well. We are not. As 
bad as the situation is for drugs, this informational gap is 
even worse for other kinds of healthcare intervention. A new 
medical device like a pacemaker or defibrillator or artificial 
hip mostly needs to show that it is not dangerous. Not how well 
it works or whether it is better than existing products. And 
new surgical procedures or new imaging studies like MRIs and 
CAT Scans don't have to show that they benefit patients at all.
    The worst consequence of this information deficit is that 
it prevents us from taking the best possible care of our 
patients. But at a time when the Nation can't afford to provide 
healthcare for all of its citizens and even people with 
insurance as we heard earlier have problems paying for that 
care, the economic aspect of this problem is also quite 
important.
    The U.S. as you heard earlier today has per capita 
healthcare costs that are the highest in the world by a great 
deal. Yet our medical outcome data are overall no better than 
those of many other industrialized countries and often much 
worse. In these rough economic times when more and more people 
have to pay for healthcare out of pocket, high costs can mean 
no care at all, and for Medicare and Medicaid not knowing which 
treatments work best and which have the best value and which 
are safest leads to patient outcomes that are worse than they 
need to be and costs that are increasingly unaffordable for the 
Federal Government and therefore the taxpayer as well as for 
the states.
    There is a solution for this problem. It is based on the 
same concept that underlies all of modern medicine, and it is 
the reason that we are not still using leeches and purgatives 
to treat most diseases. It is the idea that well-conducted 
scientific studies can show us which treatments work best for a 
given medical problem and are the safest. This information can 
be gathered through well-established methods of randomized 
trials, as well as observational studies. The latter kind of 
research, which my group at Harvard performs, can review the 
clinical experiences of millions of people to learn how well 
similar patients did with different treatments.
    These kinds of observational studies can also enable us to 
ask questions about special sub-groups of patients such as 
minorities or children or the very old; the very groups that 
are often under-represented or even excluded in the clinical 
trials that drug manufacturers perform to win FDA approval.
    This kind of research is a public good like clean air and 
good highways, which needs to be supported by government. The 
private sector is simply not going to do the research to 
identify drugs that are absurdly mis-priced or toxic any better 
than the private sector was able to identify financial 
instruments that were absurdly mis-priced or toxic.
    This kind of applied research is not something we should 
fold into the missions of the National Institute----
    Mr. Pallone. Dr. Avorn, I am sorry.
    Dr. Avorn. Yes, sir.
    Mr. Pallone. You are 2 minutes over, so if you could kind 
of summarize.
    Dr. Avorn. OK. I will wrap it up.
    There is a way that we can get this information to 
physicians as well as make sure that it is out there in the 
literature. For a number of years my colleagues and I have been 
doing a process called academic detailing, in which we bring 
information to doctors much as sales reps do for the drug 
companies. The idea is that the states, in this case several 
states in the northeast, support nurses, pharmacists to go to 
doctors' offices and bring information that is not about sales 
but is just about the best possible way of taking care of 
patients. And we have shown over the years that this is a way 
of improving care and actually paying for the program's cost.
    In summary, there are ways in which we think that we as 
physicians can take better care of our patients and save money 
for the healthcare system at the same time. Sandra Cole on the 
Senate side has introduced a bill to support this academic 
detailing outreach to doctors. I am pleased that members of 
this committee, Representative Waxman and Pallone, have also 
introduced a bill that would do the same thing on the house 
side. The goal is to get us doctors the information we need to 
take better care of patients, improve those outcomes, and save 
money at the same time.
    Thank you.
    [The prepared statement of Dr. Avorn follows:]

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    Mr. Pallone. Thank you, Dr. Avorn. Thank all of you.
    We will take questions and start with myself. In each case 
we have 5 minutes.
    My questions actually are of Dr. Skinner. I am trying to 
get two in here; one about the--his startling statistic about 
$700 billion in healthcare spending each year is wasted, which 
is about the size of the economic recovery package that we 
enacted, and it represents about a third of all health 
spending.
    Now, my understanding is when you talk about $700 billion 
it is money spent on services that are not effective or that 
may even be harmful. But if I you would explain. Where does 
this estimate come from, what do you mean by wasteful spending, 
and why is this so large?
    Mr. Skinner. Thank you. That is a great question. That is a 
big number. We had done some studies at, from Dartmouth that 
looked at outcomes of say heart attack patients, hip fracture 
patients, a very large number across the country where we had 
very good detailed information on how sick they were when they 
arrived. Heart attack patients are--everybody is admitted to 
the hospital, you have some good information on how well they 
are doing, and what we observed some areas spent 60 percent 
more on these patients, but they didn't do any better. If 
anything, they did a little bit worse, and so we added up the 
number and came up with a number between 20 and 30 percent for 
the Medicare population.
    We extended that to the general population, the under 65 
population, which--and also we, we also viewed this as sort of 
a lower bound in some way because probably even the most, what 
we found to be the most effective, cost-effective areas could 
also probably improve a little bit as well. So----
    Mr. Pallone. So it is private as well as public? It is 
not----
    Mr. Skinner. Yes. We don't have direct information on 
private, but we made inferences based on the Medicare 
population.
    Mr. Pallone. Now, what do you suggest we do to avoid this 
waste in passing health reform? I mean, I know you talk about 
the creation of ACOs, Accountable Care Organizations, that 
would reward physicians and hospitals for effective management 
and costs and quality. How would that address the problem? Is 
that your answer?
    Mr. Skinner. Well, I think of ACOs in some way as a very 
flexible approach that enables whatever kind of health reform 
that comes in to at least get at what we see is the fundamental 
problem in healthcare, which is nobody is accountable in the 
system, that primary care physicians are overworked, they get 
patients, they send them to the ER if they are, you know, if 
they can't deal with them in their offices. There are one or 
two patients. There is a lot of fragmentation. All of these 
problems basically are allowed to grow and to cost us money and 
to result in bad care, and the ACOs are ways to try to solve 
that.
    Mr. Pallone. And how would they solve it? Because, you 
know, I don't want just another managed care organization. How 
are they going to help us?
    Mr. Skinner. Absolutely. I think the last thing we want is 
to live through the 1990s again with the problems of managed 
care. I think the improvement over managed care is that this is 
an example of providers, highly-skilled physicians and other 
providers working together to try to basically sit down, maybe 
this primary care physician that I mentioned earlier who may 
not have admitting privileges at the hospital in sending their 
patients to the ER, they could actually get together with the 
people at the ER and figure out more effective ways, more cost, 
you know, ways to save money when they get difficult patients 
that come into their door.
    Mr. Pallone. But are you going to do it by changing the 
payment system or--I mean, what is the mechanism? What is the 
enforcement mechanism?
    Mr. Skinner. Yes. No. It is two things. One is you have to 
get the prices right. This is easy for me to say as an 
economist, but you also have to pay for the right things. Right 
now we are paying per MRI, we are paying on the basis of 
quantities, and so basically Medicare pays whatever people 
decide to do. What we need to do is pay on the basis of--is 
reward on the basis of total expenditures. That is prices and 
quantities.
    Mr. Pallone. You know, there was an article, I am going to 
ask unanimous consent to put this in the record. It is an 
article that is today's New York Times about this study that 
finds that many on Medicare return to hospitals.
    Without objection so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pallone. But are you familiar with that? I mean, is 
that an example of how we could--that is something that needs 
to be addressed obviously. Right?
    Mr. Skinner. Yes. I mean, right now, I mean, another 
example--that is a very good example. Another example was when 
a hospital figured out that when people came in with back pain, 
that if they sent them to see a nurse practitioner, rather than 
send them home and have them wait to go see the surgeon, then, 
in fact, most of them, most of the back pain suffers got better 
and went back to work. But the problem was that the hospital 
was losing so much revenue because it wasn't doing as much back 
surgery. And so they actually----
    Mr. Pallone. The bottom line is you are going to have to 
create some sort of financial incentive. I mean, this article 
talks about a financial incentive for hospitals that, where the 
person, where they don't have such a return rate.
    Mr. Skinner. Yes.
    Mr. Pallone. And you would do the same thing with doctors 
and group practices and all that?
    Mr. Skinner. Exactly.
    Mr. Pallone. All right. Thank you.
    Mr. Deal. Dr. Burgess. Oh, you want to see it? Sure. Yes. 
Sure. Go ahead. It was in today's New York Times, and it is, 
basically says that, you know, that there are a lot of 
hospitals where they have a high readmission rate under 
Medicare because they don't give people proper services when 
they leave so they come back. And one way of addressing it is 
to, you know, create a financial disincentive for that, for the 
hospitals.
    You are OK? All right. I didn't hear you. I am sorry. Dr. 
Deal.
    Mr. Deal. Thank you. Well, you all have been interesting, 
and you all have indicated the complexity of the issue that we 
face by the diversity of the subject matter that you have 
addressed, all of which was within that umbrella of healthcare 
reform, and I thank you for your testimony.
    But it is hard for us to get a handle on all of this, as I 
think you all understand. I think part of it is that we are 
trying to figure out objective standards to apply against 
subjective matters. For example, we have interfered with the 
private marketplace to the extent that in the private 
marketplace a patient used to go to the doctor because they 
knew what his reputation was. You know, he was a better doctor 
than the other doctor who was in town, and so, therefore, they 
gravitated to him.
    Nowadays, there--and this is the transparency issue in 
another format, nowadays patients don't know what their 
Medicare doctor got paid, they get those billing forms, they 
can't decipher that. Even in the private insurance market all 
they really know is what their co-pay was and what their 
deductible might be for the whole year. Nobody knows what 
providers are being paid for. They have no objective matter of 
judging the results, and what we are doing is we are saying we 
are going to transfer the ability to make those judgments to 
either the government through Medicare, Medicaid, and 
modifications of the reimbursement system based on results. 
Certainly I think results ought to be what--good results is 
what we all ought to be looking for and trying to achieve.
    Now, in that regard, Mr. Smith, you referred to the fact 
the President says we are going to save every family $2,500 a 
year in their healthcare costs. How do we do that?
