[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
              EXPIRING MEDICARE PROVIDER PAYMENT POLICIES 

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 21, 2011

                               __________

                           Serial No. 112-HL6

                               __________

         Printed for the use of the Committee on Ways and Means

                               __________

                         U.S. GOVERNMENT PRINTING OFFICE 

72-281 PDF                       WASHINGTON : 2011 

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Washington, DC 20402-0001 















                     SUBCOMMITTEE ON WAYS AND MEANS

                   CHAIRMAN WALLY HERGER, California

SAM JOHNSON, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
DEVIN NUNES, California              RON KIND, Wisconsin
DAVE REICHERT, Washington            EARL BLUMENAUER, Oregon
PETER ROSKAM, Illinois               BILL PASCRELL, JR., New Jersey
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida

                       Jon Traub, Staff Director

                  Janice Mays, Minority Staff Director


























                            C O N T E N T S

                               __________
                                                                   Page

Advisory of September 21, 2011, announcing the hearing...........     2

                               WITNESSES

Rich Umbdenstock President, American Hospital Association 
  Testimony......................................................     6
Stephen Williamson President, American Ambulance Association 
  Testimony......................................................    16
Robert Wah, MD Chairman, Board of Trustees, American Medical 
  Association Testimony..........................................    24
Justin Moore Vice President of Government Affairs, American 
  Physical Therapy Association Testimony.........................    31
A. Bruce Steinwald President, Steinwald Consulting Testimony.....    41

                       SUBMISSIONS FOR THE RECORD

American Association of Retired Persons, AARP, Statement.........    66
American Clinical Laboratory Association, ACLA, Statement........    69
American Occupational Therapy Association, Statement.............    70
American Psychological Association Practice Organization, 
  Statement......................................................    74
American Speech Language Hearing Association, Statement..........    77
Arizona Hospital and Healthcare Association, Statement...........    81
Center for Fiscal Equity, Statement..............................    85
College of American Pathologists, CAP, Statement.................    89
Federation of American Hospitals, Statement......................    93
Focus on Therapeutic Outcomes, Inc., Statement...................    97
Gundersen Lutheran, Statement....................................   101
Medicare Modernization Act, MMA, Statement.......................   104
National Association for the Support of Long Term Care, NASL, 
  Statement......................................................   108
National Rural Health Association, NRHA, Statement...............   113
PTPN, Statement..................................................   117
Rural Hospital Coalition, Statement..............................   123
West Michigan Medicare Equity Coalition, WMMEC, Statement........   129


                       EXPIRING MEDICARE PROVIDER
                           PAYMENT PROVISIONS

                              ----------                              


                     WEDNESDAY, SEPTEMBER 21, 2011

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 2:01 p.m., in 
Room 1100, Longworth House Office Building, Honorable Wally 
Herger [Chairman of the Subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

Chairman Herger Announces Hearing on Expiring Medicare Provider Payment 
                                Policies

September 21, 2011

    House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing 
to examine certain expiring Medicare provider payment provisions. The 
hearing will take place on Wednesday, September 21, 2011, in 1100 
Longworth House Office Building, beginning at 2:00 P.M.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    There are a number of Medicare provider payment policies that 
expire on or before December 31, 2011. Many of these policies have been 
extended multiple times over several years, even if they were initially 
contemplated to be short-term or even one-time payment changes. The 
provisions touch many parts of the Medicare program. Often, Congress 
has simply changed the expiration date without actually closely 
examining whether the policy is still necessary or appropriate.
      
    In light of the ongoing need to reduce the country's deficit, it is 
important to examine these payment policies to determine if further 
extensions are warranted. This hearing will allow provider groups to 
explain the impact each of the payment policies has and offer 
suggestions for improvements.
      
    In announcing the hearing, Chairman Herger stated, ``With a likely 
price tag of a one year extension totaling more than $2.5 billion, the 
Subcommittee must ensure that taxpayers' money will be spent wisely. As 
Members of the Subcommittee on Health, we have an obligation to examine 
Medicare's payment policies to determine whether they are sound and 
justified.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on certain expiring Medicare provider 
payment provisions and the impact these provisions have on health care 
providers.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
document, in compliance with the formatting requirements listed below, 
by the close of business on Wednesday, October 5, 2011. Finally, please 
note that due to the change in House mail policy, the U.S. Capitol 
Police will refuse sealed-package deliveries to all House Office 
Buildings. For questions, or if you encounter technical problems, 
please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman HERGER. The subcommittee will come to order.
    Today, we are going to hear about a number of Medicare 
provider payment provisions that will soon expire unless 
Congress intervenes. But just because Congress must act does 
not mean it should do so blindly.
    This hearing offers us, and more importantly the American 
people, a chance to consider whether Congress should spend more 
than $2 billion to reauthorize these additional payments for 
another year. Just as importantly, it affords interested 
parties the opportunity to make their case as to whether or not 
these payments should continue.
    In undertaking this review, I am hopeful that we can learn 
whether or not these payment policies, some of which are more 
than a decade old, are in need of reform or can be allowed to 
expire and become the temporary policies they were originally 
intended to be.
    When these policies were created, many were billed as 
short-term or one-time payment adjustments. However, Congress 
has extended most of them on an annual basis for the last 
decade. In most cases, the payments have simply been extended 
five times or more without any changes to the underlying 
policy. Often Congress has reauthorized these provider payments 
in the ``doc fix'' bills which, unfortunately, more often than 
not pass late in the year, affording us little time to examine 
the policies and determine if they are still serving their 
intended purpose.
    It is my hope that by beginning to closely study these 
provisions now, Members of the Subcommittee will have ample 
time to learn about these policies and whether they are 
worthwhile for providers and beneficiaries.
    The witnesses appearing before us this afternoon are well 
positioned to explain these provisions, as they represent the 
very providers who benefit from these additional payments. In 
some cases, the witnesses themselves continue to work as 
providers in their given field. I welcome their testimony and 
trust it will offer members an in-depth look at each of the 
expiring provisions and its impact on the affected provider 
groups.
    I am encouraged that some members of our panel will offer a 
recommendation for ways Congress can improve these policies. 
And I thank them for being forward thinking. I believe such 
reforms are long overdue, given that some of these policies 
date back to 1997 and have never been updated. I am especially 
pleased that several witnesses will share their ideas as to how 
Congress could offset the cost of extending these policies.
    We will also hear from a former GAO official who will 
encourage members to consider whether these additional payments 
actually benefit Medicare beneficiaries. It is important that 
we hear this side of the story as well because at the end of 
the day, we must ensure that the policies we support have a 
positive impact on seniors, especially since many of them 
result in higher premiums.
    It is important to keep in mind that extending these 
provisions cost money, more than $2 billion every year they are 
reauthorized. As Members of Congress, we have been entrusted 
with the enormous responsibility of being good stewards of the 
taxpayers' hard-earned dollars. A $100 million extension may 
not seem expensive in the context of a Medicare program that 
spends more than one-half trillion dollars every year, but it 
is a large sum of money nonetheless. History shows that 
Congress has continued to extend these policies year in and 
year out, which raises the question: Given that these 
additional payments do not appear to be temporary, isn't the 
true cost of the annual $2 billion extender package actually 
$25 billion when measured over Congress' standard 10-year 
budget window?
    Today more than ever, Congress must show fiscal 
responsibility both in what is passed and how it is passed. We 
simply cannot afford to continue spending money we do not have 
in a program that is going bankrupt.
    Before recognizing Ranking Member Stark, I ask unanimous 
consent that all members' written testimony be included in the 
record.
    Without objection, so ordered.
    I now recognize Ranking Member Stark for 5 minutes for the 
purpose of his opening statement.
    Mr. STARK. Thank you, Chairman Herger, for holding this 
hearing to review the provider extenders. I would note that 
there are a couple of provisions that help low-income people 
that also need extension at a cost of a couple of billion 
dollars and is not part of today's meeting.
    But looking at the entire package, some of those 
provisions, like therapy cap exception and the continuation of 
the QI program, ensure critical access to needy Medicare 
beneficiaries. Other provisions were enacted to address a 
perceived payment problem for a particular provider at a 
particular time. And I look forward to hearing our witnesses' 
thoughts on which of these provisions fit into which 
categories.
    Extenders are generally written on legislation preventing a 
pending cut in physician payment due to the broken Medicare 
payment formula, or SGR, as it has been called here. I would be 
curious also to hear from the witnesses today their thoughts on 
the role of the new supercommittee for deficit reduction and 
what role they will play as we work to resolve SGR and other 
extenders.
    I would argue that the Medicare savings that we are able to 
find should first go to fix shortcomings in Medicare and not 
just get dumped into the general pot. Paying physicians fairly 
is important to the future of the program. There may be 
specific extenders needed to preserve beneficiary access. So we 
need to learn exactly what payment changes to the delivery 
system before we take more money out of the system and we need 
to resolve Medicare savings before the savings leave the 
program.
    I will ask each of the witnesses in their remarks for their 
comments on what we should do with these savings.
    I thank you again. I thank the witnesses for joining us 
today.
    I yield back the balance of my time.
    Chairman HERGER. Thank you, Mr. Stark.
    Today, we are joined by five witnesses who will discuss the 
details of each of the expiring Medicare provider payment 
policies. We will hear both the pros and the cons of extending 
these policies. Our witnesses in the order they will testify 
are Rich Umbdenstock, president, American Hospital Association; 
Steven Williamson, president, American Ambulance Association; 
Dr. Robert Wah, chairman, Board of Trustees, American Medical 
Association; Justin Moore, vice president of Government 
Affairs, American Physical Therapy Association; and Bruce 
Steinwald, president, Steinwald Consulting.
    You will each be recognized for 5 minutes.
    Mr. Umbdenstock, will you begin, please.

