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



 
                    THE NEED TO MOVE BEYOND THE SGR

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



                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 5, 2011

                               __________

                           Serial No. 112-46




      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov




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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  MICHAEL F. DOYLE, Pennsylvania
MIKE ROGERS, Michigan                ANNA G. ESHOO, California
SUE WILKINS MYRICK, North Carolina   ELIOT L. ENGEL, New York
  Vice Chair                         GENE GREEN, Texas
JOHN SULLIVAN, Oklahoma              DIANA DeGETTE, Colorado
TIM MURPHY, Pennsylvania             LOIS CAPPS, California
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana             ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio                JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi            JOHN BARROW, Georgia
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky              Islands
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 7_____

                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Chairman Emeritus                    Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
PHIL GINGREY, Georgia                TAMMY BALDWIN, Wisconsin
ROBERT E. LATTA, Ohio                MIKE ROSS, Arkansas
CATHY McMORRIS RODGERS, Washington   ANTHONY D. WEINER, New York
LEONARD LANCE, New Jersey            JIM MATHESON, Utah
BILL CASSIDY, Louisiana              HENRY A. WAXMAN, California (ex 
BRETT GUTHRIE, Kentucky                  officio)
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

                                  (ii)


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     3
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     5
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     6
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     6
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     7
    Prepared statement...........................................     9
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, opening statement.......................................    12
Hon. Phil Gingrey, a Representative in Congress from the State of 
  Georgia, opening statement.....................................    12
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................    13
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, prepared statement.........................   167

                               Witnesses

Mark B. McClellan, Director, Engelberg Center, The Brookings 
  Institution....................................................    23
    Prepared statement...........................................    26
Cecil B. Wilson, President, American Medical Association.........    33
    Prepared statement...........................................    35
David B. Hoyt, Executive Director, American College of Surgeons..    53
    Prepared statement...........................................    55
Harold D. Miller, Executive Director, Center for Healthcare 
  Quality and Payment Reforms....................................    69
    Prepared statement...........................................    72
Michael E. Chernew, Professor of Health Policy, Harvard Medical 
  School.........................................................    90
    Prepared statement...........................................    93
M. Todd Williamson, Coalition of State Medical and National 
  Specialty Societies............................................   101
    Prepared statement...........................................   103
Roland A. Goertz, President, American Academy of Family 
  Physicians.....................................................   120
    Prepared statement...........................................   122

                           Submitted Material

Letter, dated May 4, 2011, from Nancy LeaMond, Executive Vice 
  President, State and National Group, AARP, to subcommittee 
  leadership, submitted by Mr. Waxman............................    16
Letter, dated May 4, 2011, from Joe Baker, President, Medicare 
  Rights Center, to subcommittee leadership, submitted by Mr. 
  Waxman.........................................................    20
Statement, dated May 5, 2011, of Garrison Bliss, Chief Medical 
  Officer, Qliance Medical Group, submitted by Mr. Cassidy.......   152
Letter, dated April 28, 2011, from the Alliance for Integrity in 
  Medicare to subcommittee leadership, submitted by Mr. Pitts....   168
Letter, dated March 10, 2011, from AMDA, et al., to House 
  leadership, submitted by Mr. Pitts.............................   170
Letter, dated April 26, 2011, from Michael D. Maves, Executive 
  Vice President and Chief Executive Officer, American Medical 
  Association, to Mr. Upton, submitted by Mr. Pitts..............   174
Memo, dated April 14, 2011, American Medical Association staff, 
  to House Republican leadership, Majority Ways and Means and 
  Energy and Commerce Committees staff, submitted by Mr. Pitts...   183
Letter, dated April 26, from Michael D. Maves, Executive Vice 
  President and Chief Executive Officer, American Medical 
  Association, to Mr. Pitts......................................   190
Letter, dated April 29, 2011, from Ron Moy, President, American 
  Academy of Dermatology Association, to committee leadership, 
  submitted by Mr. Pitts.........................................   199
Letter, dated April 27, from Bruce Sigsbee, President, American 
  Academy of Neurology, to committee leadership, submitted by Mr. 
  Pitts..........................................................   204
Letter, dated April 29, 2011, from American Academy of Nurse 
  Practitioners to subcommittee leadership, submitted by Mr. 
  Pitts..........................................................   207
Letter, dated May 2, 2011, from Michael Repka, Medical Director 
  for Governmental Affairs, American Academy of Ophthalmology, to 
  Mr. Upton, submitted by Mr. Pitts..............................   208
Letter, dated April 26, 2011, from Daniel J. Berry, President, 
  American Academy of Orthopedic Surgeons, to Mr. Upton, 
  submitted by Mr. Pitts.........................................   211
Letter, dated April 27, 2011, from David R. Nielsen, Executive 
  Vice President and Chief Executive Officer, American Academy of 
  Otolaryngology--Head and Neck Surgery, to John O'Shea, 
  committee Majority Professional Staff Member, submitted by Mr. 
  Pitts..........................................................   219
Letter, dated May 5, 2011, from O. Marion Burton, President, 
  American Academy of Pediatrics, to Mr. Upton, submitted by Mr. 
  Pitts..........................................................   221
Email, dated April 12, 2011, from Lawrence W. Jones, American 
  Association of Clinical Urologists, to John O'Shea, committee 
  Majority Professional Staff Member, submitted by Mr. Pitts.....   222
Letter, dated March 28, 2011, from committee and subcommittee 
  leadership to Ralph Brindis, President, American College of 
  Cardiology, submitted by Mr. Pitts.............................   223
Letter, dated April 6, 2011, from David R. Holmes, Jr., 
  President, and Jack Lewin, Chief Executive Officer, American 
  College of Cardiology, to committee and subcommittee 
  leadership, submitted by Mr. Pitts.............................   225
Letter, dated April 28, 2011, from Susan Schneider, President, 
  American College of Emergency Physicians, to Mr. Upton, 
  submitted by Mr. Pitts.........................................   227
Letter, dated April 26, 2011, from Virginia Hood, President, 
  American College of Physicians, to subcommittee leadership, 
  submitted by Mr. Pitts.........................................   230
Letter, dated April 29, 2011, from David Borenstein, President, 
  American College of Rheumatology, to committee leadership, 
  submitted by Mr. Pitts.........................................   232
Letter, dated April 28, 2011, from L.D. Britt, President, 
  American College of Surgeons, to Mr. Upton, submitted by Mr. 
  Pitts..........................................................   235
Letter, dated April 28, 2011, from Richard N. Waldman, President, 
  American Congress of Obstetricians and Gynecologists, to Mr. 
  Upton, submitted by Mr. Pitts..................................   238
Letter, dated April 25, 2011, from Sharon A. Brangman, President, 
  and Jennie Chin Hansen, Chief Executive Officer, American 
  Geriatrics Society, to subcommittee leadership, submitted by 
  Mr. Pitts......................................................   241
Letter, dated April 28, 2011, from Karen J. Nichols, President, 
  American Osteopathic Association, to subcommittee leadership, 
  submitted by Mr. Pitts.........................................   246
Letter, dated April 30, 2011, from R. Scott Ward, on behalf of 
  American Physical Therapy Association, to committee leadership, 
  submitted by Mr. Pitts.........................................   252
Letter, dated April 29, 2011, from John E. Tomaszewski, 
  President, American Society for Clinical Pathology, to Mr. 
  Upton, submitted by Mr. Pitts..................................   255
Letter, dated April 27, 2011, from M. Brian Fennerty, President, 
  American Society for Gastrointestinal Endoscopy, to committee 
  leadership, submitted by Mr. Pitts.............................   259
Letter, dated April 29, 2011, from Mark A. Warner, President, 
  American Society of Anesthesiologists, to Mr. Upton, submitted 
  by Mr. Pitts...................................................   262
Letter, dated April 29, 2011, from Edward J. Holland, President, 
  American Society of Cataract and Refractive Surgery, to 
  subcommitte leadership, submitted by Mr. Pitts.................   264
Letter, dated April 27, 2011, from George Sledge, President, and 
  Allen Lichter, CEO, American Society of Clinical Oncology, to 
  subcommittee leadership, submitted by Mr. Pitts................   268
Letter, dated April 28, 2011, from J. Evan Sadler, President, 
  American Society of Hematology, to committee leadership, 
  submitted by Mr. Pitts.........................................   273
Letter, dated April 30, 2011, from Phil Haeck, President, 
  American Society of Plastic Surgeons, to Mr. Upton, submitted 
  by Mr. Pitts...................................................   275
Letter, dated April 28, 2011, from Datta G. Wagle, President, 
  American Urological Association, to Mr. Upton, submitted by Mr. 
  Pitts..........................................................   279
Letter, dated April 28, 2011, from Jordan J. Cohen, Chairman, 
  Board of Trustees, Arnold P. Gold Foundation for Humanism in 
  Medicine, to John O'Shea, committee Majority Professional Staff 
  Member, submitted by Mr. Pitts.................................   284
Letter, dated April 28, 2011, from Darrell G. Kirch, President 
  and Chief Executive Officer, Association of American Medical 
  Colleges, to committee leadership, submitted by Mr. Pitts......   286
Letter, dated May 12, 2011, from Charles N. Kahn III, President 
  and Chief Executive Officer, Federation of American Hospitals, 
  to committee leadership, submitted by Mr. Pitts................   288
Letter, dated May 10, 2011, from James Hughes, President, 
  Infectious Diseases Society of America, to committee 
  leadership, submitted by Mr. Pitts.............................   290
Letter, dated April 28, 2011, from William F. Jessee, President 
  and Chief Executive Officer, Medical Group Management 
  Association, to Mr. Upton, submitted by Mr. Pitts..............   292
Letter, dated April 30, 2011, from Greg Przybylski, President, 
  North American Spine Society, to Mr. Upton, submitted by Mr. 
  Pitts..........................................................   296
Letter, dated April 29, 2011, from Jeffrey Wiese, President, 
  Society of Hospital Medicine, to Mr. Upton, submitted by Mr. 
  Pitts..........................................................   303
Letter, dated April 29, 2011, from Dominique Delbeke, President, 
  Society of Nuclear Medicine, to committee leadership, submitted 
  by Mr. Pitts...................................................   305
Letter, dated May 2, 2011, from Michael J. Mack, President, 
  Society of Thoracic Surgeons, to Mr. Upton, submitted by Mr. 
  Pitts..........................................................   307
Letter, dated April 29, 2011, from Yehuda Handelsman, President, 
  American Association of Clinical Endocrinologists, to committee 
  leadership, submitted by Mr. Pitts.............................   313
Letter, dated May 5, 2011, from Michael Weinper, President and 
  Chief Executive Officer, PTPN, to subcommittee leadership, 
  submitted by Mr. Pitts.........................................   315


                    THE NEED TO MOVE BEYOND THE SGR

                              ----------                              


                         THURSDAY, MAY 5, 2011

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:04 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Joseph R. 
Pitts (chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Burgess, Murphy, 
Gingrey, Lance, Cassidy, Guthrie, Barton, Upton (ex officio), 
Pallone, Dingell, Capps, Baldwin, and Waxman (ex officio).
    Also present: Representatives Harris and Christensen.
    Staff present: Allison Busbee, Legislative Clerk; Paul 
Edattel, Professional Staff Member, Health; Julie Goon, Health 
Policy Advisor; Debbee Keller, Press Secretary; Ryan Long, 
Chief Counsel, Health; John O'Shea, Professional Staff Member, 
Health; Heidi Stirrup, Health Policy Coordinator; Stephen Cha, 
Democratic Senior Professional Staff Member; Alli Corr, 
Democratic Policy Analyst; Tim Gronniger, Democratic Senior 
Professional Staff Member; Karen Lightfoot, Democratic 
Communications Director and Senior Policy Advisor; Karen 
Nelson, Democratic Deputy Committee Staff Director for Health, 
and Mitch Smiley, Democratic Assistant Clerk.
    Mr. Pitts. The subcommittee will come to order. The chair 
recognizes himself for 5 minutes for an opening statement.

   OPENING STATEMENT OF JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    The system that is currently used to pay physicians for 
providing services to beneficiaries in the Medicare System is 
broken and has been for some time. The dilemma that currently 
threatens doctors and Medicare beneficiaries alike is all too 
familiar.
    According to the most recent Congressional Budget Office 
estimate if nothing is done physicians will see reimbursement 
for services provided to Medicare patients cut by 29.4 percent 
on January 1, 2012. This will have a disastrous effect on 
access to care for Medicare beneficiaries. According to surveys 
by the American Medical Association faced with cuts of this 
magnitude as many as 82 percent of physicians say that they 
will need to make significant changes in their practices that 
will affect access to care.
    We have been here before. In fact, we have been in this 
situation for almost a decade. Since 2002, Congress has acted 
repeatedly to avert scheduled fee cuts. In 2010 alone Congress 
passed one--two 1-month overrides, two 2-month overrides, one 
6-month override, and most recently for 2011, Congress passed a 
1-year override. All this was done without resolving the 
underlying problem.
    Meanwhile, the cost of fixing the problem continues to 
grow. In March the Congressional Budget Office estimated that 
the price just to wipe out the accumulated debt and return to 
the baseline would be $298 billion. This staggering price tag 
is just one side of the physician payment reform problem. The 
current payment system is fundamentally flawed, and keeping the 
current system or making minor adjustments is no longer a 
viable option. Even maintaining the current system with 0 
percent updates through 2020, would cost $275.8 billion.
    Too often the discussion around physician payment reform 
has focused on the deficiencies of the current system and the 
urgent need to move away from the sustainable growth rate 
formula without a clear vision of the kind of system we want to 
replace it with.
    Essentially, all of us agree on the need for a new payment 
system, and there are a lot of good ideas about what an ideal 
payment system should look like. The witnesses that are 
participating in today's hearing bring a wealth of knowledge on 
this issue, and some of them have personal experience in design 
and administration of innovative systems.
    I want to thank the distinguished panel of experts that 
have taken the time to testify today. I am encouraged that this 
hearing will go beyond merely describing the deficiencies of 
the current SGR System and will lead to a productive discussion 
of how we move to a system that reduces the growth in 
healthcare spending, preserves access to care for Medicare 
beneficiaries, and pays providers fairly based on the value, 
not the volume of their services.
    [The prepared statement of Mr. Pitts follows:]

    [GRAPHIC] [TIFF OMITTED] 74195.001
    
    [GRAPHIC] [TIFF OMITTED] 74195.002
    
    Mr. Pitts. And I yield the remaining time to the vice 
chair, Dr. Burgess.

 OPENING STATEMENT OF MICHAEL C. BURGESS, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Well, thank you, Mr. Chairman, and actually I 
really mean this. Thank you for holding this hearing. It has 
been way too long. As I was telling one of our witnesses I was 
20 pounds lighter and a lot less gray the last time we held a 
hearing on Medicare physician payment.
    I am also so relieved that we have five doctors on the 
panel. It seems like every time we have done this in the past 
all we have are economists and lawyers, so doctors, welcome, 
and we know it is past time for action. I want to do my part to 
ensure that Medicare beneficiaries can continue to see their 
doctor, but it is just not going to happen if we don't fix this 
problem.
    Repeal is expensive, so stipulated, but it is also critical 
to the future for America's patients. Let us all accept the 
premise that it has--the SGR has to go, and this morning we are 
here to hear our witnesses focus on their solutions.
    I have always thought you start with a relatively simple 
question, what does it cost to--for a doctor to provide the 
service, and then you build in a reasonable profit for 
participation and coordination. But today we send all the wrong 
messages to our doctors. We say work harder and faster, deal 
with weekly expansions of services and regulations of the CMS, 
none-physician bureaucrats will tell you how to practice and 
will do more so, in fact, under the President's new healthcare 
law, we are going to hold your checks, but we need you to take 
more patients. Practice costs are rising but don't expect us to 
help you meet your costs, and oh, by the way, a 30 percent pay 
cut in December.
    Is it any wonder that the country's physicians are fed up? 
We do need a true path forward. There may be three 
congressional committees who have a say on this issue, but it 
is this committee, the Committee on Energy And Commerce and the 
Subcommittee of Health, where the solution needs to come to 
life.
    I am a fee-for-service doctor. I always practiced that way. 
I will admit it has its problems but so does linking payment 
rates to definitions of quality set by non-physicians. You need 
only look at the ACO regulations that recently came out of CMS. 
We have been testing models for years, and we have had multiple 
demonstration projects, but, look. Here is the bottom line. If 
we get to December, and we are doing an extension, that is a 
failure on our part. We need a permanent solution that is 
predictable, updatable, and reasonable for this year, and 
nothing else will do.
    Thank you, Mr. Chairman. Before I yield back my time can I 
ask unanimous consent that Dr. Harris, who is not a committee 
member, be allowed to sit at the----
    Mr. Pitts. Without objection.
    Mr. Burgess. Thank you.
    Mr. Pitts. So ordered. The chair thanks the gentleman and 
recognizes the distinguished ranking Member of the 
subcommittee, Mr. Pallone, for 5 minutes.