    Mr. Smith. Mr. Deal, I think it means moving backwards from 
where we are because I think what we are--the approach thus far 
that I have been hearing about is actually going to increase 
costs rather than lower costs. But I think to start with that a 
pledge of $2,500, which I think is, that is what is getting the 
American families interested in healthcare, and I think they 
expect to deliver on that.
    I think we have to change the dynamics of our current 
entitlement programs. I think that we have to bring about the 
changes that left to the market will help lower those costs.
    As I said earlier, so many times we actually interfere in 
the market. One of the things, for example, is the tremendous 
growth in Medicaid and in SCHIP. We have actually taken healthy 
families and money out of the market. When we did that, we 
raised the cost for the people who were left in the market. 
This is the crowd-out affect that we talked so much about in 
SCHIP.
    So I think part of that is to return people back into the 
market rather than segmenting people off. The beneficiaries I 
think would benefit that, from that in terms of the continuity 
of care. I think we unnecessarily drive up costs when you get 
on Medicaid for the first time, for example, then a child is 
supposed to go for a checkup. No matter that he just had a 
checkup a month ago. We are going to insist that we actually 
drive up the cost of care.
    So I think that is a large part of it, and in Medicaid, I 
mean, we are talking about 45 million lives to put that back 
into, to put those lives back in the market I think would be at 
least a stabilizing affect on the market.
    Mr. Deal. Let me ask Dr. Goodman. Would you comment about 
the same thing? How do we save every family $2,500 a year?
    Mr. Goodman. Well, all of the proposals that I heard from 
the healthcare advisors, President Obama, all the items they 
mentioned have been costed out by the Congressional Budget 
Office, and CBO says there will not be savings in these 
programs. These are all to my opinion demand-side attempts to 
try to change how doctors practice medicine. As I said in my 
testimony, I don't believe you can have great savings coming 
from the demand side of the market. We need to free the doctors 
and the hospitals. They know where the waste is. They know how 
efficiency improvements can be made, and we need to give them 
an incentive to do so.
    And that, I think what that means is empowering the 
secretary to allow every hospital to come to Medicare and have 
a different deal, have a different arrangement. Readmissions--
let the hospital have a warranty and so Medicare doesn't pay 
for the readmission. But we have to pay more for the initial 
surgery, and we should be willing to do that because a warranty 
is worth something.
    Mr. Deal. Are some the stark anti-kickback provisions an 
impediment to doing exactly some of those things?
    Mr. Goodman. They are huge impediments. They may be doing 
some good, but they do a lot of harm, and so if we are going to 
renegotiate and let the providers come forward and say we want 
to be paid a different way, there has to be a way of getting 
around those stark restrictions.
    Mr. Deal. Thank you.
    Mr. Goodman. That is essential.
    Mr. Pallone. Thank you.
    The gentlewoman from Florida, Ms. Castor.
    Ms. Castor. Thank you, Mr. Chairman.
    Dr. Skinner, your data that shows the variations by region 
is astonishing, and I am very sensitive to it coming from the 
State of Florida. South Florida is just infamous. So that we 
have high-spending regions and low-spending regions, and we 
can't really explain this by the difference in illness or 
prices. There is no guarantee the folks in south Florida are 
getting, you know, much better quality of care.
    So I am particularly interested in your finding that the 
lower-spending regions rely on primary care physicians to a 
greater extent. Can you give us a few examples of this and why 
do you think primary care is more available, or is it more 
widespread in those regions? Is it simply that in those regions 
people need more, they have access to a better workforce? Could 
you lay that out in some detail?
    Mr. Skinner. Great question. I think understanding where 
physicians settle is--and where they decide to live and decide 
to practice is a fascinating but as yet somewhat not well 
understood question, because there is a free market in where 
physicians go.
    But it seems to be that in, I guess it seems to be that the 
approach of the primary care physician is to look at an 
individual and to think there may be, for example, for 
chronically-ill patients, there may be different organs which 
are failing, but let us think about how we can coordinate that 
care and think about treating the individual.
    Whereas I think sometimes the emphasis of a specialist is 
on that part of the body to which they are most highly trained 
to understand, and in many cases you want to have a specialist 
on the job, but I think it can also lend to a large number of--
in regions with lots of specialists you can get many, many 
people treating the same--many different physicians treating 
the same patient. And there are these what economists actually 
call network externalities in which I may be doing something as 
a physician which I think is best for my patient, but I don't 
know what all of the other physicians are doing as well, and 
sometimes the things I do may interact with what they day, 
resulting in not better outcomes.
    And so I think that is the best way I can think of to 
explain why in some areas, even within Florida, which is sort 
of a microcosm of these variations, you can find some regions 
where lots of people are being treated by multiple physicians, 
but they don't seem to be doing any better.
    And obviously there is a balance. You need to have 
specialists in any system, but, on the other hand, in some 
sense you also want this idea of a medical home where somebody 
is coordinating all of that care.
    Ms. Castor. And Dr. Cassel, I have met with a number of 
physicians, and they will share cases where a patient has come 
in and gotten a diagnosis and gotten tests, but they want a 
second opinion, so they go into another physician, they get 
another set of tests. They go another place. Is there--there 
must be some answer to controlling, you know, if we are going 
to have, encourage a medical home but you still want patients 
to have some flexibility, but there must be something we can do 
in cost structure and reimbursement structure.
    What do you recommend?
    Dr. Cassel. Well, thank you for that question. There is, 
indeed, and the medical home concept and the accountable care 
organization actually are linked, because they have to do with 
giving somebody the accountability to make sure that that 
coordination happens.
    So, for example, the patient with many complicated 
illnesses who is seeing ten different specialists, and those 
specialists don't communicate with each other, could be taking 
medications that interact, they could be missing major things, 
you could end up in unnecessary hospitalizations and 
readmissions, et cetera. So, you know, you can actually make a 
patient sicker by too many doctors.
    Now, on the other side of the coin, the point that you 
point out, which is that the informed patient, it is a good 
thing that patients are asking for second opinions in my 
opinion. I think that is what we want patients to do to be 
asking of a surgeon how many of these procedures have you done 
and what is your complication rate, et cetera. And particularly 
in the diagnostic arena to making sure that they get the right 
diagnosis. I believe physicians ought to be open to that, and 
they ought to welcome that.
    In a well-functioning system, though, you would have an 
electronic record, and you would have relationships with those 
specialists where you wouldn't need to do the same test over 
again just to get another doctor's opinion. You would share 
your records with the other doctor, and why should they have to 
order the same test all over again? Put the patient not only to 
the expense but to the risk that every medical intervention 
entails.
    So I think you can create an accountability system around 
this. Part of the problem with both of these notions we are 
trying to solve is that 50 percent of the physicians in the 
United States don't practice in Geisinger or Mayo. They 
practice in single, solo practice or very small practices where 
they don't have that connectedness with their colleagues. We 
need to create some incentives for them to do that and to share 
records and to share the wellbeing of the patient around 
organizing that patient's care.
    Mr. Pallone. Thank you.
    Gentleman from Pennsylvania, Mr. Pitts.
    Mr. Pitts. Thank you, Mr. Chairman.
    Dr. Goodman, as you know, I am sure many large employers 
are feeling the brunt of ever-rising healthcare costs, and many 
companies such as Safeway among others have created innovative 
ways to lower costs and improve health.
    Unfortunately, because many small employers fall under 
HIPAA requirements they are not able to take advantage of this 
same opportunity. I would like to know your thoughts on this. 
Should we change HIPAA to let small businesses take advantage 
of these opportunities? If so, you know, how would you change 
the law?
    Mr. Goodman. I think we should, and in particular I think 
we need some pretty important changes in how we deal with the 
chronically ill, because that is where most of the money is 
spent. And we need to be able to--employers need to be able to 
make risk adjustment deposits to the accounts of the 
chronically ill so the diabetic patient, for example, can 
manage his own money or the asthma patient can manage his 
money. A lot of care can be managed by patients in their homes. 
A lot of care can be self-managed, but if we are going to ask 
patients to manage their own care, they need to be managing the 
dollars.
    To make that possible you need for the employer to be able 
to give different amounts of money to different employees, 
depending on their condition. And we also need a change in 
health savings account rules so we can get rid of this idea of 
a deductible. We need to just carve out areas of care and say 
the patient is going to be responsible for certain things. We 
are going to put money in the account so he can do it.
    And the model for this, interestingly enough, comes from 
the Medicaid Pilot Program, Cash and Counsel, which is, I 
think, now in all 50 states. It is hugely popular; patients 
like it, and I haven't heard a single criticism of it.
    So that needs to be done, and we need clarification from 
Congress on what employers can do, the large ones as well as 
the small ones.
    Mr. Pitts. You also advocate making insurance portable. I 
believe--how would you or how would allowing people to purchase 
insurance across state lines at cost, do you believe that, you 
know, the people can choose the plan that best fits their needs 
or they need help? How would you change it?
    Mr. Goodman. Well, I do think we need a national market for 
health insurance, and of the two questions you asked that is 
the easier one. Just let insurance sell across state lines the 
same way life insurance sells across state lines.
    The harder issue and the far more important one is how do 
we make health insurance portable, because I think that is the 
next really big issue is healthcare, and in some ways for 
employers the sick patient is like a game of musical chairs. 
And it is intolerable for the employer, it is not good for the 
employee.
    So much better if employers could make a fixed dollar 
contribution to a plan that is owned by the employee, which he 
takes with him from job to job. It travels with him through the 
labor market, and we proposed a way to do this for the State of 
Texas, Blue Cross of Texas, and we think it is one way to do it 
nationwide. Probably I would let the states experiment with 
ways to convert the small business, small group market into a 
market for portable care, but that is really, really important, 
and I think portability is maybe the most important healthcare 
issue that you all are you looking at.
    Mr. Pitts. How about risk pooling?
    Mr. Goodman. Well, you know, the risk pool is there because 
we are failing on affordability side, and we are always going 
to need a risk pool if somebody falls through the cracks and 
for some reason doesn't have insurance, has health problems, 
and so that is a way to get health insurance to those people.