  STATEMENT OF RICH UMBDENSTOCK, PRESIDENT, AMERICAN HOSPITAL 
                 ASSOCIATION, WASHINGTON, D.C.

    Mr. UMBDENSTOCK. Thank you very much.
    Good afternoon, Chairman Herger, Ranking Member Stark, 
distinguished Members of the Subcommittee. I am Rich 
Umbdenstock, president and CEO of the American Hospital 
Association. On behalf of our more than 5,000 hospital members, 
health systems, and other health care organizations, and our 
42,000 individual members, the AHA appreciates the opportunity 
to testify regarding certain expiring Medicare provider payment 
provisions and their importance to Medicare beneficiaries. And 
we applaud the committee for holding this meeting.
    Over the years, Congress has enacted several provisions to 
address the special challenges rural hospitals encounter in 
delivering health care services to the communities they are 
committed to serve. The AHA urges the committee to recognize 
that the circumstances that made those provisions necessary 
still exist. And so does the need for these provisions.
    I would like to focus on three areas in particular: Section 
508 hospital classifications, outpatient hold harmless 
provisions, and lab services for rural hospitals.
    First, the area wage index is greatly flawed in many 
respects. It is highly volatile from year to year; self-
perpetuating, in that hospitals with low-wage indices cannot 
increase wages to become competitive in the labor market; and 
they are based on unrealistic geographic boundaries. Section 
508 of the Medicare Prescription Drug Improvement and 
Modernization Act of 2003 allows about 100 qualifying hospitals 
to receive wage index reclassifications and assignments that 
provide them with the resources to attract and retain the 
workforce they need to best serve their beneficiaries. Its 
provisions will expire October 1 of this year, and we believe 
it should be extended.
    Second, Congress made certain rural hospitals with 100 or 
fewer beds eligible to receive an additional payment known as 
hold harmless transitional outpatient payments, or TOPs. TOPs 
were meant to ease these hospitals' transition from the prior 
reasonable cost-based payment system to the outpatient 
prospective payment system. Concerned about the financial 
stability of these small rural hospitals, Congress extended the 
provision each year and has also expanded it to vulnerable 
sole-community hospitals. Hospitals that receive TOPs have 
Medicare payments averaging only about 82 percent of their 
costs. If this provision expires, that figure will go down to 
75 percent of their costs. We urge Congress to extend and make 
these payments permanent before they expire at the end of this 
year.
    Third, despite their small size and smaller patient base, 
hospitals in qualified rural areas, or so-called super rural 
communities, still have to maintain a broad range of basic 
services to meet the health care needs of their communities. 
These include laboratory services. And hospitals may be the 
only source of these critical services for many miles. The 
Medicare Modernization Act of 2003 included a provision 
requiring reasonable cost reimbursement for outpatient clinical 
laboratory tests furnished by hospitals with fewer than 50 beds 
in these qualified rural areas. The Accountable Care Act and 
the Medicare and Medicaid Extenders Act reintroduced and 
extended these provisions, but they are now due to expire on 
June 30, 2012.
    In the absence of these provisions, reimbursement for 
hospital outpatient clinical lab services in these super rural 
communities would revert to rates under the clinical laboratory 
fee schedule. The AHA recommends that Congress permanently 
extend the application of reasonable cost reimbursement 
methodology for hospital outpatient clinical laboratory 
services in these communities.
    We also support allowing independent laboratories to 
continue to bill separately for the technical component of 
physician pathology services furnished to patients in hospitals 
with existing ``grandfathered'' agreements with independent 
laboratories. These hospitals would otherwise have to set up 
expensive and burdensome billing arrangements in order to pay 
the independent labs directly for their services, despite the 
fact that the Medicare hospital payments do not incorporate 
payment for these kinds of technical component services.
    More detail on each of these requests and recommendations 
and additional areas of concern to the AHA is provided in my 
testimony. I thank the committee for your attention today. I 
hope you will recognize the unique challenges of delivering 
quality health care in rural areas by extending these expiring 
Medicare provider payment provisions.
    Thank you very much.
    [The prepared statement of Mr. Umbdenstock follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman HERGER. Thank you.
    Mr. Williamson for 5 minutes.

STATEMENT OF STEPHEN WILLIAMSON, PRESIDENT, AMERICAN AMBULANCE 
                    ASSOCIATION, MCLEAN, VA

    Mr. WILLIAMSON. Chairman Herger, Ranking Member Stark, and 
members of the House Ways and Means Subcommittee on Health, I 
greatly appreciate the opportunity to provide testimony today 
on the need to extend current Medicare ambulance relief. My 
name is Stephen Williamson. I am president of the American 
Ambulance Association. I am also president and CEO of Emergency 
Medical Services Authority for Tulsa and Oklahoma City.
    Ambulance services are a crucial component of our local and 
national health care system. Ambulance service providers 
provide health care to patients regardless of their ability to 
pay. When there is an accident at home and a loved one is in 
need of medical care, we know to dial 911 and an ambulance will 
be on its way. In many smaller communities, the ambulance 
service provider is the only readily available access to 
emergency medical care.
    Ambulance service providers are facing significant 
financial difficulty due in part to a Medicare ambulance fee 
schedule that is underfunded. In May of 2007, the Government 
Accountability Office found that ambulance service providers 
are paid 6 percent below cost and 17 below cost in remote areas 
to provide ambulance services to Medicare patients.
    This is primarily the result of a structural flaw in the 
design of Medicare ambulance fee schedule. This error was 
especially damaging for the sector in which Medicare patients 
make up approximately 50 percent of the total patients served. 
Additionally, since the GAO report was released, Medicare 
reimbursement has been reduced by another 2 percent through a 
reduction in our inflation update and policy changes to CMS 
regarding payment for fractional mileage.
    From the patient care side, ambulance service providers are 
rendering more sophisticated care. This improves patient 
outcomes and saves the Medicare program money but increases the 
cost to the ambulance service provider, which are not 
reimbursed.
    Congress has recognized the challenges facing ambulance 
service providers and implemented Medicare ambulance relief. 
Ambulance service providers currently receive a temporary 2 
percent Medicare increase for ground ambulance services that 
originate in an urban area; 3 percent in a rural area; and a 
22.6 percent bump to the base rate in extremely remote or super 
rural areas. These increases have been crucial for an industry 
made up predominantly of small businesses that operate only 
slightly above the break-even point under the best of 
circumstances.
    Medicare ambulance relief has meant that a majority of 
ambulance service providers can continue to provide quality 
health care. Medics are receiving training and new technologies 
and enhanced procedures that can make dramatic difference in 
the initial hours of critical care. Without relief, a number of 
providers will have to cut back on the number of medics, scale 
back their service area, or discontinue service. The immediate 
result is longer response times.
    The American Ambulance Association recognizes the 
significant difficult financial decisions facing policymakers. 
Our association has taken a number of steps to ensure ambulance 
service providers are providing quality, efficient care to 
Medicare beneficiaries. While our industry has one of the 
lowest payment error rate percentages, we are helping CMS to 
identify and root out waste and abuse in the Medicare program. 
We acknowledge that systematic reforms must also be considered 
to ensure the continued viability of the Medicare program and 
help reduce the deficit.
    The American Ambulance Association notes the recent 
proposal released by the Health Care Leadership Council as 
worthy of consideration. It identifies the type of changes that 
are necessary to help achieve significant savings within 
Medicare which could be primarily used to offset ambulance and 
other provider relief. Two recommendations, the implementation 
of medical liability reform and the creation of Medicare 
exchange, have particular promise.
    The current temporary Medicare ambulance relief is working 
exactly as intended. It is allowing the majority of ambulance 
service providers to maintain current levels of high-quality 
critically needed emergency and nonemergency ambulance service. 
The loss of relief, compounded by additional recent cuts in 
reimbursement, would change the delicate balance and negatively 
impact access to care, especially in the super rural areas. 
Extension of relief will result in better patient care and 
ensuring that an ambulance will respond quickly when you call 
911.
    I appreciate this opportunity to testify and would be happy 
to answer any questions you may have for me. Thank you.
    [The prepared statement of Mr. Williamson follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman HERGER. Thank you.
    Dr. Wah is recognized.

