[Senate Hearing 112-910]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-910
 

   IDENTIFYING OPPORTUNITIES FOR HEALTH CARE DELIVERY SYSTEM REFORM:
                      LESSONS FROM THE FRONT LINE

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

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   ON

  EXAMINING IDENTIFYING OPPORTUNITIES FOR HEALTH CARE DELIVERY SYSTEM
            REFORM, FOCUSING ON LESSONS FROM THE FRONT LINE

                               __________

                              MAY 16, 2012

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and
                                Pensions





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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

BARBARA A. MIKULSKI, Maryland            MICHAEL B. ENZI, Wyoming
JEFF BINGAMAN, New Mexico                LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington                 RICHARD BURR, North Carolina
BERNARD SANDERS (I), Vermont             JOHNNY ISAKSON, Georgia
ROBERT P. CASEY, JR., Pennsylvania       RAND PAUL, Kentucky
KAY R. HAGAN, North Carolina             ORRIN G. HATCH, Utah
JEFF MERKLEY, Oregon                     JOHN McCAIN, Arizona
AL FRANKEN, Minnesota                    PAT ROBERTS, Kansas
MICHAEL F. BENNET, Colorado              LISA MURKOWSKI, Alaska
SHELDON WHITEHOUSE, Rhode Island         MARK KIRK, Illinois
RICHARD BLUMENTHAL, Connecticut


                    Daniel E. Smith, Staff Director

                  Pamela Smith, Deputy Staff Director

     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)


                           C O N T E N T S

                               __________

                               STATEMENTS

                        WEDNESDAY, MAY 16, 2012

                                                                   Page

                           Committee Members

Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode
  Island, opening statement......................................     1
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....     3
Mikulski, Hon. Barbara A., a U.S. Senator from the State of
  Maryland.......................................................    27
Bingaman, Hon. Jeff, a U.S. Senator from the State of New Mexico.    30

                               Witnesses

Kurose, G. Alan, M.D., President and CEO, Coastal Medical, Inc.,
  Providence, RI.................................................     5
    Prepared statement...........................................     7
James, Marcia Guida, MS, MBA, CPC, Director of Provider
  Engagement, Humana, Louisville, KY.............................    12
    Prepared statement...........................................    14
Capretta, James C., Fellow, Ethics and Public Policy Center, and
  Visiting Fellow, American Enterprise Institute, Washington, DC.    19
    Prepared statement...........................................    21

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    The Boeing Company...........................................    45

                                 (iii)



 
   IDENTIFYING OPPORTUNITIES FOR HEALTH CARE DELIVERY SYSTEM REFORM:
                      LESSONS FROM THE FRONT LINE

                              ----------


                        WEDNESDAY, MAY 16, 2012

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m. in
room SD-430, Dirksen Senate Office Building, Hon. Sheldon
Whitehouse, presiding.
    Present: Senators Whitehouse, Mikulski, Bingaman, and
Franken.

                Opening Statement of Senator Whitehouse

    Senator Whitehouse. The hearing will come to order.
    Let me thank the witnesses for being here. Let me thank
Chairman Harkin and Ranking Member Enzi for allowing me the
opportunity to chair this particular hearing.
    The title of today's hearing is, ``Identifying
Opportunities for Health Care Delivery System Reform: Lessons
from the Front Line.'' It is part of my continuing effort to
raise awareness about the opportunities to reform our health
care system through innovation in care delivery. In particular,
this hearing is a chance to hear from private sector innovators
who have taken this cause to heart and are seeing real world
results.
    When I talk about delivery system reform, I point to five
priority areas: payment reform, primary and preventive care,
measuring and reporting quality, administrative simplification,
and health information technology. As I expect the experiences
shared by today's witnesses will confirm, these priority areas
should not, and do not, stand alone and apart from each other.
Rather, progress in each area will influence, and be influenced
by, progress in the other areas in a manner that can drive
virtuous cycles of improvement in care, efficiency in delivery,
transparency in information, and reduction in cost.
    The potential cost savings in delivery system reform are
significant. The President's Council of Economic Advisors
estimated that over $700 billion a year can be saved without
compromising health outcomes. The Institutes of Medicine put
this number at $765 billion annually. The New England
Healthcare Institute reported that it is $850 billion annually.
And The Lewin Group, and former Bush Treasury Secretary Paul
O'Neill, have estimated the delivery system reform savings at
$1 trillion a year. We can reduce costs, and improve quality
health outcomes, and patient experiences. It is a true win-win.
    My interest in delivery system reform dates back several
years. As Attorney General of Rhode Island, I founded the Rhode
Island Quality Institute to develop innovative approaches to
delivering health care in Rhode Island. I worked to support the
inclusion of smart delivery reforms in the Affordable Care Act
of 2010, and I recently released a report which assesses the
Administration's implementation of the delivery system reform
provisions of that law. I submitted this report to the HELP
Committee in March.
    The report finds that the Administration is working hard to
implement the Affordable Care Act, and has moved forward on 25
out of the 45 delivery system provisions in that law.
    For example, the Administration is moving forward with
programs to move us away from the inefficient fee-for-service
model, such as the Hospital Value-Based Purchasing Program and
the Hospital Re-Admissions Reduction Program. These are
excellent examples of how the Affordable Care Act is helping to
realign incentives to focus on the quality of services
provided, not the quantity of services provided. It is
important to note that a significant portion of the provisions
that have not been implemented are stalled, not due to
executive inaction, but due to lack of congressional action to
ensure adequate funding.
    It has been less than 2 months since we released the
report, and I am happy to report that progress implementing the
Affordable Care Act has continued. Since March, the
Administration has: selected the first 27 Accountable Care
Organizations in the Medicare Shared Savings Program; selected
seven markets to participate in the Comprehensive Primary Care
Initiative; announced the first 16 States to participate in the
Independence at Home Demonstration project; released the first
26 Health Care Innovation Challenge awards; and increased
Medicaid payments for primary care physicians. These recent
developments, like others that are well underway, show how the
Affordable Care Act is promoting innovation throughout our
health care system.
    My report largely focuses on the Affordable Care Act's
delivery system reforms, but it is important to learn from the
efforts of the private sector. While increasing health care
costs are the primary driver of our Federal debt and deficit,
they are not unique to government health plans. Costs are going
up for everyone, whether they are insured by Medicare or
Medicaid, the VA or TRICARE, Blue Cross or United Healthcare.
We have a systemwide cost problem on our hands, and the
solution must be systemwide too. We need to look for best
practices across all sectors of our health care system to
inform our understanding of what is working on the front lines
of reform. That is why I look forward to hearing about the
private sector efforts of our first two panelists.
    While the Affordable Care Act is pushing the Federal
Government toward delivery system reform, the delivery system
reform movement has been driven by dedicated providers, payers,
employers, and some States that have worked for years to
improve the quality, safety, and effectiveness of care. These
stakeholders have pioneered new delivery systems that encourage
providers to better coordinate care, and reduce waste and
inefficiency.
    Today's hearing is not an exercise in discussing
hypothetical improvements and theoretical cost savings. Our
first two witnesses will show how their delivery innovations
have resulted in real improvements to quality, real
improvements in patient outcomes, and real cost savings.
    The advantage of this approach is that it does not rely on
shifting costs or cutting benefits. Rolling back Federal health
benefits would do little to address the underlying cost
problems in our fragmented, inefficient health care system.
    Last spring, Gail Wilensky, who ran Medicare and Medicaid
under President George H.W. Bush said, ``If we do not redesign
what we are doing, we cannot just cut unit reimbursement and
think we are somehow going to get a better system.''
    From the private side, George Halvorson, the president and
CEO of Kaiser Permanente, joined me at a discussion on the
future of health care last year where he said something very
similar.