    But if you are in a system where you are insured, and you 
stay insured, and you take your insurance with you, you don't--
you will never need the risk pool. So the risk pool should be 
there, but they should be used infrequently.
    Mr. Pitts. Thank you.
    Mr. Smith, could you speak as to the issue of government 
plans competing along with private plans and your thoughts on 
that?
    Mr. Smith. Yes, sir. I think it is an oxymoron. Government 
plans can't compete against the private plans because sooner--
then eventually there will be no private plans, because the 
government plan will eat them all up. There is--it is not a 
level playing field between government being a competitor in 
there where it can control benefits, it can control how much 
somebody is paying, et cetera. All of the advantages are on 
their side of it. They clearly would want to advantage itself, 
and it would create the rules to do so.
    So eventually the private plans would not be able to 
compete. So we would end up later, if not sooner, under a 
government plan, which I think would be a huge mistake. We have 
seen experiences of government plans, and I think that the 
private sector--and when there is real competition and I had 
mentioned earlier, I think part of our problem is we keep 
interfering with the competition and say we don't want 
competition in many respects. Whether it is specialty hospitals 
to where doctors can go out and form a group and provide a 
superior process, government comes along and says, no, we don't 
want you to do that. In many respects we don't want competition 
against our community hospitals, so we change the rules and 
bend the rules to advantage somebody else.
    So fundamentally I think there is not a level playing field 
when a government plan is involved.
    Mr. Pitts. Thank you. I see my time is up.
    Ms. Capps [presiding]. Thank you.
    Now I turn to Mr. Sarbanes of Maryland for your questions.
    Mr. Sarbanes. Thank you, Madam Chair. Thank you all for 
your testimony. There are two geriatricians I think at the 
table. I spent 18 years working with seniors in the healthcare 
arena, and so I am very focused on that. Also, I have a 
district that includes one of the most rapidly aging 
populations in the country in one portion of it.
    So on the question of the workforce, specifically today if 
you were trying to encourage somebody to go into that line of 
work, what are three or four or five things that you would 
offer them, that you would change that you think would 
incentivize them to pursue that kind of a career?
    Dr. Cassel and Dr. Avorn.
    Dr. Cassel. Thank you, Congressman Sarbanes. Great question 
and particularly at this time where all of these models of 
reform are based on the idea of not just better outcomes but 
also more efficiency. You are going to have to have somebody 
who really understands that complexity of the science based and 
the evidence base and all the skills of working with a team 
that, as you know well, geriatric medicine involves.
    Right now--so the answer is how do you create those 
incentives? I would say value, respect, and doability, and so 
value really is reimbursement. I mean, there is--geriatric 
medicine is now the only subspecialty I know of internal 
medicine, you know, we have internists who train and they 
become cardiologist, and they become critical care specialists, 
and every time they get an additional training, they make more 
money. In geriatrics after you do your internal medicine 
training, you get more training in geriatrics, and you make 
less money than the internist makes. And so it is amazing 
anybody does it at all. But the few dedicated people who do it 
do it because they really find huge rewards in that, and it 
makes sense to them that the aging population needs this.
    So we have to find a way in the payment reform discussions 
to appropriately value that additional training and that 
additional skill, and I think there is lots of ways that we can 
do that, and I would be happy to talk with you and the 
committee staff more about that.
    And the second is respect, and you might find it odd that I 
put that in there, but I think Dr. Avorn can reinforce this 
that within the medical profession part of how you are 
respected is kind of by what the public thinks and what you are 
paid and that value equals something, some combination of that. 
And if other specialists really believe that what you bring to 
the table adds value, then that adds a lot to the respect. 
Right now it is such a small and in some ways embattled 
specialty that most specialists don't have any experience of 
working with a geriatrician, they don't know how, what that can 
value. The people who understand this now are aging baby 
boomers who have gone through this now with their parents, and 
if they can find a geriatrician, they say, oh, my God. I didn't 
know they made doctors like that.
    Mr. Sarbanes. Uh-huh.
    Dr. Cassel. So we somehow need to create systems, an 
accountable care organization might be one example of that, 
where there would be a defined role for that person really 
taking advantage of their skills, taking care of the most-
difficult patients and the most challenging patients. So that 
is the second thing.
    And the third is doability, and this gets back to delivery 
redesign as well, because right now in the fee-for-service 
system, in order to actually even just make the expenses of 
your practice and take home a reasonable salary to support a 
family, most geriatricians who are in private practice are 
doing things like Botox and you know, laser skin surfacing, 
because of what Medicare pays them for that complicated 
coordination of care, helping that patient and family find ways 
to stay out of the hospital, stay out of the nursing home, keep 
themselves as functional as they can with their Parkinson's 
Disease and all of their conditions, nobody pays them to do 
that.
    Mr. Sarbanes. Right. Right.
    Dr. Cassel. So instead they are wasting all that training 
doing Botox. So that is a real misuse it seems to me, so I 
think it actually wouldn't be that hard to do within some of 
the things that I know the committee is considering within the 
payment reform.
    Mr. Sarbanes. Thank you. We just have a few seconds left, 
Dr. Avorn, if you want to add anything.
    Dr. Avorn. Yes, sir. Just very briefly, my answers are 
exactly parallel to Dr. Cassel's. It has a great deal to do 
with reimbursement. Students come into medical school wanting 
to be primary care doctors, take care of the elderly, deal with 
chronic disease, and they come out of medical school looking 
for residencies in dermatology and plastic surgery. It is 
because they see their role models and the people who are doing 
well and being rewarded by the system, both public and private, 
are the folks who are doing procedures. And the doctors who are 
simply taking care of chronically-ill people are reimbursed in 
a manner that makes it virtually unaffordable to do that kind 
of work.
    So I think Medicare and Medicaid, as well as the private 
systems could do a great deal in moving from a procedure-based 
reimbursement system, particularly invasive procedures, and 
toward a comprehensive care of the patient kind of system. And 
we have heard about that for a number of ways today.
    And then the last point is it also would help if we had a 
healthcare delivery system that was structured so that the 
geriatrician like the primary care doctor didn't feel that he 
or she was out there waving in the breeze. If there was some 
integration of the system so that one was really part of the 
care network as opposed to somebody out there in left field, 
that would also make it a little bit easier to do what is 
probably the hardest job in medicine and the least paid, well 
paid.
    Mr. Sarbanes. Thank you. That is a great point, and I know 
Congresswoman Capps and I are very focused on school-based 
health centers with respect to children, but there is also 
delivery models you can pursue with respect to seniors, 
community-based clinics, where do we reimburse, et cetera, that 
I think can advance the ball so----
    Dr. Avorn. Absolutely.
    Ms. Capps. Thank you.
    Dr. Burgess for 5 minutes.
    Mr. Burgess. Thank you, and thank you all really. It has 
been a fascinating discussion this morning. I have got a number 
of questions I want to ask. If I interrupt you during your 
answer, it is not because I am being rude, but I do have a lot 
of things I want to get through.
    First, Dr. Skinner, I want to talk just a little bit about 
the accountable health organizations. I spent a fascinating 
morning in December down at the Center for Health 
Transformation talking to four of the clinics that have 
participating in the physician group practice demonstration 
project where they are talking about things that sound very 
similar to the accountable care organizations. In fact, one of 
the things that came up on the discussion was 
rehospitalizations and giving someone a hospital, I mean, a 
doctor's appointment with a primary care physician within 5 
days of their discharge from hospital for decompensated 
congestive heart failure, resulted in an almost disappearance 
of the rehospitalization. So a very low-cost activity with a 
very high yield on the other end. So clearly these are areas 
that it is incumbent upon us to explore.
    One of the things that came up, you know, how do we force 
doctors into these types of practice models, and I am not a big 
one for forcing, so I put forth another idea, and I would just 
like to get your thoughts on it.
    Medicare, of course, is a federal program. It is not a 
state program. It runs across the country. If we have groups 
that conform to all of the parameters set forth for accountable 
care organizations and granted, this will be flexible, and this 
will change over time, but if we have groups that are willing 
to do that, the doctors within that group, could they, if they 
were offered protection from liability under the Federal Claims 
Act like we might do with a federally-qualified health center, 
it seems to me that is a way to bring doctors into that type of 
practice. In fact, you might see accountable care organizations 
set up just to see Medicare patients so that they would be 
provided that cushion from liability.
    Do you think there is, that that is an idea worth 
exploring?
    Mr. Skinner. Absolutely. I think that that is a win, win. I 
think, I don't like to think about forcing doctors into ACOs, 
but I think there is also this, that many physicians are 
concerned about SGR payment cuts, and that is another way to 
incentivize maybe making it worth physicians' while to start 
thinking seriously about whether there is a potential for an 
ACO in their area as well.
    But the more that these organizations grow up, spring up 
out of existing physician hospital networks the better.
    Mr. Burgess. Let me go on. Dr. Cassel, I wanted to ask you 
just a couple of questions. Actually, it relates to some 
testimony Dr. Skinner gave about the high cost of end-of-life 
care, the amount of money we spend within the last few weeks of 
a person's life with not really being certain that we are doing 
much to provide value.
    Now, Dr. Smith talked about how we do sometimes do things, 
and we make ourselves do things that aren't necessarily a good 
return on investment. When we did the Medicare Modernization 
Act, we required that everyone coming into Medicare now have an 
EKG on their welcome to Medicare physical, even if they have 
had an EKG just a year or two before for--in conjunction with a 
surgical procedure.
    What if we were to offer, not require, but offer an 
educational module on advanced directives on that welcome to 
Medicare physical. We could do it right after the EKG, in fact. 
The patient is there, putting their clothes back on, and could 
have this educational module. Sure, pay the doctor, pay the 
gerontologist for their expertise in proving this education, 
maybe even incent the patient with some sort of break on the 
part B premium or some other thing of value that we could 
return to them.
    But what do you think about exploring that as an 
opportunity for getting more people into thinking about 
planning for what happens at end-of-life care?
    Dr. Cassel. That is a very interesting idea, Congressman 
Burgess, and I think I would like to consider it with you. I 
think that it is--I could imagine the physicians not exactly 
liking that idea for most healthy, you know, let us remember 
the Medicare age group between 65 and 85----
    Mr. Burgess. It is the new 40.
