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



 
                    MEDPAC'S JUNE REPORT TO CONGRESS

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



                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 19, 2012

                               __________

                            Serial 112-HL12

                               __________

         Printed for the use of the Committee on Ways and Means





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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

WALLY HERGER, California             SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, JR., Louisiana  MIKE THOMPSON, California
PETER J. ROSKAM, Illinois            JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania            EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   RON KIND, Wisconsin
VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska               SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

        Jennifer M. Safavian, Staff Director and General Counsel

                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                   WALLY HERGER, California, Chairman

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


                            C O N T E N T S

                               __________
                                                                   Page

Advisory of June 19, 2012 announcing the hearing.................     2

                               WITNESSES

Glen M. Hackbarth, Chairman, Medicare Payment Advisory 
  Commission, Testimony..........................................     6

                        QUESTIONS FOR THE RECORD

Questions........................................................    47

                   PUBLIC SUBMISSIONS FOR THE RECORD

American Registry of Radiologic Technologists....................    52
Council for Affordable Health Insurance..........................    54
Integrated Health Care Coalition.................................    59
Medicaid Health Plans of America.................................    61
Medicare Rights Center...........................................    69
NAIC.............................................................    74
National Home Infusion Association...............................    78
National PACE Association........................................    85
National Rural Health Association................................    87
National Senior Citizens Law Center..............................    90
The Center for Fiscal Equity.....................................    94


                    MEDPAC'S JUNE REPORT TO CONGRESS

                              ----------                              


                         TUESDAY, JUNE 19, 2012

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 1100, Longworth House Office Building, the Honorable Wally 
Herger [chairman of the subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

                  Chairman Herger Announces Hearing on

                    MedPAC's June Report to Congress

Tuesday, June 19, 2012

    House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing 
on the Medicare Payment Advisory Commission's (MedPAC) June report to 
the Congress. The report details the Commission's recommendations for 
reforming Medicare and its payment policies. The Subcommittee will hear 
from MedPAC's Chairman, Glenn Hackbarth. The hearing will take place on 
Tuesday, June 19, 2012, in 1100 Longworth House Office Building, 
beginning at 10:00 A.M.
      
    In view of the limited time available to hear the witness, oral 
testimony at this hearing will be from the invited witness only. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    MedPAC advises Congress on Medicare payment policy. The Commission 
is required by law to submit its second annual report on Medicare 
payment policies by June 15.
      
    In its June report, MedPAC suggested reforming traditional Medicare 
benefit design to adjust beneficiary cost-sharing requirements and to 
encourage beneficiaries to be more involved in their care, providing 
illustrative options for improved patient cost sharing. The Commission 
also examined care coordination for dual-eligible beneficiaries, 
provided recommendations for improvement to the Program for All-
Inclusive Care for the Elderly (PACE), reviewed the type of care 
provided through Medicare Advantage Special Needs Plans, and offered a 
critique of the demonstration program for dual-eligible beneficiaries 
currently being implemented by the Centers for Medicare and Medicaid 
Services.
      
    Also included in MedPAC's June report is a statutorily-mandated 
examination of several topics related to Medicare beneficiaries 
residing in rural areas, including access to care, quality of care, 
adequacy of payment, and potential payment adjustments. The Commission 
did not supply recommendations in reviewing rural Medicare payment 
policies, but suggested principles to better inform Congress going 
forward.
      
    In announcing the hearing, Chairman Herger stated, ``Given the 
current fiscal issues facing the Medicare program, it is critical that 
the Committee ensures that taxpayer and beneficiary dollars are being 
spent appropriately. MedPAC's thoughts on reforming Medicare's benefit 
design are important as the Committee considers much needed and long-
overdue structural improvements to the program. Similarly, as Congress 
explores how to address the needs of beneficiaries living in rural 
areas while fulfilling its responsibility to taxpayers, MedPAC's 
insight as to whether special provider payment adjustments are 
warranted is also helpful.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on MedPAC's June 2012 Report to Congress.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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For questions, or if you encounter technical problems, please call 
(202) 225-3943 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
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    1. All submissions and supplementary materials must be provided in 
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    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman HERGER. The subcommittee will come to order. Today 
we will be hearing from the Medicare Payment Advisory 
Commission, MedPAC, on the analysis and recommendations 
contained in its June 2012 report. This subcommittee has heard 
from numerous witnesses over the last year and a half about the 
financial challenges facing the Medicare program.
    In fact, the Medicare trustees reported in April that the 
program will go bankrupt in 2024, a mere 12 years from today. 
Clearly time is of the essence.
    The subcommittee has also heard from several experts on 
ways to reform and improve the program in order to bring the 
program into the 21st century, slowed the rate of growth and 
protect Medicare for future generations. It is in this vein 
that we welcome MedPAC chairman, Glenn Hackbarth here today, to 
discuss the commission's June report.
    The commission has scrutinized the design of the 
traditional Medicare benefit and found it lacking. The 
traditional Medicare benefit consists of a patchwork of 
premiums, deductibles, copayments and co-insurance. It neither 
encourages appropriate utilization of care nor protects 
beneficiaries from the high out-of-pocket costs. Because of 
this fragmented structure, nearly 90 percent of Medicare 
beneficiaries have some type of supplemental insurance, and the 
evidence shows that supplemental coverage that eliminates some 
of the beneficiaries' cost-sharing responsibility result in 
higher program costs and higher premiums for all beneficiaries.
    I look forward to hearing more about MedPAC's 
recommendation on how to design a new benefit structure that 
meets and reflects the health care needs of today's seniors 
rather than remaining trapped in the 1960s.
    The June report also contains a chapter that examines 
several topics related to Medicare beneficiaries in rural 
areas. While maintaining an appropriate level and quality of 
care in rural areas is a challenge, it is what our constituents 
deserve. This issue is of critical importance to me and the 
rural northern California district that I am privileged to 
represent. It is also important to many of the members of this 
panel as well as to maintaining a high-functioning health 
system. We must ensure that payments made on behalf of 
beneficiaries and taxpayers are appropriate. MedPAC took on 
this challenge and provided some suggestions on how Congress 
may devise policies to maintain rural beneficiaries access to 
quality care while ensuring taxpayer dollars are spent wisely.
    This information is especially helpful as Congress assesses 
a series of special payment adjustments which are set to expire 
by the end of the year.
    There are no one-size-fits-all answers to these challenging 
health care questions, but in light of Medicare's and our 
Nation's financial challenges, we must critically review our 
existing payment policies to ensure they are accomplishing 
their goals.
    Finally, I am eager to discuss MedPAC's view on how to 
better improve care coordination for Medicare beneficiaries, 
including the dual-eligible population. The dual eligibles are 
among our Nation's most vulnerable and have unique challenges. 
There are several current delivery systems within Medicare that 
integrate care for these beneficiaries which show promise. 
However, with the new duals demonstration program being rolled 
out by the Centers for Medicare and Medicaid Services, some of 
the past successes may be at risk.
    Further integration is clearly necessary, but I am 
concerned that the administration's unilateral action to 
address this population's needs may undermine the protections 
guaranteed to all Medicare beneficiaries. This is a critical 
issue to get right the first time, and I know that MedPAC is 
concerned about it as well.
    Before I recognize Ranking Member Stark for the purpose of 
an opening statement, I ask unanimous consent that all members' 
written statements be included in the record.
    Without objection, so ordered.
    I now recognize Ranking Member Stark for 5 minutes for the 
purpose of his opening statement.
    Mr. STARK. Thank you, Chairman Herger, and thank you, 
Chairman Hackbarth, for being with us today.
    I look forward to your suggestions on how we can improve 
Medicare, and I want to congratulate and thank you for 
accepting an appointment for another term as chairman.
    Medicare is one of our Nation's best programs, but it has 
always been a work in progress, and it needs ongoing fine-
tuning and changing to keep it relevant so that it will operate 
in the best interest of the millions of seniors and Americans 
living with disabilities who rely on this program.
    For that reason, I am concerned about the proposals or any 
proposals that would shift costs to beneficiaries. Doing so I 
think would devastate them. The majority of them already live 
on tight fixed incomes, and what is more, research has shown 
that increased cost sharing leads to a reduction not only in 
unnecessary health care but these increased costs also 
discourage people from receiving necessary health care.
    The home health copayment, for instance, I think is largely 
ascribed to be used by old, sick, poor widows, and raising the 
price that they have to pay is just one more Republican effort 
to deny equal rights to women.
    I would like to remind all of us that MedPAC's report has 
given us a bunch of recommendations for payment updates that 
would yield savings without squeezing the beneficiaries. As we 
look to year-end business and needing to fix the physician 
payment system, and there are other offsets available as well. 
The overseas contingency operation's money is available to us, 
and I dislike the notion that we need to increase costs for 
beneficiaries in order to fix the physician payment system.
    I look forward to your thoughts, Chairman, and for the 
people eligible for Medicare and Medicaid, I hope you will 
address this idea that Medicare is going to go broke one of 
these days. The adjustments necessary to keep Medicare alive 
for the next 75 years I think are less than a 3 percent 
increase in premiums. And while I hope we don't have to do 
that, there are many other options, age differences changes 
that we have already done, raise, allowing earned--unearned 
income to be used in the tax, a host of changes all of which 
are modest and could would keep Medicare alive, and I hope that 
you will address some of those options that are available to 
us.
    I thank you.
    I thank, again, Chairman Herger, for holding this hearing 
and inviting you back to inform us about the state of Medicare.
    Thank you Mr. Chairman.
    Chairman HERGER. Thank you.
    Today we are joined by Glenn Hackbarth, the chairman of 
MedPAC. Mr. Hackbarth has served as MedPAC's chairman for 10 
years and is appearing before this subcommittee for the second 
time this Congress.
    We are pleased to have you with us once again. You will 
have 5 minutes to present your testimony. Your entire written 
statement will be made a part of this record. You are now 
recognized for 5 minutes.

