[Senate Hearing 112-773]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 112-773
 
      PROGRESS IN HEALTH CARE DELIVERY: INNOVATIONS FROM THE FIELD 

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 23, 2012

                               __________

                                     
                                     

            Printed for the use of the Committee on Finance

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                          COMMITTEE ON FINANCE

                     MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
KENT CONRAD, North Dakota            OLYMPIA J. SNOWE, Maine
JEFF BINGAMAN, New Mexico            JON KYL, Arizona
JOHN F. KERRY, Massachusetts         MIKE CRAPO, Idaho
RON WYDEN, Oregon                    PAT ROBERTS, Kansas
CHARLES E. SCHUMER, New York         MICHAEL B. ENZI, Wyoming
DEBBIE STABENOW, Michigan            JOHN CORNYN, Texas
MARIA CANTWELL, Washington           TOM COBURN, Oklahoma
BILL NELSON, Florida                 JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware
BENJAMIN L. CARDIN, Maryland

                    Russell Sullivan, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)



                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Baucus, Hon. Max, a U.S. Senator from Montana, chairman, 
  Committee on Finance...........................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     2

                               WITNESSES

Migliori, Richard, M.D., executive vice president of health 
  services, United
  Health Group, Minnetonka, MN...................................     4
Sacks, Lee, M.D., executive vice president and chief medical 
  officer, Advocate Health Care, Oak Brook, IL...................     6
Malloy, Marc, president and chief executive officer, Renaissance 
  Medical Management Company, Wayne, PA..........................     8
Diaz, Paul, president and chief executive officer, Kindred 
  Healthcare, Louisville, KY.....................................     9

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:
    Opening statement............................................     1
    Prepared statement...........................................    37
Diaz, Paul:
    Testimony....................................................     9
    Prepared statement with attachment...........................    39
Hatch, Hon. Orrin G.:
    Opening statement............................................     2
    Prepared statement...........................................    71
Malloy, Marc:
    Testimony....................................................     8
    Prepared statement...........................................    73
Migliori, Richard, M.D.:
    Testimony....................................................     4
    Prepared statement...........................................    76
Sacks, Lee, M.D.:
    Testimony....................................................     6
    Prepared statement with attachments..........................    98

                             Communications

AARP.............................................................   111
American Medical Rehabilitation Providers Association............   119
National Association of Chain Drug Stores (NACDS)................   122
Wisconsin Hospital Association...................................   127

                                 (iii)


      PROGRESS IN HEALTH CARE DELIVERY: INNOVATIONS FROM THE FIELD

                              ----------                              


                        WEDNESDAY, MAY 23, 2012

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:08 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max 
Baucus (chairman of the committee) presiding.
    Present: Senators Rockefeller, Bingaman, Wyden, Nelson, 
Menendez, Carper, Cardin, Hatch, Snowe, and Thune.
    Also present: Democratic Staff: Russ Sullivan, Staff 
Director; David Schwartz, Chief Health Counsel; Sara Harshman, 
Research Assistant; Tony Clapsis, Professional Staff; Karen 
Fisher, Professional Staff; and David Sklar, Fellow. Republican 
Staff: Chris Campbell, Staff Director; and Kristin Welsh, 
Health Policy Advisor.

   OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM 
            MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    Albert Einstein once said, ``If you always do what you 
always did, you will always get what you always got.'' As 
health care premiums were doubling from 2000 to 2010, it was 
clear we could no longer do what we always did. We could no 
longer tolerate what we always got when it came to our Nation's 
health care. We all have common goals: to reduce health care 
costs and improve health care quality. How do we do that? 
Innovation plays a key role. That is the focus of our hearing 
today.
    It is not the type of innovation we normally think about in 
the health care industry; it is not developing a new drug or 
device in a laboratory. The innovation we are talking about 
transforms the way providers deliver care to patients. This 
innovation means patients spend more time with their doctors 
rather than talking to the insurance companies. This innovation 
encourages doctors and nurses to communicate more with their 
patients and with each other about patient care, and it makes 
us spend our scarce health care dollars more wisely.
    The private sector has always been at the forefront in 
creating innovative ideas. They have to. Now the entire health 
care community is involved. Employers, health plans, Medicare, 
and Medicaid are committed to innovation, and providers of all 
kinds are engaged to improve the way health care is delivered.
    We will hear about this innovation from our four witnesses 
today. We will hear about how they are working individually and 
working together to lower costs and improve quality.
    Health reform encouraged this innovation, and we must 
continue to build on the progress. Medicare and private payers 
are together sending one message to providers: from now on we 
will pay for quality, not quantity. It is a message that 
providers have already begun to hear and respond to.
    Starting in October, Medicare will start paying hospitals 
more money when they produce better results for patients. 
Hospitals that produce poor outcomes will get less. For the 
first time, hospitals will be penalized if patients are 
readmitted too often. Almost 1 in 5 Medicare beneficiaries is 
readmitted to a hospital within 30 days of discharge. We need 
to encourage providers to do the job right the first time.
    I am encouraged to see the private sector aligning with 
this effort. This year the insurance company Wellpoint will 
require all hospitals it contracts with to be subject to 
similar programs. These incentives provide a common-sense 
foundation to change behavior. The private sector cannot do it 
alone, nor can Medicare and Medicaid do it alone. The only path 
forward is through partnerships between the public and private 
sectors.
    That is why we created the Centers for Medicare and 
Medicaid Innovation, known as the Innovation Center. Medicare 
and Medicaid are now engaged on the front lines and working 
with the private sector to find new models of payment in 
delivery of care.
    The concept is simple: find the best ideas and test them. 
If they work, expand them. If they do not, move on to new 
ideas. Already the Innovation Center has launched more than a 
dozen new projects. These projects involve more than 50,000 
providers in almost every State in the country. They try out 
new payment models to reduce costs and make patients healthier. 
We know that there cannot be a one-size-fits-all solution. 
Health care in Missoula, MT is different from health care in 
McAllen, TX.
    I look forward to hearing about the innovative models our 
four witnesses are developing. Their experience in pioneering 
new approaches and partnering with Medicare and Medicaid should 
be instructive to us all. So let us embrace innovation as an 
opportunity to change things for the better. Let us encourage 
public-private partnerships. Let us do this to lower health 
care costs for consumers and for taxpayers. Let us do it to 
improve patient care and, as Mr. Einstein advised, let us not 
always do what we always did.
    [The prepared statement of Chairman Baucus appears in the 
appendix.]
    The Chairman. Senator Hatch?

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Well, thank you, Mr. Chairman. I want to 
thank Chairman Baucus for convening today's hearing.
    Americans are looking for areas of agreement between our 
two parties on health care, and I have been very clear about my 
opposition to Obamacare, the President's health care law. This 
deeply flawed law spends too much, it taxes too much, and it 
does really nothing to address the fundamental challenge of 
rising health care costs.
    However, the chairman and I agree on the need for providers 
and payers to work together to provide higher quality, better-
coordinated care to patients. Our witnesses this morning all 
have tried innovative methods to achieve that shared goal. 
According to the Medicare Payment Advisory Commission's most 
recent report, last year Medicare spent over $229 billion on 
inpatient hospital and post-acute care for Medicare 
beneficiaries. Now, this represents 43 percent of total 
Medicare spending.
    Meanwhile, the population of Medicare beneficiaries is 
exploding. Last year, the first Baby Boomer became eligible for 
Medicare. By 2031, it is projected that 80 million people will 
be Medicare-eligible. As these retirees enroll in Medicare, 
government spending is bound to mushroom.
    As most health care providers will tell you, in addition to 
an aging population, we face a growing number of patients with 
chronic illnesses such as diabetes or heart disease. These 
patients are sicker and more expensive to treat. While 
providers are doing their best to manage these patients, too 
often our health care system is not structured for easily 
coordinated care.
    Currently, we have a system of silos. Patients are seen in 
a variety of settings: doctors' offices, hospitals, or nursing 
homes, and it is not uncommon for a health care provider to 
have an incomplete picture of all the care a patient is 
receiving.
    Furthermore, a fee-for-service system provides little 
financial incentive to manage care properly. Instead, the 
incentive is to increase the volume of services. Reducing costs 
will require that patients receive the right care in the right 
place at the right time.
    Increasingly it is private payers, on behalf of employers, 
who pressure providers to reduce costs, providing better care 
and better health outcomes. Patients deserve and demand better 
care. In my own home State of Utah, we are privileged to have 
some of the Nation's best, most efficient health care 
providers, but not all providers are created equal. Much of our 
health care system is fragmented, and often the right hand does 
not know what the left hand is doing.
    Unfortunately, the patient is caught in the middle, with 
very little coordinated care. We know from our witnesses today, 
as well as other health care leaders, that there is a needed 
focus on care transitions. Many errors can be avoided when 
health care providers keep this focus.
    Of late, much attention has been focused on the Center for 
Medicare and Medicaid Innovation, CMMI, and the flourish of 
activity it has created. Like many of my colleagues, I remain 
concerned that CMMI has an enormous budget and very little 
accountability.
    It is more than a little ironic that an organization 
touting quick, innovative change and efficiency took over 5 
months to respond to my request for very basic information on 
its strategic plan and an accounting of how it is spending $10 
billion of taxpayer money.
    In addition to continued oversight of CMMI, I intend to 
ensure that the pilots and programs they develop actually work 
for our seniors. For example, when CMMI unveiled the 
Accountable Care Organization, or ACO, pilot, most providers 
felt it simply would not work, was unnecessarily burdensome, 
and did nothing to advance the cause of higher quality, lower 
costs, and more efficient care.
    Many of our witnesses today have very interesting stories 
to tell about how they are transforming care within their 
communities. They identified a problem, knew a solution was 
needed, and did not wait for the government to tell them how to 
best fix the problem. I would have to say innovation has 
happened in every community and in all sizes, and no one knows 
better the needs of the community than the caregivers on the 
ground.
    I know this is not easy and often takes years to develop, 
but I congratulate all of you for the great work that you all 
are doing every day. I look forward to hearing from our 
witnesses and learning about how others can hopefully adopt 
some of these great ideas and achieve positive results in their 
own communities, and I appreciate you holding this hearing, Mr. 
Chairman.
    The Chairman. Thank you, Senator.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. I would like now to introduce our witnesses. 
First is Dr. Richard Migliori, executive vice president of 
Health Services, UnitedHealth Group. Doctor, thank you very 
much for taking the time to come and for your testimony.
    Second is Dr. Lee Sacks, executive vice president and chief 
medical officer of Advocate Health Care. Dr. Sacks, thank you 
for your time here.
    Dr. Marc Malloy is chief executive officer of Renaissance 
Medical Management Company. You too, sir; thanks very much for 
being here today.
    And Mr. Paul Diaz is chief executive officer of Kindred 
Healthcare. Mr. Diaz, thank you too.
    So let us begin. You know our procedure. You may each speak 
for about 5, 6 minutes, whatever seems most appropriate. Your 
statements are automatically included in the record.
    This is a very important subject, so just tell us what you 
think and make the best use of this hearing. Thank you very 
much.
    Dr. Migliori?