STATEMENT OF ROBERT WAH, MD, CHAIR, BOARD OF TRUSTEES, AMERICAN 
             MEDICAL ASSOCIATION, WASHINGTON, D.C.

    Dr. WAH. Thank you, Mr. Chairman, Ranking Member Stark, and 
Members of the Committee. My name is Robert Wah. I am the chair 
of the American Medical Association Board of Trustees and a 
reproductive endocrinologist and obstetrician/gynecologist. I 
practice and teach at the Walter Reed National Medical Center 
in Bethesda and the National Institutes of Health.
    The AMA, the largest physician organization, and our 
patients, thanks the chair and Members of the Subcommittee for 
your leadership in examining the extension of Medicare payment 
policies for various expiring provisions. I will address four 
provisions that the subcommittee is examining today.
    First is the physician work GPCI, which adjusts payments 
for geographic differences in the cost of providing services 
for physician work. In other words, this is a cost-of-living 
adjustment related to the physician's locality. Adjustments to 
the GPCIs are required by law to be budget neutral, which means 
that increasing the GPCI for one set of localities would lead 
to cuts in all other localities. The AMA has long advocated 
that the adjustments to the work GPCI should not be constrained 
by budget neutrality requirements.
    The Institute of Medicine, or IOM, is in the process of 
studying how to improve the accuracy of the data sources and 
methods used for making geographic adjustments in provider 
payments. The first of these three IOM reports was released in 
June. It is critical that changes to the GPCI component be 
based on the most current, valid, and reliable data.
    The AMA believes that once all three reports are released, 
they should serve as a starting point for Congress to examine 
geographic adjustments for physician work and practice expenses 
and ensure that an equitable policy is implemented.
    Next, Congress has also intervened on numerous occasions to 
extend a 5 percent increase in payments for certain Medicare 
mental health services. These payments have been very important 
for ensuring access to mental health services by our patients. 
The AMA's CPT Editorial Board is reviewing descriptions of all 
psychological services. Following that, the AMA/Specialty 
Society RVS Update Committee, or RUC, will review the valuation 
of these services and make related recommendations to CMS. We 
will share those results with the subcommittee to assist you in 
your evaluation.
    Next, Congress has, with bipartisan support, also 
intervened to extend the ability of independent laboratories 
under certain conditions to bill Medicare directly for the 
technical component of pathology services provided to hospital 
patients. Without this grandfather provision, Medicare 
beneficiaries and our patients could experience limited access 
to surgical services, especially in rural areas, due to the 
lack of availability of tissue analysis taken out at surgery 
done by these labs. Bipartisan legislation to make the 
grandfather provision permanent is currently pending before 
Congress. We urge congressional consideration of that 
legislation.
    Finally, Congress has intervened to increase Medicare 
payments for DXA scans for osteoporosis of bones. CMS has asked 
the AMA RUC to review the valuation of DXA scans as well, which 
is likely to occur in January 2012. We will share the results 
of this review with the committee to guide your further 
consideration of this issue.
    The AMA appreciates the subcommittee's concern about the 
costs associated with extending expiring provisions. Additional 
funding that has been allocated for many of these services, 
however, has been necessary in the absence of a complete 
overhaul of the Medicare physician payment system. To avoid 
coming back year after year, Congress needs to undertake 
comprehensive reform of the Medicare physician payment system, 
beginning with the immediate and full repeal of the SGR, the 
granddaddy of the extender problem. Until then, extender 
payments for these expiring provisions are needed to maintain 
access to these important services.
    New policies for the expiring provisions should be included 
as part of the new Medicare physician payment system, for which 
the AMA recommends a three-pronged approach. We have previously 
shared these recommendations with the subcommittee, and we 
would be happy to work with you as you try to make them a 
reality.
    The AMA is eager to continue to work with Members of the 
Subcommittee and Congress to lay the groundwork for Medicare 
physician payment reform. And we are grateful to Chairman 
Herger and the subcommittee for calling this important hearing 
today.
    Thank you. And I am happy to answer any questions.
    [The prepared statement of Dr. Wah follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman HERGER. Thank you.
    Mr. Moore, you are recognized for 5 minutes.

          STATEMENT OF JUSTIN MOORE, VICE PRESIDENT OF

         GOVERNMENT AFFAIRS, AMERICAN PHYSICAL THERAPY

                  ASSOCIATION, ALEXANDRIA, VA

    Mr. MOORE. Chairman Herger, Ranking Member Stark, and 
members of the Health Subcommittee, on behalf of the American 
Fiscal Therapy Association and its 82,000 members, thank you 
for the opportunity to provide testimony on expiring Medicare 
provider payment policies.
    I am Justin Moore, a licensed physical therapist and 
currently the Vice President of Government Affairs at APTA. 
Several of the expiring payment policies under Medicare impact 
physical therapists, including the sustainable growth rate, 
rural payment policies, and the Medicare cap on outpatient 
physical therapy, occupational therapy, and speech/language 
pathology. We will focus today's testimony on the therapy caps 
by providing the background of this policy, its impact on 
patient and providers, and a potential solution to this issue.
    In addition to our membership and the patients we serve, 
APTA is also working in coordination with the Therapy Cap 
Coalition, an advocacy community of over 50 patient and 
professional organizations whose common objective is to 
permanently repeal the caps. This coalition appreciates the 
current leadership of Representative Gerlach and Javier Becerra 
to repeal the therapy caps.
    The therapy caps are primarily a beneficiary issue and 
secondly a payment policy issue for therapists. As part of the 
Balanced Budget Act, Congress authorized a $1,500 cap on 
outpatient therapy services under Medicare Part B. From 1999 to 
2006, Congress passed three moratoriums on the therapy caps. In 
2006, Congress reformed the moratorium policy by authorizing an 
exceptions process to the therapy cap that initially decreased 
its cost. Congress has extended this exceptions process five 
times. And the current exceptions process is valid through the 
end of this year.
    If Congress allows the exceptions process to expire, 
beneficiaries will not receive the services that are medically 
necessary unless they seek treatment from a hospital outpatient 
department or pay out of pocket for their care. Without the 
exceptions, it has been estimated that 15 percent of the 
beneficiaries that access therapy services, or 640,000 Medicare 
beneficiaries, would reach that cap and have their access to 
therapy services reduced or eliminated.
    In particular, the therapy cap has a disproportionate 
impact on older, more chronically ill beneficiaries and those 
from underserved areas. Without the exceptions process, these 
patients would likely regress in their health status and create 
additional Medicare expenditures to address their health care 
needs.
    Congress has long known that allowing the therapy caps to 
go into effect would have a profound impact on patient care. 
The pattern of yearly extensions without an exit plan is not in 
the best interest of patients, physical therapists, or the 
Medicare program. APTA believes the therapy cap exceptions 
process must be extended in 2011 but further recommends that 
reforms to the payment system and the benefit are needed for 
the long-term fiscal health of the program.
    The original legislative intent of BBA authorized the 
therapy caps but called for an alternative payment methodology 
to eventually replace those caps. APTA proposes to Congress 
that we extend a refined exceptions process for 2012, 2013, and 
2014, and instruct CMS to develop a per-visit payment system 
for outpatient therapy services that controls the growth of 
therapy utilization, with implementation by January 1, 2015.
    APTA has begun work on a reform patient system for 
outpatient physical therapy services that we believe would 
strike the balance between ensuring access to services while 
improving payment accuracy for therapist services under 
Medicare.
    APTA is developing a reform payment system that would 
transition the current system to a per-visit system based on 
the severity of the patient and the intensity of the 
therapist's clinical work and judgment. The therapy evaluation 
would provide a prediction of the episode of care and the 
estimated rehab potential for the patient. APTA is working with 
stakeholders in the therapy and rehabilitation community to 
refine this system.
    We believe the system has potential long-term cost savings 
through increased compliance with other areas of payment policy 
under the Medicare therapy benefit, advancing efforts toward 
quality reporting and the adoption of health information 
technology, standardization of practice patterns through 
assessment tools and registries, and a diminished potential for 
fraud and abuse.
    APTA stands ready to work with the committee to reform the 
payment system for therapy services and refine the benefit to 
ensure the integrity of these services. We commend the 
committee for this hearing on expiring Medicare policies and 
encourage an extension of the therapy cap exceptions process, a 
movement to a reformed payment statement, and refinements to 
the therapy benefit.
    Thank you.
    [The prepared statement of Mr. Moore follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman HERGER. Thank you, Mr. Moore.
    Mr. Steinwald is recognized for 5 minutes.