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

    Mr. HACKBARTH. Thank you, Chairman Herger and Ranking 
Member Stark, and other Members of the Subcommittee, I 
appreciate this opportunity to talk about our June 2012 report.
    The report contains six chapters and covers quite a bit of 
ground, including reforming Medicare's benefit design, care 
coordination, care coordination, in particular, for dually 
eligible beneficiaries, risk adjustment in Medicare Advantage 
plans, serving rural beneficiaries and Medicare coverage for 
home infusion services.
    In the interest of time, I am going to focus my opening 
comments on just two of those chapters, the one on benefit 
design and the one on serving rural beneficiaries.
    Our chapter on benefit design includes a unanimous 
recommendation that the Congress should redesign Medicare's 
benefit package with the following elements: First, no change 
in aggregate beneficiary cost sharing at the point of service; 
second, add to the program an out-of-pocket maximum, 
catastrophic limit as it is sometimes called; third, wherever 
possible use fixed dollar specific, dollar amount copays 
instead of a percentage co-insurance; fourth, give the 
Secretary of HHS broad authority to modify the benefit package 
within parameters established by the Congress consistent with 
the principles of value-based insurance design; and finally, 
impose an additional charge on supplemental insurance purchased 
by Medicare beneficiaries.
    This recommendation is based on the following assessments 
and conclusions by MedPAC. First of all, cost sharing at the 
point of service is a blunt instrument that nonetheless is an 
essential tool in a fee-for-service, free choice of provider 
insurance program like Medicare. That said, we do not believe 
that aggregate patient cost sharing should be increased above 
the current level. We do believe however that the current 
structure is outdated, and its very design creates uncertainty 
and thereby fosters demand for supplemental insurance coverage.
    We believe an effective redesign of the Medicare benefit 
would reduce uncertainty by adding catastrophic coverage and 
converting co-insurance to fixed dollar copays.
    We do not favor prohibiting supplemental coverage. But we 
do believe that beneficiaries should bear at least a portion of 
the added cost that that supplemental coverage imposes on the 
Medicare program and the taxpayers.
    Now let me turn to the chapter on rural care. The Patient 
Protection and Affordable Care Act asked MedPAC to report on 
the following aspects of rural health care for Medicare 
beneficiaries. First, access to care, quality of care, the 
adequacy of Medicare payments to rural providers, and the 
appropriateness of the special payment adjustments in the 
Medicare payment system for rural providers.
    To respond to your request, we collected information from 
beneficiary surveys and focus groups, site visits to rural 
providers, Medicare claims and cost reports, Medicare reports 
on quality of care for rural providers, as well as meetings 
with many associations that have an interest and expertise in 
rural issues.
    Our major findings are as follows: On access, we find that 
there are large differences in service use across regions in 
the United States, a fact that is well known to this 
subcommittee, but only small differences between urban and 
rural providers in the same region. To us, this suggests that 
access to care is similar for rural and urban beneficiaries. We 
also find that beneficiaries' satisfaction with access is 
similar for rural and urban Medicare beneficiaries.
    On the issue of quality of care, we find that quality 
provided by rural providers is similar for most types of 
services, although rural hospitals have somewhat higher 
mortality and score less well on some process measures of care.
    In part, these differences may be due to lower volume in 
rural hospitals and different incentives for coding accurately 
as well as the need to provide emergency services in remote 
areas.
    Third, on the issue of payment adequacy, we find that 
Medicare payments are comparable for rural and urban hospitals, 
and then, as for the rural special payments of which there are 
a dozen, we have evaluated each using three criteria: One, is 
the payment provision targeted to isolated providers; two, is 
the magnitude of the adjustment empirically justified; and 
three, does the special payment preserve incentives for cost 
consciousness?
    For many of the 12 special payment provisions, targeting 
could be tighter in the magnitude of the adjustment that are 
justified, although the same might be said of some of the urban 
special payments as well.
    With that, Mr. Chairman, I am happy to answer your 
questions.
    [The prepared statement of Mr. Hackbarth follows:]