 STATEMENT OF RICHARD MIGLIORI, M.D., EXECUTIVE VICE PRESIDENT 
     OF HEALTH SERVICES, UNITEDHEALTH GROUP, MINNETONKA, MN

    Dr. Migliori. Thank you, Chairman Baucus and Ranking Member 
Hatch, for holding this important hearing and for the 
opportunity to share UnitedHealth Group's recommendations on 
improving the health care system.
    At UnitedHealth Group, I focus on innovations focused on 
improving care delivery through technology and health services. 
UnitedHealth Group is a diversified health and well-being 
company based in Minnetonka, MN. We serve over 75 million 
Americans through contractual partnerships with more than 85 
percent of America's hospitals and physicians. That activity 
generates more than $300 billion in annual health expenditures 
and, as I will explain, it is also a rich source of information 
that helps us improve the system.
    UnitedHealth Group has the privilege of partnering already 
with approximately 300 Federal and State government agencies. 
We are the country's largest provider of Medicare Advantage 
plans and Medicaid managed care plans. We are honored to have 
recently been awarded the Department of Defense Tri-Care 
contract to manage health care services for beneficiaries in 
the West region. We administer large-scale databases for CMS 
and the Office of Personnel Management. We are also proud to 
partner with CMS on various demonstration initiatives, 
including the ACOs.
    To create sustainable access, however, to high-quality, 
affordable health care, we must address variations in the 
quality of care, increases in the prevalence of chronic 
diseases, and fragmentation of existing information, as you 
both noted in your introductory comments.
    With our partners, UnitedHealth Group addresses these 
challenges by embracing wellness and prevention programs that 
foster behavioral changes, by empowering consumers with 
decision support tools through transparency initiatives, and 
finally by aligning incentives and driving better outcomes 
through data analytics and payment reform for the health care 
delivery system.
    These innovative approaches are deployed in the private 
marketplace today at full scale, but they are not as widely 
available in the government health programs. Broader adoption 
of these kinds of programs would lead to better quality 
outcomes at lower costs for Federal and State governments, and 
most importantly for the American people.
    In short, we believe better information leads to better 
decisions, resulting in better health. To help us achieve those 
goals, we invest $2 billion annually just in technology. 
UnitedHealth Group's prevention programs use technology to 
identify and mitigate risk of disease by fostering behavioral 
changes.
    To prevent the onset of diabetes, we partnered with the CDC 
and the Y to develop the Diabetes Prevention Program. This diet 
and exercise program helps create healthy lifestyles for people 
on the cusp of developing diabetes. The results confirm that 
this program works, and we estimate that, if Medicare fully 
embraced and reimbursed programs like it, the Federal 
Government could save about $70 billion over 10 years.
    Enhancing transparency is also critical to modernizing the 
health care system. UnitedHealth Group's decision support tools 
empower people to be better health care consumers and decision-
makers. Our treatment cost estimator provides a comprehensive 
view of quality and cost differences among providers. It 
delivers personalized cost estimates for treatment options for 
hundreds of diseases, including surgical procedures and tests, 
giving consumers more control of the quality and cost of their 
care.
    Lastly, effective delivery system reform requires aligning 
incentives in driving better outcomes through broader adoption 
of pay-for-performance programs and data analytics. We measure 
to ensure that care delivery achieves quality and efficiency. 
When physicians deliver high-quality, efficient care, we can 
offer a variety of value-based reimbursement structures that 
reinforce optimal results.
    Our premium designation program is a comprehensive tool for 
physician performance assessment. We assess care quality as 
defined by specialty societies and other independent credible 
medical experts. High-performing doctors are designated in our 
online and mobile directories, but, most importantly, premium 
physicians deliver care that is 14 percent lower in cost on the 
basis of better decisions and fewer complications. Importantly, 
the program has received positive feedback and engagement from 
physicians and medical societies.
    Public-private collaboration on delivery system reform will 
produce better results for the American people. We are eager to 
partner with the Federal Government to bring our resources, 
best practices, and innovations to the public marketplace.
    Together, we can use existing information to improve 
health, to create transparency, and to improve the health care 
delivery system so Medicare and Medicaid patients will 
experience higher quality and more affordable care.
    We look forward to continuing to be a resource to the 
committee, and thank you for your leadership on this important 
issue.
    The Chairman. Thank you, Doctor.
    [The prepared statement of Dr. Migliori appears in the 
appendix.]
    The Chairman. Dr. Sacks, you are next.

  STATEMENT OF LEE SACKS, M.D., EXECUTIVE VICE PRESIDENT AND 
   CHIEF MEDICAL OFFICER, ADVOCATE HEALTH CARE, OAK BROOK, IL

    Dr. Sacks. Chairman Baucus, Ranking Member Hatch, and 
members of the committee, thank you for inviting me to testify 
before you today. My name is Dr. Lee Sacks. I am the chief 
medical officer of Advocate Health Care and the CEO for 
Advocate Physician Partners.
    Since a picture is worth a thousand words and I just have 5 
minutes, my understanding is the staff has given you five 
slides to follow along with my comments.
    The Chairman. All right.
    Dr. Sacks. Advocate Health Care is a faith-based not-for-
profit integrated delivery system with roots that go back over 
100 years in metropolitan Chicago. We have everything from 
academic medical centers down to a 25-bed critical access 
hospital in Eureka, IL, as we have been in central Illinois the 
last 3 years.
    Advocate has been very focused on engaging physicians, 
because they are the key to our success, and has a pluralistic 
physician platform. Today we have over 6,000 physicians on the 
collective medical staffs; about 4,000 are partnered in 
Advocate Physician Partners.
    Within the 4,000, we have 3,000 who are in independent 
practice, mostly solos, 2-, and 3-person practices, and another 
1,000 who are employed in our two large medical groups, 
Advocate Medical Group, or AMG, and our Dreyer Clinic.
    Advocate Physician Partners has a 17-year history that 
started off doing capitated managed care. Today, we have 
230,000 capitated lives, and we have 245,000 attributable lives 
in a commercial ACO-like arrangement that started in 2011.
    APP has been recognized for our clinical integration 
program, which has created value for our patients, for 
employers, and for payers. We liken it to an umbrella over our 
local physician hospital organizations and medical groups, each 
of which has a medical director who continues to be a 
practicing physician in the local community, respected by his 
peers, supported by staff and by a local board which create 
accountability and drive results. This has created value for 
the communities that we serve.
    Clinical integration is a difficult term to understand, so 
my last slide is a schematic to help picture what this means. 
Take a patient, Jane Smith, in her 50s with diabetes. Jane sees 
a primary care physician. She gets prescriptions filled, she 
has lab tests periodically, she checks in with an 
endocrinologist regarding diabetes, she has a screening 
mammogram according to guidelines, and she sees an OB/GYN for 
female issues. For all of those encounters, data goes into the 
APP Data Warehouse and populates our disease registries.
    The disease registries--we have 10 chronic disease 
registries, starting with conditions that are high-cost and 
have an opportunity to create value, such as diabetes and 
congestive heart failure. We also have registries for wellness: 
adult wellness, screening for breast cancer and colon cancer, 
pediatric wellness, tracking immunizations.
    The registries are an opportunity to assure evidence-based 
care and best practices by all of our clinicians. So, whenever 
Jane or another patient sees one of our physicians, they have 
access to the registry. If they use electronic records, it 
populates the record automatically.
    If they are on paper, they can access the registry through 
a web-based browser. It guides them to assure that every one of 
the patients in the registry gets evidence-based care and that 
we work to optimize their results. It takes a team of 
physicians supported by other clinicians to provide optimal 
results in those chronic diseases.
    What I consider to be the critical success factor for our 
performance is that we have been physician-driven. We use the 
same metrics across all payers. Additional dollars in our pay-
for-performance program recognize that it takes work that is 
not paid for in traditional fee-for-service to accomplish 
managing chronic disease, and we provide infrastructure to our 
independent physicians to surround them with resources so that 
they can perform like a large multi-specialty group.
    That includes governance, technology like the disease 
registry, practice redesign coaches, patient outreach programs, 
office manager training, and physician education through our e-
university. In 2011, we entered into a shared savings contract 
with Blue Cross of Illinois that covers 245,000 attributable 
lives and 150,000 HMO lives.
    Results to date have achieved what both Blue Cross and 
Advocate set out to accomplish: we have bent the cost curve 
while maintaining our market-leading outcomes in service and 
safety. We have applied to participate in the Medicare Shared 
Savings Program to start July 1, and have been told that we 
will have over 150,000 assigned lives.
    In conclusion, we realize that the current fee-for-service 
system is not sustainable and have focused on innovative 
changes that enhance value. Despite the challenges, this is an 
exciting time to be a leader in health care with an opportunity 
to make a difference.
    I look forward to your questions.
    The Chairman. Thank you, Dr. Sacks.
    [The prepared statement of Dr. Sacks appears in the 
appendix.]
    The Chairman. Mr. Malloy?

    STATEMENT OF MARC MALLOY, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, RENAISSANCE MEDICAL MANAGEMENT COMPANY, WAYNE, PA

    Mr. Malloy. Chairman Baucus, Ranking Member Hatch, and 
distinguished members of the committee, thank you for the 
opportunity to be here today. My name is Marc Malloy. I serve 
as the president and chief executive officer of Renaissance 
Medical Management Company. I am honored to be asked to share 
with you our experience as an industry leader driving 
innovation in health care delivery.
    Renaissance is a physician-owned network of 230 primary 
care physicians located in the suburban market of Philadelphia. 
It is one of the 32 pioneer ACOs chosen by CMMI.
    Since 1999, Renaissance has been focused on improving 
patient outcomes, improving quality of care for the population 
served, and lowering medical costs. We exist to support our 
patients through the practice of high-quality medicine in an 
economically sustainable way. We have never shied away from the 
challenge of improving our patients' well-being, delivering 
high-quality care, and controlling cost. Renaissance has 
invested in people, processes, and technologies to achieve 
results.
    From a practical perspective, the physicians understand 
that the best way to improve quality and lower costs is to 
focus on three primary areas. First, keep people healthy. At 
the root of our success is the commitment of our physicians 
whose daily efforts ensure that we focus on prevention and 
wellness.
    We do this by making sure that our patients get health 
screenings that they are supposed to receive and by making 
available to patients up-to-date information and tools to 
become active, engaged partners in promoting their health. In 
addition to the obvious benefit of patients staying healthy, if 
we can prevent patients from developing a medical condition, we 
can completely avoid the costs associated with that care.
    Second is mitigating the health risk factors. In order to 
improve the health and well-being of the people we serve, it is 
critically important that we ensure that the individuals 
understand how their family history and lifestyle affect their 
well-being and how to mitigate their health risks. Our 
physicians regularly screen the patients to identify patients 
with emerging conditions so that they can effectively treat any 
of the emergent issues before they become more serious.
    Once we identify the risk, we work with the patients to 
create personalized goals and target appropriate, proven 
interventions, such as tobacco cessation, stress management, 
nutritional counseling, physical activity, and others to help 
the patients mitigate the identified health risk.
    When I think about the efforts in this area, it reminds me 
of a phrase I learned from my mom, Sylvie Marceau, who passed 
away this past October. She always spoke about the importance 
of early entry to care. In her work as the CEO of the Healthy 
Start Coalition in St. Lucie County, FL, she dedicated her life 
to reducing infant morbidity and mortality. Her work 
demonstrated that getting expectant mothers into care early in 
their pregnancy provided the best opportunity for healthy moms 
and babies. Likewise, the identification of and early entry 
into care for patients with medical conditions typically 
results in lower costs of care as well as better outcomes when 
the condition can be managed before it becomes more 
significant.
    Lastly, ensuring the provision of coordinated care is a 
very important aspect of what we do. When a patient already has 
a serious acute or chronic condition, our ability to improve 
well-being and reduce costs comes from our commitment to 
delivering an evidence-based plan of care that is coordinated 
across the patient's entire care team. We deploy nurses to 
perform patient risk assessments, establish clinical goals for 
the patient, educate the patient or the caregivers on how best 
to manage that disease state, monitor the progress, and feed 
all that information back to the primary care physician.
    The combination of the various resources developed and 
deployed by the physicians has produced some pretty impressive 
results. We have achieved some of the highest quality measures 
in the Nation. We have demonstrated medical cost savings over 
several years. It is because of our success in these areas that 
Renaissance applied for, and was selected as, a pioneer ACO.
    Every innovation that Renaissance has made over the years 
has essentially been based on adapting to the ecosystem within 
which we operate. With the passage of PPACA, the environment 
continues to change, and Renaissance is working with its 
partners to adapt the people, processes, and technologies to 
continue its mission to improve patient well-being, improve the 
overall quality of care, and lower costs for the population 
served.
    Thank you for the honor and privilege to report on our work 
in the Philadelphia marketplace.
    The Chairman. Thank you, sir. Thank you, Mr. Malloy, very 
much.
    [The prepared statement of Mr. Malloy appears in the 
appendix.]
    The Chairman. Mr. Diaz?