          ``There are people right now who want to cut benefits
        and ration care, and have that be the avenue to cost
        reduction in this country, and that is wrong. It is so
        wrong, it is almost criminal. It is an inept way of
        thinking about health care.''

    Before I introduce the first witness, I would like to
express my deep appreciation for the work and experience that
today's panel brings to this discussion. Putting these types of
reforms into practice takes guts, vision, and determination.
Putting them into practice successfully requires strong
leadership and tireless commitment. I hope that today, we can
draw from the lessons that you have learned, and I look forward
to continuing this conversation with my colleagues in the
Senate.
    I see that Senator Franken has joined us, and I do not know
if the Senator cares to make any opening remarks. If he does, I
would be glad to entertain them now, if not, we can proceed
with the witnesses.

                      Statement of Senator Franken

    Senator Franken. I would just as soon proceed with the
esteemed witnesses, and I am very excited about changing the
way we deliver health care.
    In our health care system in Minnesota, we tend to do a
very good job. I have noticed a number of our systems have
decided to become Accountable Care Organizations, and they are
very excited about it. They have become pioneer Accountable
Care Organizations because they already are doing accountable
care, essentially.
    Minnesota delivers high value care, relative to the rest of
the country, at very low cost. And it is able to do it by
already using some of the pieces, some of the parts, of this
law that were implemented. I think that Minnesota is a good
example of how care organizations can change the way they
deliver care, and make it much more, not just more affordable,
but actually make it more effective.
    I am very happy, for example, about the value index in
health reform and I wonder if it should not be extended to
hospitals, because the value index is something that will
reward high-value health care, like the kind we have in
Minnesota. And not just reward Minnesota and pit Minnesota
against Texas, or Florida, or those States that do not do as
high-value care. Really, it is not about pitting Minnesota
against those States. It is about incentivizing those States to
do health care more like Minnesota does. I think the value
index within the Affordable Care Act is an incredibly important
piece of this legislation that is going to bring down the cost
of health care delivery and increase the value.
    We have already seen in Minnesota, probably the reason
Minnesota's care is of such high value compared to other
States, is that Minnesota just keeps working on this. We have
already seen benefits that have come from this Act that have
been implemented in Minnesota that have increased the value of
care and that have used resources provided by the Federal
Government, including electronic health records, and just doing
some simple measures that have reduced the delivery cost of
care, reduced the number of re-hospitalizations. Incredible
success stories that we have already seen under this Act.
    So I want to hear from the witnesses.
    Senator Whitehouse. Let me thank Senator Franken for that
statement.
    There are a few of us who are persistent champions of
delivery system reform in the Senate. I put myself in that
number.
    Senator Barbara Mikulski, who is the No. 2 Member in
seniority on the committee, the senior Member behind Senator
Harkin on the democratic side, helped write the delivery system
reform provisions, the quality provisions of the Affordable
Care Act, and she is certainly very committed to this.
    And Senator Franken, based on the experience of Minnesota
and of Mayo, in particular, has been a constant and articulate
advocate for focusing our attention here in this area, where
there is this win-win of improvement and savings.
    Our first witness today is Dr. Al Kurose. Al is the
president and CEO of Coastal Medical in Rhode Island. He is a
leader in Rhode Island's health care community, and I am really
glad to have him here today.
    Dr. Kurose has served as president and CEO of Coastal
Medical since 2008. Coastal is a physician-owned, medical group
that serves 10 percent of Rhode Island's population. More than
90 percent of Coastal's providers practice primary care. Time
and again, the Coastal medical organization has led the way in
Rhode Island. Coastal Medical was a founding member of the
Chronic Care Sustainability Initiative in Rhode Island, joined
the Beacon Community's program in 2010, and had 49 of their
providers join the Meaningful Use Vanguard as the first
physicians in the Nation to achieve meaningful use.
    This year, Coastal Medical announced a new contract with
Blue Cross of Rhode Island that supports patient-centered
medical home practice transformation and shared savings reform,
the first of its kind in Rhode Island.
    Dr. Kurose is a member of the Steering Committee of the
Chronic Care Sustainability Initiative of Rhode Island, the
State's all-payer--including Medicare and Medicaid--patient-
centered medical home demonstration project. He has been an
active member of the Primary Care Physician Advisory Committee
to the Rhode Island director of health, and is also a member of
the Health Insurance Advisory Council of our State Health
Insurance Commissioner.
    He is a graduate of the Washington University School of
Medicine in St. Louis, and completed his residency at our own
Rhode Island Hospital. He has recently celebrated his 20th year
as an adult primary care provider in East Providence, RI.
    Dr. Kurose, thank you for coming in from Rhode Island for
today's hearing, and please proceed with your testimony.
    Dr. Kurose. Good morning, Senator Whitehouse. Thank you.
    Senator Whitehouse. Senator Mikulski, who I was just
bragging about, and Senator Bingaman, have both joined us, in
addition to Senator Franken.