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.eps                                 

    Chairman HERGER. Thank you.
    As you noted in your report and as this subcommittee 
discussed at a previous hearing, the Medicare benefit has not 
changed in structure since its inception in 1965.
    Can you please explain why the commission felt it was 
necessary to offer recommendations on how the fee-for-service 
benefit should be redesigned?
    Mr. HACKBARTH. The most important element of any insurance 
program should be to protect people against the very high cost 
of illness. And as you well know, Medicare does not include any 
catastrophic limit on out-of-patient costs. In addition to 
that, the existing structure of patient cost sharing is quite 
complicated and very difficult for many beneficiaries to 
understand. We have this complex web of copayments and co-
insurance that can be, frankly, a little bit bewildering to all 
of us, not to mention to many Medicare beneficiaries.
    That lack of catastrophic coverage and the complexity of 
the benefit's cost sharing creates uncertainty and anxiety 
among Medicare beneficiaries and we believe contributes to the 
demand for supplemental insurance as a way of buying protection 
against this uncertainty.
    We think that by redesigning the benefit package along the 
lines we have described, we could update it and make it more 
consistent with modern benefit design, reduce uncertainty and 
more fairly distribute the burden of costs for Medicare 
beneficiaries.
    Chairman HERGER. Thank you.
    As someone who represents a rural district, I am well aware 
of how challenging it can be for some rural providers to remain 
viable, and I completely agree that we need to make sure that 
rural beneficiaries have access to quality care while also 
being responsible to the taxpayers footing the bill for the 
program.
    As Congress has to make tough decisions pertaining to 
specific payment adjustment policies, can you elaborate on your 
principles for evaluating special payments with an example of 
how to apply them?
    Mr. HACKBARTH. Sure. So our three principles are that a 
special payment adjustment should be targeted to isolated 
providers. By that, we mean a provider that if that provider 
were to go out of existence, that it would compromise needed 
access to care for Medicare beneficiaries.
    Second, we think that the amount of the adjustment ought to 
be based on data as opposed to just grabbed out of the air. So 
an example of that would be if we adjust for low volume, 
providers have higher costs when they have low volume; MedPAC 
has recommended in the past that there be a low volume 
adjustment. But we think that the amount of the adjustment 
ought to be consistent with how much costs increase when you 
have low volume, and we don't think that the current low volume 
adjustment is justified in that way.
    The third principle is that wherever possible, we would 
like the payment adjustment to be an add on to a prospective 
payment, which retains the incentives for cost consciousness, 
as opposed to just moving to cost reimbursement, which would 
eliminate those incentives.
    Chairman HERGER. I appreciate the comission's work to 
figure out which approaches can improve the coordination of 
care in our too often fragmented health care system. I am 
interested in the notion of establishing payment policy that 
rewards good patient outcomes.
    In fact, we heard testimony from a private health plan at a 
previous subcommittee hearing that uses such an approach that 
providers decide who they want to collaborate with and 
collectively determine what they need to do to provide high-
quality efficient care. Does the commission believe that giving 
providers the flexibility to determine how best the care for 
their patient population is a promising approach?
    Mr. HACKBARTH. One of the lessons that we draw from the 
demonstration projects that have been run in CMS on care 
coordination is that to be successful, a program of care 
coordination has to be carefully woven into the practice 
environment where it occurs. It is not possible to achieve good 
care coordination by imposing it externally. It is not the sort 
of thing that you can design from a distance and just sort of 
plug into a local health care delivery system.
    Instead, it needs to be more organic and part of the care 
delivery. So our general approach is to say that Medicare 
should move away from fee-for-service payment to payment 
systems that establish both financial and clinical 
responsibility for a defined population or for an episode of 
care and then allow providers the flexibility to adapt care 
coordination to their particular circumstances but hold them 
accountable for the results, both on quality and cost.
    Chairman HERGER. Thank you.
    Mr. Stark is now recognized for 5 minutes.
    Mr. STARK. Thank you, Mr. Chairman.
    Again, Chairman Hackbarth, thank you very much.
    In reforming the benefit design, you have got both a cap to 
protect high out-of-pocket costs and changes to the 
supplemental insurance, and I have reservations about the 
Medigap policy which would increase costs for beneficiaries, 
but I agree that the catastrophic cap would be an improvement.
    I am afraid that some people might separate this and do the 
Medigap policy without the cap. And why do you recommend that 
both of these policies happen together?
    Mr. HACKBARTH. Yes. We, first of all, let me say we do 
think that they should be done together. And as I said in my 
opening comment, we think that they are linked. In fact, that 
one of the reasons that beneficiaries want to have supplemental 
coverage is because of the inadequacies in the design of the 
existing Medicare benefit. And so we believe that if we correct 
those flaws, add catastrophic coverage, make the cost sharing 
more predictable and understandable, that that will reduce some 
of the demand for supplemental coverage, and then, in that 
context, we think it is appropriate to say if the beneficiary 
continues to want to buy supplemental coverage, they should 
face at least a portion of the additional costs that imposes on 
Medicare.
    Mr. STARK. In your recommendations, the current cost 
sharing stays the same in the aggregate. So even though some 
beneficiaries see costs go up and some will see them go down, 
the average beneficiary will stay the same.
    Now why was this important as a principle?
    Mr. HACKBARTH. When we look at the Medicare benefit package 
and compare it to benefit packages offered in the private 
market, we don't think that the existing Medicare benefit 
package is too rich compared to what exists for, say, a 
privately insured population. In fact, given the population 
covered, the elderly with higher health care costs, if anything 
it might be too lean not too rich.
    We recognize of course the fiscal constraints that exist, 
and so we adopted the guiding principle that we ought to not 
make it richer or leaner, keep it as it is in terms of 
actuarial value but reallocate the costs.
    Mr. STARK. But you have got, with the catastrophic cap, the 
average liability you say remains the same, but won't there be 
some will see the cost go down by about 250 and the others up. 
But, as I understand it, you are going to have a lot more see 
their costs go up than down. Is there any reason for that?
    Mr. HACKBARTH. Well, that is the way----
    Mr. STARK. How it comes?
    Mr. HACKBARTH [continuing]. That is the way the numbers 
work. Generally speaking, the beneficiaries who would see their 
costs go down are those that have very high expenses and 
benefit from the catastrophic limit. This is what insurance 
should be doing. This is the first responsibility of a good 
insurance program.
    The beneficiaries who would see their costs go up under our 
redesign would be beneficiaries who tend to use fewer services 
especially the beneficiaries that use only Part B services and 
do not have a hospital admission.
    It is important to note, though, that if you look at 1 
year, a 1 year snapshot, you have got this array of winners and 
losers. But for any given beneficiary, the risk of incurring 
high cost goes up over time. So if you look at the measure of 
the risk of having a hospital admission in a given year, in any 
1 year, the average beneficiary has a one in five risk of being 
hospitalized. But if you look over a 4-year period, it is one 
in two; half of all beneficiaries will have at least one 
hospitalization in a 4-year period.
    So having that extra coverage for a catastrophic illness we 
think makes a lot of sense and, over time, will benefit most 
beneficiaries.
    Mr. STARK. Thanks again for your testimony.
    Thank you, Mr. Chairman.
    Chairman HERGER. Thank you.
    Mr. Johnson is recognized.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Mr. Hackbarth, in your recommendations dealing with 
additional charge for supplemental insurance, I got to agree 
with Pete. The commission feels supplemental insurance coverage 
leads to increased utilization of services.
    Can you talk about why you think it is important to address 
Medicare supplemental coverage and what effects your proposal 
would have on Medicare spending and beneficiary behavior?
    I am of the belief that if a guy thinks he needs extra 
coverage over and above Medicare, he ought to be able to buy it 
and not pay a premium. Go ahead.
    Mr. HACKBARTH. We share your belief that if a beneficiary 
thinks that they need supplemental coverage, that they should 