STATEMENT OF PAUL DIAZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
               KINDRED HEALTHCARE, LOUISVILLE, KY

    Mr. Diaz. Good morning. My name is Paul Diaz, and I am the 
chief executive officer of Kindred Healthcare. I want to thank 
you, Mr. Chairman and Ranking Member Hatch, and all the members 
of the Finance Committee, for holding this hearing today.
    I am honored to share our experiences about the significant 
amount of private sector activity around delivery system 
changes occurring in the field and the critical role that post-
acute care plays in reshaping our delivery system into one that 
is more patient-
centered, outcome-driven, and cost-effective.
    Your decision to have this hearing today is timely. 
Providers and payers, as you have heard, across the country are 
actively engaged in efforts to improve care and reduce cost. 
Because Kindred provides care to patients in over 40 States and 
has developed a significant presence in 20 large health care 
markets, as well as many small communities, we have been able 
to participate in a wide range of efforts and test new models 
of care delivery.
    Before I share our experiences, I would like to emphasize 
two things that we think are very important for the committee 
to consider. First, reshaping our health care system will 
require teamwork, cooperation, and trust between those charged 
with delivering care and those paying for it. This will not be 
easy, but with change comes opportunity.
    But change also brings uncertainty and fear, and there is a 
great deal of that out in the health care environment today. So 
the only way to transform our system, as we see it, is to take 
concrete and measurable steps to create incremental reforms and 
establish a path for the future.
    Second, post-acute care is a critical part of the solution 
we have talked about today. Today, there are over 47 million 
Medicare beneficiaries, and an estimated 7,000 individuals join 
the program every day. Thirty-five percent of these patients 
need post-acute care following a hospital stay.
    More and more of our patients have chronic conditions such 
as diabetes and heart disease, as you spoke of, Mr. Chairman, 
and it makes them very expensive to care for as they cycle 
through our health care system, with multiple hospitalizations 
and rehospitalizations. We have to do a better job of 
coordinating care for these patients to improve quality and 
reduce cost.
    But tremendous opportunities exist as they leave hospitals 
and enter post-acute care settings and transition homes. 
Several years ago, Kindred and other providers began to develop 
the capabilities to meet the needs of patients through their 
entire episode of care to begin to address the shortcomings of 
the current silo-based system.
    So we set out to build capabilities to deliver integrated 
post-acute care in local communities. This includes medically 
complex care in our long-term acute care hospitals, intensive 
rehabilitation services in our inpatient rehabilitation 
facilities, restorative rehabilitation and nursing care in our 
skilled nursing centers and home care--where patients really 
want to be--and palliative hospice services.
    But this is not a goal that any provider, in our view, can 
achieve on their own. Instead, we are working with acute care 
hospitals and managed care organizations, physicians, care 
managers, and others to integrate care and services in a more 
patient-centered way and into the broader health care delivery 
system at a local level to achieve the shared goals of clinical 
patient satisfaction and financial goals.
    We have found that there are certain key capabilities that 
have been spoken of today that are critical across a patient 
episode. First, as Dr. Sacks talked about: achieving clinical 
integration. We do this through Joint Operating Committees with 
our partners to establish systems and clinical practices to 
coordinate and improve care.
    We established dozens of these committees throughout the 
country, with hospitals and physicians, payers, and private and 
public ACOs. This type of clinical integration builds trust and 
has produced measurable results in clinical outcomes and 
patient satisfaction, while reducing rehospitalization rates in 
our system by over 8 percent since 2008.
    It also is essential to establish partnerships and trusts 
with the physicians in order to achieve the care integration 
across settings. Today, physicians oversee care within health 
care settings, but all too often do not follow their patients 
across settings to oversee care in a seamless way.
    So we are testing different models that enable physicians, 
nurse practitioners, and other coordinators to continue the 
care throughout a patient care episode. In one community, staff 
physicians employed by our acute hospital partners follow their 
patients into our post-acute care settings, which helps to 
provide a seamless transition from hospital to home. The point 
here is that physicians and other practitioners under their 
supervision must be at the center of efforts to better 
coordinate care.
    Another key enabler of teamwork and coordination is the 
availability of electronic health records. The ability to have 
information for our clinical teams within our care settings, 
and to transmit information across sites of care with our 
partners is a critical element for effective care management 
over an episode.
    At Kindred, we have a 5-year plan to install and link 
electronic health records across our care settings, and we are 
doing this as we are also piloting and testing linking these 
systems with the electronic health records of our partners.
    We would be happy to share the details of these pilots with 
the committee, but I caution the committee that these 
activities are time-consuming, technically challenging, and an 
expensive process.
    All of these integrated pilots are designed to eventually 
support the kinds of changes that have been spoken of today for 
the payment system to improve quality and reduce cost. It is 
tempting to say that we should immediately pay for a fixed cost 
or a full episode of care, commonly known as bundling or 
capitation, but I would caution the committee that 
comprehensive reform of delivery and payment systems will take 
time. But incremental changes can produce immediate results 
while we build the infrastructure for a fully integrated 
system.
    We are testing different pay-for-performance models to 
align interests and build trust with our partners. These pilots 
can help build a bridge from today's pay-for-volume-based fee-
for-service to tomorrow's value-based system. These pay-for-
performance pilots build into payment rates incentives to lower 
costs and improve care, such as paying for reduced length of 
stay, reduced rehospitalizations, and improved clinical 
outcomes, so that folks can develop the confidence to take 
financial risk.
    In closing, it is important for the committee to understand 
that providers are committed to transforming our health care 
system through innovation, as has been spoken of today, but 
this is difficult to do in an environment of uncertainty and 
payment cuts.
    As you know well, providers were subject to many payment 
cuts over the last few years, as Congress, CMS, and private 
payers understandably deal with a deficit imperative. But I 
urge the committee to consider the impact of additional payment 
cuts, including the pending 2-percent sequestration cuts to 
Medicare payments, on our ability to continue to improve 
quality, meet the growing demand for health care services, and 
continue to invest in the innovations you have heard about 
today.
    We believe we can reduce costs and overall spending and 
reshape our delivery system. And investing in electronic health 
records, investing in care management, and improving quality 
have long-term rewards, but achieving these requires 
investments in the short term.
    A good place to start is rehospitalizations that you have 
heard about today. Today, post-acute providers are not rewarded 
or penalized for rehospitalization rates, so I urge the 
committee to consider ideas about ways that the payment system 
can encourage reduced hospitalization on the one hand, and 
discourage high rates of rehospitalizations on the other.
    Acute care hospitals are already incentivized by the 
payment system to do this, as Chairman Baucus noted, and I see 
no reason why physicians and post-acute providers should not 
have skin in the game so that our interests are aligned in this 
effort as well.
    At the end, again, thank you. I am an optimist. I believe 
we can take the important steps here to change our system, but 
we need to do so over time in a manner that preserves patient 
access and rewards quality and outcomes. And we do need 
stability and alignment in our current payment and regulatory 
system to foster collaboration and teamwork and establish a 
path to a more rational and integrated system.
    Thank you, sir.
    The Chairman. Thank you, Mr. Diaz, very much.
    [The prepared statement of Mr. Diaz appears in the 
appendix.]
    The Chairman. In the spirit of Mr. Einstein, we are going 
to do things a little bit differently, and have done things a 
little bit differently. Number one, usually in a hearing like 
this we would have CMS up here, and so on and so forth. I 
thought it would make more sense not to have CMS, but rather to 
have the private sector here. You can tell us what you are 
doing and what is working, what is not working, and we will get 
it straight from the horse's mouth rather than having to go 
through a Federal agency.
    There is something else I am going to do differently, and 
that is this. I am going to ask a few questions--let me back 
up. The traditional practice in this committee is for each 
Senator to be allotted 5 minutes to ask questions on the basis 
of arrival to the committee. It is sort of the early bird 
system. So whenever a Senator arrives early, he or she is in 
queue ahead of those who arrive later.
    But I am just going to upset the apple cart a little bit 
this morning. I will ask a few questions, and then I will tell 
my colleagues, it is just open to all of you. It is kind of 
like the Supreme Court. You just ask questions. Just jump in at 
any time if you have a question you want to ask on a certain 
subject.
    I know we will all respect each other's time and respect 
each other, and so forth. So, in the spirit of the search for 
the truth, what works, and being kind of efficient about this 
and not getting siloed ourselves in 5-minute segments, I am 
going to attempt this experiment.
    So, I will start, and then anybody else jump in anytime he 
or she wants.
    Here we have post-acute sector riders and the insurance 
industry and so forth. I would just like you to tell us--and I 
am assuming that we all want to move much more toward 
reimbursement based on quality as opposed to quantity. I am 
assuming that you all agree with that. If you do not, you had 
better speak up, but I am assuming that.
    And we have passed this law. We have innovation centers and 
so forth. If you were a little more bold in each of your areas 
and how we integrate across the board, or even just generally, 
whether it is ACOs, bundling, or whatever it is, and working 
with the Innovation Center--I did not hear you talk much about 
the Innovation Center, any of you--how do we get there more 
quickly? How will we know when we get there?
    By ``getting there,'' I mean we pretty much change the 
system so we are reimbursing based on quality outcomes, not 
quantity, and we are getting better care for less cost. So how 
are we going to kind of know when we are there? But the earlier 
question is, I want each of you to be a little more bold and 
just suggest an idea that maybe together we might pursue. I 
will start with you, Dr. Migliori.
    Dr. Migliori. Thank you, Mr. Chairman. Innovation is core 
to improving. We are pushed to innovation by our current client 
base, the employees across America, as well as the government 
agencies we serve. We compete on our ability to demonstrate 
innovation.
    The areas of innovation that we focus most on are three. 
One is tools of innovation to get people healthy. By getting 
people healthy, they not only can avoid and prevent the 
progression of chronic disease, but we can also lessen demand 
on an already over-taxed health care system--I mean 
overburdened health care system. The delivery of health care is 
going to be challenged by the fact that we are going to be some 
45,000 primary care physicians in deficit as a result of the 
increasing need, as well as the increasing----
    The Chairman. But how do you work with providers? Because I 
think your company does a pretty good job of burrowing down, 
finding the cost, and reducing costs. I mean, you mentioned the 
diabetes prevention program of yours. But how well do you work 
with providers, the doctors over there, on the outcome side?
    Dr. Migliori. Yes, Senator. In fact, what you are 
describing is the whole reason why we built our services wing 
of our organization, a discrete business that has as its 
clientele 240,000 physician practices, over 54,000 hospitals, 
66,000 pharmacies. The purpose of that business is to do two 
things.
    Number one is, to better link those health care delivery 
systems together so that they can look more like each of the 
organizations that are also on the panel today, but then to use 
the information that we collect on a regular basis to inform 
them about health care activity within their practices and the 