    Dr. Cassel [continuing]. Most are very healthy.
    Mr. Burgess. Well, they are getting the Botox.
    Dr. Cassel. And yes. They are the ones there for the Botox. 
That is right. So they might be kind of put off by that, like 
why are they doing, why are they making me look at this.
    Mr. Burgess. Again, it is not a requirement but an offer.
    Dr. Cassel. Right, but an offer, there are very good models 
of shared decision making, and, again, the group at Dartmouth 
has been very involved in these and others as well that show 
that when patients have all of the information and interact 
with their caregiver around that information, they make, they 
almost always make more conservative choices about their care.
    Mr. Burgess. I am going to interrupt you, but I have one 
last thing I want to get to, and I do want to work with you on 
that concept
    Dr. Cassel. So it is a good idea.
    Mr. Burgess. What about the concept, we had some other 
testimony earlier in the past couple of weeks regarding 
Alzheimer's Disease, and if you look at the numbers, if people 
are correct in some of their projections, the numbers are just 
absolutely staggering from a public health cost. You talked 
about the gerontologist being out there kind of on their own 
and sometimes it is a lonely existence.
    But with the interconnected world in which we live and we 
are constructing, what would be the--would there be an 
opportunity for creating essentially a virtual center of 
excellence for the long-term management of the Alzheimer's 
patient, perhaps even considering some early diagnostics with 
things perhaps we can do with genomics, the monoclonal 
antibodies offering some, perhaps some real choices for early 
treatment.
    Is there a place in what we are looking at in the road 
ahead for developing this type of virtual center of excellence 
so that the practitioner is not kind of left out there by 
themselves on this?
    Dr. Cassel. So this is, this would be a clinical center, 
not necessarily a basic research center?
    Mr. Burgess. Well, certainly you could have a physical 
basic research center, but a lot of practitioners who are in 
medium-sized communities may have a population of say 
Alzheimer's patients within their larger sphere of patients.
    If they could link in with other practitioners in a virtual 
center of excellence, Alzheimer's patients are not likely to 
require surgery to improve their condition----
    Dr. Cassel. Yes.
    Mr. Burgess [continuing]. But the medical management, the 
long-term management is really so critical.
    Dr. Cassel. And much of the reason is that geriatricians as 
Mr. Sarbanes pointed out are not widely available, so you don't 
even have that expertise, and many physicians don't know what 
to do, they don't pick up early symptoms of Alzheimer's 
Disease, and you know, so--and if they do, they are not sure 
what to do about it.
    Mr. Burgess. Right.
    Dr. Cassel. So--and they may prescribe medication 
unnecessarily, et cetera. So I think it is a wonderful idea. As 
you may know, I was part of the Alzheimer Study Group with Newt 
Gingrich and Bob Carrey and Justice O'Connor and others.
    Ms. Capps. Dr. Cassel.
    Dr. Cassel. And that was one of our recommendations was 
that there be resources for community providers.
    Mr. Burgess. Right.
    Ms. Capps. Thank you.
    Mr. Burgess. Let us work on this. Thank you.
    Ms. Capps. Thank you. And I recognize myself now for 5 
minutes.
    I will start with you, Dr. Avorn. Because you speak a great 
deal about comparative effectiveness, and it has been a pretty 
hot topic around here. I am particularly interested in your 
comments about translating information into better patient care 
decisions, and I wondered if you would mind using my piece of 
legislation, a bill I have introduced, as an example.
    It is called the--and it is an acronym, Heart for Women 
Act, and among other things it would require the FDA to collect 
and make available information about how drugs and devices work 
differently in patients of different sex, race, ethnicity, so 
forth. The goal being that a health professional could 
determine which drug might be most effective in their 
particular patient.
    Could you explain how this might be helpful for effective, 
comparative effectiveness research and why it is important that 
we have a data collection or information like this for quality 
of care and outcome?
    Dr. Avorn. Sure. Right now we have a perhaps efficient, 
perhaps skimpy approach to approving drugs such that if it is 
better than let us say a dummy pill over a brief period of time 
in healthy or people that we know will take it in achieving 
perhaps a lab test change instead of a clinical change, the 
drug gets approved. That leaves kind of in the dark patients 
who may be excluded from those trials. Often they are 
minorities, often they are women, often they are other 
vulnerable groups, and the elderly, for example, and the doctor 
faced with trying to care for those people does not have the 
information from the clinical trials that we would like to be 
able to really make a scientifically-based decision for that 
patient, not the patients who are like the ones in the clinical 
trial.
    And so where comparative effectiveness research would help 
would be that it would make it possible to fund studies that 
would zero in on particular at-risk groups. Let us say a group 
of scientists, physicians, consumers would say, we don't really 
know enough about the management of let us say congestive heart 
failure in blacks or atherosclerosis in women or how Asians 
metabolize drugs differently. And we would identify on the 
basis of the medical need for the information, studies that 
could be done----
    Ms. Capps. May I interrupt to just--I want to move to 
another topic as well, but would you kind of locate such a 
place at FDA or it might even be multi-disciplinary in terms of 
different----
    Dr. Avorn. The FDA's job is to approve new drugs and----
    Ms. Capps. Right.
    Dr. Avorn [continuing]. We should have----
    Ms. Capps. Where would you locate this?
    Dr. Avorn. I would locate this in a trans NIH, AHRQ 
setting, that is a healthcare research, biomedical research 
entity that would then be able to make recommendations 
scientifically.
    Ms. Capps. I hope we can follow up on this topic.
    Dr. Avorn. I would be happy to.
    Ms. Capps. Just opened it up, I know.
    I want with the rest of my time to address you, Dr. Cassel, 
because you spoke a great deal about the importance of 
coordinating care and the role of the entire clinical team in 
providing preventative care. That is a very important topic to 
me.
    But so many people talk about a medical home, which is in 
itself a fairly new phenomenon or label. I would like to 
propose that we discuss it and talk about it as a health home. 
When we think of the word, medical, we think of medical doctors 
and medicine and techniques. Rather I believe we could be 
talking about the health of the patient as the sort of core, 
and all of the panoply of health professional involved.
    And I wondered if you would sort of give a couple of ideas 
of how this might work. I am a nurse, and so I am thinking of 
the different participants on this team and how that might be 
coordinated, but I also want to have you close by talking about 
the structure, how the reimbursement would work in such a 
model.
    I am aware that in oncology there is a whole team already, 
oncology nurses, who deliver much of the care, for which there 
really is no designation.
    Dr. Cassel. Thank you, and first of all, I completely agree 
with you. I think that the term medical home grew up in this 
model from pediatrics, which you are probably familiar with, 
which was where it first began. And it is to my mind 
unfortunate because particularly from the perspective of a 
geriatrician, it is all about the team and things like care 
coordination function I don't think can actually be done by a 
solo physician or two physicians in an office with a medical 
assistant. I actually think--I can't imagine how they could 
actually effectively do that unless they outsourced it 
something like that.
    So to my mind you actually need this larger team to qualify 
for being a medical home. Now, that is not in the Medicare demo 
legislation. There is a lot of reasons why you want to be able 
to have those small doctor practices.
    Ms. Capps. If we--I only have a few seconds. If we can 
demonstrate that this is important, how, I mean, it only will 
work if people get reimbursed.
    Dr. Cassel. I think there has to be some kind of bundled or 
global payments rather than--because right now Medicare pays 
for doctor, and you couldn't have Medicare pay every different 
health professional and still have that add all out to 
everybody being accountable for working as a team. We know this 
from private industry. If you want to have people work as a 
team, you pay them as a team, and then you have the team figure 
out a lot about the reimbursement. So some mixed model that 
involves some degree of global payment would be my answer.
    Ms. Capps. Thank you.
    Mr. Shimkus. Madam Chairwoman, I would like to defer to my 
colleague, Mr. Shadegg, and then I will take the next one. 
Thank you.
    Mr. Shadegg. I thank the gentleman for deferring, and I 
thank the Madam Chairman.
    Dr. Goodman, I would like to begin with you. You spent a 
lot of time in your prepared testimony discussing with how the 
system isn't working well for doctors, patients, employees, 
employers, people in the non-traditional workplace, insurers, 
the uninsured, and I tend to agree with you, and I want to kind 
of explore that. I want to explore--first of all, I assume the 
reason that it is not working very well is the structure isn't 
suited to make it work very well for those people. Is that 
correct?
    Mr. Goodman. Yes. It is an institutionalized, bureaucratic, 
system. It doesn't work like a normal marketplace, and 
therefore, people don't have the opportunities to improve 
services and lower costs and raise quality the way they would 
do in say the market for other professional services.
    Mr. Shadegg. Indeed, it certainly doesn't operate like a 
normal marketplace, because in this marketplace the consumer of 
the good doesn't buy the good. That is kind of bizarre, isn't 
it? I mean, I am the consumer of my healthcare, I am the guy 
that goes and sees my doctor, I did over the Christmas break, 
went and saw a doctor, but I didn't hire that doctor, and I 
didn't hire the plan that hired that doctor. I just signed up 
to work here at the Congress. Is that a part of the distortion 
of this marketplace, and is there even a marketplace in 
healthcare?
    Mr. Goodman. Well, that is the fundamental cause of the 
distortion. As I said earlier in my testimony, it is also the 
fundamental cause of the distortion of the education market, 
which has many of the same problems. The entity that benefits 
is not the entity that pays the bill. There are, if I can just 
say, there are emerging healthcare markets where third parties 
aren't involved; cosmetic surgery, lasik surgery, the walk-in 
clinics, the concierge's doctors. All of those areas are where 
the market is working well. You have price transparency, you 
have price and quality competition.
    So if we contrast those two markets, you can see radial 
differences.
    Mr. Shadegg. I would argue the problem we have in the 
current healthcare market for most Americans is that it is all 
controlled by third parties. I am a ploy or one just kind of 
pawn being moved around, and my doctor is one also, and the 
whole thing is being controlled by my employer, who doesn't 
really care too much about, you know, he would like me or she 
would like me to have a good healthcare but that is about it. 