 STATEMENT OF G. ALAN KUROSE, M.D., PRESIDENT AND CEO, COASTAL
                 MEDICAL, INC., PROVIDENCE, RI

    Dr. Kurose. Good morning to all the members of the
committee.
    As Senator Whitehouse mentioned, my name is Dr. Al Kurose.
I am the CEO of Coastal Medical. Again, we have about 70
physicians providing primary care to 100,000 patients in Rhode
Island, which is about 10 percent of the population of our
State. I am a primary care physician myself. I have had 20
years of experience in community-based office practice of adult
internal medicine.
    I really appreciate this opportunity to present you with a
quick snapshot of our work and to share our viewpoint from the
frontlines of the American health care system.
    The total health care spend in this country is approaching
18 percent of the Gross Domestic Product. Published estimates
suggest that 20 to 30 percent of that entire spend is waste. It
seems clear, then, from these figures that the status quo of
health care costs and health care delivery is not sustainable.
    I am here to share the story of our organization, which I
think is fairly unique. It is unique because we are much
smaller than the large integrated health care systems like
Virginia Mason, like Intermountain, like Humana. But we are
much larger than typical small, two or three doctor primary
care practices and larger, also, than most group practices and
that allows us to have built an infrastructure to support those
practices in unique ways. So I think in some ways we may
provide a valuable case study of building a progressive primary
care organization, really, from the ground up.
    We adopted an electronic medical record in 2006. In 2007,
as Senator Whitehouse mentioned, we helped start the State's
all-payer patient-centered medical home demonstration project,
which is also a MAPCP demonstration site. In 2011, all of our
offices achieved NCQA Level 3 recognition as advanced primary
care homes. And 49 of our providers were amongst the Meaningful
Use Vanguard, the first providers in the country to achieve
meaningful use of electronic medical records of health
information technology.
    Federal incentive programs have been very important in our
growth and development. Meaningful use fund, regional extension
center funds, beacon community funds from the Office of the
National Coordinator of Health IT, we have availed ourselves of
all those sources of support. And we have applications pending
right now for the CMS Innovation Challenge Grant program, the
CMS Shared Savings ACO program, and the Advanced Payment Model,
which provides working capital to smaller organizations who are
becoming ACO's.
    We set standards for ourselves at Coastal to meet the
challenge of accountable care new standards. We do not intend
to bend the cost curve, but rather, to break it. We set
ourselves a very specific goal of reducing the cost of care for
our entire population of patients by 5 percent by 2014. Our
goal is not to be open more days for our patients, it is to be
open every day, to be open 365 days a year with primary care
access. And our goal is not to hit most of our quality targets,
but every one of them.
    Last year, in our Blue Cross contract, we had 20 quality
targets. We hit 20 out of 20. Our organization was the first in
the Rhode Island Beacon Community to hit every one of its
quality targets and much of that success, really I think, goes
to the physician culture that we have nurtured over a lot of
years.
    So when you look at what Federal Government incentive
programs have meant to us, it is reasonable to ask: what is the
return on investment? The meaningful use dollars that we have
accessed, some three quarters of a million dollars, what have
we been able to achieve?
    Our access to data is limited, but what we have from Blue
Cross-Blue Shield of Rhode Island in terms of our commercial
and Medicare populations, we can say that our Medicare hospital
days per thousand were reduced by 13 percent last year. Our re-
admissions on the Blue Cross Medicare side were reduced by 27
percent last year versus the year before. And if you look at
the total cost of care for our Blue Cross commercial and
Medicare populations, it went up by just 1.5 percentage points
last year. Our goal for the future is an outright reduction in
the cost of care. If there is 20 to 30 percent waste in the
system, we think that we should be able to achieve that.
    Does care look different to the patients? It certainly
does. As I mentioned, we are going to be starting 365 day a
year access to primary care starting in July. Right now, we are
at 6 days a week. Already, we have same-day sick visits in
every office. Already, we have a new patient-oriented Web site
up and running. Already, we have a patient portal through the
Internet to our electronic medical records so people can see
their own test results and learn the status of their own
health. And we already have nurse care managers and clinical
pharmacists--key providers--in every office.
    So our message from the front lines is that Coastal
provides a unique example of a primary care-driven ACO
structure, and it may be a model that can be generalized as a
mechanism for bringing small practices together to meet the