people they serve.
    The Chairman. Let me ask Dr. Sacks or Mr. Malloy. I mean, 
are insurance companies working with you, the providers? Are 
you working with them?
    Dr. Sacks. Senator, I will say ``yes.'' I mentioned our 
program with Blue Cross of Illinois that started in 2011. It 
really was the first time that we created some alignment of 
incentives, because it used to be an ``us'' or ``them'' 
situation. If one side did well, usually the other side was 
disadvantaged.
    But I think in terms of answering your question, we need 
alignment of incentives, and we need to think about it across 
the whole continuum of care. I firmly believe that if we are 
going to succeed in managing costs and creating value--and I 
use ``value'' rather than ``quality'' because value is quality 
and efficiency, and we have to have both.
    They generally go hand-in-hand, but you want to make sure 
about that. Then you have to look at systems of care. It is one 
of the reasons we have not focused on bundled payments in some 
of the small innovation grants, because they are all very small 
fragments of the system. With that, virtually everybody in the 
Medicare population has more than one condition, and patients 
with chronic conditions--diabetes, heart failure, coronary 
artery disease--you cannot split that apart and just focus on 
diabetes, or you cannot just focus on taking care of the knee 
replacement without managing the other chronic conditions.
    So we have focused on populations over time. We are 
thinking that, as we do this in the commercial population, our 
population is going to age into Medicare very quickly. 
Hopefully the investment we have made in them while they have 
been employed and insured commercially, if we can continue with 
similar alignment, will pay dividends and let them live 
healthier lives and create more value in the Medicare 
population.
    The Chairman. So the Innovation Center will not allow you 
to apply for larger grants to get more diseases coordinated?
    Dr. Sacks. Well, the pioneer program was an example. As I 
said, we applied for the Medicare Shared Savings that will 
start July 1st. That is to manage a population of 150,000. It 
will be a challenge, but it is a real opportunity to create 
alignment across the whole continuum with that. We need to move 
quickly. We do not have the luxury of 10 or 20 years to figure 
this out because everybody knows what is going on with the cost 
curve.
    I think another opportunity to learn from the private 
sector--large employers, in conjunction with their benefits 
consultants and health plans, have redesigned benefit plans to 
create alignment with their employees so that they are focused 
on the things that they can manage, because individual behavior 
plays a role in a lot of our health care expenses.
    I hear it every day from physicians who get frustrated, and 
my answer has been, we need to figure out how to engage our 
patients, but it certainly helps when the benefit plan incents 
that.
    So, an example. At Advocate Health Care, over the last 5 
years, we have gone from having patients voluntarily filling 
out health questionnaires to raise their awareness to providing 
an $800-a-year credit towards their out-of-pocket expense to 
get a health screening, with parameters like blood pressure, 
weight, body mass index, glucose, and cholesterol. If their 
parameters do not meet the criteria for being healthy, to get 
the money, they have to go through six coaching sessions.
    The Chairman. Well, I appreciate this. I would invite my 
colleagues to jump in here. I am going to keep asking questions 
until somebody jumps in.
    Senator Hatch. I will be happy to ask a couple of 
questions.
    Dr. Sacks, I understand that Advocate spent several years 
working through the appropriate channels at the Federal Trade 
Commission to ensure that the ACO set up with Illinois Blue 
Cross was legal and did not run afoul of the FTC laws.
    Now, considering the ground work laid by your organization, 
how long should other groups plan on devoting to this type of a 
process, and has the FTC streamlined their review cycle, or are 
you critical of it?
    Dr. Sacks. Senator, that is correct. Between 2002 and our 
consent decree in 2007, it was a long time, and there were some 
unique circumstances. I think part of that was, we were 
pioneering and helping to clarify what clinical integration 
was. Since then, the FTC has really used us as an example, 
along with other organizations. I have participated in several 
workshops that they have put on.
    My understanding is that, if an organization is looking to 
clarify whether or not they are within the safe harbor of 
clinical integration, it can be done within a matter of months. 
There are hundreds of organizations today that either have 
clarified that or are moving down that road, so it is moving a 
lot quicker.
    Senator Hatch. Well, your organization spent almost a 
decade on clinical integration, and you have a very successful 
model as a result, as I see it.
    Now, can you tell us a little bit about the cultural 
changes needed to ensure that you have the necessary buy-in 
from the physician community?
    Dr. Sacks. That is an important question. We have had the 
luxury of evolving. We started in 1995. We had 90,000 capitated 
lives and about 2,000 physicians, and we grew, initially just 
focused on capitation. I recognize that is a loaded word today, 
with a lot of negativity attached to it, but it does allow you 
to align incentives and focus on the population and manage 
outcomes. We grew to over 400,000 capitated lives.
    One of my colleagues has a saying similar to the Einstein 
saying: ``There is nothing better than playing with live 
ammunition.'' You learn very quickly, as opposed to dabbling 
with small numbers. When physicians are taking the risks for 
financial performance, they self-correct and take the difficult 
steps, discipline each other, and move forward.
    The discipline of being under the scrutiny of the Federal 
Trade Commission also helped create more alignment within the 
organization because there was a resolve that we were going to 
continue to be successful, create value, and demonstrate that 
to the marketplace.
    When new physicians come in, there is an intense 
orientation. There is an orientation for our governance. I 
think we are at a point now where we are self-perpetuating and 
can pass this on, but I do not want to minimize the challenges. 
You cannot just flip the light switch and go from being in the 
pay-for-volume paradigm to doing something like we have and 
expect that it will come off seamlessly.
    Senator Hatch. As a medical liability defense lawyer many 
years ago, I had some experience in this field. Let me just ask 
all four of you, how do you prepare for and handle medical 
liability concerns, and what is the percentage of cost of doing 
business that is caused by many of these suits?
    I remember when I was trying those cases, I estimate about 
95 percent of them were brought to get settlement of what it 
cost for attorneys' fees. A lot of them were frivolous. The 
explosion started when they changed the law from the standard 
of practice in the community to the doctrine of informed 
consent, which meant every case went to the jury.
    How do you plan for, prepare for, and handle medical 
liability concerns? Dr. Migliori, we can start with you. How 
serious are they in your planning purposes, and so forth?
    Dr. Migliori. Senator, I cannot provide specific facts and 
figures as to how much of health care costs are dedicated to 
defensive medicine or practice. What we do understand, though, 
is that the most effective tools, we think, in improving the 
health care system and lowering costs really have to do with 
the adoption of a better use of automation tools, as you have 
heard from the other panelists, but also data that we can 
provide them so that the physician has more awareness of what 
is happening with the patient and they can take specific action 
and share that information with the patient. If we are going to 
get into how much of what we see in terms of utilization is 
driven by fear, I think we would have to engage some of our 
actuaries to come up with a more learned response.
    The Chairman. Let me ask just your gut impression on that. 
To what degree does moving toward quality affect defensive 
medicine?
    Dr. Migliori. I think that with the----
    The Chairman. Anybody can answer that question.
    Dr. Migliori. I think with the very visible impact and the 
efforts around the table and around the health system on 
quality and the pursuit of quality, my anticipation is that the 
quality of care will go up and the whole issue around defensive 
medicine will become much more mitigated.
    Senator Hatch. What percentage of money do you set aside 
for possible medical liability litigation?
    Dr. Sacks. I will give you some examples, Senators.
    Senator Hatch. Yes.
    Dr. Sacks. I am responsible for risk management and 
insurance and patient safety. We have been recognized as 
leaders in patient safety. Yes, it makes things better, but we 
still make mistakes. There are system failures. In 2011, our 
organization covering the hospitals and the employed physicians 
spent $90 million on liability costs, both accruals based on 
the actuaries and actual payouts.
    As you probably know, tort reform was overturned by the 
Illinois Supreme Court in February, 2\1/2\ years ago. So for 
2012, our actuaries have said that we need to budget $190 
million because of the increase in lawsuits. So, in spite of 
having fewer patient safety events and much more transparency 
and disclosure, that is an extra $100 million that is not being 
reinvested in patient care in our organization. So, it is real.
    Senator Hatch. Is it the same for you other folks?
    Mr. Diaz. Yes. Let me echo that.
    Senator Hatch. Mr. Diaz?
    Mr. Diaz. Approximately $70 million on $6.5 billion of 
revenue, equal to our profits last year. So it is a----
    The Chairman. That figure again?
    Mr. Diaz. So our profits, Chairman Baucus, we operate on a 
net margin of 1.2 percent, about equal to the total medical 
malpractice cost in our company. So that does a lot to take 
away from the IT budget and the other innovation budgets that 
we have.
    Now, as Dr. Sacks was saying, within those claims there are 
errors and mistakes. We learn from that. We have a pretty 
comprehensive risk management process. But there is no doubt 
that those dollars, from a societal perspective, are better 
invested in the innovations that we talked about today and 
advancing our health care system.
    I am optimistic, though, to echo the points that the 
convergence of focus on wellness and health care, bringing 
physicians into this, makes them act less defensive and more 
patient-centric and should have the dual impact of bringing 
some of this down. But there is no question that there is a 
significant inefficiency when a company like Kindred Health 
Care's net profits are equal to the malpractice reserves that 
we take every year. There is something wrong with that.
    Senator Hatch. My time is up. I am happy to relinquish.
    The Chairman. Senator Rockefeller?
    Senator Rockefeller. As I am listening, Mr. Diaz is the one 
who is sort of talking about the future. Do you not all pretty 
much practice managed care?
    Mr. Diaz. We are more on the provider side.
    Senator Rockefeller. The other three answer. Do you not 
sort of practice managed care?
    Mr. Malloy. I think from the perspective of managed care, 
we are a provider organization and we operate within an 
environment of managed care, so certainly a lot of the 
innovations that we----
    Senator Rockefeller. All right. Well, just taking your 
answer gives me great concern. The States like to practice 
managed care because it is so safe and predictable. There is no 
evidence really, unless you can produce it for this committee, 
that managed care works, that it increases quality or that it 
lowers costs. Higher forms of managed care are more wasteful, 
in my judgment. What concerns me greatly is the medical 
community's inability to try new things that they have not 
tried in the hopes that they might work.
    Now, I am just going to give you a couple of examples. To 
me, the most important thing in what Senator Hatch, running for 
office, calls ``Obamacare,'' is the Independent Payment 
Advisory Board. What I like about that is, that will do more to 
cause the treatment of Medicare to be scrutinized than anything 
else and will save a lot of money without reducing benefits or 
payments to doctors, because that is written into the 
accountable health care law.
    What worries me is that all the attention--and I would just 
like each of you to comment on this--is on Medicare. When 
Medicaid and CHIP, for example--the Children's Health Insurance 
Program--went through either CMMI or CMS, through rules which 
were a terrible mistake, they sort of concentrated on Medicare 
but not on Medicaid and Children's Health Insurance Programs. 
Medicaid is, what, 70 million people? It is by far the largest 
amount of money, but there is no focus on new ways of working 
with Medicaid and CHIP. I worry about this in terms of the 
national quality, strategy, and all the rest of it.
    So what I would like to hear from each of you is, do you 
agree with that, and what thoughts do you have about applying 
some of the thoughts that are put to Medicare to Medicaid and 
CHIP? I am assuming that the law is going to stand and that, 
even if part of it does not, that the Independent Payment 