be free to buy that coverage, and that is why we didn't propose 
any regulatory restriction on the ability to buy supplemental 
coverage.
    Having said that, the evidence to us is clear that that 
private decision to buy supplemental coverage increases costs 
for the Medicare program and the taxpayers. And we think that 
it is appropriate for the beneficiaries who make that private 
decision to buy supplemental coverage to face at least a 
portion of the additional cost that it imposes on taxpayers.
    Mr. JOHNSON. You say you think. Do you have empirical data 
that proves it?
    Mr. HACKBARTH. That costs go up with supplemental coverage?
    Mr. JOHNSON. Yes.
    Mr. HACKBARTH. Yes, we do.
    Mr. JOHNSON. And is there any one part of the country where 
it is more prevalent than another?
    Mr. HACKBARTH. That supplemental coverage is more prevalent 
than others?
    Mr. JOHNSON. Yes.
    Mr. HACKBARTH. I would be happy to get data on that for 
you. I don't have the data in my head, Mr. Johnson. I am sure 
there are variations.
    Mr. JOHNSON. Okay. Did the commission look at the health 
status of the beneficiaries that were involved in that 
decision?
    Mr. HACKBARTH. Yes.
    Mr. JOHNSON. And could it be that the beneficiaries are 
just doing treatment and procedures determined by their doctor 
based on their health needs instead of just going to the 
hospital?
    Mr. HACKBARTH. We believe that the evidence shows that the 
increased use in services from supplemental coverage is 
especially large on discretionary services.
    So if you look at the effect of supplemental coverage on 
hospital admissions, the effect is relatively low because most 
hospital admissions are not discretionary. There is a much 
larger increase in services in the areas that are more 
discretionary.
    Mr. JOHNSON. Are there any concerns that if some 
beneficiaries don't have supplemental coverage that they might 
put off treatment or a procedure until it is too late when the 
cost is much higher than it could have been?
    Mr. HACKBARTH. We think that when you take into effect, 
take into account all of the different effects that imposing 
the supplemental charge on, the charge on supplemental 
insurance is warranted and will result in lower costs for the 
Medicare program.
    Mr. JOHNSON. How do you account for that? What makes you 
believe that?
    Mr. HACKBARTH. The empirical research that we and others 
have done.
    Mr. JOHNSON. I am wary of that. What happens to 
beneficiaries if only some of the recommendations are 
implemented if the additional charge is implemented without 
making the benefit package better for beneficiaries, and could 
that result in beneficiaries' dropping their coverage and then 
having to a pay more for their health care in the long term?
    Mr. HACKBARTH. Again, we think that all of these 
recommendations that we have made on benefit redesign are a 
package and should be done together, not one without the other. 
So we would not support the charge on supplemental insurance 
without the benefit redesign.
    Mr. JOHNSON. You know you are charging people for buying 
extra insurance; that is like putting an extra charge on a 
gasoline tank because you are buying gasoline. I don't 
understand that. I think it is wrong, by the way.
    Go ahead. I think my time is about expired.
    Mr. HACKBARTH. May I respond to that, sir?
    Chairman HERGER. Yes.
    Mr. HACKBARTH. The difference is that the charge on 
gasoline--the purchase of gasoline does not increase the cost 
for taxpayers, the individual decision to buy purchase 
gasoline. The individual decision to purchase supplemental 
coverage, the costs of that are not borne by the beneficiary. 
Most of the costs of that are borne by the taxpayers and that 
is why we think the charge is warranted in this case.
    Mr. JOHNSON. What about not having any health insurance at 
all? Under your condition, any time we buy health coverage, it 
is going to raise the cost of health care, according to you.
    Mr. HACKBARTH. That is a completely different issue. Here 
we are talking about----
    Mr. JOHNSON. No, it is not. It is insurance.
    Mr. HACKBARTH [continuing]. Here we are talking about 
beneficiaries who are insured by the taxpayers making a private 
decision that further increases the burden borne by the 
taxpayers.
    Mr. JOHNSON. Okay, thank you, Mr. Chairman.
    Chairman HERGER. Mr. Kind is recognized.
    Mr. KIND. Thank you, Mr. Chairman, for having this hearing.
    Chairman Hackbarth it is always good to have you before us 
and thank you for the work you and MedPAC does in preparing 
your report every year.
    Obviously, as a representative from a large rural district 
in western Wisconsin, I intend to dial in quickly on what 
MedPAC is looking at in regards to access to care in rural 
versus urban areas, and certain incentive payments have been 
established there. I think it is important that we continue to 
review that. But also in light of the fact that we are dealing 
with some pretty tough budgets around here, I am sure the 
incentive payments for rural providers is something that will 
be considered in the context of budget discussions.
    But your report now is not recommending any type of across-
the-board cut as far as rural incentive payments, is that 
correct?
    Mr. HACKBARTH. No, our approach, Mr. Kind, would be to 
better target adjustments using the criteria that I described 
earlier: Are the providers isolated? Are the adjustments 
empirically justified? And do they preserve incentives for cost 
consciousness?
    Mr. KIND. Did you guys do any type of analysis on what the 
potential impact of some cuts for rural providers might be?
    Mr. HACKBARTH. Well, again, our goal is to target as 
opposed to just cut across the board. And I emphasize that 
because there seems to be some confusion in the commentary on 
our report that I have seen. And what we want to do is target, 
not just in order to make sure that Medicare dollars are used 
wisely, but it also has very important implications for the 
quality of care.
    One of the issues that we discuss in our chapter is the 
relationship between volume of services and quality. And I 
think you know that there is a well established relationship 
between volume and quality.
    To the extent that Medicare supports many low-volume 
hospitals and discourage consolidation, not only does that cost 
Medicare more money, it results in lower quality for rural 
beneficiaries.
    Mr. KIND. Also, Medicare utilization data shows that 
Medicare use in rural provider settings is substantially higher 
than in urban settings, and I think approximately 46 percent of 
all patients in rural hospitals are Medicare beneficiaries 
versus 31 percent in urban facilities.
    Medicare payment costs therefore have a much greater impact 
obviously in the rural areas than in the urban areas.
    In fact, one study shows that 35 percent of all rural 
hospitals currently operate at a financial loss.
    Do you ever look at the margins when you are doing your 
analysis and preparing your reports?
    Mr. HACKBARTH. Yes we do. And included in the chapter is a 
summary of that analysis. We closely look at the margins for 
our March report each year, as you know, on payment updates, 
and we repeat some of that analysis here as well as. And many 
of these services, especially in the post-acute area, the 
margins for rural providers, as well as urban providers, are 
really quite high.
    In the case of hospitals, the margins, Medicare margins for 
rural hospitals are actually higher than the Medicare margins 
for urban hospitals. Granted, however, that they are negative 
in both cases for urban and rurals. We base our payment rate 
recommendations for hospitals, urban and rural alike, on what 
we refer to as an efficient provider analysis. In fact, that is 
what we are required to do by statute. And suffice to say that 
we have concluded that both urban and rural providers can 
provide high quality care at the existing Medicare rates.
    Mr. KIND. Obviously, the 800-pound gorilla in this hearing 
room today is waiting to see what the Supreme Court is going to 
do in the Affordable Care Act. I think there are three major 
revolutions occurring in the health care system that are going 
to continue regardless of what the Court may decide in the next 
week or two. One is obviously the HIT build-up, which is long 
overdue, and that is moving forward now and we need to continue 
to have that move forward. The other is delivery system reform. 
We have talked about this before. And the other, ultimately, is 
the payment reform. We need to keep striving for it so we are 
getting payments based on value or outcome of care. On that 
last point, what more can be done in order to accelerate the 
payment reform in the health care system?
    Mr. HACKBARTH. We think there is a lot of good work 
underway looking at new payment methods, whether it be bundling 
around hospital admissions or medical homes or accountable care 
organizations. And we have long supported those efforts.
    My biggest concern is the pace of change.
    And the problem that we have collectively, all of us, is 
that to some extent payment reform cannot proceed without 
delivery system reform. The two are inextricably linked to one 
another. So I think that the critical question for the Medicare 
program as well as for private payers is what are the steps 
that we can take to accelerate the rate of reorganization of 
our care delivery system?
    And that is a big topic in its own right. I think part of 