And then by the plan that my employer buys.
    I sent my staff an e-mail a little while back where I said, 
oK. Let us assume that going to work in Congressman Shadegg's 
office meant that Congressman Shadegg was going to provide you 
free lunch every day. And I supposed that for one of my 
employees I would go buy him a ham sandwich every day, and for 
another one I would go buy them a salad. The problem is that 
the employee that I bought the ham sandwich for actually hates 
ham, and the employee for whom I bought the salad can't stand 
salads.
    That is kind of the way the market, the so-called 
healthcare market works, isn't it?
    Mr. Goodman. Well, that is why I entitled those sections 
free the doctor, free, the patient, but also free the employer. 
He is not happy with this either.
    Mr. Shadegg. He is not happy with it. We have a situation--
I think the problem in healthcare in America today really comes 
down to two things. The uninsured, and I think we need to cover 
them all, every single one, and I have drafted a bill to do 
that, and cost, and costs are spinning out of control.
    I kind of drew this up. Here are the costs of inflation in 
our society, and here are the costs of healthcare or health 
insurance. Health insurance is rising exponentially faster or 
health costs or rising exponentially faster than any other 
area. Right?
    Mr. Goodman. Twice as fast as income growth. And by the 
way, it is not just the U.S. problem. That is happening all 
over the developed world.
    Mr. Shadegg. Including places, other places where they have 
divorced the consumer from----
    Mr. Goodman. Everywhere all over the----
    Mr. Shadegg. I just have a question for you. In auto 
insurance I happen to note that I can't go home one evening and 
watch TV and not see two, three, four, five auto insurance 
commercials where the little gecko comes on and says he wants 
my business or the State Farm guy comes on and says he wants my 
business. But I note that I never see a commercial like that 
from United Healthcare or any of the healthcare companies.
    Is that related to this problem?
    Mr. Goodman. Well, I do see some insurance commercials, but 
these are commercials for buying insurance in the individual 
market. They are not commercials for group insurance.
    Mr. Shadegg. And what percentage of the American people get 
their healthcare in the individual market?
    Mr. Goodman. Well, less than 10 percent.
    Mr. Shadegg. And what does the government tax policy do to 
those people?
    Mr. Goodman. It discriminates against them. If you are 
self-employed, you get to deduct your premium, but you don't 
get relief from the payroll tax, and if you are just off on 
your own, you get virtually no tax relief.
    Mr. Shadegg. You get smacked. You get smacked right in the 
face. You get told, well, you can buy health insurance, and we 
think you should because we really don't want you to show up at 
the emergency room where you can get free care, but since we 
have told you we want you to go get health insurance, we are 
only going to charge you one-third more for it, roughly one-
third more for it, because you got to buy it with after-tax 
dollars. Right?
    Mr. Goodman. Yes. The uninsured who happen into an 
emergency room more often than not get charged more than any 
other payer in the emergency room.
    Mr. Shadegg. How well does a system of that type and the 
fact we have now where you have divorced the payer from the 
consumer, and you put these people in-between them, how much 
would that be helped by substituting the government for where 
the employer and the insurer or the plan is right now? Instead 
of having the plan, how much by contrast would it be helped if 
we made a direct connection between consumers and providers, 
hospitals or doctors, by allowing people to have the money they 
need to buy the plan that suited their need?
    Mr. Goodman. Well, not very much help by the government, 
because in my opinion the private insurances is almost as bad 
as government insurance. Half the people in the country are on 
a government plan and----
    Mr. Shadegg. Fifty-seven percent I hear.
    Mr. Goodman [continuing]. The private plans pay the same 
way the government plans pay. So there is really not all that 
much difference. The markets where you really see a lot of 
difference are the emerging markets where there are no third-
party payers at all, and those are working remarkably well.
    Mr. Shadegg. Kind of like auto insurance where people can 
buy directly from the auto insurer and get their car repaired.
    Mr. Goodman. Yes, but I was thinking of markets where 
people pay directly for care.
    Mr. Shadegg. Good enough for me. Thank you very much. My 
time has expired.
    Ms. Capps. Mr. Shimkus for 5 minutes, please.
    Mr. Shimkus. Thank you.
    Dr. Avorn and I am not sure who else talked, and I can get 
very deeply in this, but I am concerned about this cost-
effectiveness issue, and it was raised earlier. What in a cost-
effectiveness ratio fighting aggressive cancer for 10 months or 
allowing the person to die because they have aggressive cancer 
in 2 weeks? If that was scored out budgetarily, what would cost 
more?
    Dr. Avorn. First I think it is important to distinguish 
between collecting the information about what works and what is 
safe for patients and what is a good buy, on the one hand, 
versus coverage decisions which are really quite separate so 
that one can imagine collecting the data about which treatments 
are the safest and the most effective versus their price. That 
is separate from what Medicare or Medicaid or a private insurer 
may choose.
    Mr. Shimkus. Well, let me tell you why I mention this, and 
because I was, you know, I, like everybody does, we meet with 
folks, we may have personal relationships of things that are 
going in everybody lives like this. I talked about my concern 
of a rationed care system developing under cost. I was, again, 
at a student forum, and one of the students popped up and said, 
you know, well, it doesn't make sense to fight aggressive 
cancer for 10 months. The cost benefit analysis doesn't score 
out.
    So for us to say that that is not part of a debate which I 
think eventually we move to--if we don't keep private insurance 
as a very important option in this country, if we move to a 
public option which destroys the private insurance, you know, 
provision and then we go to a one-payer system, that is my 
concern; a rationed care system which will decide when you get 
care based upon budgetary aspects. And that is why those of us 
who are--comparative analysis, cost effectiveness, that is 
where our concern comes from, and I just wanted to throw that 
out to talk about that.
    And let us just kind of segue, and this will be--I think 
the chairman submitted this for the record, the New York Times 
article. Is that correct? On--so my question is going to be 
related to the Medicare and really segue into Medicaid. One of 
the provisions that is being discussed here is Medicare for 
all. And now if you believe this article, doctors are opting 
out of Medicare, and if you go around your Congressional 
districts and talk to physicians, this is what we know is 
occurring. With this growing access to care issues, if we add 
millions of people to the Medicare system, a Medicare for all, 
does that help or hurt this problem of doctors fleeing?
    Anyone want to comment? Dr. Goodman.
    Mr. Goodman. It hurts it. What happens now is Medicare is 
paying below market, let us say 30 percent below market, but 
not everybody can get below market. If you are a doctor, the 
first patients you want to see at the beginning of the day are 
the ones who pay market, and Medicare would be next, and 
Medicaid, which pays below Medicare, would be at the end of the 
line.
    If you try to put everybody into a system that is 
underpaying, then you exacerbate the supply side, and yes, it 
will make the rationing problems worse, and rationing by 
waiting is not access to care.
    Mr. Shimkus. Anyone else want to comment? Mr. Smith.
    Mr. Smith. Yes, and in my opening remarks I did suggest 
that people look at the experience of Medicaid over the past 
several years which resorts at the end of the day very much to 
price controls, to where you have access, real access problems 
for the Medicaid population. One-third of all Medicare 
ambulatory visits are to the emergency room to an outpatient 
hospital facility.
    So this is where a single payer system ultimately drives 
you to because you have now overburdened the system. As we have 
seen in the states, then the reaction to that is to squeeze 
back against the providers to try to lower the cost that way.
    Mr. Shimkus. I am sure, did the Medicaid question get 
asked? Does anyone want to swap their current insurance policy 
for Medicaid? Did that get asked of the panel? Can we go 
through Dr. Skinner all the way down? Who would--let us start 
with Dr. Skinner, and I will end with that question. Would any 
of you opt out to go to Medicaid over the insurance product 
that you currently have? You don't need to direct him, Dr. 
Cassel. Let Dr. Skinner ask--answer.
    Mr. Skinner. I happen to have a pretty good plan, so I was 
not----
    Mr. Shimkus. So you would not accept Medicaid as an 
alternative.
    Mr. Skinner. Everybody is so fortunate.
    Mr. Shimkus. Dr. Cassel.
    Dr. Cassel. I am not sure why, what is the background of 
that question.
    Mr. Shimkus. The question is the debate of if we have 
uninsured and we provide them access to Medicaid----
    Dr. Cassel. Uh-huh.
    Mr. Shimkus [continuing]. As an option. Would you 
personally be willing to give up your current insurance product 
for a Medicaid--the question is is that a good deal?
    Dr. Cassel. Well----
    Mr. Shimkus. But the real question I am posing is with the 
insurance----
    Dr. Cassel. Right.
    Mr. Shimkus [continuing]. That you personally have, would 
you trade that if offered Medicaid in a trade?
    Dr. Cassel. No. If I were uninsured----
    Mr. Shimkus. OK. Thank you.
    Dr. Cassel [continuing]. You bet I would.
    Mr. Shimkus. Dr. Goodman.
    Ms. Capps. I don't think we are going to make it through 
the end of the line.
    Mr. Shimkus. Well, I think we will. If they would answer 
the question.
    Mr. Goodman. Of course not and I wouldn't try to----
    Mr. Shimkus. Thank you.
    Dr. Sigsbee. I am going to be distinctly different. I 
would. In my area----
    Mr. Shimkus. We had one last week that said they would.
    Dr. Sigsbee. And Medicaid pays for all medications. You 
don't have to have anything out of pocket, so that I would 
actually. From a provider standpoint, though, Medicaid pays 
below the cost of providing the service. So it would be----
    Mr. Shimkus. You might have some access issues then with 
doctors not wanting to----
    Dr. Sigsbee. Right. You would have some serious access 
problems, and it would be unsustainable to be in medical 
practice.
    Mr. Shimkus. Mr. Smith.
    Mr. Smith. No. In Medicaid there are 56 different Medicaid 
programs, and in due respect to my colleague here, I mean, 
there are states that say you can have four prescriptions a 
month. So you don't have unlimited access to prescription 
drugs.
    Mr. Shimkus. Dr. Avorn.
    Dr. Avorn. There are 47 million Americans who would say 
absolutely yes.