Advisory Board will. But it has not yet been formed, as you 
know.
    I will start with you, Mr. Diaz.
    Mr. Diaz. Thank you, Senator. Well, I think at the core of 
all the things that you heard today, those same innovations 
extend to the dual-eligibles. We care for hundreds of thousands 
of dual-eligibles every day, and principally Medicaid folks, so 
we have great experience with this.
    We share some of your concerns, given some of the chronic 
under-funding of Medicaid that is going on right now in many 
States. But I would say that my optimism comes from the fact 
that the same learnings on managing wellness and managing 
chronic conditions that we focus on in terms of the Medicare 
business will extend to those same patients, particularly the 
dual-eligibles. So, I mean, I think that these same innovations 
show promise in terms of outcome.
    Senator Rockefeller. I do not accept that. Tell me why you 
think you are right on that. In other words, if something does 
not work with the dual-eligibles, Medicaid, CHIP, or whatever, 
then the hospital committee gets together and says, well, we 
made a mistake there, so we are going to change and do it this 
way.
    Mr. Diaz. The alternative--because my doctors and nurses do 
not see patients through a Medicare, Medicaid, or a united 
lens, they just see a patient. So, when we talk about clinical 
innovation for electronic health records to improve the 
coordination of care, it is not through a payment lens, it is 
through a patient lens.
    The opportunity we talked about today is allowing our 
clinicians to do that. So again, I just do not think they see 
it as a Medicaid patient or a Medicare patient, they see it as 
a patient who is ill, who has chronic disease, and we can do a 
better job of coordinating their care.
    Senator Rockefeller. I will stop with this. My time will 
run out. But the fact that there are so many people, 70 million 
people, in Medicaid, and millions and millions of children in 
the Children's Health Insurance Program, the fact that that is 
not given weight formally in the CMMI experimentation or 
approach to experimentation, you think will solve itself?
    Mr. Diaz. I will turn it over to the other panelists. But 
our lessons learned and the innovations that we are 
participating in, I think, have implications for all of our 
patients, regardless of their payer source. I will let the 
other folks comment on it.
    Mr. Malloy. Senator, I would say that, with the innovations 
that we have deployed within our population, in similar vein, 
we have developed technology tools that our physicians use. Our 
hope is that, as the payment environment continues to change, 
it will encourage the alignment of incentives to do this across 
the board.
    The same thing--we do not change the way we treat patients 
from room to room to room as the physicians move from one 
patient to the next. The issue really comes down to whether or 
not we can create the environment to align the incentives to 
achieve what is necessary.
    I spent a number of my years within the health care world 
on the health plan side. I ran a small Medicaid plan in 
Maryland as well. It used to infuriate me that we could not get 
to the point where we understood exactly where we were with 
respect to our quality measures.
    When I came to Renaissance and discovered that physicians, 
within their own environment, 230 independent physicians 
scattered across the Philadelphia marketplace, had invested 
their time, energy, and money into making new tools, new 
capabilities, and care plans that would treat the patients, I 
was very excited about that, and it felt to me like there was 
an opportunity to take those same capabilities and begin to 
move those across the country.
    So we created a company, and we started to do exactly that. 
Our first prospective client became a client. It is a health 
plan that is using all the same tools and capabilities that we 
have today, and they are doing that to advance improved quality 
within their marketplace.
    Our results: we have some of the highest quality measures 
in the Nation with respect to Healthcare Effectiveness Data and 
Information Set (HEDIS) measures. We also have a demonstrated 
medical cost savings over the same time period. Most of our 
savings come from reduced event-driven care, so fewer emergency 
room visits, fewer readmissions into the hospital. I think 
those are all applicable, regardless of who the payer is. I 
would love to see these types of capabilities expand across the 
entire spectrum so that physicians are using these for all 
their patients, not just subsets or segments of them.
    Senator Rockefeller. I thank you. My time is up.
    Senator Wyden. Mr. Chairman?
    The Chairman. Senator Wyden?
    Senator Wyden. Mr. Chairman and colleagues, I think I have 
heard the words ``aligning incentives'' about 5 times in the 
last 15 minutes. I certainly support that. We always hear about 
it in the context of providers, insurers. Those are usually the 
two. But almost invariably the patient is kind of an after-
thought, particularly with Medicare and senior citizens.
    I think, for example, that real behavioral change, 
particularly in this program with 50 million people that a lot 
of us see as sacred ground--I mean, I remember working on 
Medicare reforms when I was director of the Gray Panthers. We 
were passing petitions around for what Senator Rockefeller was 
working for back in those days. So this is really sacred 
ground.
    Senator Portman and I have introduced the first bill to 
really start trying to come up with some fresh thinking in 
terms of creating behavioral changes, particularly for seniors: 
lowering blood pressure, cholesterol, and all that kind of 
thing.
    Mr. Malloy, what do you think about just the concept? Let 
us set aside any bills and the like. But what do you think 
about that concept? Because I think it is really an after-
thought that the senior, the beneficiary, really is not much 
part of this discussion of aligning incentives.
    Mr. Malloy. I completely agree. I personally had some 
experience with this within the Medicaid plans that we serve 
that Senator Rockefeller talked about, and we found that 
incentives for encouraging patients to see their primary care 
physician and have preventive care screenings were incredibly 
effective. I think it would be fantastic to continue to expand 
that into other marketplaces.
    The new organization that I have recently become affiliated 
with, Health Ways, has a lot of programs that are along those 
same lines, to incent and align incentives for patients, to 
have them focus more on their own health care and improving 
their own health status. I think it is important. I think 
incentives matter throughout the health care spectrum, whether 
it is the patients, the providers, or hospitals.
    I think, as we think about payment reform, those are the 
areas that we have to focus on to encourage the----
    Senator Wyden. We have appreciated your support, your 
endorsement for the legislation, the Health Ways Group. Let me 
take the other side of the coin then if I could, for you, Dr. 
Migliori, with this question of incentives and particularly for 
us to create a new approach to getting the patient involved. 
You have been talking about the transparency efforts United has 
put in to try to get more data and to try to particularly get 
comparative data.
    Senator Grassley and I have introduced legislation to open 
up the Medicare database so that people could really see what 
the data was, again, on an important program with 50 million 
people.
    Now, some States have gone beyond that. Colorado, for 
example, has been talking about an all-payer database so that 
you could get Medicare information, Medicaid information, and 
private payer information. I gather that you all would like to 
see these kinds of approaches that get a great deal more data 
out there, and particularly comparative kinds of approaches. Is 
that correct? I do not want to put words in your mouth; just 
tell me how you see this.
    Dr. Migliori. Senator, that is correct. Our perspective is 
that health care improves when the participants in health 
care--the doctors, the patients, the hospitals--are connected 
and then informed to take action by the data they are 
generating themselves.
    You can go beyond that to the other point that you raised 
earlier, which is to then provide meaningful changes in 
reimbursement so hospitals do not take it on the chin when 
people get healthier, but at the same time providing incentives 
and fostering encouragement to get patient engagement, just as 
Dr. Sacks was saying earlier. Getting patients engaged, taking 
the information that comes out of the health care system, 
analyzing it, understanding what it is saying, and pushing it 
back to the health care system, is the best way for us to 
create higher quality, better health, and lower costs.
    Senator Wyden. I appreciate that.
    Mr. Chairman, thank you for that. I think what the 
witnesses are highlighting is that, with a lot of these 
decisions, particularly that last point by you, Dr. Migliori, 
we are making some decisions in the dark. I mean, to really not 
have this kind of information so that people can have it to 
make choices just seems to me to be a big gap in this.
    I want to see us align incentives, and that is what we have 
been talking about. Let us make sure, first and foremost, that 
we recognize that behavioral change starts with people, with 
individuals, and we ought to at least have some incentives 
there. I think what you all are trying to do with data, Dr. 
Migliori, is very helpful, and I thank you, Mr. Chairman.
    Senator Nelson. Mr. Chairman?
    The Chairman. Senator Cardin, I know you have been 
anxiously looking for recognition, but I must say that Senator 
Nelson has been even more anxiously, and earlier, looking for 
recognition.
    Senator Nelson. Well, with a star-studded panel like this, 
it is a good opportunity to try to point out, as we ease in to 
the new health care bill, some of the misunderstandings and 
confusion about the bill that this panel can help us 
understand. So I just want to ask questions in two areas: Long-
Term Acute Care facilities and Accountable Care Organizations.
    So Mr. Diaz----
    Mr. Diaz. I guess I will do LTACs.
    Senator Nelson. I think you will do LTACs. How do you think 
the post-acute care that you are familiar with can reduce the 
cost and improve quality, and what are some of the other ways 
that we can improve that post-acute care? And just lace her in, 
because I want to get to ACOs before my time runs out.
    Mr. Diaz. Well, I will tie that back to Chairman Baucus's 
question too about how we can get more aggressive and how we 
can drive behavior, allocate human capital, financial capital, 
to move these things faster. I think those challenges are 
different in Dillon, MT than they are in Chicago. The problem, 
as we talk to physicians--and our leadership team just 
yesterday--is the uncertainty. What we need is some certainty 
on one side of CMS at the same time that we are trying to drive 
innovation on the other side. Those two activities need to be 
coordinated.
    The Chairman. They are not now?
    Mr. Diaz. I think we are making progress. I think that 
there has been improved dialogue about understanding that you 
cannot advance the Innovation Center if there are conflicting 
things going on on the regulatory and payment side.
    So I think things like advancing the LTAC legislation to 
clarify further that only the most clinically appropriate 
patients belong in LTACs, that can save money in the Medicare 
system. It is just sort of foundational so that we can move 
forward to the real problem, which is, we ought to be focusing 
on wellness behavior.
    If we want to reduce costs, we need to reduce utilization 
across the board, and we need to measure our progress in 
reducing that with a limited set of clinical outcome measures 
and patient satisfaction measures to guardrail against pushing 
length of stay down in acute care hospitals, or LTACs, with 
things like rehospitalization policy.
    So to tie those two together, I think if we can bring--and 
I hear fear in our physician groups all the time--some 
stability on the regulatory side and then focus on a narrow set 
of measurable clinical outcomes and patient satisfaction 
outcomes and reduced utilization, length of stay, and guardrail 
it with things like penalties on rehospitalizations, then I 
think we can deploy human and financial capital in a much more 
aggressive way.
    Senator Nelson. That is true. And also bundle payments so 
that you are looking for the outcome. Instead of paying every 
little thing that happens, you get cheaper and you get better 
outcomes.
    All right. Let us take Mr. Diaz's answer, and the rest of 
you, take it to Accountable Care Organizations in the private 
sector, not in Medicare. What do you think?
    Mr. Malloy. I think the Accountable Care Organization 
concept is something--we have been operating in that 
environment long before it really had that title, from our 
perspective. We have been focusing on improving quality on one 
end and making sure that we have gotten patients into early 
entry to care. I think, as we look into the future, we will see 
more of that. There is certainly an ever-increasing drift in 
that direction, and I think that is appropriate.
    From our vantage point, as I mentioned in some of my 
opening remarks, a lot of it comes down to making sure that you 