STATEMENT OF BRUCE STEINWALD, PRESIDENT, STEINWALD CONSULTING, 
                        WASHINGTON, D.C.

    Mr. STEINWALD. Thank you, Chairman Herger.
    Mr. Stark, nice to see you again.
    Members, thank you for having me here today.
    I might as well get it right on table; my role is to be the 
skunk at the picnic. But I welcome the opportunity, because I 
am very concerned about Medicare's financial situation and the 
unsustainable trend line that it is on.
    I became a health economist in the1960s, about the time 
that Medicare was enacted, and now I am a Medicare beneficiary 
myself.
    It has been well established by the Congressional Budget 
Office and others how the Medicare spending problem is not only 
a Medicare problem, but it is a deficit problem and a national 
debt problem. And for those reasons, I think that any 
discussion of health policy and Medicare issues, including the 
issue before the committee today, ought to have affordability 
as one of the principal criterions that you apply when you 
consider whether you should extend some of these expiring 
provisions.
    There are three reasons I think that Congress should be 
very skeptical about these extensions. One, Mr. Chairman, you 
mentioned yourself, is they are costly in their own right. They 
are deceptively costly. They don't look like they are all that 
expensive, taken one at a time, but if you looked at them, as 
you do, in a package over a 10-year budget window, they would 
be on the order of $25 billion. And even that is an 
underestimate considering that many of these provisions have a 
lifetime of more than 10 years.
    There are two other reasons, though, that I think are 
equally important. One is, when you make exceptions, you 
undermine the integrity of Medicare's payment systems. Congress 
worked very hard since 1983 when it put in the inpatient 
prospective payment system to move away from inflationary cost 
reimbursement and in the direction of a reimbursement system 
that allows providers to understand what they will be paid for 
a given service and therefore manage their cost to that 
payment. When you make exceptions, you undermine that 
incentive. You encourage providers to seek exceptions rather 
than to seek efficiencies. And, of course, you create a 
constituency for the continuation of the exceptions and for 
other providers to say, where is my exception, if they are not 
so blessed.
    A third reason is, we all know that the incentives of fee-
for-service payment lead to more volume and more complex 
services. And that is a major contributor to spending. Again, 
once you make exceptions, it tends to undermine some of the 
limited checks and balances that the Medicare program has to 
make sure that the services that it pays for are reasonable and 
necessary for patient care. Exceptions tend to undermine that.
    I included a number of examples in my written statement. 
Let me touch on one or two of them. I serve on the Institute of 
Medicine committee that Dr. Wah mentioned in his statement. 
That committee is looking at Medicare's geographic payment 
adjustments for hospital and physician services. Fully 37 
percent of hospitals are currently paid for under some kind of 
exception to the basic payment formula, 37 percent. That 
includes the 508 exceptions, but it is not limited to that. 
There are other kinds of exceptions as well.
    It needn't be that way. There are ways to improve the 
payment formulas for hospitals and physicians and other 
Medicare providers. But, once again, it dilutes some of the 
energy to finding those payments if you are expending your 
energy finding exceptions and getting them extended as opposed 
to improving the payment system.
    Many of the rural provisions seem to--they prop up rural 
payments, but they also create exceptions that have the same 
problems that I have already mentioned. I especially don't like 
floors in either the inpatient or the physician payment 
systems, floors on the geographic adjustments. It perpetuates 
this idea of a Lake Wobegone world in which no one can be below 
average. And it has the effect of messing up payments for all 
providers, not just a limited few.
    In order to not take any more time, let me just say, I am 
sorry to play this role, but I do think that Congress should be 
very, very cautious about extending these provisions. It should 
set a very high bar. There should be compelling evidence of a 
beneficiary need for any of these extensions. And Congress 
should think about whether we want the exception to be extended 
or whether or not we want an improvement in the payment 
formula.
    That ends my oral statement. I am happy to answer any 
questions.
    [The prepared statement of Mr. Steinwald follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman HERGER. Thank you.
    Mr. Umbdenstock, it is my understanding that hospitals that 
go through the standard wage reclassification program must 
reapply every 3 years. As part of this process, hospitals must 
prove to CMS that they have increased their wages and are 
paying wages that are similar to those of nearby hospitals.
    I have had a case in my own district where a hospital lost 
its reclassification and millions of dollars in Medicare 
payments because its wages did not meet the required threshold. 
Is it fair that Section 508 hospitals do not have to reapply 
like other hospitals do and are simply given the higher wage 
rate if Congress extends the policy?
    Mr. UMBDENSTOCK. Thank you, Mr. Chairman.
    I do think that it is important to understand that the 
original reason for Section 508 was because these were areas 
and hospitals in areas near higher-paid areas that failed to 
qualify in that criteria, kind of near-miss situations. So they 
have already demonstrated that they are close to the wages--
more similar to the wages in the areas into which they are 
reclassified than the one in which they are presently residing. 
So, under this program, it does fill that kind of gap for them.
    Now, as this provision moves along, we certainly do want to 
see it extended once again to take care of that problem. But it 
is their first intention to go through the regular wage 
process, wage adjustment process, to see if they can qualify 
there before they turn to this.
    Chairman HERGER. Is it fair that Section 508 hospitals do 
not have to prove that they are in fact using extra money to 
increase wages to nurses and other patient care and staff?
    Mr. UMBDENSTOCK. Well, that is--the wage and benefits are 
two-thirds of a hospital's annual budget. And it is the hardest 
place for them to keep up now because of shortages of personnel 
and increasing market competition for those people. So that is 
where moneys are going for the average hospital. They are all 
facing significant shortages and use this money for that 
purpose.
    Chairman HERGER. Again, unlike these other hospitals, they 
don't have to prove it. That it is something that has been 
automatic. Is that not correct?
    Mr. UMBDENSTOCK. I would have to ask my staff to double-
check me before I give an answer.
    That is correct; they do not. Thank you.
    Chairman HERGER. You testified also that there are 258 
rural hospitals that benefit from the outpatient hold harmless 
payment. But according to CMS, there are more than 900 rural 
hospitals that are potentially eligible for the hold harmless 
payment but have not received it because their aggregate 
outpatient PPS reimbursement is higher than their costs. Can 
you explain why the outpatient PPS is sufficient for some 
similarly situated rural hospitals but not for others?
    Mr. UMBDENSTOCK. No, I don't think that there is a 
particular across-the-board explanation for that or rule of 
thumb. I think these are situations where they find their costs 
to be significantly more than the payment and need that type of 
assistance in order to try to narrow that gap; 258 is the 
number of hospitals as of 2010 that have qualified for that. 
But I would have to get back to you, sir, on exactly why--if 
there were major reasons why the others were not--were so much 
more above that.
    Chairman HERGER. Thank you. I would appreciate it. If you 
would do that, please.
    Mr. Steinwald, you note in your testimony that Congress 
should be cautious about extending these payment policies. By 
what criteria should each extender be judged, in your 
estimation?
    Mr. STEINWALD. Yes, Mr. Chairman. Thank you. I would say 
three criteria: The one I mentioned before is affordability, 
the extent to which an extension might contribute to Medicare's 
financial spending problem.
    And let me say offsets are nice. I appreciate you have 
asked the witnesses to think about offsets to the extension of 
expiring provisions, but Medicare needs savings, Mr. Chairman. 
I wouldn't let the availability of offsets reduce your 
skepticism about the need to extend these expiring provisions.
    Then I think there ought to be a compelling beneficiary 
need at the foundation of an extension. And I think you ought 
to be looking at whether or not an exception is the way to 
address it or an improvement in the payment system is a better 
way.
    Chairman HERGER. Thank you.
    Mr. Stark is recognized for 5 minutes.
    Mr. STARK. Thank you, Mr. Chairman.
    First of all, I think you all heard this before, but I am 
charged with asking you that if there is anybody among you who 
feels that any savings that we get should first go toward 
strengthening the Medicare program and not go to the general 
deficit reduction. Anybody disagree with that on the panel?
    Let the record show, Mr. Chairman--you disagree with that, 
Mr. Steinwald?
    Mr. STEINWALD. Well, when you said any savings should 
strengthen the Medicare program.
    Mr. STARK. The Medicare savings.
    Mr. STEINWALD. I would disagree with the blanket statement 
that any savings should strengthen. I think Medicare does need 
savings that contribute to reducing the deficit.
    Mr. STARK. You would pick and choose.
    Dr. Wah, as I understand it--you mentioned the GPCI issue--
physicians are paid, one, for the medical procedure and, two, 
generally for office expense, in other words, the cost of rent, 
malpractice insurance, help in the office, and so forth. Is 
there any reason that a physician should be paid, let's say, 
for a tonsillectomy any more or less in New York than in 
Wapakoneta, Ohio? Same procedure. Same training. I would assume 
that that part of the physician reimbursement should be 
standard across the country.