challenge of accountable care.
    Patient-centered medical home practice transformation has
brought great value, but it is our strong opinion at Coastal
that that is just an interim step, and not a final destination
for progressive medical organizations.
    Our new challenge, the challenge we are grappling with
right at this moment, is to understand and manage the total
cost of care more effectively for our populations. We do a lot
of work in the extended primary care community at Rhode Island,
and I can tell you that all of the primary care practices are
really starved for data about utilization of services by their
patients about cost of services. If we are going to have a
chance to really control the total cost of care, we have to
begin with primary care practices having data to understand how
the health care dollar is being spent.
    Our marketplace also suffers from a relative lack of price
transparency. On the commercial side, we have a lot of people
who are on high deductible plans now. When they purchase health
care, they are pulling out their checkbook and they have scant
little information about price or quality of providers. So I
think transparency is another piece that I would like to
advocate.
    I see I have run over. I am looking forward to question and
answer. I really appreciate this opportunity to come here and
speak to you folks.
    Thank you.
    [The prepared statement of Dr. Kurose follows:]
               Prepared Statement of G. Alan Kurose, M.D.
                                summary
                         about coastal medical
    Coastal is a physician governed medical group practice based in
Providence, RI. More than 90 percent of our 91 providers practice
primary care, serving 105,000 patients (10 percent of the Rhode Island
population) in 18 offices across the State.
            our journey of transformation at coastal medical
    Coastal Medical formed in 1995 through the merger of seven small
private practices, and is a case study of the process of building a
progressive medical organization from the ground up. In 2006, Coastal
implemented an integrated Electronic Medical Record (EMR). In 2007,
Coastal became a founding member of CSI-RI, the State's Patient
Centered Medical Home (PCMH) demonstration project. In 2010, Coastal
practices joined the RI Beacon Communities Program of the ONC. In 2011,
every Coastal practice achieved NCQA level 3 recognition, and 49 of our
providers joined the ``Meaningful Use Vanguard'' of physicians that
were first in the Nation to achieve Meaningful Use. The clinical and
administrative infrastructure we have built to support our practices is
unique in Rhode Island, and has been critical to our success. Coastal
is different from other healthcare organizations--smaller by far than
integrated systems like Virginia Mason, but larger than most primary
care practices.
        measurement and reporting of clinical quality at coastal
    Our progressively collaborative contracting process with Blue Cross
Blue Shield of RI (BCBSRI) began incenting performance on quality
metrics long before such performance was required by CSI-RI and the RI
Beacon. In 2011, we achieved 20 of 20 BCBSRI clinical quality targets.
In the first quarter of 2012, Coastal practices in the aggregate became
the first participant in the RI Beacon Community to achieve all
clinical quality targets for that program.
     the importance of federal incentive programs in the evolution
                           of coastal medical
    The Meaningful Use, Regional Extension Center, and Beacon
Communities programs have provided important support to Coastal,
helping to fund the infrastructure upgrades needed to advance our work.
Our experience with CSI-RI, a MAPCP program, taught us valuable lessons
about PCMH implementation. We hope the Medicare Shared Savings ACO and
Advanced Payment Model programs will lend crucial support as we embrace
accountable care.
    At Coastal, we recognize that PCMH practice transformation is just
an interim step in the process of evolution toward competency in the
delivery of true accountable care. We aim not to ``bend the cost
curve,'' but rather to reduce the cost of care for our patient
populations by 5 percent by the end of 2014. We will soon offer primary
care office visits 365 days a year. Care delivery already looks
different to our patients, and our goal is to set new standards of
customer service and patient-
centered care. Physician culture is our greatest asset as we approach
this work, and aligned financial incentives are also critical. Our
experience to date suggests understanding and managing total cost of
care will be a formidable challenge for primary care practices that are
not part of larger integrated delivery systems. Practices like Coastal
will need analytic reports of utilization and cost based on Medicare
claims data in order to more effectively manage total cost of care.
This may be an area worthy of consideration when contemplating next
steps and new programs to drive healthcare system transformation.
Transparency of pricing in healthcare will also help both consumers and
providers to reduce healthcare costs.
                                 ______