are operating within the environment that you serve. So, to the 
extent that payment reform and payment changes within the 
commercial market begin to take hold, change, and move more 
toward gain share or risk type of arrangements and so forth, 
then we necessarily will adapt our model to that. So we assess 
where we are within the environment, and we adapt to whatever 
that environment is. I think that is probably true for the 
other panelists as well, but I will let them speak on their 
behalf.
    Dr. Sacks. Yes, Senator Nelson. As I said earlier, we have 
been engaged, so we are in the 6th quarter of commercial 
accountable care with 150,000 HMO lives under risk-adjusted 
capitation and 245,000 PPO lives, which is the first time we 
have been able to align incentives for the PPO.
    What I think has jumped out is, one, it is a recognition 
that an organized delivery system can make a difference. Two, 
it is alignment of the incentives, both between the payer and 
the delivery system, and then within the delivery system 
between physician specialists, primary care, and possibly----
    Senator Nelson. Let me ask you this. You are a PPO and an 
HMO. How do you see the new ACO, Accountable Care Organization, 
as different from what you do?
    Dr. Sacks. The ACO is like what we are doing with the PPO, 
or Preferred Provider Organization, population. Similar to 
Medicare, these patients have a benefit plan that provides 
access anywhere that you can use a Blue Cross card, which is 
virtually anywhere.
    Our incentive is to provide superior service and outcomes 
so that they will want to get all of their care within our 
network where we can better manage it, but we have the 
financial accountability for out-performing the market on the 
trend in the cost of care.
    I think the exciting thing is, with results through the 
third quarter of our first year, we have out-performed the 
market by nearly 5 percent, showing that there is an 
opportunity for real savings and getting the rate of health 
care inflation down to a level of CPI.
    I think to be honest, 2 years ago, if somebody had said we 
would get it to CPI, we would have been very skeptical. We set 
out to do that for 2014, thinking that, if there are going to 
be insurance exchanges, we had to have a product that would be 
price-competitive, and we have accomplished that in the first 
year.
    I think it is a grand opportunity, and yet I have no 
illusions. It is probably a transition vehicle, and shared 
savings and out-
performing the market will not go on forever. As the 
marketplace changes and those who compete with us in the 
Illinois market start to engage in what we are doing, our 
ability to out-perform them will disappear, but it will 
probably migrate to some type of global budget.
    Several of you have referenced bundled payments, and I 
think what you have talked about is bundles for a discrete 
episode of care, such as a joint replacement or cardiac 
surgery. Think about it: a global budget is the grandest 
bundled payment. It is a bundled payment for a population over 
a period of time. I think that is where we need to move to, and 
that creates the alignment of everybody providing care within 
that system.
    Senator Nelson. I know my time is gone, but I would just 
ask rhetorically of the committee: is his success in Illinois a 
result of the new health care law, his PPO, or both? Since my 
time has run out----
    The Chairman. You are right. That is a good rhetorical 
question. [Laughter.]
    Senator Cardin?
    Senator Cardin. Mr. Chairman, thank you very much. There 
are a lot of good things that are happening out there. You all 
are coming up with ways to make our system more accountable and 
give better results at less cost. You can point to a lot of 
examples, and you have already done that.
    But I want to get back to reality. You all are facing 
additional cuts in the Medicaid programs in every State in this 
Nation. This year, we are going to be looking at a significant 
reduction in Medicare cost over baseline. It is not what we 
think is right but what gets scored around here that we are 
going to have to end up doing.
    So what I find very frustrating--and I can give you chapter 
and verse--we have a program in Maryland that has used 
technology to bring down costs for diabetes: WellDoc. It 
started, by the way, in 2004, when cell phone technology was 
not what it is today. It has demonstrated, in a 7-year study, 
that it has brought down diabetes care by 10 percent. That has 
never been scored for the 10-percent savings, so now we have 
achieved that, but we do not get credit for it.
    So we have spent a lot of time on delivery system reform, 
and the Affordable Care Act, with the ACOs, is clearly in that 
direction. We do talk about bundling, because bundling is a way 
that we can sometimes get scoring.
    But I think our challenge is, how do we put into the code a 
scoring mechanism that captures the practices that you all have 
instituted so that we can get credit for it through the process 
that we have to follow here in Congress? Because I tell you, we 
are running against a cliff that is going to come up very soon 
as to how we deal with the sequestration, how we deal with the 
SGR system for Medicare, how we deal with the Bush tax cut 
issues.
    All of that is going to come up soon, and part of that is 
going to have to have scored spending savings, and a large part 
of that is being looked upon as to how we get that out of the 
health care system. We think, many of us, that we have already 
gotten a lot of that out of the health care system, and we will 
demonstrate that in the years ahead because of what we have 
passed, but it does not get scored.
    So now we have to put something in the code that gets 
scored that you all have confidence in, that is not just 
another round of cuts to providers, because, if we just 
continue to do that, you are not going to be in business. So 
what do we do? How do we resolve this issue to allow these good 
practices that you all put in place on delivery system reform 
to show the savings, and therefore allow us to get the credit 
for it?
    Mr. Diaz. If I may, Senator, I think your concern is well-
placed. I mean, I see innovation and investment in technology 
in our company coming to a screeching halt as a consequence of 
the sequestration cuts. It is just unavoidable. There are only 
so many years we can freeze wage rates for nurses and cut 
without affecting patient care. So we are living that struggle 
today.
    I think what we need to do is pick five things. As we all 
talked about, let us pick the five things that we think move 
the dial the most. Maybe some of them are penalties, like 
rehospitalizations. But things like reducing length of stay 
should be something that we are all championing, because, if we 
are getting patients home faster, there should be incentives 
for that.
    So providers that are accomplishing those things above the 
baseline and are showing superior outcomes should be rewarded, 
and providers that are not should be held accountable. That is 
one of the greatest frustrations in Kindred Healthcare: we are 
out-
performing on all these measures, but it does not really matter 
at the end of the day in terms of our sustainability from a 
financial perspective.
    The reward systems within our organizations are hard to 
sustain too, which are around people, quality, and clinical 
outcomes, as well as financial metrics like rehospitalizations 
and lower length of stay.
    Senator Cardin. The challenge is, it is so difficult to put 
that into code where you are reducing, in your case, 
reimbursements to hospitals based upon admissions and rewarding 
long-term care providers based upon results.
    You are not going to have the same confidence level from 
the hospital community that you would from the long-term care 
community. But you are absolutely right. I mean, that is what 
we do. The cost centers are exactly where you said they are. We 
are achieving some of those savings, and they do not get 
scored.
    Mr. Malloy. In our example, what we did not have is--we 
compare our population to a comparable cohort using a third-
party actuary to assess our savings. It is more difficult when 
you try to get into the individual initiatives that you have 
undertaken to say how much is associated with a very particular 
piece, but certainly our integrated program that we have 
deployed has been proven to be effective.
    But we have similar challenges about, well, how much of 
that was really associated with coordinated care versus the 
preventive activities and the wellness that we have done? It is 
a challenge. But I think if there were a way to look at it in 
terms of total programs that have been deployed and compare 
those to a comparable cohort, that may be a financial----
    Senator Cardin. I will just make one last observation. That 
is, we know that we are going to reduce costs and hospital 
infection rates. We know that. We have been able to demonstrate 
that. There is study after study that shows that. We did not 
get the scoring for it, even though we know that it is going to 
take place. It seems to me that there is some way that we could 
put in an enforcement mechanism to make sure hospitals obtain 
what we know they should obtain in hospital infection rates so 
that that can get scored, and again a reward for those who 
exceed expectations.
    That is within one area of health care costs. I think we 
need to look for more of those examples where we can 
demonstrate savings, put some enforcement mechanism that gets 
scored, hospitals or providers that meet the standards or 
exceed them, they get rewards, and, if they do not, there is a 
penalty.
    Thank you, Mr. Chairman.
    The Chairman. You are welcome.
    In the spirit of bipartisanship, Senator Thune?
    Senator Thune. Thank you, Mr. Chairman. I am glad you are 
not forgetting about us over here.
    The Chairman. You are there, alive and well.
    Senator Thune. Yes. [Laughter.] Yes, that is right.
    Well, I appreciate the hearing, and I thank you all for 
your thoughtful observations.
    I have a question that has to do with this whole issue of 
interoperability and how advanced we are, what we might be able 
to achieve in the form of savings. If I twist my knee in 
Colorado and have to go to the emergency room, and they want to 
find out what prescriptions they can give me and that sort of 
thing, or how to treat me and to be able to know who treats me 
in South Dakota, what my medical history is, that sort of 
thing, or for example, you have long-term acute care, acute 
care--you have all these various ways in which people access 
the health care system in this country--how integrated are we?
    How interoperable are we in terms of electronic medical 
records and that sort of thing, say on a scale of 1 to 10? 
Then, what sort of savings could we achieve--and I am sure that 
is a very difficult thing to quantify, but if you could at 
least in general terms talk about what that might mean in terms 
of avoiding redundancy, avoiding duplication and over-
utilization because of tests and all sorts of things that might 
be available if you had access to a medical record for a 
patient?
    Dr. Migliori. Senator, if I may, interoperability is 
something that is not at a level that it should be. If I was to 
score it using your 1 to 10, it is probably a 3, for two 
reasons. Number one, it has been the slow adoption of 
electronic health records and other automated clinical systems. 
The groups to my left here are exceptions to the rule.
    The second, though, is that, even when you have integrated 
systems or electronic systems, trying to move between systems 
is very poor, and I think it represents a threat to safety, as 
well as an issue around efficiency--how much efficiency and the 
ability to provide a specific number. I suspect we could come 
up with some estimates. But certainly, in a society that 
expects choice and is full of mobility, to have a system that 
silos its information really is counter-current to their 
intent.
    Mr. Diaz. Let me just give an echo, an example. So we have 
a Joint Operating Committee with the Cleveland Clinic. I 
mentioned in my testimony we have a lot of folks, and we are 
very focused on rehospitalizations in that Joint Operating 
Committee. The 
number-one issue of all of those clinicians was, how do we get 
information to manage these patients? So we built an interface 
with EPIC, which is the clinical information system that the 
clinic uses.
    Now the Cleveland Clinic doctors can access EPIC, and we 
have linked it to ProTouch, our medical record. So when they 
follow the patient from the clinic to our long-term acute care 
hospital or our sub-acute facility, they can go backwards into 
the EPIC system, or they can move forward into our system, as 
we have built that interface.
    That is a 1 percent on the 10 percent chart that you said. 
I mean, it is just not happening fast enough. And urinary tract 
infections, rehospitalizations caused by that and other things, 
have dropped like 30, 40 percent, by letting our clinicians 
have the information to manage patients across these care 
sites.
    Mr. Malloy. I would just build on that and say that getting 
information to physicians is very difficult at this point. One 
of the major aspects of how we can improve quality and lower 
cost is through a transitional care program that we have within 
our organization, trying to make sure that, when a patient is 
discharged from the hospital, we know everything about what 
happened there so that, as they move into the home environment, 