that is, frankly, and I know this isn't necessarily welcome 
advice is that life under fee-for-service Medicare has to get 
more difficult. Despite the complaints that we often hear from 
providers about how the payments are too little, the reality is 
that life under fee-for-service is still very comfortable for a 
lot of people, and if we want them to migrate to new payment 
systems, there needs to be consistent pressure on fee for 
service.
    Mr. KIND. I would agree.
    Thank you, Mr. Chairman.
    Chairman HERGER. The gentleman's time has expired.
    Mr. Reichert is recognized for 5 minutes.
    Mr. REICHERT. Thank you, Mr. Chairman, thank you for 
holding today's hearing.
    And I think we all recognize that the Medicare Payment 
Advisory Commission is important to us and a useful resource 
for Congress as we move forward to work together to reform the 
Medicare program, to make sure that it is there for generations 
to come and to protect those current beneficiaries.
    I want to thank you, Mr. Hackbarth, and your fellow 16 
commissioners for your work, and I know it is not easy work. 
But I have noticed some things in some of the documents 
provided to us, I know that you hold community hearings and try 
to reach out to beneficiaries in the public as you look at your 
information. But you talked about analysis of some of the data, 
you talked about some of the evidence that you have collected.
    And I am just wondering in this process that you are 
presenting today, did you have the opportunity to assemble 
focus groups or do some polling or tele-town halls or town 
halls to talk to the beneficiaries?
    Mr. HACKBARTH. Yes.
    Mr. REICHERT. I think that is important.
    And you said yes. So what did you learn from the 
beneficiaries as you talked about, I think Mr. Johnson's 
points, to concerns as to whether or not people like to delay 
or even forgo treatment because of some of the cost increases 
that he is talking about and the copays for supplemental 
insurance? And if you could comment on, what are you hearing 
from the beneficiaries as you look at these changes?
    Mr. HACKBARTH. So what we heard in our focus groups on the 
Medicare benefit package was that, in fact, there is a lot of 
anxiety among beneficiaries about their ability to afford 
needed care. And they also find the existing Medicare payment 
structure, the existing benefit structure, to be quite 
confusing and the combination of those two things, the fear of 
high costs and the complexity, are very important factors in 
their wanting to buy supplemental insurance coverage. And I 
think we can all relate to that.
    Another important finding from our focus groups was that 
there is a bit of a difference at least between how current 
Medicare beneficiaries and people who are just before Medicare 
eligibility look at these issues, so that people who are not 
quite yet eligible for Medicare and are often insured say 
through employer-sponsored coverage, they are a little bit more 
willing to say, look, I am prepared to have some co-payments at 
the point of service as long as they are understandable and 
predictable in exchange for a lower premium. They make those 
trade-offs more readily, whereas current beneficiaries are, 
frankly, more fearful.
    Mr. REICHERT. There is a little fear connected with the 
current beneficiaries----
    Mr. HACKBARTH. Yes. Yes.
    Mr. REICHERT [continuing]. Around this change.
    Mr. HACKBARTH. Yes.
    Mr. REICHERT. And is there work being done to help ease the 
concerns or----
    Mr. HACKBARTH. Well, we think the most important work that 
can be done is to restructure the benefit package to make it 
simpler and to provide catastrophic coverage. That is what the 
focus groups tell us beneficiaries want.
    Mr. REICHERT. I was also, just to switch here real quick 
here, move to the section of the report that refers to care 
coordination, fee for service, I was a little surprised to 
learn that in your comments, there is no overwhelming evidence 
that care coordination saves money and is more efficient. Can 
you explain that, please?
    Mr. HACKBARTH. Yes. So in recent years, CMS has run a 
substantial number of care coordination demonstrations. There 
is a variety of different approaches. CBO several months ago 
did a much discussed summary of the evidence and sort of the 
bottom line conclusion was that there weren't a whole lot of 
dramatic clear successes in reducing costs and improving 
quality.
    We did our own examination of those demonstration projects 
and the results and came away with maybe a slightly different 
conclusion. What we found is some indication of some things 
that work, but as we look at the overall picture, it seems to 
us that what works in care coordination is highly dependent on 
the context. And as I said in my earlier comment, care 
coordination to be effective in reducing costs and improving 
quality needs to be organic, needs to be part of the care 
delivery system. It can't be readily imposed from the outside 
in sort of a plug-in module, if you will.
    And so the conclusion, the policy conclusion that we draw 
from that if is if we want good care coordination--and I know 
we all do--the best approach is to create both clinical and 
financial accountability for a group of providers, have clear 
measurements of success, and then give them some room to adapt 
care coordination approaches to their particular circumstance.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Chairman HERGER. Mr. Pascrell is recognized for 5 minutes.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Mr. Hackbarth, we did not have a hearing on the March 
MedPAC report. So I want to take the opportunity to ask a 
question about it if I may.
    As we look toward the end of the year and the need for a 
physician or other health care, health extenders, I am worried 
that my colleagues across the aisle hope to offset a big chunk 
of the cost on the backs of beneficiaries. I am not saying that 
is what their objective is; I am saying I am concerned about 
it. And that is totally unacceptable in view of what the whole 
purpose of the health care act was.
    We have many viable offsets. You have been pretty specific 
about some of them. Can you remind us of the recommendations 
from the March report with regard to market basket updates? 
What is the policy justification for these recommendations? And 
would these recommendations yield a saving?
    The MedPAC estimates in March recommendations would save 
$60 billion over 10 years. So I would like you to answer those 
three questions with regard to what one of our major objectives 
with health care reform was all about.
    Mr. HACKBARTH. So, in our March report, we had the series 
of recommendations most of them related to the update, the rate 
increase for the various provider groups. In the aggregate, as 
you say, our rough estimate is that if those recommendations in 
our March report were adopted, they would save roughly $60 
billion over about 10 years.
    Now I would add the caveat that of course that we don't do 
the estimates, the official estimates for the Congress, CBO 
makes those estimates. But that is our rough estimate to the 
savings.
    Mr. PASCRELL. Can you remind us of the recommendations that 
would bring this about?
    Mr. HACKBARTH. Yes. So, as you know, Mr. Pascrell, we make 
update recommendations for each of the different provider 
groups, hospital, inpatient, outpatient services, physicians, 
all of the post-acute providers, skilled nursing facilities, 
home health agencies, long-term care hospitals and patient 
rehab hospitals, ESRD providers, across the whole board. In 
each case, what we do is what we refer to as a payment adequacy 
analysis where we look at the variety of different type of data 
on access to care, quality of care, access to capital for 
providers. There are margins on Medicare business, and that is 
the foundation, the analytic foundation for the recommendation.
    This sort of summarizes the recommendations across the 
board. None of our update recommendations were higher than 1 
percent. We recommended 1 percent for hospital inpatient 
outpatient services and for dialysis facilities.
    All of the others were less than 1 percent or zero, and in 
a few cases, we recommended rebasing of the rates, which would 
actually be a reduction in the rates over time. Specifically, 
we recommended rebasing for skilled nursing facilities and home 
health agencies.
    Mr. PASCRELL. I would recommend, Mr. Chairman, that the 
members make sure they go back to this March report, which is 
pretty succinct, I thought more so than usual, and this cost 
savings is not just a myth, and whether we are talking about 
CBO numbers or anybody else's numbers; we are talking about 
real savings. And that is what we need in health care reform, 
one of the things we need in health care reform.
    And I have one other quick question if I may, do you 
believe that health care reform does indeed move us toward a 
Medicare program that pays providers based on the quality of 
their services and not the quantity? Do you think that that is 
what it actually does? Or will do?
    Mr. HACKBARTH. Well, as I said, in response to Mr. Kind, we 
do believe that there is a lot of important work underway in 
terms of changing the Medicare payment systems, better reward 
quality and cost. I am happy to say that much of that work is 
based on or related to MedPAC recommendations in the past.
    So we are encouraged to see that going forward.
    Mr. PASCRELL. Mr. Chairman, I would ask you the final 