    Dr. WAH. I believe--thank you for that question. I think 
what you are asking, in the current environment, because we 
have a resourced-based payment system, what you are describing 
is essentially the basis for the way we are doing it. In other 
words, what resources does it take to deliver the service?
    Mr. STARK. No, that is a separate payment. I am just saying 
that a doctor is trained and I presumed licensed to perform a 
procedure. Pick whichever one you want; removing a plantar wart 
or whatever. Is there any reason that that shouldn't be the 
same payment across the country?
    Dr. WAH. If we could isolate that part out.
    Mr. STARK. Oh, we do that now.
    Dr. WAH. I know there is a number of attempts to try to do 
that accurately, but there are some problems with that. So 
there are--there is the belief that if we could just get to the 
part where, as you say, taking off the wart or taking out the 
tonsil is the same, regardless where in the country it is, we 
should reimburse that exactly the same. I think that is what 
you are advocating.
    Mr. STARK. I don't think there is any reason that it would 
be different.
    Now, the cost of operating the practice, as I said before, 
insurance, rent, that differs all over the country. We have 
attempted to adjust that for the physicians. But I just wanted, 
if we could establish somehow that for a particular procedure 
across the country, pay the same. Then we get to the issue of 
facilitating the physician's ability to provide that procedure, 
depending on geographic conditions or economic conditions or if 
they are in a rural area and a whole host of issues. It seems 
to me that with that, we kind of have to push you guys to get 
your RUC ideas back as quickly as you can so we know what those 
should be. But the practice expense is the big gorilla that we 
have to wrestle with.
    From my experience, this is largely an accounting question. 
It does cost more for rent, I am sure, in some areas that are 
rural areas or in rural areas where somebody has to cover a 
host of different places. So if we could encourage the AMA to 
help us to set the payment on the procedures, then I think we 
could get a long way toward properly reimbursing physicians, 
not necessarily with desired payment but maybe with reasonable 
payments.
    Dr. WAH. And to be clear, the AMA does not set payments. We 
wish we did. But we don't. This is not our job in this process, 
Congressman. CMS sets the actual payment. What we have done is 
set up a process by which we relatively weigh the various 
procedures.
    Mr. STARK. And you are in the process of revising that now, 
are you not?
    Dr. WAH. We are always constantly reviewing this relative 
value scale by which we have been working for a number years. 
And we bring together experts from around the country to do 
that. The AMA does that without costing the taxpayer any money. 
We do that on our own expense. But we believe it is important 
physicians do that as opposed to some other entity that may not 
understand the nuances of health care as well as physicians. I 
just want to be clear, we are not setting payment.
    Mr. STARK. We look forward to your next report.
    Dr. WAH. Now the GPCIs are important because, as you 
pointed out, there are wide variations in practice expenses. 
Also, as most everyone knows in the country, those expenses are 
not going down, most are going up. Whether they be rent or 
salaries or insurance, all of those factors are being 
increased. That is why it is important that we have the ability 
to see those things increase.
    Mr. STARK. Thank you.
    Chairman HERGER. The gentleman from Texas is recognized, 
Mr. Johnson, for 5 minutes.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Mr. Steinwald, I appreciate your testimony and the 
questions you feel Congress needs to ask before extending some 
of these policies.
    In looking at pathology in particular, you note in your 
testimony that Medicare should not pay twice for the same 
service. Can you explain how this can occur under the pathology 
services exception that GAO studied?
    Mr. STEINWALD. Yes, sir.
    When we looked at this I believe in around 2003, what was 
happening at the time is that many hospitals were outsourcing 
certain tests to be performed by independent laboratories. 
Those independent laboratories were permitted to bill Medicare 
directly and get paid directly.
    Well, under the inpatient prospective payment system, the 
DRG payment is supposed to cover all of the patient's care, 
including any testing. And so when I say it is paying for it 
twice, what I mean is the hospital is getting paid a DRG 
payment, a single payment for the entire care of the patient, 
and at the same time, these outsourced medical tests are being 
billed and paid for separately.
    Mr. JOHNSON. Thank you.
    Dr. Wah and Mr. Umbdenstock, outside of labs and certain 
facilities, no other supplier can bill Medicare directly for 
services provided in the hospital setting. How can Medicare be 
sure it is not paying twice for pathology service under both 
IPPS and by allowing independent labs to directly bill? He just 
talked to that.
    Dr. WAH. I think we are not talking about all laboratory 
services. Pathology services are those that examine tissue that 
is taken out at the time of surgery, some sort of tissue 
analysis. And in many hospitals, those facilities are not 
available in the hospital. So they need to essentially go 
outside the hospital for those services.
    Mr. JOHNSON. How many hospitals don't have that ability? 
All the ones in Dallas that I have been to do have it.
    Dr. WAH. I have to leave that detail to--I want to be clear 
we are not talking all laboratory services or even all 
pathology services. It is those where the hospital does not 
already have that ability within the hospital itself, so it is 
going outside to get those.
    Mr. JOHNSON. We should be sure they are not billing twice.
    No, we can't. You are right. You answered it.
    If that provision were to expire, would the patients 
experience a gap in care that didn't previously exist.
    Mr. UMBDENSTOCK. If I may take a pass at the first question 
as well. For many times over now, those costs, at the direction 
of HCFA and then CMS, have not been included in the hospital's 
calculations. So they were not built into the rate. It was 
expected that they were going to be billed separately.
    Now, to how many hospitals would not provide the service if 
this was not allowed, I really can't answer--I think that was 
your second question, sir--I can't answer that. I can't project 
that. But we do know that many of them have gone out for 
independent services because they don't have the volume or in 
some cases can't afford to maintain the staff and the service. 
And so they have contracted out to someone who can service a 
lot of hospitals and put that volume together and make it 
economically worthwhile to do so.
    So we know that that was the original reason. And it would 
only, in my mind, it would only stand to reason that more would 
opt out because they couldn't afford to do this on their own. 
They couldn't afford the building systems and so on. So I think 
it would further exacerbate the problem.
    Mr. JOHNSON. Thank you.
    Mr. Williamson, thank you for being here. Can you provide 
some insight into the figures you mentioned in your testimony, 
such as the 22.6 percent addition to the base payment rate for 
ambulance services to remote areas, and how are those numbers 
generated, and do you feel a fixed-rate adjustment is 
appropriate for a service that seems to be variable in regards 
to time and distance?
    Mr. WILLIAMSON. The issue of how that was derived was from 
the study from the GAO office. The reason for the drastic 
difference in cost is, of course, the geographic area, which 
the ambulance--super rural ambulance service covers, and the 
population density. There is so much fixed cost and readiness 
cost involved in providing ambulance service on a timely 
fashion, that geographic density plays a huge part. So it was 
determined from those cost studies in the GAO report how much 
that should be and why it was so drastically more than urban or 
a less rural area.
    Mr. JOHNSON. Okay. I am not sure I know why the difference 
is there. But thank you for your testimony.
    I yield back.
    Chairman HERGER. Thank you.
    Mr. Thompson is recognized for 5 minutes.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Thank you to all of you for being here to testify.
    Mr. Moore, I appreciate your comments on the therapy cap. I 
think that has been a huge issue, and it has really prevented a 
lot of folks from getting treatment that they really needed to 
get. I am glad that you raised that issue.
    Mr. Steinwald, you mentioned that we really need to take a 
close look at these extenders. Were you talking about all of 
the extenders? Because the SGR issue, I think that is pretty 
universally accepted that we need to figure out a better way to 
deal with that. That is something that not only puts providers 
in a bind, but patients as well. Do you classify that the same 
as all of the other?
    Mr. STEINWALD. It is the big dog, for sure.
    Mr. THOMPSON. I know it is the big dog, in more ways than 
one.
    Mr. STEINWALD. I was asked in my statement to exclude any 
comments about Medicare Advantage and also SGR. So I would be 
happy to talk with you at length about SGR in another setting.
    Mr. THOMPSON. You weren't including that with the long list 
of extenders that we may or may not be talking about today.
    Mr. STEINWALD. No. But by excluding it, I don't mean to 
imply that I think you should just repeal it.
    Mr. THOMPSON. We should just----
    Mr. STEINWALD. Repeal SGR.
    Mr. THOMPSON. I wasn't talking about repealing it. I was 
talking about addressing the issue of payments to providers and 
the impact that has, not only on them as providers but also the 
people that rely on medical services.
    Mr. Williamson, thank you for raising the issue of the 22.6 
percent super rural add-on payment. I know that in my district, 
I heard from a lot of ambulance providers who really took a hit 
because this was done in a way--done retroactively, and folks 
had to wait a long time to get their payment. And it really put 
them in an economic bind. Some of the providers in my district 
actually had to take out loans in order to keep their business 
afloat while they were waiting for the reimbursement that they 
were certainly entitled to that.