we can make sure that we are carrying that care through so they 
are not readmitted into the hospital later.
    I think a big part of this is additional investments into 
the Health Information Exchange models. In Pennsylvania, there 
is a project under way, and it is at the State level. It is 
very complex. It looks like it is going to take some time to 
get in place. In Delaware, to our south, we found that they 
have the Delaware Health Information Network, which is the 
backbone of health information which allows physicians and 
hospitals to sort of plug in and get that information out.
    But to your question, if something is happening across the 
country, that information just is not there. It really is an 
issue of patient safety, it is an issue of making sure that you 
have timely information in the clinicians' hands so that they 
can actually effect change when they need to. We are still a 
long way from that. I would not even give it a score as high as 
3, as my colleague down at the end of the table did.
    Senator Thune. By and large, that is a resource issue, I 
mean, to make that happen. But to create those standards of 
interoperability, we have always talked about that, but it does 
not sound like that is happening out there.
    I guess my last question is, as my time is out, how do we 
incentivize that?
    Dr. Sacks. Senator, right now the incentives are to 
continue to build infrastructure. I agree with what my three 
colleagues have said. We are one of the more advanced systems 
with electronic health records. All of our Chicago-area 
hospitals achieved Meaningful Use Stage 1 last year. We have 
four prime vendors.
    While they all meet Meaningful Use and are 
``interoperable,'' unless you set the systems up with the same 
data definitions and the same fields, you realize that you are 
talking theory, but in the real world I cannot exchange your 
prescription from the medical group system to the hospital 
system, and it creates a host of safety issues.
    It is much more complicated than banking because you do not 
just have to deal with 10 digits and putting them in the right 
boxes. We are moving in that direction. It needs to be 
encouraged and incented, but ultimately there needs to be 
standardization of the definitions so that, when we record a 
blood count in my office system, it is the same as a blood 
count in South Dakota or in the hospital so that it moves 
seamlessly, and that is one of the practical challenges. To be 
honest, the vendors do not have an incentive to do that. They 
want to try to be a 1-brand solution and keep you as a customer 
of their total solution.
    The Chairman. Well, how do we solve that? I mean, did the 
stimulus bill not provide about $20 billion for health IT? I 
mean, the first question is, was that spent wisely? Second, I 
know all these different vendors are competing for business. It 
seems to me that they are just going to keep competing and we 
are not going to have this interoperability that everybody 
talks about. But do you fellows not have some ideas on how to 
solve that?
    Mr. Malloy. Sure. I think with respect to the investment in 
EMR, I think that has been hugely successful, at least within 
our realm. About 85 percent of our physicians are currently on 
an EMR system. We expect to be at about 95 percent by the end 
of the year. But EMR, in and of itself, does not really solve 
the issue. It allows you to track the records of the individual 
patient, but it really does not allow you to do sort of the 
population management type things that need to be done.
    The Chairman. Right.
    Mr. Malloy. It also does not allow us to exchange 
information back and forth.
    The Chairman. So what do we do?
    Mr. Malloy. I think it is a matter of understanding some of 
those core pieces. To Dr. Sacks's point, there are some 
practical issues where EMRs do not really talk well to each 
other. If somebody puts information in a text field versus in 
an empirical specific data element field, it is hard to clean 
that up. It is really a matter of having sort of clinicians 
opine on what is really necessary in order to make those talk, 
and of establishing some standards.
    The Chairman. Senator Carper has been very patient over 
there.
    Senator Carper?
    Senator Carper. Thanks so much.
    We have also been patient in Delaware, and I just want to 
follow up on something Mr. Malloy said. Fifteen years ago, when 
I was Governor, we signed into law the notion of creating a 
Delaware Health Information Network, and we have nurtured it 
for 15 years.
    Last week, we celebrated its 5th anniversary of being live 
online. For the last 5 years, we have been able to sign up more 
of our hospitals, more of our nursing homes, more of our 
providers. Last week we were at 100 percent of hospitals, 100 
percent of nursing homes, 92 percent of providers.
    This is technology that is enabling us to provide better 
quality health care, save lives, and also save money. We are 
very proud of what we have done. I know it is not the whole 
solution, the whole answer, but hopefully it is something that 
others can look at. We made plenty of mistakes along the way, 
and others can learn from our mistakes and be able to perhaps 
replicate some of our successes.
    Senator Thune just walked out. He is a great athlete. We 
had a 5-K race last week that a bunch of people participated 
in, including Dick Lugar at the tender age of 80, and he has 
run in about, I think, 30 of the races here on Capitol Hill. We 
are just very proud of him. And Thune is a great athlete. I 
call him Thuney. But Senator Baucus over here is a great 
athlete as well. He does not run 5-Ks or 10-Ks, this guy has 
run like 50-mile races and so forth, and probably still does 
it.
    I like to--ever since I was a Naval flight officer, an 
ensign, down in Pensacola, FL--try to work out just about every 
day, and I do not miss many days. I do not remember the last 
time I missed a day's work from sickness. I talk to other 
people who work out regularly, exercise regularly, and watch 
what they eat, and a lot of them say the same thing. They just 
frankly do not get sick very much, and, if they do, it tends to 
go away.
    Not everybody is as crazy as guys like me, and maybe 
Senator Thune, maybe our Chairman, in terms of exercising. But 
I am convinced if we could somehow motivate people to do that 
more often, as well as to watch what they eat, we would all be 
a lot better off, and frankly a lot better off fiscally as we 
look at the squeeze on Medicaid, Medicare, and all.
    When we were working on health care reform legislation, 
former Senator Ensign of Nevada and I offered legislation 
adopted by the committee, signed into law, that enables 
providers to provide premium discounts of as much as 30 percent 
to employees who, if they are overweight, bring it down and 
keep it down; if they use tobacco, stop smoking, stop using 
tobacco and continue to stop smoking; if they have high blood 
pressure, high cholesterol, bring it down and keep it down. It 
can actually go up as high as 50 percent.
    But that is an effort on our part to incentivize people to 
do what they know they ought to be doing anyway, and, if they 
do those things, not only will they be better off, the group 
will be better off, and also the taxpayers will be better off.
    Could you just talk to us a little bit from your 
perspective as to what you are mindful of that we are doing to 
incentivize people to assume personal responsibility for their 
own health?
    Dr. Migliori. Senator, that has been core to our business. 
In fact, perhaps the fastest-growing area of our business at 
United
Health Group has been the growth in employer-incented programs 
that incent engagement.
    We have over 40 large employers with now over 2 million 
people who are on programs that require them to do their 
biometric testing, the simple things--blood sugar, cholesterol, 
body mass index, and blood pressure--and, if they are out of 
whack, to get engaged into programs, much the way Lee had said 
earlier.
    And with doing those activities, there are some modest 
financial contributions made in a variety of ways for health 
care and other things, such as deposits made into the health 
spending accounts and the like.
    The important thing about these programs, with each one of 
them, we have seen an increase in people getting engaged. We 
did it for our own. The first client that we used was 
ourselves, with 136,000 UnitedHealthcare employees that we put 
through a system of doing that.
    What we found is that we had diabetics whom we did not know 
of. Ten percent of our diabetics did not know they had it. They 
engaged in weight programs. Half of them lost over 9 pounds in 
weight. We had a 12-percent reduction in cardiac disease. We 
had 10 fewer heart attacks that year, and we also had diabetes 
costs fall dramatically, like 19.6 percent.
    What we have done beyond that is to make it simpler to do. 
We have gone to the point now of building mobile applications 
for your smart phone that will connect to commercially 
available things like Fitbit, so that people can record into 
their cell phone and then transmit to their personal health 
record and their health coach, at their discretion, their 
activity. So that way we can start building the linkages for 
people to do that and, as they take on this responsibility, to 
effect change.
    The important thing is, what you are going after is that 50 
percent of American's premature deaths are the result of 
lifestyle choices, and those are the choices that have to 
change.
    Senator Carper. Thank you.
    Dr. Sacks. From my vantage point, going back to my days as 
a practicing family physician, some of the most frustrating 
times were when I would encounter a patient, and their 
lifestyle was the barrier. No matter how I would try to educate 
them that you need to exercise, you need to lose weight, you 
can control your blood pressure without medication, my success 
rate was probably in the low double digits.
    When you get alignment with family reinforcing it, when you 
get financial incentives, when you get the employer, when you 
change the food in the cafeteria at work, when you set up 
exercise programs, you can get the success rate up into the 50-
, 60-, 70-percent range. It takes the whole community to get 
this done.
    As I said earlier, we have been doing this with our own 
workforce over the last 5 years, and every year we have seen 
improvement. It has bent our cost curve, which was the biggest 
driver of inflation on the cost side for our organization, and 
it has given us a healthier workforce which is more productive.
    I think we all have creative ideas of how that can be 
driven deeper and farther across this country, because it has 
typically been the large commercial employers that are self-
insured that have been innovative because they are paying for 
it.
    Senator Carper. Could the last two witnesses just briefly 
respond?
    The Chairman. Sure.
    Senator Carper. Mr. Chairman, thank you.
    Please, Mr. Malloy.
    Mr. Malloy. In similar fashion, I tend to agree. I think we 
are now beginning to meet the member where they are at so that 
they can really focus on improving their health care. I think a 
lot of times they feel as if it is a little overwhelming, and, 
if they have the proper tools and the proper incentives there 
and begin to understand that small changes can really make a 
difference, I think that is very important.
    Health Ways has been doing that for their employees for a 
number of years, also with the plans and members that they 
serve. New mobile apps and those types of things are certainly 
important, being able to track and trend where you are with 
respect to how you are performing against those things. The 
Fitbit idea is something that has really been phenomenal.
    It makes it easy for people to kind of link together what 
they are doing and report it back to their health records, 
track it, and then to share it socially, because we do know 
from the science that there are a lot of positive effects from 
the social interactions of family and friends and the impact 
that that has on changing behavior. So, I think there is a 
general movement that seems to be happening in a number of 
different areas that will reinforce that.
    Senator Carper. Thank you.
    Mr. Diaz, just briefly. Mr. Diaz, could you comment, 
please?
    Mr. Diaz. We have 77,000 employees across the country and 
have embarked on some of the same things. I mean, it is amazing 
the frustration I have sometimes going into the break room to 
see nurses who are caring for patients on ventilators who are 
having a cigarette and a regular Coke.
    Senator Carper. Did you say cigarette and a rum and Coke? 
[Laughter.]
    Mr. Diaz. And so we have redesigned programs. We have 
really tried to foster a much more active lifestyle within our 
support center. I think we are sort of just at the beginning of 
that, but I think there are clearly signs of change happening 
in employer-based systems. I think the bigger challenge, as 
Senator Wyden said, is how do we accelerate that in Medicare 
beneficiaries, the dual-eligibles in Medicaid, where some of 
the lifestyle things are more entrenched because of 
socioeconomic issues and other things.
    Senator Carper. All right. Thank you.
    Mr. Chairman, you have been very generous. Could I just add 
one last quick P.S.?
    The Chairman. All right.
    Senator Carper. Later this year, part of the health care 
law that we passed will go into effect in States across the 