 OPENING STATEMENT OF FRANK PALLONE, JR., A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Mr. Chairman. I am pleased we are 
having a hearing in the Health Subcommittee on something other 
than repealing the Affordable Care Act, so I commend you for 
that initially. I would also like to thank you for your 
willingness to approach today's critical issue in a bipartisan 
manner, and it is my hope that we move forward in a bipartisan 
manner in the future on this issue.
    Today's hearing is appropriate because we really must move 
beyond the sustainable growth rate in Medicare's payment 
policy. It is unstable, unreliable, and unfair, and we really 
must move beyond legislating SGR policy in month-long 
intervals. You know, I know last December when we passed the 1-
year fix it was the twelfth time we had passed a patchwork bill 
in the last decade and the sixth time in 1 year alone.
    So I am not saying whose fault that is, but the fact of the 
matter is we need to stop kicking the can down the road. It is 
not fair to our Nation's seniors, and it is not fair to our 
Nation's doctors. It is a game of chicken that I think drives 
physicians out of Medicare and makes it harder for seniors to 
see a doctor.
    So the question remains how do we fix it. The Democrats 
made an attempt when the House of Representatives considered 
and passed H.R. 3961, the only bill intended to permanently 
eliminate the large cuts required under the SGR that was ever 
passed by either body of Congress since the creation of the SGR 
in 1997. That bill would have reset the spending targets of the 
SGR and eliminated the accumulated deficit that generates the 
large annual cuts. It also would have set more realistic growth 
targets and promoted coordinated care by incentivizing 
accountable care organizations to control costs, a concept that 
was also embraced in the Affordable Care Act.
    Now, I am not saying that that bill was the perfect 
approach because nothing is perfect, but it certainly was a 
solution. Unfortunately, we couldn't get it passed into law, 
signed by the President. So I don't have a perfect answer, but 
I know that getting a Medicare program with security and 
reliability for our seniors is a high hurdle.
    In that regard I would like to commend all the provider 
groups for their thoughtful responses to the committee's 
requests for comments. If this going to get done, we all need 
to be engaged, committed, and open-minded, and I look forward 
to today's hearing and finally tackling this problem, as I 
said, on a bipartisan basis once and for all.
    I would yield now the remainder of my time to the gentleman 
from Michigan, our ranking Member emeritus, Mr. Dingell.

   OPENING STATEMENT OF JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, I thank the gentleman, and I 
commend you for holding today's hearing. We address an 
intolerable situation that is only going to get worse as time 
passes.
    Each year since 2002, Congress has had to come in and at 
the eleventh hour prevent cuts to provider services and fees 
under Medicare. Due to our failure to fix this fatally-flawed 
payment system, doctors and all other providers have been 
unable to plan for the future, and the price tag has grown each 
year, and it is going to continue to do so.
    It is very clear to anyone who looks at it that we can no 
longer kick the can down the road. Last Congress the House 
passed legislation I introduced, H.R. 3961, which would have 
repealed the SGR formula, ending the cycle of short-term 
patches and permanently improving the way Medicare pays its 
physicians and other providers. While I happen to think that my 
bill that passed the House last year was a good piece of 
legislation, I think we should explore all possible proposals, 
but we should keep in mind we have to get this miserable 
situation fixed.
    I am committed to working with my colleagues on both sides 
of the aisle, and I look forward to passing a solution to this 
problem again this Congress. I hope that this time it will 
become law, because the situation has become intolerable, and 
we are going to lose both the advantages and the benefits of 
Medicare as well as the cooperation, the goodwill, and the 
services of the different providers who are adversely affected 
by this miserable current situation.
    And I yield back to the gentleman from New Jersey the 49 
seconds I have.
    Mr. Pallone. Thank you, Mr. Chairman. I don't know if any 
of my other colleagues would want the time.
    If not, I will yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the full committee chairman, Mr. Upton, for 5 
minutes.

 OPENING STATEMENT OF FRED UPTON, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman. The opening 
paragraph of the original 65 Medicare legislation promised that 
the Federal Government would not interfere in the practice of 
medicine. This promise extended to government control over the 
administration of and compensation for medical services.
    Today we know the Federal Government through Medicare sets 
irrational spending targets and administers the prices for more 
than 7,000 physician services. That is a long way from the 
original promise.
    In spite of the government interference and micro-
management, spending in Medicare has continued to grow at a 
rate that threatens to make the program financially insolvent. 
In '09, fee-for-service Medicare spent about $64 billion on 
physician and other health professional services, accounting 
for 13 percent of total Medicare spending and 20 percent of 
Medicare's fee-for-service spending.
    Clearly something has got to change. Although we cannot 
afford the current rate of spending on physician services, we 
also know that if the pending 29.4 percent fee cuts are allowed 
to go into effect, a large good number of doctors will be 
forced out of Medicare, and a large number of Medicare 
beneficiaries will lose their access to care. We are all well 
aware of the inadequacies of the sustainable growth formula as 
a payment policy, and we are also aware of the budgetary burden 
that is failing to fix the problem it has caused.
    Unfortunately, given the opportunity the President decided 
that this issue, arguably the greatest threat facing Medicare, 
if not the entire healthcare system, would be left out of his 
health reform legislation. Today we begin the chance to correct 
the omission.
    I thank our witnesses for taking time out of their busy 
schedule. We look forward to your testimony, and I yield my 
time to Mr. Barton.
    [The prepared statement of Mr. Upton follows:]
    [GRAPHIC] [TIFF OMITTED] 74195.003
    
    [GRAPHIC] [TIFF OMITTED] 74195.004
    
    [GRAPHIC] [TIFF OMITTED] 74195.005
    
    Mr. Barton. Thank you, Chairman Upton, and we welcome 
Congressman Harris to the committee. He looks good here and 
maybe one day he will be here permanently.

 OPENING STATEMENT OF JOE BARTON, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF TEXAS

    Thank you, Chairman Pitts and Ranking Member Pallone for 
holding this hearing today. I remember very well back in 2006, 
when I had--we had lost the majority on the Republican side, 
but we were in a lame duck session, and Congressman Dingell and 
Senator Baucus came to me as the chairman at that time and 
said, let us work right now in the lame duck to fix the SGR. 
And knowing how difficult it was to do, I said no to that 
because I wanted them to have the fun of having to fix it.
    In retrospect, I should have taken them up on their offer 
and gone to then-Speaker Hastert and said ``Let's get this done 
while we can,'' because the problem has only grown worse in the 
intervening 4-1/2 years. The current system is broke, and you 
cannot fix it no matter how much we tinker with it.
    As Chairman Upton just pointed out, we are going to see a 
decrease in reimbursement of over 29 percent by next year if we 
do nothing. The deficit now in the SGR is at approximately $300 
billion. That is a big number, even in Washington where we have 
$3.5 trillion budgets and $1.5 trillion annual deficits. But it 
is a fixable problem if we really mean it when Mr. Dingell and 
Mr. Pallone and Mr. Waxman say the same general things as Mr. 
Upton and Mr. Pitts and people like myself.
    So, Mr. Chairman, it is good that you are having this 
hearing. The last time we had a hearing of this sort I was 
chairman of the full committee. The problem was big then. It is 
bigger now, but if we work together, we can fix it, and I hope 
that in this Congress on a bipartisan basis we can do that.
    With that I want to yield the balance of my time to Dr. 
Gingrey. He has some comments he would like to make.
    Mr. Gingrey. Mr. Chairman, I thank the former chairman of 
the committee for yielding to me.

OPENING STATEMENT OF PHIL GINGREY, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF GEORGIA

    On the first day of 2012, physicians face a 30 percent cut 
if we don't fix the current Medicare Physician Payment System. 
This is a problem that Congress created, and this is a problem 
that I expect Congress, not Republicans, not Democrats, but 
Congress to fix.
    Dr. McClellan, in the past you have been gracious enough to 
offer your insight on this issue to the GOP Doctors' Caucus. 
Several of us on this panel are members. Dr. Murphy is and I 
am, and we co-chair this caucus. We want to thank you for those 
efforts.
    As you know, the GOP Doctors' Caucus has been discussing 
potential SGR reform since the last Congress. We continue to 
explore ideas that might help solve the problem, including 
private contracting, allowing more flexibility in physician 
payment models, and encouraging greater quality measurements so 
that we might lead to a greater outcome for patients.
    We look forward to continuing that work and working 
relationship with you and all of our witnesses today.
    I also want to thank personally my good friend, Dr. Todd 
Williamson from the great State of Georgia, in fact, former 
president of the Medical Association of Georgia. Todd, it is 
great to see you as a witness before the committee again today, 
and with that, Mr. Chairman, I yield back.
    Mr. Pitts. The chair thanks the gentleman.
    I now recognize the ranking member of the full committee, 
Mr. Waxman, for 5 minutes.

   OPENING STATEMENT OF HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you, Mr. Chairman. I would like to start 
by acknowledging and welcoming the bipartisan interest in 
addressing the ongoing problem Medicare has in providing 
stability to support patient access to doctors. Too often we 
have been forced to the edge of the brink only to scramble at 
the last minute to avoid drastic cuts that would jeopardize 
access for Medicare beneficiaries and the military families 
under TRICARE. This is unacceptable to our physicians, to their 
patients, and to Medicare, and we have to find a better way.
    Whatever virtues the SGR had when it was created 14 years 
ago, and even then I didn't see much in it, I voted against it, 
it is clear that they have vanished. Six times in the last 2 
years the Congress has had to pass legislation blocking fee 
cuts of up to 21 percent or more, and cuts of that magnitude go 
to the very core of the program and would threaten the ability 
of seniors and persons with disabilities to see their doctors.
    Democrats in the last Congress, in the House, passed the 
only bill ever by either body that would permanently solve the 
SGR problem. It did not become law. That is why we repeatedly 
worked to pass short-term patches to block the SGR. But that is 
not the way to solve the problem. It is essential that we find 
another way to get this done.
    But it is not enough to fill in the budgetary gap created 
by the SGR. We must work towards a new way of paying for care 
for physicians and all providers that encourages integrated 
care. We want patients to trust that their physicians are 
talking to each other, they are talking to their pharmacy, 
hospitals, and other providers about how to take care of the 
problems that exist and to prevent problems before they even 
arise.
    We want to achieve all three of the goals Dr. Berwick talks 
about; improving care for individuals, improving care for 
populations, and reducing costs. Right now the way we pay for 
care doesn't always support these goals.
    The Affordable Care Act makes major strides to improve the 
way Medicare deals with physicians and other providers. New 
care models are supported by the ACA, including accountable 
care organizations and medical homes. Value-based purchasing is 
pursued across the continuing providers in Medicare, and 
because we don't know what the payment system of the future 
will look like, the ACA opens an arena to innovative 
experimentation and cooperation with the private sector to 
identify the best path forward.
    Many of the physicians associations responded to our 
request for comments, noted that the Affordable Care Act's 
opportunities for innovation and expressed a desire to pursue 
those opportunities in our effort to move beyond Medicare's 
current fee-for-service system. And I would like to thank them 
as did Ranking Member Pallone in suggesting different 
alternatives for us to look at.
    I hope that this hearing will not focus narrowly on options 
that would shift our problems paying for the SGR onto 
beneficiaries. I know that we do not have any beneficiaries on 
this panel. I don't know if we have any lawyers. I am pleased 
we have some doctors, but the beneficiaries have some concerns 
as well, and I would like to ask unanimous consent to submit 
for the record a letter from the AARP and the Medicare Rights 
Center commending the committee's work on the SGR but opposing 
proposals that would increase cost sharing under the guise of 
``private contracting.''
    I hope this hearing will be the beginning of a process that 
will lead to a permanent solution to provide both stability and 
better care for Medicare beneficiaries. I earnestly hope we can 
work together on a bipartisan basis to solve this issue this 
year.
    And, Mr. Chairman, I thank you for this opportunity to make 
this statement, and I would like that that unanimous consent to 
put those letters in the record.
    Mr. Pitts. Let me see the letters. Do you have a copy of 
the letters? Let's just take a look at them. The chair thanks 
the gentleman and would like to thank the witnesses for 
agreeing to appear before the committee this morning. Your 
willingness to take time out of your busy schedules underscores 
just how important this is to all of you as it is to all of us.
    On March 28, 2011, the Energy and Commerce Committee sent a 
bipartisan letter to 51 physician organizations asking for 
input on reforming the Medicare Physician Payment System. The 
chair will introduce the responses from the following 
organizations as part of the permanent record: The American 
Association of Clinical Endocrinologists, The American Academy 
of Dermatology Association, the Association of American Medical 
Colleges, the American Academy of Otolaryngology, AARP, the 
American College of Obstetricians and Gynecologists, the 
American College of Rheumatology, the Alliance for Integrity in 
Medicine, the American Medical Association, the American 
Academy of Ophthalmology, the American Geriatrics Society, the 
American Physical Therapy Association, the American Society of 
Clinical Oncology, the American Society for Clinical Pathology, 
the American Society of Cataract and Refractive Surgery, the 
American Society of Gastrointestinal Endoscopy, the American 
Society of Hematology, the American Society of Plastic 
Surgeons, the American Urologic Association, the American 
Academy of Neurology, the American College of Surgeons, the 
Medical Group Management Association, the American College of 
Cardiology, the Society of Hospital Medicine, the Society of 
Nuclear Medicine, and the Society of Thoracic Surgery.
    Now, we received a lot of letters the last couple of days. 
As they are received they will be entered into the record. Have 
you finished looking at that?
    [The information appears at the conclusion of the hearing.]
    Without objection your two letters will also be entered 
into the record.
    [The information follows:]
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    Mr. Pitts. Let me introduce our panel at this time. The 
first witness is Dr. Mark McClellan. Dr. McClellan is former 
Administrator for CMS, currently the Director of the Engelberg 
Center for Health Policy Studies at the Brookings Institution 
in Washington, DC. The next witness is Dr. Cecil Wilson. Dr. 
Wilson is the current President of the American Medical 
Association. Next, Dr. David Hoyt is the Executive Director of 
the American College of Surgeons. Harold Miller is the 
Executive Director for the Center for Healthcare Quality and 
Payment Reform in Pittsburgh, Pennsylvania. Professor Michael 
Chernew is a Professor of Health Policy at Harvard Medical 
School, Dr. Todd Williamson is a practicing neurologist and 
representative of the Coalition of State Medical and National 
Specialty Societies, and our final witness is Dr. Roland 
Goertz. He is the current President of the American Academy of 
Family Physicians.
    Your testimony will be entered, written testimony will be 
entered into the record. We ask that you summarize your 
statements in 5 minutes, and Dr. McClellan, you may begin.

    STATEMENTS OF MARK B. MCCLELLAN, M.D., PH.D., DIRECTOR, 
ENGELBERG CENTER, BROOKINGS INSTITUTION SENIOR FELLOW; CECIL B. 
WILSON, M.D., PRESIDENT, AMERICAN MEDICAL ASSOCIATION; DAVID B. 
 HOYT, M.D., EXECUTIVE DIRECTOR, AMERICAN COLLEGE OF SURGEONS; 
  HAROLD D. MILLER, EXECUTIVE DIRECTOR, CENTER FOR HEALTHCARE 
    QUALITY AND PAYMENT REFORM; MICHAEL E. CHERNEW, PH.D., 
  PROFESSOR OF HEALTH POLICY, HARVARD MEDICAL SCHOOL; M. TODD 
   WILLIAMSON, M.D., COALITION OF STATE MEDICAL AND NATIONAL 
     SPECIALTY SOCIETIES; AND ROLAND A. GOERTZ, M.D., MBA, 
        PRESIDENT, AMERICAN ACADEMY OF FAMILY PHYSICIANS

                 STATEMENT OF MARK B. MCCLELLAN

    Mr. McClellan. Thank you, Chairman Pitts, Representative 
Pallone, and distinguished members of the subcommittee. I very 
much appreciate this opportunity to speak with you on the 
critical issue of Medicare physician payment. Physicians and 
the health professionals who work with them are the linchpin of 
our healthcare system.
    Unfortunately----
    Mr. Pitts. Is your microphone on?
    Mr. McClellan. It is on. Maybe I am not speaking quite----
    Mr. Pitts. Pull it a little closer.
    Mr. McClellan. Is that better?
    Mr. Pitts. Yes. That is better.
    Mr. McClellan. I will get right up to it.
    Unfortunately, finding a better way to both pay physicians 
adequately and address Medicare's worsening financial outlook 
has been very difficult. Frequent fixes to the sustainable 
growth rate formula for physician payment have meant that 
theoretical savings have not materialized and that physicians 
can't reliably plan ahead or fully cover their rising practice 
cost, let alone make needed investments in better ways to 
provide care that could also save money.
    The result is a frustrating gap for physicians between the 
care they are able to deliver while making ends meet in their 
practice and the care that should be possible in a more-
effective payment system. This is not a new problem. I 
testified before many of you on this distinguished subcommittee 
5 years ago about the same issues, but it has become a more 
ordinate problem, as many of you noted, from the standpoint of 
both quality of care for beneficiaries and the physical 
challenges facing Medicare.
    As Congress considers how to address this problem, I urge 
the subcommittee to look beyond approaches that remain tied to 
the existing formula simply by delaying it again or by 
resetting baselines to higher spending levels. This is an 
opportunity to provide better support for physicians who lead 
in improving care, and the best starting point for doing so are 
the many practical ideas to improve quality and lower costs 
already being developed and implemented by physicians and other 
health professionals around the country, often in spite of 
Medicare payment rules.
    Payment reforms in the Medicare Modernization Act and the 
Affordable Care Act provide a foundation for this as do many 
payment reforms being implemented now in States and in the 
private sector. But success in Medicare will require more than 
good ideas about payment reform. It will require real physician 
leadership. No one knows better where the best opportunities 
are to improve care and avoid unnecessary costs for their 
Medicare patients, and no one else will be trusted by Medicare 
beneficiaries.
    For example, oncologists have noted how much Medicare 
payments are tied to the volume and intensity of chemotherapy 
they provide. As Medicare reimbursement rates have been 
squeezed, the margin between what it costs to obtain 
chemotherapy drugs and what Medicare pays to administer them 
has become more important in covering their practice costs. At 
the same time, oncology practices get relatively little support 
for time spent working out a treatment plan that meets these 
individual patients' needs, for managing patients' symptoms, 
for coordinating care with other providers.
    Some oncologists have partnered with private insurance to 
change this so they can get more support for the care that 
reflects the needs of their patients. They still get paid for 
cost-related chemotherapy, but instead of having to support 
their practice off chemotherapy margins, they receive a bundled 
payment that is no longer tied to giving more intensive 
chemotherapy. Instead the bundled payment provides support for 
the treatment protocols that the physicians determine are most 
appropriate.
    In this example the physicians were willing to take on more 
accountability for the quality of their care and for avoiding 
preventable complications and costs since it would allow them 
to focus more on what they are trained and professionally 
determined to do to get their patients the care they most need.
    There are many other examples of this, including in surgery 
and primary care and in many other areas of the delivery of 
care to Medicare beneficiaries. They all have some things in 
common that should be part of any payment reform legislation. 
They require a foundation of better data and meaningful, valid 
quality and cost measures. Most important is providing timely 
information on Medicare beneficiaries to providers.
    It is also important to take more steps to align Medicare's 
existing incentive programs with these clinical improvement 
efforts, like Medicare's Meaningful Use Payments for Health 
Information Technology and Medicare's Quality Reporting 
Payments, as well as reforms affecting hospitals and 
crosscutting reforms like Accountable Care Organization 
payments. If they are aligned, these payments could add up to 
much more support for the investments of money and time needed 
to improve care.
    Medicare should also support promising payment reforms 
already being implemented successfully by private plans and 
States. In all of these efforts more physician leadership is 
critical. These reforms will succeed not because we got the 
actuarial analysis right or we came up with the right names for 
all these complicated payment reforms but because Medicare 
beneficiaries are seeing that their healthcare providers are 
getting more support to provide them with better care at a 
lower cost.
    Thank you, again, Mr. Chairman, for the opportunity to 
testify today, and I look forward to assisting the subcommittee 
in addressing the difficult but critically-important challenges 
of reforming Medicare physician payment.
    [The prepared statement of Mr. McClellan follows:]
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    Mr. Pitts. Thank you, Dr. McClellan.
    Dr. Wilson, you are recognized for 5 minutes.