    Good morning, Chairman Harkin, Ranking Member Enzi, and members of
the committee. Thank you for this opportunity to present a snapshot of
our work at Coastal Medical and to share our view from the front lines
of the American healthcare system. With the total healthcare spend
approaching 18 percent of the GDP, and estimates that 20-30 percent of
that spend is waste, the above statements by Atul Gawande and Richard
Gilfillan in January at the Care Innovation Summit here in Washington,
DC appear to be correct. The status quo of healthcare costs and
healthcare delivery is not sustainable.
                          coastal at a glance
    Coastal Medical is a physician-governed medical group practice that
was founded 17 years ago in Providence, RI. We employ 91 providers and
provide primary care to 105,000 Rhode Islanders, who represent 10
percent of the population of our State. I was one of the founding
members of Coastal Medical in 1995, and this is my 4th year as CEO. I
stepped away from community-based internal medicine practice at Coastal
just 6 months ago, after 20 years of service to patients.
                         a unique organization
    We believe Coastal Medical represents a fairly unique type of
medical organization. Our practice model and organizational structure
are very different from that of larger integrated systems such as
Intermountain and Virginia Mason. At the same time, we are also very
different from small two- and three-doctor primary care practices; and
we are different as well from most primary care practice groups, which
tend to be smaller in size than Coastal and don't have as much
infrastructure in place to support the individual offices.
    Coastal Medical is a case study of the process of building a
progressive medical organization from the ground up. We began in 1995
with the merger of seven small private practices, and have grown since
that time by adding small practices and recruiting residency graduates.
In 2006, Coastal made the critically important decision to implement an
integrated Electronic Medical Record (EMR), which has enabled much of
our practice transformation and clinical quality improvement work.
Interestingly, EMR adoption also served to really crystallize our group
identity in a manner that we had not anticipated.
    In 2007, Coastal became a founding member of CSI-RI, the State's
Patient Centered Medical Home (PCMH) demonstration project and a MAPCP
demonstration site. Coastal physicians and staff have served in
leadership roles at CSI-RI since its inception. In 2009, we embraced
PCMH practice transformation at Coastal as the cornerstone of our
strategic plan, and in early 2011 every Coastal practice achieved NCQA
level 3 recognition. In 2010, Coastal's adult practices joined the RI
Beacon Communities program of the ONC. In September 2011, 49 Coastal
physicians were amongst the ``Meaningful Use Vanguard'' group of
physicians who were honored as first in the Nation to achieve
Meaningful Use. In 2011, the Coastal Medical Board of Directors
determined that the provision of accountable care will serve as the
singular focus of our organization.
     the importance of federal incentive programs in the evolution
                           of coastal medical
    We have received crucial support from Federal incentive programs as
our organization has evolved. Coastal's PCMH practice transformation
and increasingly sophisticated use of the Electronic Medical Record
(EMR) have been driven by incentives made available through the
Meaningful Use, Regional Extension Center, and Beacon Communities
programs. Those programs helped fund the infrastructure upgrades we
needed to do the work of reporting on quality measures, improving
performance on quality measures, enhancing our use of the EMR, and
changing work flows in our clinical offices.
    Our experience with CSI-RI, a Multi-payer Advanced Primary Care
Practice (MAPCP) demonstration site, taught us valuable lessons about
PCMH implementation. Very early in the CSI-RI program, it became
abundantly clear that the EMR is an essential tool for measuring and
reporting the quality of clinical care. Another early lesson was the
central role that a Nurse Care Manager can play as a member of the PCMH
team, coordinating patient care and engaging patients in managing their
own health.
    The Medicare Shared Savings ACO and Advanced Payment Model program
opportunities are now important drivers of Coastal's strategic decision
to embrace accountable care. Our applications to those programs are
pending, and we are hoping to be approved for a July 1 start date. An
organization of our size will benefit greatly if we are able to access
the working capital provided by the Advanced Payment Model. Such
funding support will accelerate the delivery system reforms that we
intend to accomplish.
    coastal's experience with blue cross blue shield of rhode island
    At Coastal, we recognize accountable care is our future, and are
already engaged in a commercial shared savings contract with Blue Cross
Blue Shield of Rhode Island (BCBSRI). That contract went into effect
January 1, and it is the first of its kind in Rhode Island. Our
creative work over the last several years with BCBSRI is a fine example
of what can be accomplished in a collaborative relationship between a
payer and a provider group that are both committed to meaningful
reform. What we are learning very rapidly is that analyzing and
understanding the total cost of care for a population is a very complex
task that Coastal and BCBSRI need to learn more about together. Just
last week, BCBSRI agreed to ``embed'' a data analyst at Coastal 3 days
a week to help us create the level of understanding and reporting of
utilization and cost analytics that we will need to create actionable
recommendations for our providers.
    Our ultimate goal at Coastal is alignment of payment methodology
across all payers, including Medicare, for every Coastal patient--so
that patient care becomes blind to insurance coverage and every
resource is available for every patient in our practices.
                         setting a new standard
    We reject the status quo in our industry, and aspire to set a new
standard for patient experience, access to care, reported clinical
quality, and cost efficiency. In the setting of a total medical spend
in the United States that is approaching 18 percent of the GDP, and
estimates that 20-30 percent of that entire medical spend is waste, we
reject goals such as ``bending the cost curve.'' Instead, we have
committed ourselves to reduce the total cost of care for our
populations of patients by 5 percent by the end of 2014. Already, we
can point to significant accomplishments in our efforts to reduce
costs, and most of our potential in this endeavor has yet to be
realized.
    Our new ``Coastal 365'' campaign will let our patients know that we
will now have an office open where they can be seen by a primary care
physician 365 days a year. And we will maintain the performance on
clinical quality that helped us achieve 20 out of 20 clinical quality
targets for our 2011 Blue Cross contract, and made us the first
practice in the Rhode Island Beacon Communities Program of the ONC to
achieve every clinical quality target for that initiative in the first
quarter of 2012.
                          return on investment
    If one examines Coastal as a case study of the process of building
a progressive medical organization from the ground up, it is reasonable
to consider the investment made by the Federal Government in the form
of incentive funding that Coastal has been able to access, and to ask:
``What has been built?''; ``What are the results to date?''; and ``How
does the care look different?''
                       infrastructure development
    The answer to ``What has been built?'' is shown in our organization
chart below. We believe that we have created a lean but sufficient
infrastructure to support successful execution of accountable care. We
expect to identify additional modest staffing needs as we progress in
our evolution as a primary care-driven ACO. Coastal remains very much a
work in progress, as evidenced by the fact that our first Chief Medical
Officer and our first Data Manager were both hired within the last
month.