    I just want to hear from you exactly the impact that that 
has had on the people that you represent as well as the people 
that they service.
    Mr. WILLIAMSON. Well, it, actually, was a devastating 
situation for many services, some of which had to close. In 
other situations where they had to reduce staff, it forced 
other services to cover a larger area, which then means the 
patient received a longer response time. So it had a major 
effect also on enhancement of the services, whether it be more 
medics or newer equipment. That short period of time set them 
back longer than the 3 months it took to receive the funds. It 
stopped all planning and anticipated growth.
    Mr. THOMPSON. I just think we need to pay particular 
attention to that because the whole idea of retroactive 
payments, this is a real clear case of how it hurts providers. 
But it is across the board. Any of the folks that you represent 
at this dais today, when they are dealing with retroactive 
payments, it makes it very, very tough.
    Mr. Williamson, does your organization include 
firefighters, county health departments, and public hospitals?
    Mr. WILLIAMSON. Yes. We represent all facets of the 
industry.
    Mr. THOMPSON. I was a little surprised to hear that you 
kind of tout the Health Care Leadership Council's Medicare 
proposals. I think you said they were worthy of consideration. 
Part of that proposal includes some pretty drastic changes in 
Medicare and some would say actually pave the way for the Ryan 
voucher program that we have had hearings on. Is this something 
that your membership supports? Has this been vetted through 
your membership?
    Mr. WILLIAMSON. No, it has not. We haven't formally 
endorsed that program--those recommendations--but we thought 
several of those had merit and that it should be looked at and 
studied.
    Mr. THOMPSON. Why did you feel compelled to tell the 
committee that you thought that this move toward voucher was an 
appropriate way to go?
    Mr. WILLIAMSON. Well, we didn't mention the particular 
aspect of that program that talked about vouchers. We talked 
about--also, we brought up the legislative reform as far as the 
court issues. And then on the Medicare programs, where they 
could competitively shop for a better service, we thought that 
was a plausible position to look at for reduction.
    Mr. THOMPSON. Thank you.
    Chairman HERGER. Thank you.
    Mr. Buchanan is recognized for 5 minutes to inquire.
    Mr. BUCHANAN. Thank you, Mr. Chairman, for this important 
hearing.
    I would also like to thank all of our witnesses.
    We have touched on extenders a little bit. I want to talk, 
mention to Mr. Umbdenstock, I think I read in your testimony 
you had mentioned that you are encouraging Congress to enact 
robust medical liability reform to eliminate a lot of frivolous 
lawsuits. I know in our area in Florida, when I talk to doctors 
or hospitals or anybody that is involved in the medical field, 
they just feel like that is the low-hanging fruit, and it can 
make a big difference. I know that Texas has a cap of $250, and 
they just got loser pay I think September 1st. That will make a 
big difference.
    We have a lot of doctors or people going to medical school. 
They are going to look at where they have got the best 
opportunity. If know I have a neurosurgeon in my area that 
suggests that he is paying $200,000 a year for med mal 
liability insurance.
    I was just wanting to know, from your standpoint, what kind 
of savings do you think we would get? I guess there are two 
aspects--the immediate savings, but also in terms I hear a lot 
from the doctors about defensive medicine, doing a lot of 
unnecessary tests that they wouldn't have to do otherwise.
    Mr. UMBDENSTOCK. Yes. To that, we have long supported 
liability reform at the American Hospital Association and 
continue to do so. I think it is a very important area for a 
lot of reasons, not the least of which certainly in dollar 
terms is the whole issue of defensive medicine and how that 
drives up utilization, drives up costs. But it also would have 
an indirect benefit, too, of helping out to the physician side 
and the hospital side of lowering their expenses, lowering the 
overall costs of the Medicare program. So we think there are 
both direct and indirect benefits to it.
    It has been scored up in the $60 billion range over 10 
years. We think that is a very important source of money to put 
to better use across the system.
    Mr. BUCHANAN. Again, that is what I hear every day any time 
I meet. We have medical societies in each of our communities. 
That is their biggest issue.
    Dr. Wah, what is the AMA's position today on medical 
reform, tort reform, legal reform, getting rid of junk 
lawsuits, frivolous lawsuits. What is the position of the AMA?
    Dr. WAH. Thank you for bringing up that important issue. 
Clearly, medical liability reform is an important reform that 
we believe needs to happen in this country for our physicians 
but also for our patients. Mr. Umbdenstock talked about the $60 
billion the CBO scores for that. We are hoping the 
supercommittee in their deficit reduction process looks at that 
$60 billion as a way to get towards their $1.2 trillion.
    But also, let me just point out for our patients, beyond 
the cost of the additional tests, the unnecessary tests to get 
done in defensive medicine, there is a human cost as well. 
Everyone knows it is not easy to go get an extra blood test, an 
extra x-ray, or another kind of exam. So there is more than 
just the financial cost that we are concerned about here. Those 
tests have a human total as well. And there are increased risks 
when they have the additional procedures and tests. So we are 
very concerned about that. It seems to us that there are a lot 
of dollars that get spent in this area that can be spent better 
on medical care as opposed to just simply providing some sort 
of defensive process against frivolous lawsuits, as you pointed 
out.
    Mr. BUCHANAN. When the AMA throws out a number of $55 
billion or $60 billion, does that include--are you estimating 
defensive medicine in there as part of that?
    Dr. WAH. That number is actually I think from CBO, not from 
us. I am just saying what CBO scored. I think it is $63 billion 
of potential savings.
    Mr. BUCHANAN. Does that include defensive medicine?
    Dr. WAH. A lot of that part is defensive medicine, yes.
    Mr. BUCHANAN. Mr. Steinwald, do you want to comment on tort 
reform, legal reform?
    Mr. STEINWALD. The CBO estimates, the way you get savings 
is they estimated there would be one-half of 1 percent effect 
on spending under Medicare with this reform. Now, for years, 
they were reluctant to come up with an estimate like that. But 
they did so recently.
    So you get less Medicare spending. You also get added 
revenues because the estimate would then cause private 
employers to spend less for their health care benefits for 
their employees and therefore divert more money into taxable 
wages.
    Mr. STEINWALD. So you get a spending reduction, and you 
also get some additional revenue. I don't know that----
    Mr. BUCHANAN. You mention affordability. Do you have a 
sense of a number or a thought on that in terms if we had 
material tort reform like Texas seems to be moving towards, 
savings that we would have?
    Mr. STEINWALD. Well, I would go with CBO. I mean, they are 
the ones who have the wherewithal to make these estimates.
    And, once again, I would say if there are savings to be 
had, they don't necessarily have to be used in order to pay for 
extending expiring provisions.
    Mr. BUCHANAN. Thank you. I yield back.
    Chairman HERGER. Thank you.
    Mr. Kind is recognized for 5 minutes.
    Mr. KIND. Thank you, Mr. Chairman, and thank you for 
holding this important hearing.
    I want to thank all the witnesses for your testimony here 
today. It is very helpful.
    Let me just ask you all just a general question. Because I 
happen to believe and I am kind of a disciple of the Dartmouth 
Atlas studies that come out in regards to utilization practice 
of health care throughout the country. I believe if we are ever 
going to get a grip on the rising cost of health care, 
especially the impact it is having on both public and private 
budgets alike, we are going to have to change the way we pay 
for health care in this system in this country. We have got to 
move away from the fee-for-service system, paying for tests, 
procedures, things being done, and instead move to a fee-for-
value payment system.
    Mr. Steinwald, I want to thank you for serving on the first 
IOM panel. I know you have been tasked to do a lot in upgrading 
the Medicare reimbursement formula with the two phases. The 
second one I understand will be released next week.
    But many of us who pushed for those studies to come out, 
for this one in particular, viewed it as just a bridge to the 
second IOM study. That second IOM study is tasked to change the 
fee-for-service system under Medicare to a fee-for-value 
reimbursement system, and they are supposed to present an 
actionable plan to IPAB and also the Congress on how this can 
be done.
    I think that ultimately needs to be the goal when it comes 
to health care reform so we can get out of the SGR problem. We 
can get out of hearings like this talking about tweaking the 
reimbursement for procedures, for particular exceptions that 
you have talked about and written about. Otherwise, we will be 
here years later having these same type of hearings without 
making any real meaningful payment reform.
    Dr Wah, I know the physicians of the country, too, have 
embraced more quality measurements and outcome-based practice. 
How important do you think will it be for us to convert fee-
for-service under Medicare to an outcome-based reimbursement 
system?
    Dr. WAH. Thank you for that question.
    I 100 percent agree with you that what we need to do is 
revamp the Medicare payment system, in particular the physician 
payment system. As I said before, all of these patches that you 
are talking about, all of these extenders--and I have used the 
example with our staff--it is like all the little patches you 
have on a leaking boat. What you really need is a new boat. You 
can't take the patches off the boat, because it will leak even 
worse. So you are, unfortunately, stuck with all the extenders 
because of the problems you have got with the boat. But what is 
really needed is a new boat.