                  STATEMENT OF CECIL B. WILSON

    Mr. Wilson. Thank you, Mr. Chairman. My name is Cecil 
Wilson. I am the President of the American Medical Association 
and an internist in Winter Park, Florida. The AMA thanks the 
members of the subcommittee for your leadership in addressing 
the needs to move beyond the SGR, and we look forward to 
collaborating with the subcommittee and Congress to develop 
Medicare physician payment reforms that strengthen Medicare.
    The SGR is a failed formula. The longer we wait to cast it 
aside the deeper the hole we dig. It is past time to replace 
the SGR with a policy that preserves access, promotes quality, 
and increases efficiency.
    The AMA recommends a three-pronged approach to reforming 
the Physician Payment System. First, repeal the SGR. Second, 
implement a 5-year period of stable Medicare physician 
payments, and third, during this 5-year period test an array of 
new payment models designed to enhance care coordination, 
quality, and appropriateness and reduce cost.
    In addition, Congress should enact H.R. 1700, the Medicare 
Patient Empowerment Act. This bill would establish an 
additional Medicare payment option to allow patients and 
physicians to freely contract without penalty while allowing 
patients to use their Medicare benefits.
    The first prong of the AMA's approach repealing the SGR is 
critical. Since 2002, and you have alluded to this, Congress 
has had to intervene on 12 separate occasions to prevent steep 
cuts. But more than repeal is needed. Because of the 
uncertainty wreaked by the SGR over the past decade, a time of 
fiscal stability is imperative. So the AMA recommends 5 years 
of positive payment updates from 2012, through 2016, and I want 
to be clear. This would not be a 5-year temporary delay of SGR 
cuts but 5 years of statutory updates should be in conjunction 
with repeal of the SGR.
    This would allow time to carry out demonstration and pilot 
projects that would form the basis of a new Medicare Physician 
Payment System, and a replacement for the SGR should not be a 
one-size-fits-all formula. Instead, a new system should allow 
physicians to choose from a menu of new payment models 
including shared savings, gain sharing, payment bundling 
programs across providers, and episodes of care.
    Additional models are needed to embrace a wide spectrum of 
physician practices, including models focusing on conditions 
for specific capitation, warranties for inpatient care, and 
mentoring programs. While these models are being tested we also 
need evidence on how to properly structure and implement models 
which show the most promise while addressing complex issues 
such as effective risk adjustment and attribution.
    To assist with this process the AMA is working with 
specialty and State medical societies to form a new physician 
payment and delivery reform leadership group. This group will 
include physicians who are participating in payment and 
delivery innovations and by sharing expertise and resources 
physicians can then assess the models that will improve patient 
care, and they can be implemented across specialties and 
practice settings. They can also learn how to get the programs 
off the ground, address challenges, and assess the impact of 
these reforms on patient care and practice economics. And the 
lessons learned can be widely disseminated to physician 
practices across the country as we move toward reform.
    The AMA recognizes that reforming the Medicare Physician 
Payment System is a daunting task. We are eager, however, to 
work with the subcommittee and all members of Congress to lay 
the groundwork for reform so that we can achieve the mutual and 
fundamental goal of strengthening the Medicare program for this 
generation and many generations to come.
    So thank you for the opportunity to be here today, and I 
look forward to your questions.
    [The prepared statement of Mr. Wilson follows:]
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    Mr. Pitts. The chair thanks the gentleman.
    Just a quick announcement. We are in our first series of 
votes for the day. We will take one more witness and then 
briefly recess at that time, reconvene immediately following 
those two votes.
    Dr. Hoyt, you are recognized for 5 minutes.

                   STATEMENT OF DAVID B. HOYT

    Mr. Hoyt. Chairman Pitts, Ranking Member Pallone, and 
Members of the subcommittee, I am David Hoyt, a trauma surgeon 
and the Executive Director of the American College of Surgeons. 
On behalf of the more than 75,000 members of the College, I 
want to thank you for inviting the American College of Surgeons 
to testify today.
    The College recognizes that developing a long-term solution 
to the failing Sustainable Growth Rate formula for Medicare 
payment is an enormous undertaking, particularly in light of 
the need to limit the growth in healthcare spending.
    The College understands that the current fee-for-service 
model is unsustainable and maintains that any new payment 
should be part of an evolutionary process that achieves the 
ultimate goals of increasing the quality of patient care, 
reducing the growth of healthcare spending. We assert that 
these two are directly related objectives.
    The first to reforming, the step toward reforming Medicare 
payment formula is to immediately eliminate the SGR and set a 
realistic budget baseline for future Medicare payment updates. 
The new baseline should fairly reflect the costs of providing 
quality healthcare, preserve the patient-physician 
relationship, and ensure that patients have continued access to 
the physician of their choice. Following the elimination of the 
SGR, we believe it is essential to provide a transition period 
of up to 5 years to allow for testing, development, and future 
implementation of a wide range of alternative payment models 
aimed at improving quality and increasing the integration of 
care.
    To that end the College is currently analyzing the role of 
creating bundled payments around surgical episodes of care. The 
primary goal of the bundled payment model is to improve the 
quality and coordination of patient care through the alignment 
of financial incentives for surgeons and hospitals. One 
approach to bundled payments combines payments to surgeons and 
hospitals for an episode of inpatient surgery into a single 
fee.
    The ideal surgical procedures to bundle include elective, 
high volume, and/or high expenditure operations that can be 
risk-adjusted and for which relevant evidence-based or 
appropriateness criteria exists. In order for a bundled payment 
to be successful, certain safeguards must be included, such as 
ensuring quality patient care and physician-led decision-making 
about how and whom--to whom the bundled payments are 
distributed.
    With the right approaches we can improve both quality of 
patient care and at the same time reduce healthcare costs. The 
American College of Surgeons has been able to significantly 
improve surgical quality for more than 100 years in the 
specific fields of trauma, bariatric surgery, cancer, and 
surgery as a whole. These initiatives reduce complications and 
save lives, which translates into lower costs, better outcomes, 
and greater access.
    Based on the results of our own quality programs such as 
the National Surgical Quality Improvement Program or ACS NSQIP, 
we have learned that four key principles are required to 
measurably improve the quality of care and increase value. They 
are setting the appropriate standards, building the right 
infrastructure, using the right data to measure performance, 
and verifying the processes with external peer review.
    The first, the core process that must be followed in any 
quality improvement program is to establish, follow, and 
continually reassess and improve best practice. Standards must 
be set based on scientific evidence so that surgeons and other 
healthcare providers can choose the right care at the right 
time given the patient's condition. It could be as fundamental 
as ensuring that surgeons and nurses wash their hands before an 
operation, as urgent as assessing and triaging a critically-
injured patient in the field, or as complex as guiding a cancer 
patient through treatment and rehabilitation.
    Secondly, to provide the highest quality care surgical 
facilities must have in place appropriate and adequate 
infrastructures, such as staffing, specialists, and equipment. 
For example, in emergency care we know that hospitals have to 
have proper staff, equipment such as CT scanners, and infection 
prevention measures. If the appropriate structures are not in 
place, patients' risks increases.
    Third, we all want to improve the quality of care we 
provide for our patients, but hospitals cannot improve quality 
if they cannot measure quality, and they cannot measure quality 
without valid, robust data which allow them to compare their 
results to other similar hospitals or amongst similar patients. 
It is critical that quality programs collect risk-adjusted 
information about patients before, during, and after their 
hospital visit. Patient clinical charts, not insurance or 
Medicare claims are the best sources of this type of data.
    And then finally the final principle is to verify quality. 
Hospitals and providers must allow an external authority to 
periodically verify that the right processes and facilities are 
in place, that outcomes are being measured and benchmarked, and 
that the hospitals and providers are doing something to address 
the problems they identify. The best quality programs have long 
required that processes, structures, and outcomes of care be 
verified by an outside body. Emphasis on external audits will 
accompany efforts to tie payment to performance and rank the 
quality of care provided.
    The Patient Protection and Affordable Care Act is 
intensifying the focus on quality. We believe that 
complications and costs can be reduced and care and outcomes 
improved on a continuous basis using these principles that I 
have outlined and should be the basis for payment reform.
    The College welcomes the heightened focus on quality. The 
evidence is strong. We can improve quality, prevent 
complications, and reduce costs. Most of all this is good news 
for patients.
    Again, thank you, Mr. Chairman, for the opportunity to 
share our College comments.
    [The prepared statement of Mr. Hoyt follows:]
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    Mr. Pitts. The chair thanks you, Dr. Hoyt, for your 
recommendations, testimony.
    The committee will stand in recess until 10 minutes after 
the second vote.
    [Recess.]
    Mr. Pitts. The recess having expired we will reconvene with 
the testimony, and we are up to Mr. Miller. You are recognized 
for 5 minutes.

                 STATEMENT OF HAROLD D. MILLER

    Mr. Miller. Thank you, Mr. Chairman and Members of the 
committee. It is nice to be here with you today.
    I think the fundamental challenge that you as a committee 
and Congress are facing is the issue of how to control 
healthcare costs, and there is three fundamental ways that you 
can do that.
    One is you can cut benefits or increase costs for the 
beneficiaries, which obviously you don't want to do. Second is 
to cut fees for physicians and hospitals, which is obviously 
inappropriate and hasn't worked, and the third way is to change 
the way care is delivered, and that is really what I think we 
need to be focusing on is how to change care in a way that will 
reduce costs without rationing, and there is three basic ways 
that you can do that.
    One is by helping to keep people well so that they don't 
have healthcare costs at all. Second is that if they do have 
something like a chronic disease, to help them manage that in a 
way that avoids them having to be hospitalized, and if they do 
have to be hospitalized, to make sure that they don't get 
infections, complications, and readmissions. And all of those 
things save money, but they also are improvements for patients, 
and I think the patients would find desirable.
    The problem that we have today and the reason why we are 
talking about payment reform is that the current payment system 
goes in exactly the opposite direction. Doctors and hospitals 
lose money whenever they prevent infections. We don't pay for 
many of the things that will help patients stay out of the 
hospital, and in healthcare nobody gets paid at all when the 
patients stay well. So the incentives go in exactly the 
opposite direction.
    So there are ways to fix that. You don't fix it by changing 
the fee levels, you don't change it by adding more and more 
regulations. You do it by putting in fundamentally different 
payment models, and the two fundamental changes that are needed 
is, first of all, to be able to pay for care on an episode 
basis rather than on a service-by-service basis, having a 
single price for all the care associated with an episode of a 
patient's treatment, and also including a warranty against not 
charging more for when infections or complications occur. This 
is the same way that every other industry in America charges 
for its products and services, a single price with a warranty, 
and it would be appropriate for healthcare, too.
    The other approach is to have what I like to call 
comprehensive care payment, which is to have a single payment 
for a physician practice for all of the care that a patient 
needs to manage their--the particular conditions that they 
have. Paying in that way provides the flexibility for 
physicians to decide exactly what the right way is for care to 
be delivered to that patient as well as the accountability for 
overall costs, and where these programs have been tried they 
have worked.
    Now, the myth that has developed is that only large 
integrated health systems can do this, and because of the 
visibility of a number of large systems that have tried these 
things, I think that is where the myth has come from, but the 
truth is that there are small physician practices around the 
country that are also operating under these kinds of programs 
very successfully, and I think like, again, like in every other 
industry where small business have been the innovators, I think 
that there is also a very important opportunity here for small 
physician practices to be the innovators in this if we provide 
the right kind of support.
    Now, I have talked to physicians all over the country, and 
whenever they have the time to be able to understand them, I 
have found that they actually embrace these models. But they 
need the time to be able to transition, and they need support 
to be able to get there, and there is really four kinds of 
support that they need.
    First of all, they need data and analysis of that data. 
Physicians today generally don't even know whether their 
patients are being hospitalized, whether they are going to the 
ER, or how many duplicate tests they are getting. So in order 
to manage that they have to have that kind of support.
    Second, they need training and coaching to be able to 
change the way they deliver care. That kind of reengineering is 
not taught in medical school, and it is very challenging to do 
it while you are still trying to deliver care.
    Third, physicians need transitional payment reforms so that 
they can start taking accountability for the things that they 
can take accountability for without risking bankruptcy in the 
short run as they evolve towards these broader payment models.
    And forth, physicians need to have all payers, Medicare, 
Medicaid, and commercial payers, paying them the same way. 
Otherwise they are spending more time trying to administer 
different payment systems.
    Now, the best way to organize this, I don't think, is 
through a one-size-fits-all federal program. I think it needs 
to be done at the community level because care is structured 
and delivered differently in every community. And in a growing 
number of communities around the country there are now entities 
called Regional Health Improvement Collaboratives. These are 
non-profit, multi-stakeholder entities. They don't deliver 
care, they don't pay for care, but they help to provide the 
kind of data and analysis and technical assistance to physician 
practices to be able to evolve in this direction.
    And I think that Congress can help these regional 
collaberatives in three key ways. One is by providing them 
data. Today it is impossible to get data from Medicare to know 
how you are doing for Medicare patients if you want to change 
that. Second, you can give them some modest federal funding to 
support what they are doing, and when I say modest, I am 
talking millions, not billions, and third, you can encourage or 
require Medicare to participate in the cases where they have 
developed multi-payer payment reforms already at the local 
level. The big thing that they are missing is having Medicare 
at the table, and I think that is going to be a very important 
strategy to support that.
    So I appreciate the opportunity to be here today, and I 
would be happy to answer any questions or provide any help.
    [The prepared statement of Mr. Miller follows:]
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    Mr. Pitts. Thank you for those excellent recommendations.
    Dr. Chernew, 5 minutes.