    Mr. Shimkus. No. The question is you.
    Dr. Avorn. Well, I happen to be an affluent American who 
has good----
    Mr. Shimkus. So your answer is?
    Dr. Avorn. I would not want----
    Mr. Shimkus. Thank you very much.
    Ms. Capps. And now it is time to say thank you very much. 
Your--the panelists have been amazing in your forbearance of 
all the questions, but also your testimony is valuable as we go 
about making some very important decisions in Congress 
affecting healthcare. Thank you very much.
    We will excuse you and give you a break and ask for our 
second panel to take places at the table.
    In the interest of time we have three of our four 
panelists, and one will be here shortly. I will introduce the 
three and then we will ask you to begin, Dr. Ginsburg, and I 
will introduce Mr. Bachman when he arrives.
    We are pleased that you are here with us this afternoon. 
Paul Ginsburg, President of the Center for Studying Health 
System Change, to be followed by Dr. Regina Herzlinger, 
Professor of Business Administration at Harvard Business 
School. I will jump over to Diane Archer, Director of the 
Health Care Project, Institute for America's Future.
    And Dr. Ginsburg, you may begin your 5 minutes of 
testimony.

   STATEMENTS OF PAUL GINSBURG, PH.D., PRESIDENT, CENTER FOR 
   STUDYING HEALTH SYSTEM CHANGE; REGINA HERZLINGER, PH.D., 
PROFESSOR OF BUSINESS ADMINISTRATION, HARVARD BUSINESS SCHOOL; 
  RONALD BACHMAN, F.S.A., M.A.A.A., SENIOR FELLOW, CENTER FOR 
HEALTH TRANSFORMATION; AND DIANE ARCHER, J.D., DIRECTOR, HEALTH 
          CARE PROJECT, INSTITUTE FOR AMERICA'S FUTURE

                   STATEMENT OF PAUL GINSBURG

    Mr. Ginsburg. Thank you, Madam Chairman, Mr. Deal, and 
members of the subcommittee.
    Ms. Capps. You might want to turn on your microphone and 
pull it a little--there.
    Mr. Ginsburg. Appreciate the invitation to testify on price 
and quality transparency of healthcare services.
    In theory, more information on provider prices and quality 
can lead to lower prices and higher quality. Those consumers 
who choose differently will benefit, and if enough people make 
different choices, providers will be motivated to reduce their 
prices and increase their quality, extending the benefits 
beyond those acting on the information.
    But today the reality does not line up well with the 
theory. Few consumers use such information to make choices. The 
tools to measure and communicate price and quality information 
are primitive at this point, and most consumers are not 
incentivized to consider price and not aware of the variation 
in quality among providers.
    Focusing first on price transparency, the key factor 
limiting the potential impact today is the lack of incentives 
in today's insurance benefit designs. There is little reward 
for choosing lower-priced providers, and this is even a problem 
in high-deductible plans with savings accounts. Much of the 
information that is available to consumers is not in forms that 
they can use. Hospital care is not priced in units that are 
meaningful to patients such as per stay or per episode. Some 
information now provides ranges per episode, which is progress.
    The same issue with physicians. Fee levels do not provide 
insight into what services will be provided, and information 
that state governments and the Federal Government has provided 
are not reflective of people's health insurance. Also, there is 
a legitimate unwillingness by consumers to choose providers on 
the basis of price when they have little, if any, information 
on provider quality.
    There are some risks of unintended consequences of 
additional price information. For one, if the information 
discloses contracts between hospitals and insurers, this risks 
driving up prices. This is an accepted perspective and anti-
trust policy throughout the world that when markets are highly 
concentrated, disclosure often leads to higher prices.
    And another unintended consequence is that some consumers, 
particularly those who don't have incentives to look for lower 
prices, will use price as an indicator of quality and go to the 
higher-priced providers.
    There are opportunities to do better. If we reform provider 
payments, this would create much more meaningful prices for 
consumers to respond to. Now, insurer high-performance networks 
can be seen as a first step in this direction, although success 
has been limited by the use of different measures by difference 
insurers and lack of engagement of physician leaders. 
Information on charges by out-of-network providers and on what 
insurers pay for these services can be helpful. There are large 
differences in what patient pays between in-network and out-of-
network providers, and the database to be developed in the 
State of New York will support an important increase in 
transparency about out-of-network care.
    Now, quality transparency is much more challenging than 
price transparency. The measurement is very complex. Much of 
the measurement of quality these days is based on processes 
rather than outcomes because of such limited data on outcomes, 
and processed measures of quality are inevitably going to be 
limited by our lack of knowledge about effectiveness. We need 
to know what processes really do improve outcomes.
    Providers are a key audience for quality information so 
that even if consumers don't use it, there is a lot of 
potential with providers. They are highly responsive to quality 
measurements, and they take steps to improve quality even if 
there is no pressure from consumers. And the example that Dr. 
Sigsbee on the first panel mentioned in his practice is a great 
example of the phenomenon.
    There are important roles for governments in advancing 
quality transparency in addition to the reporting that 
governments are doing now. They can convene provider leaders 
and insurants who agree on common measurements. This would 
enhance the credibility of measures to providers and also avoid 
excessive burden on providers from multiple reporting 
requirements.
    Sponsoring effectiveness research to strengthen, will 
strengthen the ability to assess quality, and there is 
potential for the private sector to analyze and communication 
the public data such as trusted not-for-profit organizations 
like consumers' union or commercial data vendors like Web MD.
    In conclusion, transparency has the potential to increase 
the value from our underperforming healthcare system, but 
benefits are probably very small now, but there is potential to 
increase in the future. But we could lose in pursuing 
transparency by overselling its potential and deluding 
ourselves that other steps to increase the value in healthcare 
are not needed.
    Thank you very much.
    [The prepared statement of Mr. Ginsburg follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Capps. Thank you.
    And now we turn to Regina, Dr. Herzlinger.

                 STATEMENT OF REGINA HERZLINGER

    Ms. Herzlinger. Thanks so much, Madam Chairwoman, Ranking 
Member.
    Ms. Capps. Is your microphone on?
    Ms. Herzlinger. Thanks so much, Madam Chairwoman, Ranking 
Member Deal. I am used to screaming in a classroom, so I 
thought I was all right. I am honored to be here.
    What does healthcare reform mean? Sure, most people want to 
buy reasonably-priced health insurance policies, especially if 
they are threatened with unemployment as sadly we are in this 
economy, but many people don't want government to control the 
process. So I think there is going to be a lot of wrangling as 
these two opposite points of view get sorted out.
    But there is a healthcare reform that can be much more 
readily implemented, and that is transparency. Everybody wants 
the government to help them make buying decisions by providing 
good information. They like FCC data about corporate financial 
performance, EPA data about cars' pollution, and USDA and FDA 
data about whether our chuck roast is prime or choice grade and 
the cleanliness of the supermarket.
    Expert clear communicators help consumers interpret these 
sometimes arcane data ranging from consumer reports for cars to 
media business gurus for stocks. When it comes to our troubled 
healthcare sector, Americans want government to provide 
information, too. Why do we know more about the quality and 
prices of our chuck roasts and supermarkets than about our 
surgeons and the hospitals in which they practice? Americans do 
not want the government to use these data to evaluate the cost 
effectiveness of products or to buy on their behalf.
    Franklin Delano Roosevelt, the great president, understood 
the distinction between government-enabling information and 
government making decisions on our behalf when he opted for 
transparency to cure the stock market's collapse during the 
depression. FDR was advised by his counselors that the 
government evaluate all securities. He rejected that advice. 
Instead he created the Securities and Exchange Commission. He 
called it the Truth Agency. It was going to tell the truth 
about the corporate sector to require corporations to disclose 
their results using that which were audited by independent, 
certified public accountants.
    The FCC armed the--was armed with hefty enforcement power. 
The FCC has been a miserable failure in its regulatory 
function, but extensive academic research demonstrates how 
successful its truth-telling mission has been. Transparency has 
lowered the cost of capital because when investors are 
uncertain about performance, they require high returns. 
Transparency helps protect against misappropriation of 
shareholder returns by managers. You see it right now with the 
current outcry against CEO compensation. Most importantly, it 
enabled appropriate allocation of our resources. Investors 
reward productive, socially-responsive firms more than others.
    In contrast, we know virtually nothing about the quality 
and cost of medical providers or about the performance of our 
hospitals and our insurance. Transparency would enable a woman 
who is contemplating a mastectomy to know the death and 
disability rates of potential surgeons, infections, clots, 
medical errors like leaving a sponge, rates of readmission, 
infection rates, and the prices they charge for similar kinds 
of patients.
    Transparency would also enable consumers to better evaluate 
their insurance firms through information, for example, about 
the number and types of complaints the firms receive from irate 
customers or medical care providers and their responsiveness to 
them.
    This kind of transparency will enable properly-informed 
consumers to reform healthcare by selecting the providers and 
insurers that give them the best value for the money. Some 
contend that transparency leads to price collusion. If this 
were true, every yogurt on your supermarket shelf would bear 
the same price. It doesn't, because the yogurt industry is 
highly competitive. Collusion is possible only in the highly-
concentrated allagopolistic markets. Transparency facilitates 
the government's prosecuting price fixing competitors in these 
industries.
    You are all too young to remember the NASDAQ scandal where 
dealers rounded up to the nearest eighth of a penny. The reason 
that we know about that scandal is that information was 
transparent and academic researchers found the collusion that 
led to a $1 billion payout by the colluding allagopolistic 
securities firms.
    Voluntary disclosure dose not work. How do I know that? We 
have no information. As demonstrated elsewhere in our economy 
transparency through a truth agency will go a long way to 
reforming healthcare. Representative Deal's bill captures the 
essence of what this kind of health reform is all about.
    Thank you.
    [The prepared statement of Ms. Herzlinger follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Capps. Thank you very much, and I would like to welcome 
to the panel Mr. Bachman, Ronald Bachman, Senior Fellow at the 
Center for Health Transformation. You are recognized for 5 
minutes.