    The other way to put it for the physicians in the audience 
is we have get a lot of symptoms here that we are treating but 
not the underlying disease. The underlying disease is we need a 
new system.
    I would say as a physician what we need to talk about first 
is a new way to deliver health care. So it is delivery reform 
first and payment reform second. What you should do is have an 
ideal delivery reform and then find a payment system that 
facilitates that ideal delivery, and that is what we are 
looking to do here.
    Mr. KIND. It seems----
    Dr. WAH. Before we do that, we have to get rid of the SGR. 
As somebody said, a dog or a big dog or any kind of dog, it is 
clearly what has to be done first. That has to be removed.
    Mr. KIND. I would agree with you on that.
    Dr. WAH. Then we have to then go back and have some 
stability while we figure out what the ideal delivery system 
is. As I said before----
    Mr. KIND. The SGR--you are right--has been patently unfair 
to the practicing physicians around the country. For them to be 
held hostage year after year expecting a patch or something to 
be worked out in the eleventh hour, it is just too much 
unpredictability and angst within the medical profession.
    But it sounds like you just described the Affordable Care 
Act, trying to do system delivery reform and then also payment 
reform in future years. Because we all understand we are not 
going to change the way you pay for one-fifth of the entire 
U.S. economy overnight. It is going require a period of 
transition.
    Yet my fear with the Super Committee and all this deficit 
reduction pressure that we have around here is we are in a race 
against time right now for just draconian, across-the-board 
cuts in Medicare or health care spending generally, regardless 
of the consequences, regardless of the implications that it 
will leave patients throughout the country, rather than 
allowing these reforms to move forward on how health care is 
delivered but ultimately how we pay for it.
    Mr. Umbdenstock, let me ask you in regards to some of the 
exceptions with rural providers, because the margin for my 
hospitals in rural western Wisconsin are very thin to begin 
with. What would happen if the exception for rural 
reimbursements were to be eliminated overnight?
    Mr. UMBDENSTOCK. Oh, I am very fearful because of the 
situation that you describe about those thin margins. We know 
they take care of a very small population basis. We know they 
are very essential because of the great distances to other 
services. So, yes, I think it would put an already strained 
system under much greater strain; and I agree with the leaky 
boat analogy. We are living with these now because the 
fundamental system is flawed.
    To your first question, sir, I, too, would agree, the 
American Hospital Association agrees, we have got to move 
toward a value-oriented system. The challenge is to learn how 
to get there and to do it right while maintaining the current 
delivery system that we have, make sure it is viable in that 
transition period, but on a principled basis get to a point 
where pay for performance is fully supported. Exactly what the 
measures are and exactly how they get used and how we account 
for differences in different population segments, yet to be 
worked out.
    Mr. KIND. I agree with that.
    Thank you, Mr. Chairman.
    Chairman HERGER. Dr. Price is recognized for 5 minutes.
    Mr. PRICE. Thank you, Mr. Chairman; and I want to thank the 
panelists as well for their testimony.
    I think it is important to appreciate what we all want is 
the highest quality of care to be able to be delivered to the 
citizens of this great country, and I would suggest that every 
exception that has been put into place was an attempt to get a 
higher quality of care to the patient. So there was a rationale 
behind each and every exception. Obviously, this has gotten way 
out of hand, as the testimony of all of you demonstrates.
    Can we agree that the Medicare payment system is broken?
    Everybody agrees the Medicare payment system is broken.
    All right. I want to touch on a couple of specific--which 
means we have to reform the Medicare system completely. I want 
to touch on a couple of issues and then ask a couple of 
specific questions.
    First, lawsuit abuse was touched on, the practice of 
defensive medicine. CBO scores it, says that if you fix it, it 
will save $60 billion. There are quality studies to demonstrate 
the practice of defensive medicine is in fact greater than $60 
billion, in fact, in the hundreds of billions of dollar range 
if in fact you reform the lawsuit abuse issues in responsible 
ways. So I think there is a lot more savings there.
    Secondly, this pay for value sounds wonderful. It sounds 
just grand. But as a practicing physician I can tell you that 
what is of value to one patient may be different than what is 
of value to another patient. And so having us in Washington 
decide what is of value is very, very troubling to me; and I 
think we need to keep that quality care for each individual 
patient at the heart of what we are talking about.
    Mr. Steinwald, you talked about, in response to a question 
on what criteria we ought to use to continue an exception, you 
mentioned affordability being one of them. I assume you are 
talking about the Medicare program. If the Medicare doesn't 
program doesn't have enough money to provide a certain service, 
do you believe that a Medicare patient ought to be able to 
privately contract with a physician for that service if 
Medicare can't afford it?
    Mr. STEINWALD. Let me think about that for the next 2 
weeks.
    Mr. PRICE. Great. Free decision between one citizen and 
another citizen to contract for a service, you are not certain 
about.
    Mr. STEINWALD. No, I am not sure that one would need to go 
that far in order to make an improvement.
    Mr. PRICE. But in principle, in principle.
    Mr. STEINWALD. I am not so sure. I can see the arguments on 
both sides.
    Mr. PRICE. Dr. Wah, I want to get right to the issue of the 
fundamental reform that is necessary. All of these exceptions, 
as I mentioned, I think were trying to provide a higher quality 
care for patients. But what you mentioned I think is incredibly 
important for us to concentrate on. That is that the system is 
broken and needs to be reformed. Is it your position or the 
position of the AMA that if we have a reasonable, responsible 
payment system that none of these exceptions would be 
necessary?
    Dr. WAH. Thank you, Dr. Price.
    Obviously, what I said before is I think we have got a 
problem with the entire system; and that system that is broken 
has led to all these patches that we are talking about today. 
So, yes, absolutely, we believe the Medicare payment system has 
to be redone.
    But we need stability while we are redoing it, because it 
can't be redone overnight. That is why in that three-pronged 
part that I talked about in my testimony, first we need to 
repeal the SGR, just flat out repeal it. And then there has to 
be some period of some 5 years, we have estimated, of stability 
while we develop a new system that does in fact deliver high-
quality care in a cost-effective manner to as many patients as 
possible.
    And so we think that 5 years of stability, with recognition 
that costs are going to increase, as the chairman said. There 
the cost of your rent, your insurance, your personnel. We need 
to have escalators that cover those increasing costs. But 5 
years of stability in the system while we develop the new 
system.
    And then develop a new system that is equitable for all 
participants in the system, and that is what we are looking 
for. I think if we did that we wouldn't come back year after 
year for this exact kind of hearing where we are looking at 
this huge number of little patches on the leaky boat.
    Mr. PRICE. So if I am hearing you correctly, what you are 
saying is if we have a system that is flexible enough and 
responsive enough to patients and physicians, then these kind 
of exceptions could go away.
    Dr. WAH. Absolutely.
    Mr. PRICE. I just want to have you respond, if you would, 
to the same question I asked Mr. Steinwald. That is, if we are 
going to confine what Medicare patients can receive based upon 
the amount of money available, which is a reasonable thing to 
do from the Federal Government's standpoint, if a Medicare 
patient is told they can't receive a service in that program 
because there is not enough money, do you believe as a 
physician and as a representative of the AMA that that patient 
ought to be able to contract with that physician for that 
service?
    Dr. WAH. Absolutely. There is AMA policy supporting that. I 
mean, I support it as a physician. I support it as an American 
that believes in such fundamental freedom that we ought to have 
the ability to contract for our services in a way that 
everybody else can in this country.
    I appreciate your efforts in this regard in the bill you 
have already put in. So, obviously, we are very supportive of 
your bill and the companion in the Senate; and we are looking 
for cosponsors wherever we possibly can.
    Mr. PRICE. Mr. Chairman, I yield back.
    Chairman HERGER. Mr. Pascrell for 5 minutes.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    In response to the last series of questions, I would 
conclude myself, Dr. Wah, that those that can afford it might 
look for private assistance but not the majority of those on 
Medicare. So you can deal, I think, with the majority or you 
could ignore them that will not go to seek other care if 
Medicare is not there. I think you would agree with me on that, 
wouldn't you?
    Dr. WAH. I don't think it is an either/or, sir. I think it 
is an option that acts a little bit as a safety valve on a 
process that clearly is not working today where there is not 
adequate payment for some of these services. It allows the 
physician and the patient to form a companion contract to make 
up that difference.
    Mr. PASCRELL. But do you think the majority of Medicare 
patients fit into that particular group of people that we are 
talking about?
    Dr. WAH. I don't know about majority. I think there are a 
number of examples where, just like anywhere else in our 
economy, there are patients that want to procure services and 
they are willing to pay for it, but they are currently 
precluded from using their Medicare benefit which they paid 
into their entire life because of these rules that don't allow 