                STATEMENT OF MICHAEL E. CHERNEW

    Mr. Chernew. Thank you, Chairman Pitts, Ranking Member 
Pallone, and Mr. Miller for putting my mike on, and members of 
the Subcommittee on Health for inviting me to testify on 
innovative Physician Payment Systems that might be useful 
alternatives to the Sustainable Growth Rate System that 
ironically has proven not to be sustainable. Before I commence 
with my substantive remarks, I would like to emphasize that my 
comments reflect solely my beliefs and do not reflect the 
opinions of any organization I am affiliated with, including 
MedPAC.
    Critiquing the SGR is easy, yet identifying a viable 
alternative to the SGR is difficult. There is unlikely to be a 
perfect solution, and any path to a solution will take time. 
That said, I think that increasingly the private sector has 
developed promising alternatives. I will discuss one option I 
consider particularly promising today, the alternative quality 
contract implemented by Blue Cross Blue Shield of Massachusetts 
known commonly as the AQC.
    But before launching into a description of the AQC I would 
like to speak broadly about payment reform. First, it is 
important to distinguish between the form of payment, fee-for-
service versus bundled, and the level of payment. The form of 
payment creates incentives that influence behavior, but even 
the best payment system can function poorly if payment rates 
are set too low or even too high.
    Second, while I recognize that I have been asked to discuss 
physician payment, the question presupposes a fragmentation of 
payment that I think is detrimental. Specifically, the existing 
Medicare System, including the SGR, structures payment by 
provider type. This creates numerous inequities and paradoxes 
that makes managing the system and improving coordination of 
care across settings difficult.
    A more bundled system that pays for an episode of care or 
provides a global budget can allow more flexibility for 
providers and limit the need for purchasers such as Medicare or 
private insurers to micromanage payment systems. In a bundled 
payment model the relevant question is not how do we pay 
physicians, but instead how do we pay for care.
    Implementing a bundled system is not easy but innovative 
systems do exist, and at a minimum our experience demonstrates 
their feasibility, and I believe promise. The AQC is one such 
system.
    Briefly, the AQC is integrated into the Blue Cross Blue 
Shield HMO product and rests on three fundamental pillars. 
First, a global payment in which providers' systems receive a 
budget to cover the cost of providing all of an enrollee's 
care. Second, the AQC incorporates a comprehensive pay-for-
performance system that rewards provider groups for performance 
on 64 quality measures ranging from process measures to outcome 
measures, from clinical measures to patient experience 
measures, and third, the AQC includes a significant data and 
analytic support for participating physician groups which helps 
them identify areas to target for improvement and training and 
other things as well.
    The AQC differs from the capitation plans of the 1990s 
because the contract extends for 5 years and because of the 
robust quality program and data support.
    The model has several strengths. Most importantly it 
creates a business case for improving quality and efficiency. 
In contrast, the fee-for-service systems innovative programs 
that reduce the use of unnecessary or inefficient care are 
profitable under the AQC. The global budget also provides 
stability and predictability of spending growth, and the 5-year 
contract duration and the requirement that patients designate a 
physician greater facilitates management and accountability.
    Global payment systems in the past have raised several 
concerns. For example, many have worried that they would lead 
to a lower quality of care. The AQC is designed to prevent this 
by setting the global budget at least equal to the prior year 
payment so no provider group will be forced to reduce access to 
care and by incorporating the quality bonus system. Early 
evidence suggests that these features have led to an increase, 
not decrease in the quality of care delivered.
    Further, many observers have noted that not all physician 
groups are capable of functioning in a global budget 
environment. Certainly this is true, but just because all 
groups are not ready for bundled payment does not mean we 
should abandon it, and I would support a multiplicity of 
approaches.
    Moreover, I tend to have a free market orientation that 
suggests providers will adapt. In fact, if we do not believe 
such transformation is possible, no amounts of payment reform 
or other policy changes will solve our problems, and we are 
doomed to a system that operates far below our aspirations.
    Moreover, many solo and small practices participate in the 
AQC as part of the larger independent practice associations, 
which demonstrate that the model can succeed outside of large 
integrated group practices.
    The AQC is not without its weaknesses. For example, the AQC 
is not tied to benefit design, and I believe a greater 
integration with value-based insurance design would be an 
improvement. Second, while I am a big believer in markets, any 
private sector model must contend with issues of provider 
market power. Because of its size Blue Cross Blue Shield may be 
better positioned to do this than other smaller plans.
    So far the agency has passed the test of the market with 
enrollment growing from 26 percent to 44 percent of Blue Cross 
Blue Shield HMO membership as more provider groups have chosen 
to join. Some AQC principles are already evident in the 
recently-proposed Accountable Care Organization regulations and 
in several other bundled payment demonstrations.
    Broad application of such models would be facilitated in 
Medicare if beneficiaries were incented or required to 
designate a physician without giving up existing benefits or 
rights regarding choice of provider.
    In summary, a fee-for-service physician system for 
Medicare, SGR or not, generates inherent problems. Bundled 
payment systems such as the AQC offer considerable promise as a 
way forward. These systems are comprehensive and give autonomy 
to providers which ultimately will be preferable to other 
strategies to control spending.
    Thus I urge you to support ongoing bundled payment 
demonstrations and others like them which will create a more 
rational and effective payment system that allows our 
expectations and aspirations to be met in a fiscally-
sustainable manner.
    [The prepared statement of Mr. Chernew follows:]
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    Mr. Pitts. Thank you, Doctor.
    Dr. Williamson, you are recognized for 5 minutes.

                STATEMENT OF M. TODD WILLIAMSON

    Mr. Williamson. Good morning. My name is Todd Williamson. I 
am a Board-certified neurologist, and I treat patients every 
day in my office in Lawrenceville, Georgia, just northeast of 
Atlanta. I would like to express my sincere thanks to Chairman 
Pitts and Ranking Member Pallone and the members of this 
committee for the opportunity to address the critical issue of 
Medicare's broken Physician Payment System.
    As background, I had the honor of serving as the President 
of the Medical Association of Georgia in 2008, and 2009. I 
currently serve as the spokesman for the Coalition of State 
Medical and National Specialty Societies, which includes 16 
associations representing nearly 90,000 physicians from across 
the country. The full membership list is in our written 
statement.
    Medicare is the Nation's largest government-run healthcare 
program, and it represents the most glaring example of the need 
for change. As everyone in this room knows the current SGR 
System is failing to serve our Nation's seniors and physicians. 
As the gap between government-controlled payment rates and the 
cost of running a practice grows wider, physicians are finding 
it increasingly difficult to accept Medicare patients. Our 
coalition is, therefore, convinced that the key to preserving 
our Medicare patients' access to quality medical care is 
overhauling the flawed Medicare payment system.
    To address this problem our coalition supports the Medicare 
Patient Empowerment Act as an essential part of any Medicare 
reform. This legislation would establish a new Medicare payment 
option whereby patients and physician would be free to contract 
for medical care without penalty. It would allow these patients 
to apply their Medicare benefits to the physician of their 
choice and to contract for any amount not covered by Medicare. 
Physicians would be free to opt out or in of Medicare on a per-
patient basis, while patients could pay for their care as they 
see fit and be reimbursed for an equal amount to that pay to 
participating Medicare physicians.
    Patients and physicians should be free to enter into 
private payment arrangements without legal interference or 
penalty. Private contracting is a key principle of American 
freedom and liberty. It serves as the foundation for the 
patient, physician relationship, and it has given rise to the 
best medical care in the world. It should, therefore, be a 
viable option within the Medicare payment system.
    Private contracting will help the Federal Government 
achieve fiscal stability while fulfilling its promise to 
Medicare beneficiaries. A patient who chooses to see a 
physician outside the Medicare System should not be treated as 
if they don't have insurance. Medicare should pay its fair 
share of the charge and allow the patient to pay any remaining 
balance.
    Private contracting is also the only way to ensure that our 
patients can maintain control over their medical decisions. The 
government has the right to determine what it will pay towards 
medical care, but it does not have the right to determine the 
value of that medical care. This value determination should be 
ultimately made by the individual patient.
    While private contracting would allow physicians to collect 
their usual fee in some instances, it would also allow them to 
collect less in others. It is reprehensible for a physician to 
be subject to civil and criminal penalties if he or she doesn't 
collect a patient's co-payment as is now the case. It is 
irrational for a senior who wants to see a doctor outside the 
usual Medicare System to be forced to forfeit their Medicare 
benefits. This simply isn't fair to someone who has paid into 
the Medicare System their entire working life.
    The day the Medicare Patient Empowerment Act becomes law 
every physician will become accessible to every Medicare 
patient. Private contracting is a sustainable patient-centered 
solution for the Medicare Payment System that will ensure our 
patients have access to the medical care they need.
    In summary, Medicare patients should be free to privately 
contract with the doctor of their choice without bureaucratic 
interference or penalty. This will empower individual patients 
to make their medical care decisions while providing the 
Federal Government with more fiscal certainty.
    Thank you for the opportunity to comment today.
    [The prepared statement of Mr. Williamson follows:]
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    Mr. Pitts. The chair thanks the gentleman and recognizes 
Dr. Goertz for 5 minutes.