                  STATEMENT OF RONALD BACHMAN

    Mr. Bachman. Thank you. Ron Bachman, Senior Fellow at the 
Center for Health Transformation, and my mission in life is to 
solve the uninsured problem, and so the transparency issue 
before us today is very much a part of that in my opinion.
    Transparency means the public disclosure of honest, 
meaningful decision making information. Clearly the public has 
a right to know key information to maintain their health and 
safety. When up to 98,000 patients die each year from hospital 
errors, citizens have a right to know where these are 
occurring. When 9,000 deaths occur from medication errors each 
year, the public has a right to know the facts. When hospital-
created complications and provider-induced viruses are more 
deadly than the original medical conditions, patients have a 
right to know.
    The best way for the public to change poor business 
behaviors is to improve--and to improve quality and lower costs 
is for the guilty businesses to lose customers. Unfortunately, 
in healthcare the consumer is rarely the customer. The consumer 
is the one who uses the service. The customer is the one who 
buys the service and pays the invoice. In healthcare the 
customer is usually the third-party payer, the insurance 
company, the HMO, or the group plan.
    New generation health plans are financially empowering 
health consumers and transforming them into health customers. 
To become an effective health customer, one has to have both a 
financial stake in purchasing and the information to make 
informed decisions. You cannot have a quality healthcare in any 
system without both.
    Financially-empowering plans with savings options increase 
5 percent in 2007, and 8 percent in 2008. Employers with three 
to 200 workers are the fastest growing group, up 13 percent. 
With account-based plans individual worker premiums are 40 
percent less than other plans. Family premiums are 30 percent 
lower. The average employer account funding was over $800 for 
an individual and over $1,500 for family coverage each year. In 
2008, 71 percent of employers offered incentives for health and 
wellness or disease management programs up from 62 percent in 
2007. The incentives averaged $192 per person per year.
    Account-based plans are not just for the healthy and 
wealthy. In 2009, young families, 25 to 40, had balances 
averaging over $7,000 in these accounts. By the end of 2008, 
the average savings accounts total over $8,000 for individuals 
and over $10,000 for families. The newest products are 
developing more information to help individuals make informed 
choices with those dollars.
    Historically transparent cost and quality information has 
been hard for plans and the public to access. Providers have 
maintained the argument of confidentiality, proprietary needs, 
and competitive advantage. With empowered individuals these 
arguments rapidly dissipate. National insurers, some providers, 
especially vendors and state governments, have been taking the 
lead in requiring disclosure of provider cost and quality 
information. Each insurer or hospital has limited data. States 
differ on the reporting requirements. Budgets limit the 
expansion of publicly-funded information access, and inertia of 
the status quo slows progress in meeting patient information 
needs.
    The Federal Government can advance the cause of empowering 
individuals with the information by passing basic national 
standards for provider and insurer transparency. Congressman 
Nathan Deal's legislation is on the right path.
    A governor of Georgia once said that that to have better 
prisons we needed better prisoners. Today that parallel may be 
to have better health and lower costs we need better patients. 
The CDC tells us that behaviors determine 50 percent of health. 
By far the individual turns out to be the most important 
variable in the healthcare cost equation. It is not doctors, 
hospitals, pharmaceuticals, or other care providers. Access to 
care has only a 10 percent impact on health status, genetics, 
20 percent, environment, 20 percent make up the remaining 
factors.
    Congress is a powerful legislative body, but you cannot 
change the laws of human nature. You cannot make recalcitrant 
patients take medications or comply with physician orders. You 
cannot make citizens eat properly, exercise regularly, or seek 
preventative care. The bottom line is you cannot legislate 
personal responsibility.
    Congress can, however, create an open, transparent 
information-rich environment that supports greater engagement 
by individuals in their own health and healthcare decisions. In 
general, individuals will not take care of themselves just for 
the sake of good health. If that were true, we would not see 
the rampant growth in obesity and epidemic of diabetes. We are 
typically American. We want to be paid to do the right thing. 
We want incentives, rewards, and recognition. We want some 
financial control, and we need information and help with making 
the right decisions.
    Blue Cross, Blue Shield studies show that patients with 
financial and information support have more than three times 
the number of members engaged in smoking cessation, more than 
three times the number of members engaged in stress management 
programs, more than double the number in diet nutrition 
education programs, and nearly two and a half times more likely 
for those patients to be in exercise plans.
    A major interest in Congressman Deal's legislation is the 
disclosure of self-pay charges. When I started to negotiate 
provider network reimbursements back in the early 1990s, the 
expected discount from hospital charge masters, their so-called 
retail price, was typically 5 to 15 percent. The discount game 
had led to artificially-high retail price lists where discounts 
are now 80 to 90 percent off of those charges. No one pays the 
retail prices except the uninsured. Those most vulnerable and 
least able to pay are charged the list rates. Many who cannot 
or do not pay these artificial charges are hounded by 
collection agencies for monies that are ten times or more above 
the cost of actually providing the services.
    As with the Georgia governor's call for better prisoners, 
it is time to free consumers from the dark prison of ignorance. 
You can make information easier to find and easier to 
understand. You can eliminate arbitrary price discrimination 
against the uninsured. The need is to pull back the curtain of 
secrecy on costs and quality. Congress can make a difference in 
saving lives and saving money by supporting the individual's 
right to know.
    While the country debates reform of healthcare, on one fact 
you should all agree. The need for transparency is critical to 
the outcome in that debate.
    [The prepared statement of Mr. Bachman follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Ms. Capps. Thank you, Mr. Bachman.
    And now we turn to Diane Archer for 5 minutes, please.

                   STATEMENT OF DIANE ARCHER

    Ms. Archer. Madam Chairwoman, Mr. Deal, thank you for 
inviting me to testify about transparency in the private health 
insurance system and how it can help American families.
    At the Institute for America's Future we studied the issue 
extensively and concluded that the private healthcare system 
will never work well for American families without significant 
changes in the current disclosure practices with the private 
insurance industry.
    Here is why. If you wanted to buy a car, you would have a 
vast array of public information about differences among them, 
from fuel efficiency to annual maintenance costs to crash test 
performance. But what can you find out about the various makes 
and models of private health plans? Practically nothing it 
turns out.
    So what is the value of having so many choices? Even the 
most sophisticated among us have little idea what we are paying 
for when we buy insurance. Does it cover Tamoxifen if I am at 
risk for breast cancer? How much is the average out-of-pocket 
cost for typical prenatal care? What percentage of total claims 
were denied last year? What will a particular service cost me?
    Private insurers in sharp contrast with the public Medicare 
Plan have been able to keep confidential claims, costs, and 
quality data on the ground they are business trade secrets. We 
can't find out what specific services will be covered and when 
or average out-of-pocket costs for typical conditions, let 
alone which insurers deliver the best value for our premium 
dollars.
    Informed consumer choice is a myth. To build an efficient 
healthcare system we need insurance company performance 
information. I have spent the last 20 years helping people 
navigate both Medicare and private insurance, for a long time 
as president of the Medicare Rights Center. I want to take you 
briefly through the structural issues that may preclude needed 
transparency from the private insurance industry, the data we 
need from private insurers, and how healthcare reform can 
address these issues.
    In America today people can't compare health plans based on 
value. The health insurance market is broken. In a competitive 
market insurers would be marketing to healthcare users, 
demonstrating why they deliver the best value healthcare for 
people with cancer, diabetes, and heart disease. Their message 
would appeal to the 20 percent of the population who consume 80 
percent of healthcare dollars.
    Instead, if they deliver great care to people with costly 
needs, they don't want people to know. Twelve years ago in a 
New York Times magazine cover story that I keep by my side, 
Helen Darling, now president of the National Business Group on 
Health, made this point very succinctly. ``I have been sworn to 
secrecy by one plan that has the best AIDS program in the 
world. They don't want people knowing about it. They couldn't 
handle the results. Ideally, if we lived in a wonderful world, 
we would want to plan to win prizes for their wonderful care, 
but in reality that would kill them.'' To maximize their 
profits health plans compete for enrollees least likely to use 
their product. Therefore, health plans do not advertise to 
specific treatments and tests covered but conditions under 
which they are covered or the crisis services.
    This is precisely the information we need to know. 
Different private plans offer different value healthcare. The 
best of them help ensure doctors deliver good care, yet 
coverage decisions are largely considered proprietary and 
unknown. And we don't know whether insurers are adding value or 
simply increasing their profits.
    A New York State Medical Society survey revealed that 90 
percent of doctors said they have had to change the way they 
treat patients based on restrictions from an insurance company, 
and 92 percent said insurance company incentives and 
disincentives regarding treatment protocols, ``may not be in 
the best interest of patients.'' Are insurers spending our 
premium dollars wisely? Are they helping to ensure that our 
doctors provide us reasonable and necessary care? We don't 
know.
    What data is needed to evaluate health plans and help 
people make informed healthcare choices? The kind of data we 
get from the public Medicare Plan, the specific services they 
cover, and the amounts they pay, claims data and denial rates. 
Members and perspective members also need to know the average 
out-of-pocket costs for treating different conditions. This 
data will help give us meaningful choice, and over time will 
help us in efforts to compare health outcomes for people with 
different conditions in different health plans.
    As important, disclosure of this data would promote better 
insurer behavior. Right now the countless reports of insurer 
abuses suggest that the lack of transparency allows insurers to 
delay and deny care and reimburse inadequately for services 
renders, seemingly arbitrarily.
    Up until now we have bought into an opaque and inefficient 
private health insurance model that has not met our healthcare 
needs. Regulations will never address the insurer's obligation 
to put profits first, but we can drive accountability if we 
require far greater transparency from the insurers.
    A public health insurance option is also essential. A 
public health insurance option sets a benchmark for coverage, 
drives competition among insurers to reign in costs, and 
through its willingness and ability to be transparent and 
accountable can promote the value and system-wide change that 
is needed to guarantee everyone in America quality, affordable 
healthcare.
    Thank you.
    [The prepared statement of Ms. Archer follows:]

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    Ms. Capps. Thank you, and now we--and I thank each of you 
for this interesting panel.