                         performance on quality
    A few highlights of our performance in achieving quality targets
are shown in the table below.

  Coastal's Performance on Quality Metrics (BCBSRI, CSI-RI, and Beacon)
------------------------------------------------------------------------
                                                 Coastal
               Quality measure                 performance   Target  (In
                                              (In percent)    percent)
------------------------------------------------------------------------
Diabetics with Good Blood Sugar Control.....         69.8            65
Good BP Control (<140/90)...................         79.1            68
Tobacco Cessation Intervention..............         81.4           >80
Fall Risk Screen in Elderly.................         82.0           >65
Depression Screening........................         76.9           >50
------------------------------------------------------------------------
                                Pediatric
------------------------------------------------------------------------
Appropriate Rx Upper Respiratory Infxn......         97.5            90
Weight Assessment & Counseling..............         99.6            60
Adolescent Immunizations....................         94.3            90
Obtaining Sexual History....................        100.0            50
------------------------------------------------------------------------

                  performance on utilization and cost
    At the moment, Coastal has access to utilization and cost data only
for its BCBSRI Commercial and Medicare Advantage populations. All payer
utilization data is expected shortly for our two CSI-RI practices. Some
highlights of our utilization and cost performance for our BCBSRI
populations in 2011:

     Medicare hospital days/1000 reduced by 13 percent vs.
2010.
     Medicare re-admission rate reduced by 27.6 percent vs.
2010. (Coastal rate is 13.7 percent. RI rate is 20.51 percent (47th in
United States). Best State rate in the United States is 13.64 percent).
     Total cost of care for Coastal's BCBSRI population in 2011
was $6 million less than if risk-adjusted cost per member were the
BCBSRI network average.
     Total cost of care for all Coastal BCBSRI members
increased by just 1.5 percent in 2011.
                         patient-centered care
    Care does look different to Coastal patients today versus just a
few years ago. Some highlights:

     Every phone call is now answered ``Hello, Coastal Medical.
Would you like to see a provider today?''
     Pediatric offices are open 7 days a week. Our adult
Saturday clinic opened in January 2011. We are opening an adult Sunday
and holiday clinic on July 1 (see ``Coastal 365'' above).
     A completely redesigned patient-oriented Web site went
live 2 months ago. Educational links, information about immunization
clinics, and health and wellness features are just some of the
offerings.
     Our patient portal to the EMR went live in January 2012.
     A Nurse Care Manager works in every Coastal office.
     Clinical Pharmacists rotate through every Coastal office.
     Community-based Nurse Care Managers contact every patient
within 2 days of hospital discharge and often see patients during their
hospital stay.
                    our message from the front lines
    At Coastal Medical, we recognize the status quo of healthcare costs
and healthcare delivery is unsustainable. We welcome the challenge of
accountable care, and believe that our technologically enabled,
physician-governed primary care organization provides an example of a
fairly unique primary care-driven ACO model that allows smaller
practices to join together and embrace accountability for the Triple
Aim goals of a population of patients.
    Federal incentive programs have been vitally important to our
growth and development to date. Also, RI Health Insurance Commissioner
Chris Koller has implemented an ``Affordability Standards'' mandate
which compels commercial payers to increase their primary care spend
each year, and this has brought commercial payers to the contract
negotiating table with an additional incentive to invest in Coastal's
infrastructure development.
    We have had much success implementing practice transformation to a
Patient Centered Medical Home (PCMH) model of care. Enhanced physician,
staff, and patient satisfaction and improved reporting and performance
on quality of care have been important benefits of our PCMH work.
However, we also recognize that PCMH practice transformation is an
interim step and not a final stage of development for progressive
primary care practice groups. Continuing the work of transforming care
delivery and advancing our capability to manage the care of populations
will require more sophisticated use of clinical, utilization, and cost
data; and new types of interventions based on what that data can tell
us.
    Understanding and managing the total cost of care for our patient
population is our newest challenge, and we are diving into that work at
this very moment, upgrading our infrastructure once again to keep pace
as our payment and care delivery models continue to rapidly evolve.
    Coastal's experience of collaborative work in the Rhode Island
primary care community suggests that there is a widespread need for
practices to have access to sophisticated analytic reports regarding
utilization of services and cost of different types of care for their
patient populations. Mechanisms to support practices in gaining access
to such data and analysis may be a reasonable area to consider for
investment in new Federal incentive programs.
    There is also little transparency of pricing of healthcare services
in the Rhode Island market. This circumstance places both individual
consumers (many of whom are now on high deductible health plans) and
groups like Coastal at a disadvantage as we attempt to control
healthcare costs. Measures to improve transparency of pricing appear
from our point of view to be another area where new initiatives might
help support a rational approach to controlling healthcare costs.