                 STATEMENT OF ROLAND A. GOERTZ

    Mr. Goertz. Chairman Pitts, Mr. Pallone, and members of the 
subcommittee, I am Dr. Roland Goertz from Waco, Texas, 
President of the American Academy of Family Physicians. Thank 
you for the opportunity to testify today on behalf of over 
100,000 members of the AAFP. I commend your bipartisan 
commitment to finding a solution to this critical problem.
    Congress understandably is most concerned with controlling 
federal expenditures for healthcare, especially the rising cost 
of Medicare. There is growing and compelling evidence that a 
healthcare system based on primary care will help control these 
costs, as well as increase patient satisfaction and improve 
patient health.
    We recommend reforms that eventually include a blended 
payment model that consists of the following three elements.
    One, some retention of fee-for-service payment, two, a care 
coordination fee that compensates for expertise and time 
requirement for primary care activities that are not now paid 
for, and three, performance bonuses based on quality.
    Simply reforming the fee-for-service system which 
undervalues primary care preventative health and team-based 
care coordination cannot produce the results that Congress and 
patients require. The solution to our dilemma of rising 
healthcare costs and stagnating quality will be complex, but it 
must include greater use of transformed team-based primary 
care.
    The evidence for the value of primary care and restraining 
costs and improving quality is very clear when that care is 
delivered in a team-based, patient-centered medical home. 
Growing evidence with PCMH and coordinated systems, 
particularly those that emphasize improved access to primary 
care teams, shows that they can reduce total costs, total 
overall costs by 7 to 10 percent, largely by reducing avoidable 
hospitalizations and emergency room visits.
    We believe that as a policy goal Congress should invest in 
Medicare reforms that increase primary care payments so they 
represent approximately 10 to 12 percent of total healthcare 
spending, particularly if done in ways that improve access to a 
broader array of services.
    Currently primary care is just 6 to 7 percent of overall 
total Medicare spending, so medical home projects went 
implemented recoup the entire cost of that implementation. To 
produce the savings Congress requires primary care cannot 
remain unchanged. AAFP has already taken the lead in urging its 
members practices to change but such transformation will take 
time. That is why we recommend a 5-year transition period. This 
will provide an opportunity to examine what works and to allow 
physicians to adopt those best practices that use a blended 
payment. When this transition is complete, fee-for-service 
should be a much less significant portion of physician payment.
    Meanwhile, it is important to increase the primary care 
incentive payment to 20 percent and maintain the support for 
making Medicaid payments for primary care at least equal to 
Medicare's payments for the same services. Both of these 
programs, along with the mandated payment updates that are 2 
percent higher for primary care, will help stabilize current 
practices that have been--seen so much financial turmoil in the 
past few years and will allow them to begin the process of 
redesign to the patient-centered medical home model.
    During the 5-year period of stability, it will be crucial 
to encourage as much innovation as possible. The new CMS Center 
for Innovation needs to be a key focus of this effort. We 
believe that this center can help CMS cerate market-based, 
private sector like programs that can significantly bend the 
healthcare cost curve. We recommend that CMS Innovation Center 
coordinate the various healthcare delivery models to ensure 
comparability and completeness of data.
    The physician community has always believed strongly in the 
value of evidence, and it is the responsibility of the 
Innovation Center to provide credible, reliable, and usable 
evidence for health system change. When implementation data 
becomes available, we would encourage Congress to engage in 
another discussion with the physician community with public and 
private payers, with consumers to determine not just what works 
but what is preferred.
    In the final analysis healthcare is such an important part 
of the economy and everyone's lives that we should try to find 
general agreement in what becomes the final replacement for the 
current physician payment model.
    Mr. Chairman and members of this subcommittee, thank you 
for the opportunity to share the view of family medicine with 
you today.
    [The prepared statement of Mr. Goertz follows:]
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    Mr. Pitts. The chair thanks the panel for their opening 
statements, and I will now begin the questioning and recognize 
myself for 5 minutes.
    Dr. Williamson, you advocate allowing physicians to 
privately contract with beneficiaries above Medicare payments. 
One concern with this arrangement is that sick patients may be 
at a disadvantage entering into a contract without sufficient 
knowledge about what they need or about the quality of care 
they are contracting for.
    Is there a way to structure this so that patients have more 
information about what they are contracting for? For example, 
could you combine private contracting with quality measurement 
and reporting or other tools such as shared decision making? 
Would you respond to that, please?
    Mr. Williamson. Thank you for the question, and that is a 
great question. I understand those concerns, and I would point 
out several items about that Medicare Patient Empowerment Act.
    Number one, there is a lot of openness in this act. 
Patients have to agree upfront what they are agreeing to before 
any care is delivered.
    Number two, this is merely an option within the current 
existing Medicare System, so this would not change any of the 
current ways that Medicare is financed otherwise. There are 
sufficient protections we believe already existing in the 
current Medicare Patient Empowerment Act as written so that 
urgencies or emergencies as currently defined under Medicare 
would be exempt from private contracting and also dual eligible 
patients, those patients that are most impoverished that are 
eligible for Medicaid, would not be eligible for private 
contracting.
    In terms of linking private contracting with quality 
measures and the other items that you outlined, this is 
something that physicians are trained to do, and I would say 
with respectful disagreement to some of the things that were 
said today, physicians are taught in medical school how to 
control costs. They are taught how to communicate with their 
peers. They are taught how to analyze data. This is something 
that we are taught from the very first day of medical school. I 
took a course called analytical medicine, and these things are 
already integral. Could we do more to emphasize these things? 
Absolutely, but I think within the Medicare Patient Empowerment 
Act there are sufficient protections to address your concerns.
    Thank you.
    Mr. Pitts. Thank you. Dr. Hoyt, your organization has done 
a lot of very good work on quality measures. Can you give us an 
assessment of where we are today in terms of measuring quality? 
Are we just measuring processes, or can we also measure 
outcomes? How close are we to being able to come up with a 
metric that will help us decide how to pay for quality?
    Mr. Hoyt. Thank you. Yes. I think the way to characterize 
quality programs today is that probably the best example would 
be the National Surgical Quality Improvement Program or NSQIP, 
where outcomes in addition to processes of care can be 
measured.
    A very specific example. The implementation of that program 
in 112 hospitals over a 3-year period reduced complications, 
major surgical complications by about one complication per day 
per hospital. If you ascribe about $10,000 to an average 
complication, which is probably a low figure, and multiply that 
out that turns out to be a savings of about $2.5 million per 
hospital. If you roll that kind of program across all 4,000 
hospitals, you are talking potentially billions of dollars each 
year save one program. You add to that comparative 
effectiveness, you add to that other cost reduction strategies, 
and I think that physicians can bring a lot.
    But the quality program tool, if you will, is proven.
    Mr. Pitts. Thank you. Dr. McClellan, there are several 
moving parts to this puzzle. On the one hand there are a number 
of forces pushing providers away from traditional fee-for-
service towards the newer payment and delivery system such as 
ACOs and bundling payment agreements and medical homes, even 
capitation models.
    Yet on the other hand it seems that fee-for-service will 
continue to have a role at least for the foreseeable future. As 
we put the effort into developing these newer payment and 
delivery systems, what can we do to fee-for-service to make it 
less inflationary and more value based?
    Mr. McClellan. Mr. Chairman, I agree with you. I think fee-
for-service and Medicare is going to continue to play a 
significant role for some time. I think what you have heard 
from the panel today, there are a lot of ways, including proven 
ways, to help make fee-for-service work more effectively with 
these other kinds of reforms, and, you know, if you--some of 
the reforms that you mentioned that are taking place in 
hospital payments and other parts of the Medicare Program, the 
episode payments involving hospitals, the accountable care 
payments, it would be very helpful if physicians could get 
better financial support in their own payment system to enable 
them to lead all of those efforts. And right now with fee-for-
service staying the way it is, they are staying behind.
    So I think there are some real opportunities for alignment. 
We are not talking about, you know, radically changing the 
system, discarding all fee-for-service payments now, but, 
again, especially if these efforts can start with physician 
identified and physician-led efforts like you just heard about 
from Dr. Hoyt, they have the performance measures. These are 
things that Medicare could be paying to report on as part of 
its quality reporting payments instead of some of the other 
approaches that are being used now. It would be much more in 
line with where physicians are telling us we can improve care 
and save money, ideas that they already know how to do.
    Mr. Pitts. Thank you. My time has expired.
    Recognize the ranking member for 5 minutes for questioning.
    Mr. Pallone. Thank you, Mr. Chairman. I have three 
questions to three different people, so I am going to try to 
rush through them, and I hope you will bear with me.
    Some of the ideas that were mentioned today by the panel 
reminded me of the bill which I mentioned in my opening that 
the House passed I guess last year or the year before, which 
addressed the SGR problem in a larger sense. That was the 
Medicare Physician Payment Reform Act of 2009, H.R. 3961.
    Now, I am not suggesting we simply go back to that now 
because the Affordable Care Act creates a lot of new 
opportunities for fixing the SGR that we should build off 
today. But that bill, H.R. 3961, would have fixed the problem, 
and so I would like to get Mr. Goertz's thoughts on, you know, 
on it.
    As you may recall, it provided a guaranteed update during a 
transition to a new payment system, it would have created 
fairer growth targets by eliminating items not paid under the 
physician fee schedule, it would have provided an extra growth 
allowance for primary care services, and allowed ACOs to opt 
out of the spending targets. So I just wanted to ask Mr. Goertz 
about your thoughts on this legislation, what you like about 
it, and what maybe we could do better now that we are post 
Affordable Care Act?
    In about 1 minute.
    Mr. Goertz. I might be able to give you a 1-minute 
response, but it won't cover all those topics.
    Mr. Pallone. I know. I know.
    Mr. Goertz. Our organization, I don't remember the exact 
position on that legislation that we took, but if it satisfies 
the three elements that I mentioned because fee-for-service has 
inerrant positives and negatives. The positive is that it 
incents you work harder. The negatives is that it is inherently 
inflationary.
    So there has got to be some control on that. So we believe 
that if you put a patient coordination fee element into that 
that allows us to increase the things that we don't get paid 
for in communication with patients and the rest of the other 
physicians and team members that are needed, it will work. It 
will work.
    Now, the way the current model works it just simply puts 
everybody in one pool and treats them all the same way. The 
quality measures are mainly process right now, but we are 
making big strides in getting to the outcome decisions that are 
necessary for that, and what mix of those three things 
eventually evolve I think are going to be very interesting to 
watch. I don't know what the answers are, but all three work 
synergistically to have a better system than any one of them by 
themselves.
    Mr. Pallone. Well, thank you. Now, you mentioned fee-for-
service. Let me ask Dr. McClellan the second question.
    Are there examples where physicians or provider-led 
organizations have stepped up to do the right thing, you know, 
under fee-for-service and the payment system has hurt them from 
doing that? You suggested that there might be cases, but, you 
know, give me an example of maybe where physicians were 
actually financially punished for doing the right thing, and, 
you know, I mean, that is the last thing I would like to see 
happen.
    Mr. McClellan. Lots of examples. One of the first meetings 
I had as CMS Administrator was with the leaders of a number of 
group practices that were doing things like working with nurse 
practitioners and pharmacists to do support for adherence 
medication, forming transition teams to help prevent 
readmissions. Point out that Medicare pays for none of that, 
and to the extent that it works they could bill less for the 
things that Medicare does pay for.
    Another good example is Virginia Mason Medical Center in 
Seattle that implemented some steps to lower costs and improve 
outcomes for patients with common problems like back pain. They 
were penalized financially and has made it very difficult for 
them to sustain their programs.
    Mr. Pallone. All right. Well, thanks.
    Now, last, Dr. Wilson, you, you know, I want to commend 
your proposal. It is clear that the AMA and the two other 
societies seated with you today took our request seriously and 
put some time into the response.
    But I am wondering if you could just attempt to give us 
your view of the consensus amongst the physician community, if 
any, and what we should do about the problems with the 
Physician Payment System? Is there a consensus at this point 
would you say?
    Mr. Wilson. In a general sense----
    Mr. Pallone. I don't know that that mike is on.
    Mr. Wilson [continuing]. I would say yes, and I think you 
heard that this morning that around certain principles, and 
that is we have a payment system that does not work. We need to 
get rid of it. We need to have a period of stability as we move 
to a different way of delivering care and paying for care, and 
you have heard a variety of options about models that might be 
effective. I think there is a great deal of consensus around 
there.
    Now, when we get down to the fine ink, fine print, clearly 
we will all have differences about what will work, but I think 
we should also have a realization that what will work in one 
part of the country will not work in another part of the 
country, and that is why we have continued to talk about a 
variety of options, not picking a one size that we expect will 
fit all. I can take you to my home State of Florida where what 
works in the Pan Handle doesn't work in Central Florida where I 
live and doesn't work in South Florida. So I think we need to 
keep that in mind.
    There is a temptation to feel like we ought to figure out 
one rule, and that solve it all. This system is so complex that 
we need to preserve that, and as a matter of fact, the 
Affordable Care Act in talking about accountable care 
organizations, I think, recognize that. It talked about a 
variety of models for those structures that would work. I think 
we need to keep that in mind, but I am impressed also as I go 
around the country talking to physicians. They understand there 
are ways that this can be done better, and they want to be 
involved in the process.
    Thank you.
    Mr. Pallone. Thank you, gentlemen. Thank you, Mr. Chairman.
    Mr. Pitts. The chair now recognizes the distinguished 
chairman of the full committee, the gentleman from Michigan, 
Mr. Upton, for 5 minutes.
    Mr. Upton. Well, thank you, Mr. Pitts, and again, I just 
want to reiterate from this committee's viewpoint that I very 
much appreciate all of the input, not only from you today but 
the dozens of organizations that responded to the letter that 
was bipartisan that Mr. Waxman and I and others signed looking 
for information. This is on our short list of getting things 
done really this summer. Got a number of different things that 
are there, but this is an issue that we need to grapple with. 
It is time. We are way too late, and I appreciate the 
expertise, the questions of particularly Dr. Burgess, the vice 
chair of this subcommittee in addition to Mr. Pitts, Mr. 
Pallone, Mr. Waxman, and others.
    Personally I like the idea of taking the time, a number of 
different years, to look at a whole number of different models 
and see what might work best. I know from my district's 
perspective I have got some pretty urban areas in terms of 
Kalamazoo with two great hospital facilities with lots of 
physicians, Borgess and Bronson, as well as Lakeland Hospital 
in the county that I live in, and I have got some counties that 
frankly are very rural, some that don't even have a four-lane 
road practically. And so it is--we are a diverse Nation and 
different healthcare, and we need to look at those different 
priorities that are there for sure, and I just want to--again 
appreciate your time today.
    The question that I have and I want to focus this first to 
Professor Chernew but others might want to comment, you know, 
the IPAB was created by the Affordable Care Act as we all know. 
A number of folks on both sides of the aisle have expressed 
concern about the board and how it functions. For one thing as 
we know that the board sets expenditure targets, imposes 
spending cuts based on those targets, and we know that 
beginning 2018, the target will be based on GDP.
    Sounds a lot like SGR which we are trying to get rid of, 
and since hospitals are exempt from IPAB cuts through the rest 
of the decade, it seems that the IPAB has the potential to 
undermine any serious efforts a physician payment reform.
    And I would like to get your comments as it relates to 
that. So we will start with Professor Chernew and anyone else 
that would like to comment would be great.
    Mr. Chernew. First let me say, Go Blue.
    Mr. Upton. Yes. Absolutely.
    Mr. Chernew. Having been in Michigan for 15 years but----
    Mr. Upton. We lost a basketball guy this week. I don't know 
if you heard.
    Mr. Chernew. I think the IPAB is yet an unknown quantity. I 
think in its best it could be supportive of all the things that 
one does here and at its worst it could create problems that 
you discussed, and I think the challenge like much of aspects 
of the ACA is how to implement the proposals. What you have 
heard here around the table about payment reform I think is a 
stunning consensus about both the problems of the SGR. I heard 
from the chairman and the others who spoke and the notion that 
reforming payment is going to have some basic principles, and 
you mentioned some. The others mentioned the transition and 
stuff, and I would like to think that the IPAB can be used as a 
tool to backstop if problems arise in those, but I certainly 
think that if one isn't careful in various ways there would be 
concerns.
    And so like most things the devil is going to be in the 
details and how to make it work is a bigger question than one 
can address in the time that we have here.
    Mr. Upton. Anybody else like to comment?
    Mr. Williamson. Our coalition has opposed the IPAB for a 
number of reasons, some have been stated. We have concerns 
about the fact that it is comprised of non-elected officials 
with minimal accountability and the fact that its 
recommendations would automatically become law if the Congress 
didn't act within a fairly short period of months. So our 
coalition has opposed that entity.
    Mr. Wilson. Thank you, Mr. Chair. The AMA from the start 
has said that this--the Affordable Care Act is a big step 
forward to health system reform, but it is just a step, and 
there is some challenges associated with it. There are things 
that were left out, and that is medical liability reform as 
well as a fix for the Medicare physician payment. And there is 
some things in the bill that we have problems with, and one of 
them is the Independent Payment Advisory Board, the IPAB. As it 
is presently structured. We do not support it.
    Our concern is and maybe this would be a good place to 
float this, and that is 20 years from now we might be sitting 
here, some of us, talking about how to correct the problems 
associated with it. So it is not impossible that it could serve 
a function, but as presently constituted we could--we see it 
basically another target for physicians to meet, potential 
double jeopardy with an SGR as well as the pronouncements from 
this body.
    So we believe significant changes need to be made.
    Mr. Upton. Great. I know my time has expired. I just want 
to add the Tort Reform is also on our short list of getting 
things done.
    So thank you very much.
    Mr. Pitts. The chair thanks the gentleman, and now 
recognizes the distinguished gentleman from Michigan, the 
ranking Member emeritus, Mr. Dingell, for 5 minutes for 
questions.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy, 
and I would like to direct my attentions to Dr. Wilson, Dr. 
Goertz, and Dr. Hoyt, and I would like to do this against the 
background of getting their helpful and necessary advice on how 
we will proceed to solve a problem that is going to cost more 
every year.
    Now, gentlemen, like all of you I believe we have to change 
or repeal the seriously flawed SGR formula. Each of you seems 
to be in agreement that a 5-year stability period is needed for 
Medicare physician payments to allow providers to plan ahead as 
well as to allow demonstration projects of different payment 
models.
    Is a 5-year stability period an adequate amount of time to 
phase out SGR and for physicians to prepare for a new payment 
system? Yes or no? In other words, is 5 years enough time to do 
the job?
    Mr. Wilson. Well, Mr. Chair----
    Mr. Dingell. If you want to qualify that I will be glad to 
receive that for the record.
    Mr. Wilson. I will qualify it. We think the 5 years because 
we do think we are going down a different road. This is going 
to be a challenge. It will not be easy.
    On the other hand, we don't want an indefinite period of 
time. We think there is an urgency about moving forward, and we 
also believe that as things come----
    Mr. Dingell. Doctor, I hate to be discourteous, but I have 
got a lot of questions. If I get yes or no, I will get through 
them.
    Mr. Goertz, Dr. Hoyt?
    Mr. Goertz. We would commit to a 5-year period to do 
everything possible to make the transition.
    Mr. Dingell. Dr. Hoyt.
    Mr. Hoyt. I would agree.
    Mr. Dingell. All right. Now, we have heard from many of you 
about the need for demonstration projects. How many 
demonstration projects would be necessary to determine the 
effectiveness of a new system? Starting with Dr. Wilson. Just 
horseback answer.
    Mr. Wilson. Thank you, Mr. Chair--Congressman. The--it 
depends on how they work out.