question if I may before I stop here.
    Chairman HERGER. The gentleman's time has expired.
    Mr. PASCRELL. If I may ask a question.
    Chairman HERGER. The gentleman's time has expired, but you 
are welcome to come and visit with me. We will move on.
    Mr. PASCRELL. Thank you, Mr. Chair.
    Chairman HERGER. Dr. Price is recognized for 5 minutes.
    Mr. PRICE. Thank you, Mr. Chairman.
    And it is good to see you again, Dr. Hackbarth. We 
appreciate the information that you provided, and I want to 
echo Mr. Pascrell's commanding the March 12th report because I 
think it outlines a lot of things that may or may not result in 
a higher quality of health care. The decisions that we make 
here and the decisions that you make have real life 
consequences out in the real world. Seniors who receive their 
health care are affected by the things that you recommend and 
the things that we do.
    In response to Mr. Reichert's question to you, have you 
talked to beneficiaries--you said that you had been in town 
halls and you talked to beneficiaries--have any of those 
beneficiaries said that they wanted their life under fee-for-
service to get more difficult?
    Mr. HACKBARTH. No, I don't think that beneficiaries 
typically think in those terms. I think that generally 
speaking, Medicare beneficiaries like the Medicare program, I 
don't think they think in terms of fee-for-service versus 
others so much.
    Mr. PRICE. But in fact that is what you said wasn't it? You 
said that ``life under fee for service has to get more 
difficult.''
    Mr. HACKBARTH. Yes.
    Mr. PRICE. Tell me what that means. What does that mean for 
the patient?
    Mr. HACKBARTH. We believe----
    Mr. PRICE. What does that mean for the patient?
    Mr. HACKBARTH. Better care I believe.
    Mr. PRICE. Life getting more difficult means better care?
    Mr. HACKBARTH. Life getting more difficult for fee-for-
service providers, encourage them, encouraging them to move to 
new payment methods that are more focused on producing high 
quality care at a lower cost.
    Mr. PRICE. Help me understand this thing. Life getting more 
difficult, you want life to get more difficult for the folks 
taking care of the patients?
    Mr. HACKBARTH. And open doors for them to new payment 
methods.
    Mr. PRICE. When life gets more difficult for the doctors of 
this land, how does life get better for the patients of this 
land?
    Mr. HACKBARTH. The key point, Dr. Price, is that our goal 
is not just to make life more difficult for doctors but also we 
want to create new opportunities.
    Mr. PRICE. So one of your goals is to make life more 
difficult for doctors I guess I just heard you say.
    Mr. HACKBARTH. We think that there needs to be pressure on 
fee for service to encourage people to move to new payment 
models that better reward quality while keeping costs down.
    Mr. PRICE. I think this is really illuminating. And I 
appreciate your being candid. I think this is extremely helpful 
because MedPAC believes that fee for service ought to go away. 
Right?
    Mr. HACKBARTH. Over time, we think----
    Mr. PRICE. That we ought not have individual patients being 
able to find an individual doctor that they trust to say I 
want, please, for you to provide this service for me and under 
a fee-for-service model that----
    Mr. HACKBARTH. Actually, no, we didn't say that. And I'm 
glad you raised this. We believe that Medicare beneficiaries 
should have options for their insurance coverage.
    Mr. PRICE. Is fee for service one of those options?
    Mr. HACKBARTH. Yes, and there could be plans under Medicare 
Advantage, for example, that say that what we want to do is 
offer old style fee-for-service and if there is a market----
    Mr. PRICE. In that ``life more difficult'' arena?
    Mr. HACKBARTH. If patients and physicians and other 
providers choose that, we think that option should be 
available.
    Mr. PRICE. In your March 12th MedPAC report, you say that 
access, Medicare, new Medicare patients needing access to 
physicians is becoming more difficult. In fact, your survey 
found that one in four Medicare patients looking for a new 
physician were having trouble finding one.
    Mr. HACKBARTH. Primary care physician, yes.
    Mr. PRICE. Tell me, do you believe that an increased or an 
out-of-pocket spending limits or--and decreasing the 
beneficiary cost protections reducing those, does that increase 
or decrease access to care?
    If I take the information from your March report, which 
says that new Medicare patients are having trouble finding 
docs, and I take the information from your June report, that 
says there ought to be a cap and you ought to have copays, 
how--do you have any data that demonstrates that your 
recommendation in this report will increase Medicare patients' 
access to primary care physicians?
    Mr. HACKBARTH. We think that the----
    Mr. PRICE. I know you think that. Do you have any data?
    Mr. HACKBARTH. The response to the problems in access to 
primary care is to increase payment rates specifically for 
primary care services.
    Mr. HACKBARTH. Multiple reports made it clear that we think 
that the payment rates for primary care services are too low, 
and that is a major factor in access problems, not just for 
Medicare beneficiaries but for all Americans to primary care.
    Mr. PRICE. Mr. Chairman, my time has expired, but I think 
that I would like to follow up with questions with Mr. 
Hackbarth in writing and encourage others to do the same. Thank 
you.
    Chairman HERGER. Thank you very much.
    Mr. Blumenauer is recognized.
    Mr. BLUMENAUER. Thank you.
    Well, I want to just follow up on this line of inquiry, 
give you a chance to elaborate. First of all, I didn't hear you 
say that you wanted to make life more difficult for patients, 
and I think it--I am inferring from what you say that having a 
situation where the default is fee for service and rewards 
volume over value may be more convenient for some providers but 
is not necessarily the best optimal care and is not necessarily 
in the best interests of patients.
    I don't want you to be trapped into saying because you--I 
understood you to say you wanted to have some, a little 
friction so the default isn't what is easiest but necessarily 
not optimal care. Do you want to elaborate on that a little 
bit? Did I misunderstand what you were saying?
    Mr. HACKBARTH. You are correct, Mr. Blumenauer, in your 
description. I ran a very large physician group in Boston, 600 
physicians, and I feel like I understand physicians pretty well 
and work pretty well with them. And our group was able to 
practice very, very high quality medicine, as good as anybody 
in Boston, a pretty tough market, and do so at a lower cost, 
and that is because we weren't dependent on fee for service.
    We were paid through other means that actually allowed us 
to better focus resources on the needs of patients, do things 
in care coordination without worrying about whether they fit a 
Medicare billing code and deploy resources with one goal in 
mind, how do we take this pool of resources and get the best 
quality of care for our patients. What we think is that over 
time, the whole system would benefit from moving away from fee 
for service and all of its rigidity toward a system much more 
focused on value for patients and for the taxpayers who pay the 
bill.
    Mr. BLUMENAUER. And nothing that you have suggested would 
eliminate the option for people who want to use what for most 
of the United States is being clear is being outmoded and 
ineffective, but people could still have fee-for-service 
options if they wanted to do the old style, reward volume over 
value.
    Mr. HACKBARTH. A consistent theme over the years in our 
recommendations, and it shows up again in our benefit redesign 
recommendations, is that we don't want to deny choices. We 
think that people ought to have choices, including Medicare 
beneficiaries, but they need to start seeing the cost 
implications of the choices that they make, and that applies 
both to patients and providers. That is the only way that we 
are going to deal with our cost challenges in Medicare and the 
broader health care system.
    Mr. BLUMENAUER. But you are seeking to do this in a 
holistic fashion.
    Mr. HACKBARTH. Right.
    Mr. BLUMENAUER. Rather than a blunt instrument. I note with 
no small amount of irony that some of my Republican friends are 
all in favor of shifting much higher costs on to the backs of 
senior recipients and looking for systems that have higher 
copays, that have higher out-of-pocket expenses, more 
confusion, if you will, and complexity, but this is fine in the 
aggregate, but somehow when you are offering things that are 
more nuanced and fine tuned that somehow we are diving in and 
suggesting that this is something that is negative or 
nefarious, and I just, with all due respect, reject that 
notion.
    I have deeply appreciated what MedPAC has done over the 
years in terms of trying in an unvarnished fashion to give us 
some useful information. It is Congress that is continually 
adding complexity. It is Congress that hasn't stepped up for 
decades, and now we reach a point where it can't continue as it 
is.
    I see my time is about to expire. I was very interested in 
pursuing the transitional care process in terms of care 
coordination. I will probably submit something to you in 
writing on that because we have some legislation we are 
reintroducing to try to have a transitional care payment in the 