    Mr. Deal, why don't you begin with your 5 minutes of 
questioning.
    Mr. Deal. Thank you, and thank you to all of you for 
waiting this long to be here for this. Obviously, as you know, 
transparency is an issue that is of importance to me.
    You know, almost every other thing in life we know what the 
cost of it is. Healthcare we don't know. We don't know the 
results. We don't know what the effectiveness is of hospitals 
or of individual practitioners within the medical community. So 
transparency on all of those fronts I think is an important 
ingredient.
    For those who would say that just because people don't pay 
for things out of their pocket that doesn't mean that--it means 
that they are not concerned about the cost, I would like for 
them to have been in conversations where family members, when 
they have a relative who has been transported to the hospital, 
the one thing that they always complain about is the $700 
ambulance fee charged to transport their loved one for less 
than a mile. Now, you can believe they focus in on those kind 
of things, and they want to know why public programs are paying 
what they consider to be exorbitant prices. The trouble is they 
don't know those kind of things in their healthcare in general.
    So I appreciate the testimony that we have received.
    I think, Mr. Bachman, you almost sounded like I wrote your 
speech for you there. I think I agreed with virtually 
everything that you said. How do we deal, though, with this 
question of disclosure of pricing, price transparency? How do 
we get a handle on that? How do we best accomplish that 
objective?
    Mr. Bachman. Well, there are a number of areas. First, I 
would like to say that the transparency that I believe is 
appropriate goes beyond even what has been suggested in your 
bill here. I think transparency on service costs, how well you 
are being treated, the time in the waiting room, bedside 
manner, things that are not clinical but are more service 
oriented is important disclosure.
    The way we get at it is a couple of things. One of the 
issues that was not mentioned in the earlier panel, I didn't 
mention it, and I hadn't heard the words here is the internet. 
We are now seeing a tremendous growth in what is called web2.0, 
people talking to other people about their experiences with 
providers and physicians. So we are having people talking to 
other people that is creating a disclosure. That is one thing.
    The second thing is the growing interest, it is slow, but 
there are vendors out there that are beginning to encourage 
providers to create package pricing so that you have one price. 
How much is it going to cost to treat my diabetes for the next 
12 months? And that way if there is a package pricing, it is 
sort of a combination of the old capitation rates and fee for 
service mainly, but it is where the provider says I can take 
care of you for this amount of money, and the services don't 
have to fall into the traditional CPT codes or ICD9 or DRGs. It 
is what the hospital can show and demonstrate will work best, 
and employers are buying into that. But that is only at the 
beginning stages.
    The third area that is going to push that is that is what 
is actually happening. I think your chart showed a third-world 
country. Well, that is actually happening today in most of the 
areas like Singapore and other countries that are getting 
medical travel and medical tourism, if you will, and hundreds 
of thousands of people are going across the ocean in order to 
get services that are one-tenth the cost at better hospitals, 
more modern hospitals, many of them managed by the major brand-
name facilities in this country, and they are being treated by 
doctors that are trained in the United States as well. So--and 
they are being approved by quality organizations that approve 
quality hospitals in the United States as well.
    So I think there is a gathering of a number of forces to 
push this in the right direction.
    Mr. Deal. Dr. Herzlinger, we heard Dr. Ginsburg talk about 
pricing on a per-episode basis, and I think we are hearing a 
lot of talk about how do we refigure compensation for services 
and episode-based, you called it package pricing. I presume it 
is sort of the same concept.
    Dr. Herzlinger, how as we, I think we will certainly look 
at that issue very closely because it appears to be coming from 
a variety of sources, how do we make that kind of pricing 
information available, not just the fact that the services are 
being bundled but the costs associated with that bundling?
    Ms. Herzlinger. If you are asking about the administrative 
model----
    Mr. Deal. Yes. You suggested something similar to the FCC, 
I think.
    Ms. Herzlinger. Yes. Well, the most transparent market in 
the world is the financial market, and it has led to what is 
called deficiency in the markets. It doesn't mean that it is 
perfect. We know it is not perfect, but it is the most 
transparent market. There are countries all over the world that 
are adopting the FCC model, and the reason they are adopting it 
for their own financial markets is that that model creates the 
best transparency.
    The FCC model has two parts. One is the Iron Fist. That is 
the FCC. The FCC has tremendous enforcement power. The Velvet 
Glove is an organization that is now called the FASBE, and that 
is a group of stakeholders. They are experts in measurements, 
accountants, people from the business community, CFOs of 
companies, and consumers. And then Velvet Glove is the one that 
actually determines what should be measured.
    Companies have to comply with these standards. If they 
don't, the Iron Fist, the FCC, comes along. It has been a 
fantastic model that countries all over the world emulate. We 
should use it for healthcare. It works.
    Mr. Deal. Madam Chairman, I know my time is out, but I 
would ask unanimous consent to include a letter from the 
executive branch of the State of South Carolina supporting the 
concept of transparency.
    Ms. Capps. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Ms. Capps. And now I allow myself 5 minutes to ask my 
questions, too, and as you may have noticed, the buzzer rang, 
and we do have votes on the floor at the same time. We can wrap 
this up, but we won't be able to go to a second round, which is 
unfortunate.
    Dr. Ginsberg, you testified that one of the key barriers to 
making price transparency work is the lack of transparency on 
quality of care. It is clear that hospitals' prices may be low 
because they are understaffed or they use cheap medical devices 
and so on and so forth. As you have pointed out, consumers may 
assume that high-priced providers are high-quality providers, 
an assumption that may have no basis in fact.
    So where do we stand, this is a large question for a short 
amount of time, in producing information on provider quality 
that could be accurate and usable by consumers. If we require 
quality transparency tomorrow, would there be any standard? 
Would there be information available, and what should we be 
doing now or taking some steps in this direction as we seek to 
reform healthcare?
    Mr. Ginsburg. Well, in the case of hospitals we do have 
some----
    Ms. Capps. You may turn on your----
    Mr. Ginsburg. Yes. I think it is on. In the case of----
    Ms. Capps. OK.
    Mr. Ginsburg [continuing]. Hospitals we do have some 
quality data. I think a lot has been accomplished when the 
Medicare Program offered an incentive to hospitals. If you 
would report on these measures, we will pay you a little bit 
more. Virtually all the hospitals have done this.
    I don't think consumers are making much use of it now. It 
is pretty fragmented, but when it comes to the hospitals 
themselves, everything that they are reporting to Medicare or 
to the Joint Commission they are focusing on improving. An 
example we had on the first panel about when physicians and 
hospital leaders see low quality in their practice, they are 
very motivated to do something with it.
    So I think in the next few years we can get a lot of 
mileage out of quality reporting and transparency just from the 
provider reaction to it, even if consumers using it I think is 
many years down the road.
    And as far as price transparency, I don't have, you know, 
problems with it in general. I think there is potential for it 
definitely down the road, and my main caution was that we 
shouldn't get too wound up in how much it will accomplish in 
the short run. There are a lot of other things that have to be 
done to improve our healthcare system.
    Ms. Capps. Thank you. I know there is more follow up 
because I am also interested in how consumers can benefit by 
this as they make their decisions and out into the community 
settings, clinics and so forth, which is where a lot of 
decisions get made.
    But I want to turn because there are just a couple of 
minutes left to you, Ms. Archer. You--a key feature that 
consumers are interested in for most products is the warranty 
or guarantee. They want to know if something goes wrong there 
is a way to get the problem resolved. In the health insurance 
market, we have heard story after story about denial of claims, 
some very egregious appeals rights in place on paper but really 
not very effective.
    The problem is consumers don't even know about their rights 
before they purchase health insurance. Can you describe what 
information about appeals and grievance procedures would, 
should be there, available to consumers in language they could 
understand? And do you think that more transparency on appeals 
and grievance procedures will be--is the way we should go in 
terms of ensuring that consumers, that insurers will do the 
right thing?
    Ms. Archer. Yes. Thank you for that question. Actually, we 
have a big lesson to learn from Medicare on this front. The way 
Medicare works, its data about what it covers, and under what 
circumstances are all on the web, and if a doctor performs a 
procedure that is medically unreasonable or unnecessary and 
delivers it, it is the doctor who actually gets stuck holding 
the bill, because the doctor can go online and find out in 
advance what is covered.
    If the doctor thinks it is really necessary, the doctor can 
tell the patient, yes, I think you should have it, but Medicare 
won't pay for it and have the patient sign in writing that he 
or she is willing to pay privately. If Medicare doesn't pay, 
the patient can then appeal and has gotten a written notice 
about it.
    So the patient isn't stuck with a lot of bills from insurer 
denials that often patients in the private insurance 
marketplace face because no one knows, including the doctor in 
many instances, ahead of time whether the insurer is going to 
cover the claim or not.
    So I think that model is a model that could easily be 
adopted to the under 65 population to help patients in terms of 
protections financially. If a service a doctor wants to give on 
this----
    Ms. Capps. Could this be accepted by the private sector?
    Ms. Archer. It should be accepted by the private sector, 
because it is the fairest way to protect the patient from 
receiving medically-unreasonable and unnecessary care from a 
doctor. Why should the patient receive the service if it really 
is unnecessary? Everybody is on notice that is what the insurer 
thinks. If the insurer is wrong, if the outside world says the 
insurer is wrong, the insurer is going to come under attack, 
under public scrutiny, and will have to change its practices. 
If it is appropriate and what the doctor is doing is 
inappropriate, then the patient shouldn't be absorbing the cost 
of the care.
    Ms. Capps. I wish I had time to ask others what you think, 
but you believe, Ms. Archer, that Medicare does provide at 
least some kind of model for doing this.
    Ms. Archer. An excellent model. And then I think, just to 
your second question, I think the denial and grievance 
information needs to be public so that, again, it can be 
scrutinized and people can understand what insurers are doing.
    Ms. Capps. Thank you again very much all of you. This is 
abrupt because of our call to the floor, and I appreciate very 
much your testimony. The reason the microphone is needed is 
that this is part of our record now, and we appreciate that as 
I state, we go about making some important decisions.
    [Whereupon, at 2:30 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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