    Mr. Dingell. True.
    Mr. Wilson. And if we are fortunate that the first project 
works out, then we are there, and that is why we are doing 
demonstration projects. We don't know how it is going to turn 
out.
    Mr. Dingell. The other two panelists, please.
    Mr. Goertz. Well, I would posit to you that at least for 
the elements that I am talking, have referred to, the patients 
in a medical home, I think there are more than enough 
demonstration projects that already show the benefit of that. 
Now, if you are talking about overall change, I think you are 
going to have to have enough demonstration projects that 
represent all the regions of the country, all the demographic 
variations that are appropriate, but I don't think that has to 
be an onerous number.
    Mr. Dingell. Thank you. Doctor.
    Mr. Hoyt. And I don't know the number, but particularly in 
surgery we would need demonstration projects to fulfill the 
needs of surgeons practicing in already integrated health 
systems like Geisinger or Kaiser. Then we have 55 percent of 
our members that are still practicing in solo or small group 
practice, and solutions for them are needed as well.
    Mr. Dingell. Thank you. Now, the same panelists, if you 
please. I introduced in the prior Congress H.R. 3961. That 
included reforms that may offer some solutions to the current 
payment problems. As you are well aware, next January Medicare 
physicians are facing a 29.5 percent cut if the SGR problem is 
not addressed.
    Do you have any that H.R. 3961 would have prevented the 
29.5 percent cut we are expecting in January? Yes or no?
    Mr. Wilson. Yes.
    Mr. Dingell. Doctor?
    Mr. Goertz. Yes, it would have definitely helped.
    Mr. Dingell. Doctor?
    Mr. Hoyt. Yes.
    Mr. Dingell. One of the proposed reforms included in H.R. 
3691 or rather 3961 was creating two categories of physician 
services; one for evaluation management and preventative 
services and the second to cover all other services. Primary 
and preventative services would be permitted to grow at GDP 
plus 2 percent while other services would be allowed to grow at 
the rate of GDP plus 1 percent.
    Do you think this is a good idea? Yes or no?
    Mr. Wilson. That is one of the challenges of prescriptive 
formulas and that is to know that you got it right, and I think 
the answer would be I do not know.
    Mr. Dingell. Thank you, Doctor.
    Doctor?
    Mr. Goertz. We certainly ascribe to the rebalancing that 
the primary care elements would have done. The overall I don't 
know also.
    Mr. Dingell. Now, we have a whole series of problems here, 
one of which is we are putting target limits on all kinds of 
services being paid for by Medicare. Should we limit spending 
targets to physician services, or should we cover all other 
kinds of services? Starting with Dr. Wilson, if you please.
    Mr. Wilson. Thank you. I think if we are going to have 
targets, then they should include everyone.
    Voice. Microphone.
    Mr. Wilson. I am sorry. I think if we are going to have 
targets, they should include the health system in general. I 
think what we are understanding dealing with the SGR that 
targets are not a very effective way to do what we want to do.
    Mr. Dingell. Thank you. Dr. Goertz.
    Mr. Goertz. Unless you consider the overall healthcare 
system, you can't make it efficient.
    Mr. Dingell. I note, Mr. Chairman, I am over my time. Thank 
you for your courtesy.
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the distinguished vice chairman of the subcommittee, the 
gentleman from Texas, Dr. Burgess, for 5 minutes.
    Mr. Burgess. Thank you, Mr. Chairman. So much to ask. We 
always do reserve the right to submit questions in writing. I 
will not get through the list of things in front of me, and I 
know that these are not yes or no questions.
    Dr. Wilson, Dr. McClellan, whoever feels most comfortable 
answering this or both of you, actually, Dr. McClellan, your 
old boss at Department of Health and Human Services, Mike 
Leavitt, had a demonstration project that the physician group 
practice demonstration project that now has moved into the ACO 
realm, and many of us were somewhat excited about the concept 
of ACOs, and a lot of the Medicare payment reform perhaps could 
have been tied to the ACO. But then a couple of weeks ago we 
got the rule out of the Center for Medicare and Medicaid 
Services, with which you are intimately familiar, and it was 
almost unreadable and certainly unworkable, so now that 
everyone knows what a unicorn is, I don't think any exist in 
practice, do they?
    Mr. McClellan. Well, as you know, the regulatory process 
involves stats and especially in new areas like this one there 
are going to be lots of comments on whatever the agency puts 
out first, and I have heard some statements recently from some 
of the leadership at CMS that they are definitely listening 
closely to the comments, and they want to address on the issues 
that have been raised about the proposed regulation.
    I don't think that like many of the other ideas that we 
have talked about here today, though, that we are just talking 
about unicorns in terms of doing reforms and payment that 
support physician leadership and improving care and lowering 
costs. There are a number of ACO-like programs in existence 
now. Dr. Chernew talked about the Massachusetts Blue Cross 
Alternative Quality Contract. That has a lot of new kinds of 
support for physicians for the kinds of delivery reforms that 
we have talked about. Dr. Hoyt talked about a lot of experience 
with Episode and statements that have helped surgeons.
    Mr. Burgess. Let me interrupt you for a moment because I 
know you know so much about this, and I am going to ask you to 
respond to part of this in writing, but under the rule that 
came out I don't know that they could exist, and perhaps they 
could respond to me in writing about whether or not their 
programs could continue to exist.
    Dr. Wilson, you talk a little bit about physician 
leadership, and this is going to be so critical. Whatever 
evolves as the answer to this conundrum it is going to take 
physician leadership, and what are you doing now as the head, 
the consummate insider of organized medicine in the free world? 
What are you doing to recruit that physician leadership?
    We all know whatever it is doctors don't like anything 
moving in their cage, we don't like change, but when it 
happens, it is going to take champions within the profession to 
lead that change.
    How are you preparing for that?
    Mr. Wilson. Well, thank you, Congressman. I assume that 
means in addition to praying. The AMA is actually devoting a 
great deal of its resources to trying to provide information to 
physicians through papers on this subject, through webinars, 
through information on our Web site, through seminars around 
the country to help physicians understand what an ACO might 
look like and understanding that the definition is fluid and 
that what is in the private sector may look different than that 
in the Medicare sector.
    So we are committed to that. Just the week before last I 
did a webinar just looking at the proposed rules. So we think 
that is an important part of what the AMA needs to do, and I 
would just state----
    Mr. Burgess. Let me just interrupt you for a second. That 
would include other payment models other than just the ACO?
    Mr. Wilson. Absolutely. Absolutely, and I would just say 
that as I have gone around the country and looking at physician 
organizations, they are onboard and trying to do that as well. 
So they are--this is a big job, there are a lot of people who 
are involved, and we think it is important, and we agree with 
that.
    Mr. Burgess. Well, and I would just point out, I mean, I 
have already gotten some criticism, the twitter verse, for 
acknowledging that there were so many doctors on the panel. We 
had never had doctors on the panel when we were doing 
healthcare reform. I just do need to point that out, and I 
thought we needed you when we were doing healthcare reform, but 
there is not a day that goes by that I don't hear from some 
doctor or some group who has some idea about--I dare say you 
can't go into a surgery lounge anywhere in the country where 
this problem wouldn't be solved within 15 minutes with time for 
coffee.
    Now, Dr. or Mr. Miller and Dr. Chernew, I need to ask you 
in what limited time I have left, both of what I heard you 
describe what you were proposing, I will admit getting a very 
cold sensation because it sounded so much like capitation under 
the HMO model of the 1990s.
    How are each of you different from capitation?
    Mr. Miller. Well, it is different from capitation in a 
number of critical ways. First of all it is risk adjusted so 
that you don't get penalized for having sicker patients. There 
are limits on the amount of risk that you would take. So if you 
get a usually expensive patient, you don't end up having to pay 
for that all out of the same amount of money. That gets 
covered, and there are quality bonuses attached to it so that 
you don't end up being rewarded for delivering low-quality 
care.
    And I think that when we talk to physicians about this, I 
was just in Colorado this past weekend, had 100 doctors, we 
actually had them sort of be inside the payment model, and to 
talk about how they would change care because of the greater 
flexibility that they would have, and at the end we said, so, 
which would you rather be in? These new payment models or the 
existing payment model, and it was about 99 to one people said 
I would like to be in the new payment model because of the 
opportunities it gives me to be able to deliver better quality 
care.
    Mr. Burgess. Mr. Chernew, just very briefly.
    Mr. Chernew. I would just add----
    Mr. Burgess. All right. Are you finished your answer? All 
right.
    Mr. Chernew. Apparently.
    Mr. Pitts. Did you have something----
    Mr. Burgess. I was just wanting Dr. Chernew to respond to 
the issue of capitation.
    Mr. Chernew. A 5-year--I agree with everything Dr. Miller 
said and the 5-year duration of the contract makes a big 
difference, because if you are effective in lowering costs, 
they can't come in the next year and just lower and lower your 
capitation rate. The rates always go up, the capitation. I 
think that is an important fact.
    Mr. Pitts. OK. Thank the gentleman and now recognize the 
distinguished ranking member of the full committee, the 
gentleman from California, Mr. Waxman, for 5 minutes.
    Mr. Waxman. Thank you very much, Mr. Chairman. I know we 
try to be liberal on time, and I will try to stay within the 5 
minutes, but knowing the President I am sure I could go over.
    I have always been a supporter of allowing managed care 
choice for Medicare beneficiaries. My district, Kaiser 
Permanente, Kaiser Health Plan and Permanente Medical Group, 
have been leaders in providing high-quality care at a 
reasonable cost.
    In many cases, however, managed care gets out of control, 
loses its bearings, patients have been denied necessary 
treatments and care, has been rationed by some private plans.
    Dr. Chernew, I want to address this question to you because 
your testimony describes the alternative quality contract of 
Blue Cross Blue Shield Massachusetts is pursuing. Can you tell 
whether and how that model guards against the incentives for 
doctors that deny needed treatment to their patients?
    Mr. Chernew. Very briefly there is--the rates are set so 
that they don't go down so no organization is forced to reduce 
access to care. The rates go up at a slower rate than they 
otherwise might have. There is the quality bonus system that 
protects against care which includes outcome measures as well 
as process measures, includes patient experience measures, as 
well as just process measures, and our preliminary evidence 
suggests, in fact, the quality has risen under the AQC, and 
again, it tends to be a more doctor-oriented system where the 
doctors have autonomy to do what they were trained and want to 
do as opposed to insurer micro-managing the care. The doctors 
have much more flexibility as Mr. Miller emphasized than you 
might have in other systems. So I think it is a very doctor-
leadership friendly design.
    Mr. Waxman. In Medicare, of course, we are pursuing some 
similar projects in the form of accountable care organizations 
and other shared savings arrangements. Can you draw any lessons 
for Medicare from the Blue Cross Blue Shield Massachusetts 
experience to date?
    Mr. Chernew. I do think there is a lot of similarities. I 
think some of the advantages that Blue Cross has had is, for 
example, you have to choose a physician, designate a physician. 
I think that is similar to the contracting that Dr. Williamson 
mentioned. You have to pick a physician that helps--it works. 
There is an up side and down side risk as some of the ACL 
regulation gets out, so I do think there are broader lessons in 
the AQC, the performance measures, but we would have to have a 
longer conversation to go into all the things. But there are 
parallels, and I do think it speaks well of where some of the 
innovations are going.
    Mr. Waxman. Many of the physician groups that responded to 
our letter, bipartisan letter, seeking comment asked that 
Medicare allow physicians to choose from a menu of options for 
different payment models in the future. Do you agree that 
Medicare needs to be able to deal with physicians and hospitals 
in a more personalized, specific way, less of a one-size-fit-
all approach?
    Mr. Chernew. I do think that multiple approaches will be 
useful. I think they have to be structured in a way to avoid 
aspects of selection across the different programs, but subject 
to those caveats I think there is unlikely to be a one-size-
fits-all solution.
    Mr. Waxman. As we look at the ways to change the incentives 
in order to truly fix the payment system, we have to be sure we 
do no harm the quality of care in the process and hopefully 
rebuild incentives that actually improve the quality of care.
    So Dr. Miller, I was very interested in your ideas on 
regional health collaberatives. During my time as chairman of 
the Oversight Committee, separate committee from this one, one 
of the most striking things we learned was about--was a project 
in Michigan that was implementing a checklist to reduce 
healthcare-associated infections. Many people took away from 
that the idea that we ought to have checklists, but what we 
also heard and maybe more importantly at this hearing was the 
importance of people coming together to improve care. The 
checklist was only a tool to allow for collaboration at the 
local level.
    MedPAC has recently begun a discussion about ways to 
improve quality of care. They are contemplating changes to the 
Medicare Quality Improvement Organizations and heard testimony 
from a regional health collaborative.
    Dr. Miller, do you think that the QIOs should be 
significantly modified to allow for more entities to 
participate, and can these collaboratives play a more direct 
role in payment reform aside from the critical role of 
improving quality?
    Mr. Miller. Well, I think the collaboratives are already 
doing around the country things that we want to see happen. 
They are measuring and reporting on quality long before 
Medicare was doing that. They have been working to work with 
both hospitals and physicians to help them be able to 
restructure the way they deliver care. Pittsburgh Regional 
Health Initiative in Pittsburgh was doing those infection 
reduction projects back in the 1990s.
    What everybody kept running into was the problem that the 
way the payment system was structured actually either didn't 
support the care changes that they had found would work or 
would penalize them for doing that, and so that is why we now 
see a number of the collaboratives around the country that are 
working on payment reform efforts and have brought together the 
commercial health plans and Medicaid plans to agree on 
different approaches to payment. The biggest thing that is 
missing is Medicare being at the table.
    I think the QIOs in a number of communities, some of the 
QIOs are operating as regional health collaboratives, and I 
think that in other cases they are working together. I think 
there is plenty to be done to be able to improve the way the 
healthcare system works and rolls for everybody. I think the 
issue is to have that local focus and to be able to have the 
kinds of improvement customized to what are the specific 
problems and the specific needs in that particular community, 
and that is what we don't have right now is a good system for 
being able to support that local customization.
    Mr. Waxman. Thank you. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the gentleman from Kentucky, Mr. Guthrie, for 5 minutes.
    Mr. Guthrie. Thank you very much, Mr. Chairman. I guess, 
Dr. McClellan, I will ask you this since you were at CMS in the 
2000s. I have been looking at the Sustainable Growth Rate. I 
got elected 2 years ago, so I am new at this, and I don't like 
to go back and say, well, there is a problem in the past. We 
have to fix it, but it would be kind of nice to know since we 
are trying to come up with a new system, were you there when 
the Sustainable Growth Rate was designed? Because looking at 
the map of it, it ties, essentially ties it to the gross 
domestic product, which even the gross domestic product drops. 
People don't quite go into the positions, so it seemed like a 
bad model to begin with, and I don't know if--did people come 
together and say, you may not have been here, but just history 
of it, this was the right thing to do and now we are here 10, 
12 years later going, we have to do something different?
    Because my question gets to whatever we do is going to have 
to save costs in the system, and so whatever system we have it 
going to save the costs of at least the growth. Right now it is 
cut, it is not trying to slow growth, it is cutting, which is 
wrong, but I just want to know the history of the SGR and why 
you think it was supposed to work and didn't.
    Mr. McClellan. Well, I will try to give you a brief 
history. I wasn't there back in the days of the Balanced Budget 
Amendment or Balanced Budget Act that established the SGR more 
than a decade ago. It was driven exactly as you said, by 
concerns about rising costs in the Medicare Program and the 
need to find a way to take costs out, and you know, 
unfortunately, the traditional thing that we do when we can't 
figure out the direct way to save money while improving care is 
when all else fails, just cut the payment rates, and that is 
what was built into the formula.
    So I wasn't here when that started. I was here 5 years ago 
at CMS as you mentioned when this subcommittee was also having 
hearings about the challenges of reforming the SGR, and I think 
what has happened in the 5 years since is a couple of things.
    One is the concerns about rising costs and the 
sustainability of the Medicare Program have increased a lot, 
along with the cost about the affordability of our healthcare 
system overall, and the second is we have a lot more evidence 
and a lot more leadership from physicians as has come up 
repeatedly today on ways to do it better so that you don't 
depend on crossing your fingers that some statutory formula is 
actually going to be implemented, and you do depend on the 
people who are in the best position to do something about this 
problem, and that is physicians.
    So the steps that we have talked about today, I think it is 
time to begin implementing them to move away from the SGR and 
save money at the same time.
    Mr. Guthrie. I agree, agree completely. I just wanted to 
kind of figure--we were sitting here a dozen years ago saying 
this is going to fix the problem, but I guess people must have 
thought even when they did it, this really isn't going to fix 
the problem. So when you do--things come as gimmicks, and this 
is not going to work. You have got to have sustainable changes 
into that.
    The thing on quality of care, a lot of times we talk about 
teachers, and they say, we want to be paid for the quality of 
instruction and how do you measure it. I mean, the measurables 
come into play because the teacher says, well, if I am in a 
school with a certain demographic, then I may--and I am with a 
school of a different demographic, I am being compared to each 
teacher. And so, I mean, how do you--because if you have a 
less-healthy population you are treating, you are going to have 
less outcome just by nature than if you have a healthy group.
    So how do you determine--anybody want to talk? How about 
Dr. Hoyt?
    Mr. Hoyt. Yes. I think that is a great question, and the 
way you do that is, first of all, through statistical risk 
adjustment of patient population so you are comparing apples to 
apples, physician to physician, practice to practice.
    Mr. Guthrie. Another formula?
    Mr. Hoyt. And then secondly, you really need to pick matrix 
that are going to be relevant to improving the patient care 
process, and I think by having leadership models like people 
have talked about we are actually training leaders to become 
qualitologists or quality leaders in organizations by having 
these inter-State collaboratives so that we share best 
practice. And then what you individually do with the database 
is you array against a particular complication, let's say 
surgical infection, all of the providers. That can be hospitals 
or that could be an individual physician, and what you then get 
is the performance of all those providers across that 
complication. You are going to have some outliers that are 
doing well, some outliers that are doing poorly.
    What happens is those people get together, and they 
improve, and that is the affect we are trying to get to.
    Mr. Guthrie. I only have 30 seconds, but the surgical 
infections is what the hospital is doing there. What about some 
of the behaviors that--what the patient brings to it like 
someone who is pregnant. So----
    Mr. Hoyt. That needs an additional----
    Mr. Guthrie. And I know you want to incentivize having 
better prenatal care, but are there doctors that that is what 
you want to do is say you kind of really manage that. A lot of 
times it will be different for different physicians based on 
the way their patient populations react. And how do you account 
for that?
    Mr. Hoyt. Well, I think that is an additional strategy. You 
know, in my field, trauma, the way we do that is you work on 
road traffic safety initiatives, you work on gun control or 
whatever because you are trying to go upstream from the 
problem, and every aspect of medicine has preventative areas 
that are essential.
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the gentlelady from California, Ms. Capps, for 5 minutes for 
questions.
    Mrs. Capps. Thank you all for being here. I have long been 
a supporter of fixing the SGR problem. It is an issue that 
causes difficulty for providers and consumers alike. In 
addition, providers who are able to keep their patients 
healthier and lower overall costs are often penalized even 
more.
    But the conversation often stops at the crisis point--how 
do we make it to the next fix?--and rarely moves onto one where 
we can discuss our vision for healthcare system in the future 
and how to get there. That is why I thank Chairman Pitts and 
Ranking Member Pallone for engaging in this important topic 
today, and I have two--an idea to bring before Dr. McClellan 
and Mr. Miller.
    There has been so much talk about the role of doctors in 
the healthcare system, but if we are really going to move to a 
more comprehensive, prevention-focused system of care, I 
believe it is important to acknowledge the role that other 
healthcare providers bring to the table in keeping our Nation 
healthy, including nurses, nurse practitioners, physicians' 
assistants, and many new kinds of models of delivering care.
    This hearing and many before it have drawn our attention to 
the needs to move away from volume-based medicine and toward a 
more holistic model where the rewards are for providing great 