country. It is a provision that Senator Harkin, Senator 
Murkowski, and I worked on, with good support from our 
committee. It provides that people who walk into a chain 
restaurant later this fall will look up on the menu board and 
see, for the item being served, cost and calories. If they do 
not have a menu board, they will have a menu.
    Chain restaurants across the country that have a sit-down 
menu, you open it up, and for the item being served, you see 
price and calories. The restaurants have to provide, upon 
demand, upon request, additional information as to sodium, 
fats, trans-fats, cholesterol, a variety of other things. That 
is just one more tool to help people, encourage people, enable 
people to take personal responsibility. Thank you.
    The Chairman. No question, it all helps. It all adds up.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    I want to thank Senator Carper for his focus in this 
regard. His example has made me go to the gym more and order 
Egg Beaters when I head for breakfast.
    I thank you all for your testimony. Mr. Diaz, in your 
testimony you highlight the important issue of increasing 
coordination and integration as a means to improve care and 
reduce unnecessary costs, something that we clearly want to 
achieve. Kindred is in a unique position to provide this high 
level of coordination as the operator of so many post-acute 
facilities. However, that can be difficult when those post-
acute care sites are not under one roof.
    In New Jersey, to address this issue, health care 
facilities, home care providers, and other stakeholders worked 
with State officials to create and implement what we call a 
mandatory Universal Transfer Form. The use of this form will, 
we believe, ensure that providers across the continuum of care 
have the access to patient history and information that will 
help improve care.
    So my question is, do you see that as a way to more 
effectively and accurately coordinate care for patients 
transferring into post-acute settings, and do you think 
something like a Universal Transform Form can be an effective 
tool to improve provider coordination?
    Mr. Diaz. I do, whether it is in the ACO examples that we 
have talked about or other collaborations. We talked about a 
lot of capabilities, and I mentioned building trust, breaking 
down silos, things like IT to enable that, are critical.
    In each community, there is going to be a role for large 
integrated providers and individual providers. I think what it 
is going to require is that these networks, as we set them up, 
have people to deliver on the value proposition, whether they 
are large or small. So we have to allow for that.
    People have to come at it from a collaborative perspective. 
I think the challenge is, if we continue to approach things in 
a sort of ``I win, you lose'' fashion, we are never going to 
get anywhere. It is going to require everyone giving a little 
bit in terms of breaking down these silos that we are in.
    Senator Menendez. And I would assume that that sharing of 
information at the end of the day is critical, (1) for the 
patient, and (2) also for savings.
    Mr. Diaz. Without question. As you have heard today, and we 
have seen examples of in our pilots, there are just tremendous 
patient opportunities and tremendous opportunities to reduce 
costs when we can give clinicians information to manage 
patients over an episode as opposed to aligning incentives 
around the short-term acute care hospital, as has been spoken 
to.
    Senator Menendez. Finally, I know that earlier you 
mentioned in your testimony, legislation that Mr. Nelson and 
Mr. Roberts are sponsoring, that I am co-sponsoring, with 
reference to long-term care hospital improvements, which 
outlines specific criteria to better identify long-term care 
hospitals and their role within the continuum of care. Why are 
such specific criteria needed, and what would having such 
criteria in place actually accomplish?
    Mr. Diaz. Well, long-term acute care hospitals, like 
inpatient rehabilitation hospitals, like skilled nursing 
facilities, play a unique role in the delivery system. Right 
now there is a lack of regulatory clarity there. I think what 
that would do, what the criteria would do, would enable not 
only public payers, but the private payers here, to all 
understand better what that role is, what the outcomes are that 
can be generated, and what the costs are. I think that just 
enables us to be more efficient in getting patients to the most 
clinically appropriate setting as quickly as possible. Long-
term acute care hospitals do not have that clarity in the way 
that other sectors do today.
    Senator Menendez. Thank you.
    The Chairman. Thank you.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman. Mr. Chairman, I 
think this has been an excellent hearing, and I appreciate the 
way you are doing it.
    I want to kind of see if I can sort of summarize how I have 
come to see this. I mean, you all have appropriately 
characterized what we are dealing with in America as largely a 
sick care system. We have not put the focus on behavioral 
changes for individuals. We are now talking about trying to 
change those incentives, so, when we align incentives, it is 
not just providers and insurance companies, but it is 
individuals. That is what Senator Portman and I are trying to 
do with the Medicare program. I think you have given us a 
number of good comments.
    But the question also has to be, for us, in the delivery 
system: what do you do when people have serious illnesses, and 
particularly what some have characterized as essentially a 
silver tsunami that is going to land at your doorstep, Mr. 
Diaz, in terms of long-term care?
    What I wanted to ask for just a minute is your thoughts 
about what could be characterized, at least in Washington, as a 
long-term care Accountable Care Organization. Now, in my part 
of the world--Chairman Baucus knows this--when people heard the 
words ``Accountable Care Organizations,'' they would kind of 
smile and say, that is what we have been doing for 25 years. 
That is Group Health up in Seattle, that is Providence in 
Portland, and the like.
    But I think in something resembling English, this is 
integrating services. If you are not a senior, it is 
integrating the kinds of services that Dr. Migliori is talking 
about with employers and unions and others. But for older 
people, I am particularly interested in it because, what I 
remember from my days working with seniors is watching seniors 
get bounced from provider to provider to provider, particularly 
in the long-term care kind of setting.
    What would you think, Mr. Diaz--since you all live and 
breathe this 24/7--about that kind of concept here and having 
people in long-term care who would essentially look at that 
continuum of services, obviously trying to keep people at home 
to the greatest extent possible, but also having the 
institutional kind of services as well, and for this committee 
and the Congress to start thinking about, probably in the lingo 
of Washington, DC, it would be called a Long-Term Care 
Accountable Care Organization?
    I would see it--from my Gray Panther days--as something 
that puts it all in one place for the seniors so they do not 
get jostled around from place to place. What do you think of 
the idea?
    Mr. Diaz. Well, I think we talked about some of the success 
stories that many of us have had. At the core of that, 
particularly for seniors--30 or 40 percent of whom have some 
cognitive impairments and do not have champions within their 
household--it is about having a physician-directed care 
manager, someone who can really attend to the drug regime, 
attend to the discharge, prevent that rehospitalization. So I 
mean, I think at the core there has to be a care manager.
    If we take the 5 percent of Medicare beneficiaries with 
those chronic diseases who are consuming 50 percent of the 
costs, going back to Chairman Baucus's question, and we focus 
on them having a care manager, I think we can bend the cost 
curve and create a lot of value for those beneficiaries. I 
mean, I know probably everyone here has a personal story of the 
difficulty in navigating the system when you are a senior and 
how we have to jump into this for parents.
    So I think that is one of the highest returns we could get 
to the system. It has been proven in many of the physician 
practices that when you can really get a nurse practitioner or 
a care manager who is following the patient and owning that 
medical record, I think a lot can be accomplished.
    Senator Wyden. I would like to continue that discussion, 
particularly with people in the long-term care industry, 
because we are seeing, in the Affordable Care Act, one of the 
provisions--and Chairman Baucus was very supportive of it--was 
independence at home. Oregon just has been able to receive one 
of the first demonstration projects for a wonderful program 
called House Calls.
    What we have been pointing to is the VA--for the sickest 
people, people you all speak about with these co-morbidities, 
having a very sick population--saving upwards of 20 percent on 
that population by caring for them at home. That is the kind of 
model I would like to see, where someone like yourself--and I 
think you characterize it correctly--a care manager, a 
physician, a nurse practitioner, would have this array of 
options. I am interested in following that up with all of you 
in the industry.
    Dr. Migliori, did you want to add anything?
    Dr. Migliori. Yes. I fully agree with you. That is the 
right kind of model, where you are expanding the 
responsibilities and capabilities of fully licensed clinicians 
to do those kinds of things, such as nurse practitioners. We 
serve about 9 million people who are Medicare-eligible through 
a variety of programs. We have 1 million people who are both 
Medicare- and Medicaid-eligible. For many of those people, we 
actually conduct house calls.
    We have built tablet-based electronic health records so we 
can go in the home to make sure that the primary care 
physician's orders are understood and they are able to be 
fulfilled. We go to the point of actually looking at their 
medicine bottles to see whether or not there is a pill, there 
is a bottle corresponding to the prescription, and that the 
pills are being taken. We will make sure that they have access 
to nutrition, to whatever therapies, whatever equipment they 
need. When we have done that, we have reduced readmissions 28 
percent. Those readmission rates are impacted even more for our 
non-white clientele.
    Senator Wyden. Could you get me that information? I would 
like to see it. I am also interested in following up with you 
and Mr. Diaz, those of you who are working with this, on what 
the implications are in other areas, particularly with respect 
to medical monitoring equipment. We have as our large private 
employer in our part of the country Intel, and they have been 
very interested in this, doing very good work, and I would like 
to follow up with you. Thank you for the time, Mr. Chairman.
    The Chairman. Thank you, Senator.
    You know, for what it is worth, I know a lot of you are 
talking to a lot of very smart people in the social networking 
sphere, new start-ups. Smart phones are going to be so smart 
and do so much. It is not just financial services, banking and 
so forth, but health care. I know you are doing this already, 
but, just off the top of my head, I would just urge you to 
spend a lot of time and go out to Silicon Valley, or go up to 
New York to something called Silicon Alley, and just pick their 
brains. They will surely pick yours to try to find a way to 
make money.
    Second, thank you very much for all that you are doing 
here. We depend on you. You are the private sector. You know 
what works, what does not work. You have a bottom line to meet, 
you have payroll to meet. So I would just urge you, as I did 
earlier, just be aggressive. Be bold. Take a flier, let us know 
what might be better, work better, as we proceed. You will get 
great reception from this committee. I know you will elsewhere 
too, but certainly with us, and I would just urge you to keep 
it up.
    I have a question that Senator Hatch wanted me to ask, and 
I will just ask it. It is for you, Mr. Diaz. You do not have to 
answer. The answer could be for the record.
    The question is, I have been hearing of some innovations in 
managing the dialysis population, a population that is only 1 
to 2 percent of the Medicare population but takes up to 8 
percent of Medicare spending. Can you tell me what the dialysis 
industry is doing to manage this chronic problem? Do you have a 
short answer? Go ahead.
    Mr. Diaz. I have a very short answer. It is a very complex 
population that also has the same rehospitalization trends, and 
I think a lot of good work is happening. I am on the board of a 
company called DaVita. It is one of the leading dialysis 
companies. I know there is a great commitment there to clinical 
outcomes and to focusing on integrated health, so I think there 
is a firm commitment in that industry to be part of the 
solution to managing a very unique population.
    The Chairman. Yes. All right.
    Thank you all very much. Remember, I said to let us know 
what other ideas you have. Just give us anything. All right? 
Thank you very much. Thanks for taking the time. You have come 
great distances. We appreciate it.
    The hearing is adjourned.
    [Whereupon, at 11:58 a.m., the hearing was concluded.]



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