light of the larger context.
    Thank you, Mr. Chairman. I will yield back.
    Chairman HERGER. Thank you.
    Mr. Buchanan is recognized for 5 minutes.
    Mr. BUCHANAN. Thank you, Mr. Chairman, for holding this 
important hearing today.
    I represent about 200,000 seniors that rely on Medicare in 
my district. I want to ensure that seniors have access to 
quality health care, as all of us do. Millions of Americans are 
struggling, especially seniors living in our area on fixed 
incomes. I understand the average income of a Medigap 
policyholder is less than $30,000 a year. In Florida, we have 
over 650,000 seniors on Medicare that have a Medigap policy. 
Medigap is critical to allowing these seniors who live on fixed 
income to budget the needed care and expect the unexpected 
medical expenses. Should we be concerned that restricting 
supplemental coverage could result in skipped doctor visits 
that are actually needed and could lead to more costly care in 
the long term?
    Mr. HACKBARTH. Well, Mr. Buchanan, again, I want to 
emphasize that our approach is not to restrict access to 
supplemental coverage or deny people the option of buying 
supplemental coverage.
    We do think that they should face at least a portion of the 
cost implications of that choice. When you pay a supplemental 
insurance premium, you are only paying a small fraction of the 
added cost to the Medicare program, and so we think that people 
need to see a bit of that added cost that the taxpayers incur 
as a result of their decision, but for sure, they ought to 
retain the choice.
    In our chapter on benefit redesign, we present an analysis 
that shows that if the benefit package is redesigned along the 
lines that we describe, catastrophic coverage and a 
restructuring of the copays and some people react to that by 
reducing their supplemental coverage, in fact, they may be 
better off financially. And that is because right now a lot of 
people are buying supplemental coverage out of fear and 
uncertainty because of the lack of catastrophic coverage and 
the confusing benefit design. But the amount they pay in for 
supplemental coverage, they don't get out, again, in benefits. 
They are overpaying for it. And so they could actually be 
better off if we have a redesigned benefit package and less 
comprehensive supplemental coverage.
    Mr. BUCHANAN. I just want to ask you, because we have got 
limited time, a second question. In your report, the commission 
highlights some serious concerns with the demonstration program 
that CMS is currently implementing for dual-eligible 
individuals. I am concerned or I get these concerns expressed 
to me that CMS is implementing this program with nothing 
definitive in terms of measurement or some way to compare the 
outcomes. Should CMS be using some sort of measuring stick to 
gauge success while helping the people that are at risk in 
terms of that population?
    Mr. HACKBARTH. We think that having a strong measurement 
system is a very important part of moving toward a new approach 
for dually eligible beneficiaries. Many of these beneficiaries, 
as you well know, are really quite vulnerable patients that 
have either cognitive or physical limitations and have really 
unique sort of clinical and social service needs, and so we 
think an important part of this movement needs to be a robust 
measurement system.
    We have limited measures currently for the so-called SNPs, 
the special needs plans, that serve dually eligible 
beneficiaries under Medicare Advantage. That measurement system 
is not robust enough.
    The good news is that CMS has engaged the National Quality 
Forum, which is sort of the national arbiter of quality 
measurement, to enhance the measurements for the dually 
eligible population. That is encouraging, but there is more 
work that needs to be done.
    Mr. BUCHANAN. Why haven't they taken a more aggressive 
approach in terms of actually measuring it because I don't know 
how you manage it if you can't measure it, you know, from that 
standpoint.
    Mr. HACKBARTH. Well, I think that they are taking an 
approach to push the measurement ahead. It is just the 
synchronizing of that with the demonstrations that has us 
worried. We are worried about really large-scale demonstrations 
that move too quickly relative to our ability to assess quality 
in the plans.
    Mr. BUCHANAN. Thank you.
    I yield back, Mr. Chairman.
    Chairman HERGER. Thank you.
    Mr. McDermott is recognized.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Thank you, Mr. Hackbarth, for coming here and talking to 
us.
    You talked briefly about something I want to expand on, 
primary care. In about 2 weeks, sometime in the next 2 weeks, 
the Supreme Court is going to decide whether we have a national 
plan under the Affordable Care Act. One of the needs is going 
to be for primary care physicians. Everybody knows that we need 
half the doctors to be in primary care, but we have only got 
about a third. Why is that? Because of the compensation. And 
you had asked the RUC, the Relative Value Update Committee, to 
do a comprehensive review of the E&M codes. They talked you out 
of it and came back with a new set of codes for care transition 
and for chronic care management, and I would like to hear your 
understanding because clearly, the RUC is where the prices are 
decided; 87 percent of their recommendations are accepted by 
MedPAC, and it is dominated by specialists. There is never--the 
primary care people don't have a chance on that committee.
    So I would like to hear you talk about how we are ever 
going to get it balanced so that a primary care physician can 
make a decent living in some places and therefore go into that 
part of medicine, or are we just going to have this same mess 
until we have real breakdown in the system?
    Mr. HACKBARTH. I don't remember ever being talked out of 
anything by the RUC, just for the record.
    Mr. MCDERMOTT. Maybe that is my interpretation. They didn't 
give you what you asked for.
    Mr. HACKBARTH. Yeah, right. Let me make a few points.
    One, we have pushed aggressively for a number of years for 
there to be a significant effort to across the board improve 
the relative values in the Medicare payment system. What we 
have said is that CMS is overly dependent on the RUC for 
determining relative values, and we have urged them for a 
period of years now to develop alternative sources of 
information and expertise that can--not necessarily replace the 
RUC but at least complement what they get from the RUC. We are 
particularly concerned that estimates of time, the time 
involved in each of the 7,000 codes are off, and maybe not by a 
little, but off substantially. Time is the single--time 
estimate is the single most important factor in determining the 
relative value. So if the time estimates are off, that is a 
big, big deal.
    The RUC process for estimating these things is they do 
surveys of physicians in various specialities, and that is the 
raw material, but often the response rate of these surveys is 
very limited, a small number of physicians enters the issue of 
self-interest in the responses. So we think CMS needs to 
develop alternative databases, for example, on the specific 
issue of time and we have made----
    Mr. MCDERMOTT [continuing]. What prevents you--I would like 
to stop you right there because I put a bill in saying you 
should have your own analytic people doing this rather than 
having the RUC. What is it that prevents you from doing that?
    Mr. HACKBARTH. Well, the question is what prevents CMS from 
doing that.
    Mr. MCDERMOTT. Yes.
    Mr. HACKBARTH. And it sounds like we are telling them to do 
the same thing. We think they need to be less dependent on the 
RUC and have more alternative sources of information to guide 
their decisions. It sounds like we are together on that issue.
    One last point on primary care. We do think that this 
revaluation could help primary care, but the problems that we 
face in primary care are so urgent that we need to do something 
in addition to improving the relative values. Part of that is 
incorporated in the Patient Protection and Affordable Care Act. 
There is a bonus for primary care, as you well know. We think 
that is a constructive step. But it may be that we need to do 
some additional stopgap measures, for example, payments for the 
care coordination in addition to looking at the relative----
    Mr. MCDERMOTT. Can I make another suggestion? That is make 
medical school free and require 4 years of primary care in 
repayment to the country as we do with ROTC officers? If we did 
that, we would have people in the pipeline coming out trained 
to do primary care, and we would have them not deeply in debt. 
It seems to me that is one of the main things that we do not 
talk about when we talk about payment reform.
    Thank you, Mr. Chairman.
    Chairman HERGER. Mr. Gerlach is recognized.
    Mr. GERLACH. Thank you, Mr. Chairman.
    Mr. Hackbarth, I am going to just raise a quick question 
with you and really rather than you replying now, maybe you 
might want to get back to me a little bit later because it 
deals with the March report, not the June report, which is the 
focus of today's hearing, but I did want to raise this issue 
with you with the hope that you can provide us with your 
insight and thoughts on it.
    Mr. HACKBARTH. Sure.
    Mr. GERLACH. I have a constituent who got 3 days of home 
health care services, and ultimately the agency billed for that 
service for a total of $1500, ended up getting reimbursed, 