care for a patient rather than a lot of tests and procedures. 
As a nurse, I can tell you that nurses and nurse practitioners 
get that. In previous hearings we have heard about how many 
successful programs--we have heard about some successful 
programs, for examples, the Guided Care Program at Johns 
Hopkins and how they rely on nurse managers or nurse 
practitioners to provide the complex services that frail 
Medicare and Medicaid patients often need. In addition, nurses 
have patient education skills that can help to manage chronic 
diseases for many people.
    So, Dr. McClellan, will you talk briefly about the 
possibilities for nurse practitioners, physicians' assistants, 
and other non-physician practitioners in some of these new care 
models like medical homes or accountable care organizations, 
please? Then I will turn to you----
    Mr. McClellan. Every single one of these reforms has 
involved more reliance on other health professionals. I can't 
think of any, not medical homes, not these episode-based 
programs, improve surgical outcomes and reduce complications, 
not programs for palliative and supportive care for patients 
with complex illnesses. They don't rely much more than we have 
in the past on nurse practitioners, nurses, pharmacists, and 
other allied health professionals in delivering care. And that 
gets back to the core problem we have been talking about today, 
which is that Medicare's traditional fee-for-service program 
doesn't do much to pay for these other forms of care in order 
to target these services to the right patients, though, you 
need physicians working with these other health professionals 
making decisions. You need more flexibility for them to lead, 
and that is hopefully where these payment reforms will take us.
    Mrs. Capps. And so that is one of the areas where you want 
to see us go forward.
    Mr. McClellan. Absolutely.
    Mrs. Capps. OK, and of course, underlying all of this is 
the shortage of primary docs, and everyone is fixated on that. 
There are--we need more incentives for people to rise to those 
kinds of primary care services from these other professions as 
well. I am seeing you nod so I think you agree.
    Mr. McClellan. I think so, and just to go back to the 
example in Massachusetts that Dr. Chernew was talking about, 
one of the features of that alternative quality contract is a 
lot more resources for primary care doctors to coordinate care, 
and some of them who I have talked to said they feel this is 
more like concierge's medicine almost. They are able to really 
spend the time managing the patients' problems and aren't being 
reimbursed just on a short, you know, 5-minute visit basis.
    Mrs. Capps. Good. OK. Maybe Mr. Miller, and if there is 
time, Dr. Chernew, you may want to chime in, too.
    Mr. Miller. I organized and ran a project in Pittsburgh 
over the past 3 years focused on reducing hospital readmissions 
for patients with chronic disease. We made a lot of changes in 
various procedures, but the most important single thing that we 
did was that we hired two nurses to work with those chronic 
disease patients to help them, educate them to go into their 
homes to figure out what they needed to be able to manage their 
care better. We had to use a foundation grant locally to pay 
for them because they could not be paid for by----
    Mrs. Capps. There is no funding stream right now.
    Mr. Miller. My instructions to the nurses when we hired 
them was your job is to keep 13 people out of the hospital in 
the next year because that will actually pay for your salary, 
and they beat that target by a significant amount. We reduced 
readmissions by 44 percent in the course of 1 year, and we 
ended up having to lay off one of those nurses at the end 
because there was no way to continue her under the current 
healthcare payment system. In the other case, fortunately, the 
hospital was willing to pick her up to put her on salary to 
continue to do that work to help the patients stay out of the 
hospital.
    Mrs. Capps. Great example. So the results are pretty short-
term.
    Mr. Miller. The results at quick, they are dramatic, and 
the intervention is very simple. It is simply--it is a perfect 
example of something where the current payment system does not 
pay for that. Now, whenever you do pay for it, you want to have 
them focusing on a specific target----
    Mrs. Capps. Right.
    Mr. Miller [continuing]. that will actually save you some 
money and not have that nurse diverted into doing all kinds of 
other things that might be desirable but will not save the 
program money. That is why whenever we did the program we said 
the focus is specifically on keeping, reducing readmissions of 
patients, and they were able to do that, and it was actually a 
very empowering thing for the nurses and for the physicians to 
be able to have that resource that they could use for their 
patients and be able to use it for the patients that they knew 
needed help but that they didn't have the time to be able to 
provide for them.
    Mrs. Capps. And I have run out of time, but I will look for 
your written testimony, Dr. Chernew. If you would like to 
submit--if you want to zero in or boar in on the way that this 
impacts in the Massachusetts Program as well, I would 
appreciate that.
    I will yield back.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman from Louisiana, Dr. Cassidy, for 5 
minutes for questions.
    Mr. Cassidy. Dr. Wilson, I am also a member of the AMA, and 
I like all your suggestions except that I don't see how we pay 
for them. In fact, one of the--I was disappointed as many 
members of the AMA were in the AMA support of PPACA because 
frankly the low-hanging fruit of savings in Medicare didn't go 
to shore up Medicare or to fix the SGR. It went to create 
another entitlement, which arguably is going to make our 
situation worse.
    So do you have any--I don't see inherent in your testimony 
now that the savings for Medicare have been used outside of 
Medicare how we pay for this.
    Mr. Wilson. Well, one of the challenges of the whole 
healthcare system is that the costs are multi-factorial, and we 
have not in this hearing because it is not a part of this 
hearing talked about the biggest driver for cost in this 
country in healthcare, we spend 78 percent of what we spend on 
healthcare on chronic disease. And so--and most of that 
preventable. So that is another area we need to be involved 
with.
    The area of tort reform CBO has suggested that a cap of 
$250,000 on non-economic damages would reduce the federal 
budget by $54 billion over the coming years. So we think they 
have a variety of things in this legislation that will start to 
address that, and that is where we need to look, but it is a 
variety of things. There are parts of this legislation that 
look at the whole area of simplification, administrative 
simplification, insurance forms, things that don't contribute 
to health----
    Mr. Cassidy. Let me interrupt just because I have such 
limited time. I always say, though, anything that creates 
according to the CBO enumerable boards, bureaucracies, and 
commissions does not decrease administrative costs.
    But Dr. Chernew, now, I am very interested in what you 
described Blue Cross doing in Massachusetts. But on the other 
hand, Massachusetts, which is kind of a forerunner of PPACA, 
has the highest, I mean, literally, the highest private 
insurance premiums in the Nation, and so my concern is that, 
again, the forerunner of PPACA has resulted in the highest 
private insurance premiums in the Nation. So how has the 
program you described, which is incredibly intriguing, thwarted 
that, contributed to that? I mean, it seems kind of a 
discordance where you have high premiums and yet you have what 
is on paper seems like an effective intervention.
    Mr. Chernew. Right. I am not prepared to defend all of 
Massachusetts and the differences of Massachusetts healthcare. 
We could discuss it at greater length, but I think the easy 
answer to your question is the AQC wasn't designed initially to 
save money in the first years. As I mentioned in response to an 
earlier question, it doesn't lower the amount of money that any 
physician group gets paid, and in fact, the physician groups 
are more efficient. A lot of that is captured by the 
physicians. It is not captured by the plan.
    The goal of the AQC has been to give physicians the power 
to control that trend through say, for example, a very primary 
care center the way Dr. Goertz described, and so the 
evaluations of what it is going to do are ongoing but 
ultimately its impact on spending and trends are specified in 
the 5-year trajectory and relative to what had been projected 
in Massachusetts, which had been growing at about the same 
rate, it was designed to save money off of trend, not to lower 
fees.
    And so in the end what matters is how much you allow the--
--
    Mr. Cassidy. Is there an initial indication that it is 
saving money on the trend?
    Mr. Chernew. There has only been 1 year of experience so--
--
    Mr. Cassidy. And then let me ask you another because I have 
such limited time. Now, the medical loss ratio, is that 15 
percent in Massachusetts?
    Mr. Chernew. I am not aware of what the medical loss ratio 
is in Massachusetts.
    Mr. Cassidy. And the only reason I ask that is because 
clearly there is an informational infrastructure required of 
the insurance companies.
    Mr. Chernew. Yes.
    Mr. Cassidy. Now, on the other hand if you have high 
premiums, again, if you have the highest in the Nation, 15 
percent of something high gives you something pretty high. 
Fifteen percent in a lower State which doesn't have this sort 
of precursor PPACA which may be lower, that absolute dollar is 
less.
    Can you incorporate this with an artificial medical loss 
ratio of 15 percent?
    Mr. Chernew. I agree with the premise of your question that 
there is going to be some spending that is not countered in the 
medical loss ratio that is very important to control spending, 
and you want to make sure that medical loss ratios don't impede 
your ability to innovate, and if that is the gist of your 
question, I agree with you.
    Mr. Cassidy. OK. Fantastic. Dr. McClellan, now, I got to 
tell you, I see my New England Journal of Medicine article 
which shows that ACOs and these demonstration projects which 
are picked to succeed, that they typically don't succeed in 
terms of saving money, and when everybody says we are going to 
save money with ACOs and yet the best analysis from the best 
demonstration project show that they don't, how can we hang our 
hat on this, particularly after that incomprehensible rule put 
out by CMS?
    Mr. McClellan. Well, setting aside the rule I think the New 
England Journal you are referring to summarized the experience 
under a demonstration program that we started while I was 
there, and what it found was that out of the ten groups that 
participated every single one of those physician groups 
significantly improved the care for their beneficiaries. They 
led to significant overall savings in Medicare costs, and five 
out of the ten got to levels of savings of 2 percentage points 
per year, which is in the kind of realm that would make 
Medicare----
    Mr. Cassidy. Now, if I may quote, ``It seems highly 
unlikely that the newly-established, independent practices 
would be able to average the necessary 20 percent of return on 
their investment.'' I am quoting from the article. ``The main 
investment of''--I could go on, but it actually disputes a 
little bit your assertations.
    Mr. McClellan. Well, I think what the article is pointing 
out is that for physicians to change their practices in ways 
that improve care takes an investment upfront, and if all they 
are getting is this shared savings on the backend, that by 
itself may not be enough, and that is essentially one of the 
core concerns that people have raised about the proposed 
regulation, and I agree.
    We need to be looking at reforms that give enough support 
upfront to enable the kinds of backend savings to bend the cost 
curve. What we are seeing in a lot of the private insurers who 
have implemented ACOs is a combination of approaches. They 
don't just like pick one and do that for 5 years and then wait 
and do something else. They are trying to comprehensively work 
with providers to solve this problem.
    So they do something like medical home payments upfront as 
we talked about before, more resources for primary care.
    Mr. Cassidy. Let me interrupt. The chairman has been very 
generous, but we are already a minute, 20 over. I appreciate 
that. I would appreciate your complete response----
    Mr. McClellan. I would be delighted to follow up with you.
    Mr. Cassidy [continuing]. And I would like to submit for 
the record something that Dr. Goertz would agree with from 
Qliance regarding the direct medical home, for the record.
    Mr. Pitts. Without objection, so ordered.
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    Mr. Pitts. Thank--the chair thanks the gentleman and now 
recognizes the gentlelady from Wisconsin, Ms. Baldwin, for 5 
minutes for questions.
    Ms. Baldwin. Thank you, Mr. Chairman, and I also want to 
extend my gratitude to the panel for being here and also to add 
my comments to those who mentioned earlier that it is great to 
see the bipartisan leadership of this subcommittee and full 
committee working together on this critical issue.
    As we talk today about the importance of repealing the 
Sustainable Growth Rate, we also have to focus on replacing the 
Medicare Fee-For-Service Payment System with a model that has 
some better incentives aligned rewarding quality, controlling 
costs, and I would like to sort of add the new layer of 
incenting us to involve patients as partners in their 
healthcare, something I haven't heard a lot about, but of 
course, we have a panel of physicians, and I am sure later in 
this session as we dig down in this issue that we will hear 
from patient groups and that role, too.
    We are all representatives, we all represent certain 
geographical areas of this country, and as such we tend to 
follow closely what is happening in our home turf. I happen to 
represent South Central Wisconsin in the U.S. Congress, and I 
think based on what I have learned from some of my home State 
practitioners, there is a lot we can learn from what is going 
on in the State of Wisconsin.
    Providers there have been at the forefront of adopting 
innovative models that have demonstrated high quality and 
value. They have proved that implementing a system where there 
is a high level of integration and where doctors are 
responsible for managing patient populations can produce high 
quality and low cost care.
    I guess I want to focus a little bit on one such delivery 
model that has produced successful outcomes in Wisconsin, and 
Dr. Goertz has talked about it extensively in his testimony, 
the patient-centered medical home. That model focuses on the 
productive roll a primary care physician can play in providing 
and coordinating care, and we know how important the primary 
care field is in improving healthcare outcomes. They recommend 
preventative measures, help patients manage chronic conditions, 
and keep patients out of high-cost emergency room settings.
    I know all of you know that in a medical home model the 
practice-based care team takes collective responsibility for a 
patient's ongoing care, and this team coordinates the patient's 
care across care settings and fields and maintains a personal 
relationship, the patient, with their personal care physician.
    One system in my district, Dean Health System, has tested 
the patient-centered medical home model, and when establishing 
this model, they hit an initial roadblock which was basically 
finding that the fee-for-service model and Medicare, i.e., 
rewarding volume, is inherently contradictory to the patient-
centered medical home model. This model relies on primary care 
providers carrying out and providing a significant number of 
tasks that improve quality and enhance efficiency, but these 
tasks are not reimbursable through the relative value unit-
based compensation model.
    What Dean did instead was to establish its own 
reimbursement model to ensure sufficient reimbursement for this 
primary care model. Their innovative approach has really paid 
off. The quality of care in the systems medical homes has 
improved notably, and these models have achieved considerable 
improvements in efficiency measures.
    Today all of Dean's pilots have been certified by the 
National Committee for Quality Assurance. But, furthermore, 
there has been great patient feedback in terms of their 
happiness and satisfaction with this model. Their perception of 
access and satisfaction are higher for these patients who 
receive care through their medical home model.
    But perhaps the most notable achievement is that by 
embracing these innovative models Dean has achieved significant 
cost savings. Overall the system saw medical costs increase by 
only 2 percent in 2010, compared to the national average of 
10.5 percent. Also, their pharmacy costs did not increase at 
all in 2010, while pharmacy costs across the Nation increased 9 
percent last year.
    The successes that they had and other providers in 
Wisconsin have achieved would not have been possible in this 
sort of fee-for-service construct. For this reason up to this 
point the medical home model has really been limited to the 
private sector to the greatest extent.
    So, Dr. Goertz, could you elaborate a little bit on how 
moving away from the fee-for-service model and expanding the 
patient-centered medical home to public payers like Medicare 
could help realize the goal of providing this high quality care 
for lower costs but also this increased potential of involving 
patients in managing and in partnership with their physicians 
and nurses in managing their own care?
    Mr. Goertz. Thank you for that question. One of the 
interesting things about the patients in the medical home is 
when we evolved that in the early 2000s, we took in a lot of 
information from patients themselves about what they wanted and 
designed it, and to the chagrin of our members we designed it 
without caring about how it was going to be paid for. And then 
we turned around and said, how are we going to pay for this 
model that we designed to give the care for patients the way we 
know it can be done and still have the resources to run the 
practices.
    So my response is the commercial payers and the models that 
they have already put in place show it works, but it takes 
looking at the entire spectrum where costs are laid in the 
system, and until you allow us to look at the entire panorama 
of where costs are, you are never going to fix it. You just 
can't, and that--the patient-centered medical home seeks to 
have the patient get the care where they need it by the right 
people in the team without regard to those other pieces, and it 
seeks to involve the patient in how care is given.
    Mr. Pitts. The chair thanks the gentlelady and recognizes 
the gentleman from Pennsylvania, Dr. Murphy, for 5 minutes for 
questions.
    Mr. Murphy. Thank the panel. It is good to see some of you 
here again.
    Back in the 1990s when I was a State Senator I authored and 
we passed into law, actually got bipartisan support, a Patient 
Bill of Rights Law, and much of that was dealing with at that 
time the problems of managed care, where we found out it was 
more about managing money from people outside the doctor's 
office and with insurance companies than it really was about 
managing care.
    So I am wondering, Mr. Miller, if you could elaborate a 
little bit more on this. You and I have had conversations in 
the past, but if you could give, and I apologize I couldn't do 
some of this before. I had run into other things. Give me an 
example or two of how this actually works and we make sure the 
incentive is not to not provide services because the breakdown 
before of managed care was if somebody had a pool of money in 
their account, they kept that money by not providing care.
    Could you tell us how it actually works to make sure they 
are providing better care?
    Mr. Miller. Well, in several ways. First of all, I think 
that it is important that this be controlled by physicians, not 
by health plans, and I think that is really the promise of 
whatever the unicorn ultimately looks like when you talk about 
accountable care organizations is that those really need to be 
controlled by the healthcare providers, the physicians, the 
nurses, et cetera, not by outside health plans. So that is 
number one because I think they will be very reluctant to 
deliver poor quality care.
    The second thing is to actually have good measurement of 
the quality of care so that they know how they are doing and 
the public knows how they are doing, and that is happening in a 
number of communities around the country that are reporting on 
the quality of care so that patients can make good choices.
    I think the second thing, third thing is that there needs 
to be choices about where patients can go which is why it is 
very important to not have requirements and regulations that 
only limit this to being very large organizations or that 
encourage consolidation of entities into one large monopoly but 
to be able to let small practices be able to participate in 
this particular fashion.
    And I think that is what we--there are models like that 
around the country where physician practices are taking 
capitation payments, risk adjusted or otherwise, and are 
delivering very high-quality care to their patients, and they 
are in control.
    Mr. Murphy. As this becomes an issue, I know one of the 
battles we had was the issue of any willing, qualified 
provider, and I always felt that if you eliminated people from 
being able to--providers from being able to compete by quality 
for service, they were out of the loop, and those--once they 
had locked in a contract, it was actually a disincentive for 
them because they didn't have the competition anymore. Is that 
what you are referring to by allowing patients actually to have 
some choices?
    Mr. Miller. Yes. That is right, and patients having choices 
based on both what the cost and the quality of the care is 
rather than either being locked into a particular provider 
because of what an insurance company determines or essentially 
having no choice because of the nature of the organization and 
the community. So to have a maximum number of opportunities to 
choose their provider I think helps to support that.
    Mr. Murphy. I mean, this is an area that dealing with 
actual disease management is such a huge issue in healthcare in 
America, and yet I am still amazed that the way that Medicare 
and Medicaid work, designed in 1965, and I would venture to 
guess that none of us as healthcare providers would want to 
brag to our patients, by the way, I bought no equipment since 
1965, haven't read a single medical journal, or been to 
continuing education credits from 1965, and proud of it, but 
that is how our system works. You only get paid if you poke, 
prod, push, pull, or pinch someone but not if you make them 
better.
    A secondary I just want--this whole panel can help. I think 
it is the absurdity, so I am correct in understanding that if 
someone is on Medicare, and a physician is taking, you know, 
balanced billing, and they say to the patient, you know, look. 
I understand you are low income. I will just take whatever 
Medicare pays me, and I will leave it at that. They are not 
allowed to do that? Is that correct, panel?
    Mr. Williamson. That is correct. That is correct.
    Mr. Murphy. So as a doctor I am saying, you know, I am just 
going to waive this. ``Here. You baked a pie for me, good 
enough, thank you, Mrs. Smith. You can walk away.'' Then that 
doctor is committing a crime?
    Mr. Williamson. Civil and criminal penalties. Yes, sir.
    Mr. Murphy. And how big is the penalty?
    Mr. Williamson. I don't have that number. I am sorry.
    Mr. Murphy. But it is big. Civil and criminal penalty.
    Mr. Williamson. It gets the attention of doctors.
    Mr. Murphy. And if a doctor also says, you know, I think I 