for them to have any kind of additional contracting outside the 
Medicare agreement that is with the physician.
    Mr. PASCRELL. Do you think that the Super Committee looking 
at many--the Medicare problems that we have to address, such as 
you just talked about it, the physician fix----
    Dr. WAH. Well, actually, sir, it is the SGR fix. Physicians 
are fine. We don't need fixing.
    Mr. PASCRELL. How does that contribute to the deficit, Dr. 
Wah?
    Dr. WAH. I think the SGR is becoming--as you all realize, 
for 10 years, Congress has had to go back and patch the SGR 
system, freeze payments, and they never finance it. They never 
paid for it in an accounting way. They never really accounted 
for it on the books. So, right now, there is about $300 billion 
that are hiding in the books; and that is really not honest 
accounting.
    Mr. PASCRELL. How would you suggest we----
    Dr. WAH. I think the deficit reduction committee, the Super 
Committee we are talking about, really has an opportunity here 
to bring forward honest accounting and account for this 10 
years of kicking the can down the road and making the problem 
bigger. In 2005, the SGR could have been fixed for about $48 
billion.
    Mr. PASCRELL. Correct.
    Dr. WAH. Now we are talking just $300 billion, and in 2016 
we are looking at probably $600 billion to fix our problem. 
None of that is showing up on the books.
    Mr. PASCRELL. Well, we tried to do that. Dr. Wah, as you 
remember the debate that went back and forth, we tried to do 
that at that time.
    I want you to make clear to me, what do you think that 
Medicare savings, those that were reported to happen and those 
we hope to happen, I think that they should first go towards 
fixing these Medicare problems we have been talking about, not 
to outside programs. Would you agree?
    Dr. WAH. Certainly as a physician taking care of patients--
--
    Mr. PASCRELL. You think that would be a good idea, Dr. Wah?
    Dr. WAH [continuing]. High priority, yes, absolutely.
    That is not my call. I think that is your call to decide 
where those savings go. But certainly from my standpoint I 
think patient care is very important, and Medicare provides a 
system that gives care to a large population. That is important 
as well.
    Mr. PASCRELL. Mr. Moore, one quick question--thank you, 
Doctor--about traumatic brain injury. As the co-chair of the 
Congressional Brain Injury Task Force, can you tell me how 
important it is for those patients to be able to access therapy 
and how these therapy caps negatively affect brain injury 
patients?
    Mr. MOORE. Thank you, and appreciate all your leadership on 
that issue.
    The patient with traumatic brain injury is a great example 
of a patient that would be adversely affected by these 
arbitrary financial limits, those patients with complex, high-
need, high-rehabilitation-need diagnoses, especially if they 
need multiple services. As we said, the therapy cap is 
currently a shared cap between PT and speech language 
pathology. An individual with brain injury would need both 
those distinct professional services. And so that is one of the 
key diagnosis that benefits from having care above that cap.
    Mr. PASCRELL. Thank you very much.
    Thank you, Mr. Chairman. I yield back.
    Chairman HERGER. Thank you.
    Mr. Gerlach is recognized for 5 minutes.
    Mr. GERLACH. Thank you, Mr. Chairman. I am going to try to 
be quick with my questions, given where we are with votes over 
in the Capitol.
    First, Mr. Umbdenstock, real quick question with regard to 
Section 508. I have a situation in my district a few years ago 
where Reading Hospital in the City of Reading, about 60 miles 
from the City of Philadelphia, had an application in for 
hospital wage reclassification, because of the fact that it 
competes so heavily in that metropolitan statistical area for 
all the hospital staff. So they are competing with 
Philadelphia-area hospitals every day for good quality staff, 
and they were successful in getting a wage reclassification, 
which is a good thing.
    And yet there seems to be examples, too, one in Burlington, 
Vermont, which is 216 miles away from Boston, that also got a 
reclassification even though it is probably not likely that 
someone from Burlington is going to travel 432 miles every day 
to go to work in Boston on a round-trip basis.
    So what would your suggestion be if we are looking at the 
extension or continuation of the reclassification system? What 
would be a good way from a geographical proximity standpoint to 
tighten up how that reclassification determination is made?
    Mr. UMBDENSTOCK. Yes, Congressman. Actually, the American 
Hospital Association has now under way a task force on the area 
wage index. We will be studying it with 20 or 22 of our members 
very closely over the coming year to come up with exactly those 
recommendations.
    I think in the example you cite, certainly 60 miles is a 
commutable distance in the common labor market, but 240 or 250 
miles may not be commutable but it is in terms of attempting to 
attract and recruit and retain staff at a level for that 
particular medical center. So there may be a very high-
intensity type of organization that recruits in the greater 
Boston teaching hospital, greater New York teaching hospital 
types of markets.
    So our markets in health care, when you get to the advanced 
level of service, really becomes even more than regional. It 
becomes national. So it isn't necessarily by zip code or by 
county or even by urban area. The competition and the 
recruitment goes on nationally.
    Mr. GERLACH. Mr. Moore, thank you for your help on the 
therapy cap legislation, a very important piece of legislation 
to move forward and consider. Because, as you said, it is an 
artificial cap on the ability of very needy patients to get the 
care they need, if they happen to need care a little bit more 
than $1,870 a year.
    So as you continue to work on that issue and all of you 
gentlemen continue to work on these issues and whether the 
reimbursements are right or not, what we are not talking enough 
about either, it seems to me, is the current waste and fraud in 
the system. That if you identify that, deal with that, and then 
therefore save those dollars from being wasted or fraudulently 
taken away, it can be used to better fund the kind of services, 
Mr. Steinwald, you say should be funded, even though it might 
be more costly to the system.
    There is legislation in the Senate by Senator Kirk and 
Senator Wyden, Senate Bill 1551, I would appreciate if you take 
a look at and get back to the committee on your position on it. 
It would set up a common access card for Medicare patients as 
well as for the providers, creating a biometric system for the 
providers to assure that the providers are really the ones who 
ought to be providing Medicare services to that beneficiary, 
the beneficiary having like a debit card, a number card with a 
pin, to make sure that person is the right person to be 
receiving those services.
    It is estimated that in 2010 by the Office of Management 
and Budget there was $48 billion in improper payments in the 
Medicare system in 1 year, $48 billion. Now it seems to me that 
is a lot of money that could be used to make sure people are 
getting the therapy they need, physicians are getting proper 
reimbursements for services they provide, hospitals the same, 
ambulance services.
    So we ought to be talking more not just about the amount of 
reimbursement but why there is so much waste and abuse and 
fraud in this system that we don't have the dollars to do 
really what should be done in getting care to patients. So if 
you gentlemen could take a look at that legislation and get 
back to the committee, it would certainly be appreciated.
    With that, I yield back. Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    And I want to thank each of our witnesses for your 
testimony and your insight, your participation was integral to 
helping us understand the history of these expiring provisions 
and the impact they have on providers. I know the information 
we learned from this hearing will be a good starting point from 
which to further assess each of these expiring provisions 
before the end of the year.
    As a reminder, any member wishing to submit a question for 
the record will have 14 days to do so. If any questions are 
submitted, I ask that the witnesses respond in a timely manner.
    With that, the subcommittee is adjourned.
    [Whereupon, at 3:24 p.m., the subcommittee was adjourned.]
    [Submissions for the Record follow:]
        American Association of Retired Persons, AARP, Statement

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       American Clinical Laboratory Association, ACLA, Statement

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          American Occupational Therapy Association. Statement

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  American Psychological Association Practice Organization, Statement

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        American Speech Language Hearing Association, Statement

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         Arizona Hospital and Healthcare Association, Statement

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                  Center for Fiscal Equity, Statement

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            College of American Pathologists, CAP, Statement

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              Federation of American Hospitals, Statement

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             Focus on Therapeutic Outcomes, Inc., Statement

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                     Gundersen Lutheran, Statement

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               Medicare Modernization Act, MMA, Statement

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National Association for the Support of Long Term Care, NASL, Statement

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           National Rural Health Association, NRHA, Statement

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                            PTPN, Statement

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                  Rural Hospital Coalition, Statement

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       West Michigan Medicare Equity Coalition, WMMEC, Statement 

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