however, by CMS for $3,000, even though it was only billed at 
$1500 because of episodic care regulations as they are 
currently written. So we wrote to CMS about this issue and, 
about a month ago, got a response back from Lawrence Wilson, 
director of the Chronic Care Policy Group, who says basically 
that in your, MedPAC's, March report shows that Medicare 
payments for home health agencies to freestanding home health 
agencies in 2010 were, on average, 19.4 percent higher than the 
provider's costs. A huge amount of reimbursement above the cost 
obviously. MedPAC's estimate of Medicare margins for home 
health agencies in 2012 is estimated to be 13.7 percent. As a 
result, we, CMS, are working diligently to implement provisions 
of the Affordable Care Act that would recompute the payment 
rates for home health care services to ensure they more 
accurately align with the cost of providing efficient and high 
quality services.
    Do you have any thought at the moment or, again, get back 
to me after the hearing with a more comprehensive answer as to 
where in your opinion CMS is with their examination of this 
issue, such a high reimbursement for services above the costs 
of the providers, and what can be done to make those 
reimbursements more accurately reflect the costs that are being 
charged by these agencies?
    Mr. HACKBARTH. Well, I would like to look into the first 
part of your comment about your particular constituent question 
and the circumstances there.
    On the issue of Medicare margins for home health agencies, 
I can confirm that our analysis shows that on average, the 
margins are very, very high, well up in the teens, as the 
letter says, and therefore, we have recommended a series of 
changes in the home health payment system. One is to rebase the 
rates and lower the rates, but also changes to improve the case 
mix system so the payment for any given home health episode is 
a function not just of a base rate but also adjustments for the 
patient's condition and the like. We think there are real 
problems in those condition-specific adjustments that need to 
be fixed as well.
    Mr. GERLACH. Good. If you can then get back to us on what 
you view the progress is being made at CMS to do exactly what 
you are recommending and whether you think it is being done as 
expeditiously as it should be, given the high rates of return 
that the agencies are getting in their reimbursements, we would 
appreciate that response, and I will shoot a letter to you to 
that effect. If you could get back to us, I would appreciate 
it.
    Mr. HACKBARTH. And part of this issue is in CMS's court.
    Mr. GERLACH. Right.
    Mr. HACKBARTH. Part of it is in the Congress' court in 
terms of setting the base rates.
    Mr. GERLACH. Okay. Thank you.
    Thanks, Mr. Chairman.
    Chairman HERGER. Mrs. Black is recognized.
    Mrs. BLACK. Thank you, Mr. Chairman. I want to thank you 
for allowing me to sit on this panel and to be able to ask 
questions.
    Mr. Hackbarth, I want to go back to a question that was 
being asked just a bit ago about the dual eligible and the 
financial alignment demonstration program. As you had already 
indicated that many of these beneficiaries are dealing with 
complex physical and also cognitive disabilities, if the State 
chooses to passively enroll these beneficiaries into these new 
health plans, is it possible that they will see their treatment 
plans disrupted?
    Mr. HACKBARTH. We fear that that is a possibility, and so 
we think that the demonstrations need to be designed in a way 
to minimize that risk, and there can be, for example, some 
transitional steps taken. So if before a State passively 
enrolls any beneficiary in a plan, there needs to be very clear 
communication not just with the beneficiary but also with the 
beneficiary's providers so that there is an opportunity at the 
front end to say, no, I don't want to be part of this, thank 
you very much.
    Mrs. BLACK. Because these are very fragile individuals for 
the most part, and a change in the doctor or a change in a 
hospital or some provider could really negatively affect them.
    Mr. HACKBARTH. Yes, and that is part of the reason that we 
think that the communication needs to be not just to the 
beneficiary but also to others who may advise the beneficiary, 
like physicians or family members. We are talking potentially 
about patients with cognitive limitations that would have real 
difficulty understanding this. So we think real care needs to 
be taken before anybody is passively enrolled, which means 
enrolled without them making an affirmative choice.
    Then we also think, even if they elect to go along, that it 
may be appropriate to include some transitional mechanisms, 
like including the patient's providers in the health plan's 
network for at least a period of time to facilitate a smooth 
transition.
    Mrs. BLACK. Will there be an opportunity for them to make 
that choice, or will they just be forced to go into that 
program? And secondary to that, is an existing private Medicare 
Advantage plan able to compete with that transition?
    Mr. HACKBARTH. Well, the opportunity for existing Medicare 
Advantage plans to compete, that will all be a function of how 
the rules are set up at the State level. These are 
demonstrations that would vary in their specifics State by 
State, and so, you know, it needs to be evaluated on that 
basis.
    Mrs. BLACK. Well, I hope that it will be evaluated and 
allow people to make a choice and to have a choice because that 
is important that we make sure as we move forward, that we give 
the beneficiary and their families helping them make that 
choice a choice in who will be providing those services.
    I have one additional question. Some say that these 
beneficiaries could simply opt out, but as MedPAC has noted 
before, would this population find it challenging to navigate a 
process like that, an opt-out process----
    Mr. HACKBARTH. Yes. As I said, that is a concern we have, 
and we think that the communication needs to be beyond just to 
the beneficiaries. There need to be other people brought into 
the loop, providers, family members, and there are State 
agencies that advise beneficiaries. There needs to be a very 
carefully designed communications plan to make sure that 
patients are not inadvertently coerced into arrangements that 
simply won't work for them. Again, we are talking about very 
vulnerable patients in some instances.
    Mrs. BLACK. And then the last question, is there a 
possibility that the sweeping opt-out mechanism could lead this 
large demonstration program to resemble more of a waiver 
program?
    Mr. HACKBARTH. Yes, and that is one of our principal 
concerns. In fact, in a chapter in our June report, we talk 
about that. The State proposals, as I understand it, now 
envision in excess of 3 million beneficiaries being moved into 
these new arrangements. That is, by our reckoning, not a 
demonstration project but a program change, and we would prefer 
to see a smaller number in a much more focused way so we don't 
do inadvertent harm and so we have the means to carefully 
evaluate how well this effort has worked.
    Mrs. BLACK. Well, I thank you because that is just what I 
am thinking. If it is just a waive, it is a waiver program; 
otherwise, it is not a demonstration program, and we will not 
get good information by moving the entire group all at one 
time.
    Mr. HACKBARTH. Right.
    Mrs. BLACK. Thank you. I yield back my time.
    Chairman HERGER. Thank you.
    I want to again thank Mr. Hackbarth for your testimony 
today. The opportunity to discuss MedPAC's thoughtful analysis 
and recommendations is of great value to the subcommittee. I 
appreciate that MedPAC is taking on issues that are important 
to the viability and sustainability of the Medicare program. 
Considering the extent of the fiscal challenges facing the 
Medicare program as well as our country, it is essential that 
Congress consider all available options. Such a comprehensive 
review is needed to ensure beneficiaries have access to high 
quality care through a Medicare program that is on sound 
financial footing. We must change our current course. We look 
forward to continuing to work with MedPAC as we carry out that 
important work.
    As a reminder, any member wishing to submit a question for 
the record will have 14 days to do so. If any questions are 
submitted, I would ask our witness to respond in a timely 
manner. With that, the subcommittee is adjourned.

    [Whereupon, at 11:22 a.m., the subcommittee was adjourned.]
    [Questions for the Record follow:]
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    [Public Submissions for the Record follows:]

             American Registry of Radiologic Technologists

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                Council for Affordable Health Insurance

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                         Medicare Rights Center

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                                  NAIC

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                   National Home Infusion Association

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                   National Rural Health Association

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                  National Senior Citizens Law Center

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                      The Center for Fiscal Equity

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