can do this better by managing, by making calls to you, making 
sure you are taking your medication. It is like 75 percent of 
prescriptions aren't taken correctly from beginning to end. If 
a doctor decides to have a nurse in the office manage that call 
and take care of those things and actually keep that person out 
of the hospital but doesn't even bill for that providing a 
service, does this also go under the category of they are doing 
something illegal? They are providing a service and care 
without billing for it?
    Mr. Goertz. That is not illegal. You just don't get any 
compensation for helping the patient.
    Mr. Murphy. Oh, well, that is--OK. But it still comes down 
to so if--it is absolutely amazing, and Mr. Chairman, I hope we 
get more into this, because the Medicare and Medicaid systems 
in my mind are so hopelessly outmoded that the old tool, when 
everything looks like a hammer, everything--when the only tool 
is a hammer, everything looks like a nail, and all Congress 
knows how to do is giveth and taketh away. We spend a dollar, 
we take away a dollar.
    But on this issue to have spent nearly almost half a 
century of time using the same system without fixing this is 
preposterous, and I believe it is imperative to the physicians' 
abilities to work on these things to change the system.
    So I hope we can get back to this in the future. Thank you.
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the gentleman from New Jersey, Mr. Lance, for 5 minutes for 
questions.
    Mr. Lance. Thank you, Mr. Chairman. Good afternoon to this 
distinguished panel. Following up on Congresswoman Baldwin's 
questioning which I found very interesting, Mr. Miller, in your 
testimony to do mention the accountable medical homes as being 
a type of transition payment system, and in your comments you 
discuss developing specific targets for reducing utilization of 
healthcare services outside the physician practice.
    How would these targets be developed, and are they ready to 
be employed in the near term?
    Mr. Miller. Yes. In fact, the State of Washington and the 
Puget Sound Health Alliance have been working on this and are 
implementing that program this month where a group of small 
primary care practices around the State have done that.
    Now, getting there was a challenge because, first of all, 
you have to have the data to be able to determine what your 
current rates of ER visits and hospitalizations are, and that 
was a real challenge to primary care practices to even think 
about it because they don't have that data right now. 
Surprising enough it was even difficult for some of the health 
plans to deliver that data to them, but once we were able to 
get it, it made clear that there were fairly high rates of 
emergency room utilization for non-urgent reasons.
    And so the idea was to give the primary care practices some 
flexible resources that they could use to hire a nurse, to have 
longer office hours, et cetera, and to--and we calculated that 
with the kinds of reductions, just to take ER visits, the kinds 
of reductions in ER visits that many of the medical home 
programs that Dr. Goertz talked about have achieved, that they 
would be able to save more money for the health plans and the 
amount of flexible resources that they were getting upfront.
    So a number of practices have signed up to do that this 
year through the payment, and the challenge locally was to get 
eight different health plans and Medicaid to agree, and 
Medicare is not at the table.
    Mr. Lance. And in your judgment why is that the case? Why 
is Medicare not at the table?
    Mr. Miller. Because Medicare does not have a payment model 
now that would support that. In fact, Washington applied to be 
in the multi-payer advanced primary care demonstration and was 
not selected. And so they will be actually, they will be saving 
Medicare money because they will do it for all of their 
patients, not just their Medicaid and commercial patients, but 
they won't get the money to be able to support that at the 
level that they really need.
    Mr. Lance. Thank you. In your remarks, Dr. Chernew, in your 
prepared remarks you state, and I am quoting now, ``Just to 
give one example, a colonoscopy performed in a physician's 
office costs Medicare on average about half of the cost if it 
is performed in a hospital outpatient setting. This largely 
reflects different treatment of the technical fee for providing 
the service, which may be justified, but it is difficult to 
assess the appropriate fee differential, if any because case 
mix and other factors are hard to observe.''
    Could you elaborate for me a little bit on that?
    Mr. Chernew. Sure. So fee-for-service systems are 
incredibly unwieldy, and ours is particularly unwieldy, and the 
amount you get paid for something depends on where it is done, 
because, remember, there is payments to the physician, but 
there is also payments to a facility. And so if you move the 
service from one setting to another setting, in some cases the 
physician is getting both the professional and the technical 
fee, and in other cases the physician is just getting the 
professional part. The technical part is going somewhere else, 
but those technical fees aren't fixed. It differs based on what 
is in the physician fee and what is in say the hospital 
setting. And so there is differences, and that is just one 
example of where the difference is.
    It is easy to say that, well, we should set them the same, 
technical should be the same, and what people in the hospital 
would tell you is, yes, but the patients that we are seeing in 
the hospital have a whole series of other comorbidities, it is 
more difficult to treat them for one reason or another. Our 
technical fee, albeit higher, is justified because of some 
aspect of the patient or the care we deliver that is different 
than the care that is delivered if you are doing the same 
procedure in a physician's office.
    If you knew what that cost difference was, if someone came 
down from on high and told you this was what the cost 
difference was, you might be able to manage that reasonably 
well.
    Mr. Lance. So we have a responsibility working together on 
a bipartisan capacity with experts such as the distinguished 
panel here to try to overcome that to make it less expensive.
    Mr. Chernew. So my view is we will be hopelessly mired in 
the morass of fee management if we stay for too long in a 
basically fee-for-service system.
    Mr. Lance. Yes.
    Mr. Chernew. And so moving away from the system in my view 
is a long-run solution. We have to mitigate the problems in the 
short run no doubt, but I am not a believer in the government's 
ability or anyone's ability to micromanage these crazy fee 
schedules all that well.
    Mr. Lance. Thank you, and I hope we not hopelessly mired in 
the system. Thank you very much, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman. That concludes 
the first round of questions, and we will go now to follow up. 
I will yield first to Dr. Burgess for questions.
    Mr. Burgess. Thank you, Mr. Chairman.
    Dr. Goertz, if I could ask you because this has come up 
several times on, I think Dr. Wilson mentioned the 78 percent 
of the people in Medicare who suffer from chronic disease. So 
the universe of people that are dual eligibles and I think Dr. 
Williamson said he would exclude those from the direct 
contracting, but honestly, that may be the group where you want 
to focus the direct contracting.
    If you provided each of the dual eligibles with a 
concierged physician, a navigator, a facilitator that could be 
with them through all this, maybe a doctor, maybe a nurse 
practitioner, we could argue about that, but it seems like that 
is, you know, Willie Sutton used to rob banks because that is 
where the money was. I mean, Dr. Berwick has told us this is 
where the money is. Dr. Wilson reaffirmed today that this is 
where the money is. Eighty percent of Medicare, which is a lot, 
is spent by 20 percent of the patients.
    What do you think about that?
    Mr. Goertz. Our organization is in favor of any innovative 
model that addresses coordination and information sharing among 
all the team members who need to take care of that patient.
    Mr. Burgess. But here is the problem. Mr. Miller told us 
that Medicare has no payment model for that type of activity. 
Is that--did I understand that correctly?
    Mr. Goertz. In our opinion it does not.
    Mr. Burgess. So really all the smart people at the table if 
you will tell us how to construct that demonstration project 
where we can demonstrate that level of savings, I mean, I will 
be happy to take that to Dr. Berwick and spend some time with 
him and see if we cannot either administratively or 
legislatively make that change happen because, I mean, truly 
that is the low-hanging fruit that we should be talking about. 
Is that not correct? Does anybody disagree with that?
    So, again, we have offered a challenge to the panel 
assembled here today. Help us craft that as a, whatever you 
want to call it, demonstration project or whatever, and let's 
see if we can do so in a way. We have got to be careful because 
Dr. McClellan worked very hard on the physician group practice 
demonstration project with Secretary Leavitt, and now, of 
course, we have got a series of rules that are unworkable.
    So it is, there is a problem in our system, and we have all 
identified it, but this is one that I would be anxious to work 
with you all on this and even, you know, Dr. Williamson, I 
thank you for bringing the idea forward that, oK, we would 
separate this group of patients out of direct contracting, but 
really if we are going to save the money, we won't call it 
direct contracting because that upsets too many people, but 
let's help that group of patients navigate the system and spend 
dollars more efficiently. That is where we could perhaps do the 
most good, not on the margins of the people who might, in fact, 
be in a direct contracting type of world.
    Yes, sir.
    Mr. Miller. I just say quickly, the models that we talked 
about can help with that, but it is also an example of how you 
can't have one size fits all, because some of those patients 
who need much more intensive help need to have a payment model 
that supports that, and it may be a lot of money for different 
things than they are getting now with the opportunity to save a 
lot of money on the other side.
    And there has been a lot of attention recently, for 
example, the Boeing model on the West Coast has focused on some 
of those highly-complex patients, project in New Jersey is 
focused on those kind of patients and showing very significant 
savings.
    But you also have to have some very significant reach 
change in the way care is delivered and a payment model to 
support that.
    Mr. Burgess. Yes, and I would not quarrel with that. You 
know, one of the things that I have heard over and over again 
today when Ms. Capps was in here talking about nurse 
practitioners, very frustrating. I mean, again, Dr. McClellan 
and Secretary Leavitt working on the Medicare Advantage Program 
in the mid 2000s, which we, of course, robbed in the Patient 
Protection Affordable Care Act and now given a waiver, but this 
was the whole idea if I remember correctly. It was a disease-
management care coordination, electronic health records, you do 
all these things in return for perhaps a little bit more 
reimbursement in the Medicare Advantage System.
    Dr. McClellan, do I recall that system correctly?
    Mr. McClellan. Yes. There have been a number of steps to 
try to get even specialized Medicare Advantage Plans or dual 
eligibles and people with complex illnesses, and those programs 
can work, but you are right. This is the population that could 
benefit the most from well-coordinated care and has the most 
fragmented payments. So it is a lot of obstacles to overcome.
    Mr. Burgess. Well, could we use that leverage and pivot, 
you know, perhaps our discussion of SGR reform to actually get 
to a more sensible system for those patients that are involved 
with spending the most money in the Medicare System? I mean, 
would that not be a correct approach to take?
    Mr. McClellan. I agree, and I think it, again, highlights 
the importance of this effort focusing on clear opportunities 
to improve care for particular kinds of patients, particular 
types of medical care and recognizing that the physician 
payment system can make a big difference in that, but there are 
other changes that are going on and other opportunities in 
Medicare today to reinforce and support those changes through 
steps like the measures used in the Medicare Advantage Program 
and the way the Medicare Advantage Program is set up.
    So those are all feasible.
    Mr. Burgess. Well, let me just say just as a wrap-up, Dr. 
Wilson, I really want you to concentrate on the maintenance of 
professionalism within our profession. As we see more of these 
things develop, ACOs, whatever the system is, there is an 
inherent danger for the doctor not to be the advocate for the 
patient, and historically we know that is correct relationship 
for the doctor to have with the patient. The health plan can't 
advocate for the--adequate advocate for the patient, the 
hospital can't be an adequate advocate. It has to be the 
physician. There has to be the maintenance of the 
professionalism within the profession, and I thank you for 
taking on that task.
    Mr. Pitts. The chair thanks the gentleman. We are voting on 
the floor. We are going to try to wrap this up.
    I will recognize Mr. Pallone for follow up and then Dr. 
Gingrey.
    Mr. Pallone. I just wanted to ask either Dr. Chernew or Dr. 
Miller, you can both respond if you want, the idea that 
Medicare should abdicate its responsibilities to protect 
seniors from exorbitant cost sharing in the name of private 
contracting, the idea that Medicare shouldn't place limits on 
the cost of care has been floated in a bill that was introduced 
by Representative Price and supported by some physician 
witnesses before the committee.
    The idea of unlimited balanced billing, of course, is not 
new, but it is one of the oldest requests of providers in 
Medicare to be able to charge whatever you want. But I want 
talk about the beneficiary impact. We don't have any 
beneficiary representatives on the panel here today, which is a 
shame, but I note that ARP in a letter strongly opposes efforts 
to increase beneficiary costs through private contracting. As I 
understand it this idea of balanced billing is not something 
that is very common in private sector networks.
    So maybe I will ask Dr. Chernew, in your work observing 
private health plans have you noticed a trend towards allowing 
physicians to bill enrollees in network, whatever they like, 
and if Mr. Miller wants to respond, too.
    Mr. Chernew. I have not noticed that trend, and I will save 
longer responses if you want.
    Mr. Miller. I think that the key thing is that there is no 
one change that is either desirable or necessary that will fix 
the system, that multiple things have to be done 
simultaneously, and that keeping the current fee-for-service 
structure and simply trying to fix it with one change may not 
do the kind of thing that you want and may lead to other kinds 
of problems.
    I do think that it makes sense, though, that patients have 
more sensitivity to the cost of services and that physicians 
and providers not be constrained as to whether they can deliver 
care based on what Medicare decides to pay them.
    So mechanisms that would enable them to set the right price 
as Dr. Chernew said earlier, as well as what the payment 
structure is, are going to be very important. But I think that 
you have to have a comprehensive set of reforms that changes 
the way the payment is made as well as what the patients' 
responsibility is.
    Mr. Pallone. I mean, I just wanted to mention, you know, 
choices beneficiaries would be forced to make in this situation 
because they are just overwhelming. I asked my staff to look at 
what a patient would need to consider by way of prices and in 
negotiation with a physician over a course of several treatment 
options for prostate cancer, for instance, and just to read a 
few, and maybe I will enter it into the record, extensive 
prostate surgery which there are five variations listed for 
Medicare with prices ranging from $1,100 to $1,700, removal of 
prostate, three variations ranging from $900 to $1,100, 
intensity modulated radiation therapy, seven--$567 per dose, 
but the number of doses required varies significantly from 
person to person. The dose plan for that therapy, $400 to 
$2,100. I mean, just to give you some examples.
    Dr. Chernew.
    Mr. Chernew. I guess what I would say broadly is the 
concern that I would have with these types of programs for 
starters--actually, let me say for starters, I believe in 
markets. I am an economist. I like markets as much as the next 
guy, in fact, probably more so. I am concerned in this case 
about market power. I am concerned that while I believe 
consumers can drive down prices for iPads, I am not so sure 
they can do that in healthcare for some of the reasons that you 
say.
    In Ann Arbor there was a situation where the faculty, I 
have been told anecdotally lobbied to get dental coverage for 
routine care. It was $60. They got the coverage for $60 per 
visit. The prices went up to $120.
    So I think if there is competition, you can solve these 
problems. I am not so sure there always is, and you have to be 
worried about. I think it is particularly hard in the Medicare 
population because you have a lot of people, at least like my 
grandparents, that are cognitively impaired, and so there is a 
concern about their ability to do some of these things, and 
obviously there is issues of disparities.
    My biggest concern would be that it would give you all 
frankly a path to keep Medicare rates lower than they otherwise 
would be, and I think that you shouldn't have an excuse for 
under-funding Medicare, and I worry that this might give you 
that excuse.
    But on the other hand I haven't studies this particular 
issue, and I don't have a particular position on it, but I do 
have the concerns that I outlined going forward in such a way.
    Mr. Pallone. Thank you. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman, and we are 
running out of time. Dr. Gingrey, you are recognized for 
questioning.
    Mr. Gingrey. Mr. Chairman, thank you very much, and I will 
try to get right to it.
    Dr. McClellan, I have got a letter in my hand that was 
actually sent to the House GOP Doctors' Caucus, April 15, 2011, 
subject: Reforming the Medicare Physician Payment System. The 
letter advocates new payment model options, including pay for 
performance, bundle payments to groups of physicians, or even 
blending elements of multiple models. The letter states that 
allowing Medicare to create multiple care models is important 
because there is no one-size-fits-all payment model that will 
achieve physicians and policymakers objectives for improved 
care and affordability. I am kind of quoting from the letter.
    What are your thoughts on the value of multiple care models 
as a solution to the SGR problem?
    Mr. McClellan. Well, Dr. Gingrey, you heard today there are 
a lot of models that can help support better care. I think what 
unifies them is not the jargon but the fact that they all can 
be linked to specific, meaningful steps to give patients better 
care that the surgeons have identified, the primary care 
physicians have identified, that all of these leaders from 
Madison have identified. And by focusing the reforms that this 
committee undertakes on actually achieving those improvements 
in care, I think we can target them more effectively.
    I would emphasize that that not only means leadership for 
physicians on identifying specific kinds of payment reforms but 
especially leadership on identifying how they can make care 
better by changing the payments because Medicare doesn't 
support all this now, and then accountability for doing that. 
You know, the quality impact, we have talked a lot about 
measures, and the cost impact, too, and that is a challenge, 
but we know so much more than we did a few years ago about 
this. There is so much more physician leadership now on these 
questions and especially with so many physicians in the House 
hopefully we can have----
    Mr. Gingrey. Yes. We got 21 now.
    Mr. McClellan. Right.
    Mr. Gingrey. Yes. I saw--I will stick with you just for a 
second, in your opinion does the solution to the SGR, 
Sustainable Growth Rate, lie simply in reforming how providers 
are paid, or do you believe a review of how Medicare benefits 
are structured, whether--we have talked about concierge care, 
even the private contracting I know has come up a number of 
times this morning might help bring about meaningful reform in 
physician payments.
    Mr. McClellan. Benefit reforms would really help and would 
emphasize that a lot of these private sector implementations of 
payment reforms go along with benefit reforms to actually save 
beneficiaries money by giving it more financial support to stay 
with their meds, to take their meds, to stay out of the 
hospital.
    Mr. Gingrey. Well, I know Dr. Williamson also talked about 
that in his testimony, and, Todd, I will go to you on this. You 
cite the benefits of private contracting within Medicare 
including the ability for the physicians to charge seniors less 
than they pay today in their out-of-pocket costs. As a medical 
provider of neurology why can't you charge a poor senior less 
than the Medicare-required rate?
    Mr. Williamson. We would subsequently be subsequent to 
penalties, criminal and civil as I said, and you know, I can 
tell you doctors want to do that a lot, but they can't. That is 
one thing that we frequently hear from our practice managers is 
you can't do this.
    And, you know, our premise is that doctors and patients 
should be free to define the value of their interaction. You 
know, the government has the responsibility to fulfill its 
promise to Medicare recipients. It was suggested earlier that 
private contracting might get the government a pass to not 
fulfill that promise. That is not what the Medicare Payment 
Empowerment Act is about. It wouldn't change any of the 
existing benefits that patients now have under Medicare. What 
it would allow is patients to have the option, if they could 
afford and they chose to, to spend their own money on their 
medical care, and it would not require them to forego their 
Medicare benefits if they want to see a doctor outside the 
Medicare System as they have to do now, which we think is 
wrong. And we think it is wrong for a doctor to have to opt out 
of Medicare for 2 years if he or she provides care and accepts 
payment for that care to a Medicare patient.
    Mr. Gingrey. I had another part to that, but Mr. Chairman, 
I know we have got about a half a minute left on the vote, so I 
will yield back and just say thank you to all seven of our 
witnesses. You all have been fantastic today. We really 
appreciate it. Thank you.
    Mr. Pitts. The chair thanks the gentleman.
    This has been an excellent hearing, excellent testimony, 
and I think we have taken a big step today in moving beyond 
previous discussions of the deficiencies of the Sustainable 
Growth Rate System to an examination of the kind of payment and 
delivery system we need and how to get there.
    First of all, I want to thank all of the groups that 
responded to the committee's bipartisan letter asking for their 
suggestions. Their input has been very valuable, and I want to 
thank this distinguished panel of experts who took the time to 
testify here today in an effort to help solve this difficult 
but extremely important problem.
    I want to remind the members that they have 10 business 
days to submit questions for the record. I ask that the 
witnesses all agree to respond promptly to those questions.
    With that the subcommittee is adjourned.
    [Whereupon, at 12:58 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
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