    Senator Whitehouse. Dr. Kurose, before I let you go, can
you just quickly answer this question? How are your phones
answered at Coastal Medical?
    Dr. Kurose. ``Coastal Medical, would you like to see a
provider today? ''
    Senator Whitehouse. Today.
    Dr. Kurose. Today. Thank you.
    Senator Whitehouse. Next witness is Marcia Guida James. She
is the director of Provider Engagement in Humana's National
Network organization.
    Humana is headquartered in Louisville, KY. It offers health
and supplemental benefit plans for employer groups, Government
programs, and individuals. It serves 11.8 million medical
members and 7.7 million specialty benefit members across the
country.
    Ms. James leads Humana's Provider Engagement and Payment
Reform Division, and developed Humana's Provider Rewards
program. Her work at Humana includes leading the organization's
work on e-connectivity pilots, and implementing of Humana's
first medical home project. Ms. James is a key operational
leader on Humana's Accountable Care Organization pilot with the
Brookings Institute and the Dartmouth Institute.
    The most recent data on the ACO pilot shows improvements in
quality, utilization, and physician visits following
hospitalization including 8.6 percent improvement for
cholesterol management and diabetes, 12.9 percent improvement
in appropriate emergency room visits, and 36.6 percent
improvement in physician visits within 7 days of discharge.
    Ms. James currently serves as co-chair of the E-Health
Initiative Accountable Care Council, co-chair of the
Implementing Performance Measures Workgroup for the ACO
Learning Network, and is Humana's representative on the
executive committee of the patient-centered Primary Care
Collaborative. She has an M.S. in community health, an MBA in
health care management, and is a certified professional coder,
which sounds ominous.
    Ms. James, I appreciate you coming in today as well. Please
proceed with your testimony.

  STATEMENT OF MARCIA GUIDA JAMES, MS, MBA, CPC, DIRECTOR OF
          PROVIDER ENGAGEMENT, HUMANA, LOUISVILLE, KY

    Ms. James. Thank you, Mr. Chairman, for convening this
hearing to focus attention on transformational delivery system
reforms.
    Humana appreciates the opportunity to talk about our role
in advancing value-based, technology-driven system reforms,
including provider collaborations that reward high quality,
evidenced-based, efficient care. We believe, like you, that
these types of reforms result in better outcomes and lower
costs for all Americans.
    Today, I will share a few of our unique provider
collaborations all of which are driven by best practice health
IT arrangements. These initiatives strengthen our Nation's
health care system and align with the National Quality
Strategy's three aims of better care, healthy people in
communities, and affordable care.
    Please note that our written testimony contains further
details of my testimony today.
    Humana's provider engagement initiatives include 25 years'
experience with various accountable care models. We are in 52
markets with over 560,000 Medicare Advantage members. These
models center on robust exchange of clinical and financial
information with provider partners in a variety of flexible
reimbursement models.
    Our Humana Provider Quality Rewards Program, unlike other
pay-for-performance models for primary care physicians, our
program is designed to meet physicians on their own terms based
on their level of practice complexity, as well as to encourage
quality improvements.
    The program has resulted in a 2 percent improvement in
colorectal cancer screenings, a 4 percent increase in
spirometry testing, and finally for all of 2011, there was a 7
percent increase in breast cancer screening.
    We also partner with the Electronic Health Record vendors
to advance our medical home EHR rewards program centered on
meaningful use. We want to support the national aim and
adoption of EHR's in physician practices.
    Addressing the shortfalls in primary care practice and
primary care access by expanding primary care and urgent care
centers, and workplace wellness sites in 550 point-of-care
locations through our new Concentra business division.
    We also partner with clinic-based primary care centers to
provide coverage in specially designed medical centers to
seniors and primarily low income, underserved neighborhoods.
    We are partnering with HHS at the Center for Medicare and
Medicaid Innovation to promote the Comprehensive Primary Care
Initiative in at least two geographies.
    We also build information and clinical analytical models in
our clinical data systems to enhance care and outcomes. This
system integrates clinical guidance based on real-time data,
identifies gaps in patient care, and alerts patients and
providers to necessary care treatments. In December 2011, our
system identified approximately 355,000 actionable gaps in care
for our members that generated a multitude of alerts to nurses,
providers, members, and our service operations teams.
    We created a multi-payer provider health informational
network. Along with the Blues of Florida in 2001, Humana co-
founded Availity, a health information exchange network that
physicians and hospitals use free of charge to help with
collecting payments, processing referrals, detecting both
potential adverse drug to drug interactions, and prescription
drug fraud.
    Our partnership with Norton Healthcare System, a
Louisville, KY-based not-for-profit integrated delivery system,
exemplifies the kind of delivery system advancement and
outcomes that can occur when two partner organizations with
different, but complementary, expertise come together to serve
individuals in a coordinated manner.
    Under this Dartmouth and Brookings ACO pilot, we developed
a global quality cost payment model where providers are
evaluated based on their performance, on specified quality
measures including diabetes measures, cancer screening, asthma,
and cardiac care. Recently, the Commonwealth Fund highlighted
this partnership in a case study and symposium.
    Year 2 results from this pilot show a 9.1 percent decrease
in unnecessary antibiotic treatment for adults with bronchitis,
a 6.1 percent improvement in diabetic testing, an 8.6 percent
improvement in cholesterol management for diabetics,
additionally, a 36.6 percent improvement in physician visits
within 7 days of discharge.
    Humana has long support of primary care patient-centered
medical homes. Over the years, we have established patient
centered medical homes in 10 States serving over 70,000
Medicare Advantage and over 35,000 commercial members. Our
first arrangement began with Wellstar in 2007, an integrated
delivery system in Atlanta. This pilot was one of the first in
the country and produced a 6 percent improvement in diabetic
management and blood pressure management.
    Our current relationship with Queen City Physicians in
Cincinnati, OH is similarly built on an integrated delivery
system, strong data integration, and focused care coordination.
We have seen a 34 percent decrease in emergency room visits,
improvements in blood pressure control, and improvements in
diabetic management.
    Let me conclude with some lessons learned. We need to allow
for flexibility in payment redesign. This is based on provider
group readiness. Adoption of a one-size-fits-all approach will
not meet the needs and capabilities of a wide range of provider
groups.
    Aligning incentives, a major impediment to major practice
transformation, is the lack of alignment between traditional
payment and value in health care. Humana's efforts represent a
progression toward better alignment of initiatives.
    Different models are not mutually exclusive. It is not
uncommon to see combinations of these models used for the same
enrolled populations. Public sector initiatives that build on
the promising results observed in the private sector will be
best positioned to achieve the goals of the national quality
strategy. Alignment and harmonization is critical, better use
of data and HIT capabilities to promote information exchange,
and finally, continued exploration of additional ways to
recognize the role of the patient in achieving desired
outcomes.
    Thank you, again, for this opportunity.
    [The prepared statement of Ms. James follows:]
         Prepared Statement of Marcia Guida James, MS, MBA, CPC
                                summary
    Humana, Inc., headquartered in Louisville, KY, appreciates the
opportunity to share information about the role we are playing in
advancing delivery system reform and rewarding physicians who deliver
high quality and efficient care. Like you, we believe there is much
promise in delivery system reforms to enhance the overall health care
system in America and ultimately, improve patient care.
    Humana is committed to strengthening our health care system through
partnerships with providers, implementing a variety of new,
collaborative delivery system models that seek to achieve the National
Quality Strategy's three aims of better care, healthy people/healthy
communities, and affordable care.
    Highlights of Humana's innovative provider engagement initiatives
include:

     Twenty-five years' experience with various accountable
care models, including a pilot with Louisville-based Norton Healthcare
System that has helped to enhance patient outcomes--decreasing
unnecessary visits to emergency rooms as well as adult antibiotic
treatment, increasing diabetic testing, and improving the number of
physician visits within 7 days of discharge.
     Long-term experience with patient-centered medical homes
including, but not limited, to pioneering work with WellStar (an
Atlanta, GA-based integrated delivery system) and Cincinnati, OH-based
Queen City Physicians. Both arrangements have shown demonstrable
improvements in patient health outcomes and patient care, including
decreases in emergency room visits; improvement in diabetic management;
improvement in blood pressure control; and decrease in patients with
uncontrolled blood pressure.
     A unique primary care provider rewards initiative designed
to encourage quality and reward physicians that produces discernible
results, including significant increases in colorectal cancer
screenings and spirometry testing, and marked increases in the number
of participating physician practices meeting and/or exceeding patient
care measures and in assuring that their patients got needed preventive
and chronic care screenings.
     Availity, a cross-health plan, cross-provider, health
information technology platform that supports physicians and hospitals,
free of charge, and creates a comprehensive, multi-payor electronic
patient health record. Additionally, our Care Hub clinical system fed
by real-time data from Anvita Health integrates data for physicians,
identifying gaps in patient care and generates alerts which can be sent
to both patients and providers to inform them of necessary care
treatments.

    Humana has learned many constructive ``lessons'' over the course of
its experience:

     The importance of allowing for flexibility in payment
redesign, based on the readiness of provider groups. Adoption of a one-
size-fits-all approach will undermine the ongoing active collaborations
to customize arrangements to meet the needs and capabilities of a wide
range of provider groups.
     Different models are not mutually exclusive; it is not
uncommon to see combinations of these models used for the same enrolled
populations.
     Alignment and harmonization of performance measures are
important--disparate quality metrics, for example, will spread finite
resources too thin, diluting the effectiveness of a National Quality
Measurement strategy. Use of a well-established, tested set of
performance measures is critical.
     Public sector initiatives that build on the promising
results observed in the private sector will be best positioned to
achieve the goals of the National Quality Strategy.
                                 ______

    Humana appreciates the opportunity to share information about the
role we are playing in advancing delivery system reform and rewarding
physicians who deliver high quality and efficient care. Like you, we
believe there is much promise in delivery system reforms to enhance the
overall health care system in America and ultimately, ensure that
people receive quality, coordinated health care.
    My name is Marcia James. As the company's Director of Provider
Engagement, I am responsible for leading Humana's efforts to advance
health care delivery system innovations centered on programs that
engage providers and health plans through payment reforms and
technology-related initiatives. I developed Humana's Provider Rewards
program and have served as the company's key operational leader for our
Accountable Care Organization pilot collaboration with the Brookings
Institute's Engleberg Center for Health Care Reform and the Dartmouth
Institute for Health Care Policy and Clinical Practice.
    By way of background, Humana Inc., headquartered in Louisville, KY,
is a leading health care company that offers a wide range of health and
wellness services and health care coverage products that incorporate an
integrated approach to lifelong well-being. By leveraging the strengths
of its core businesses, Humana believes it can better explore
opportunities for existing and emerging adjacencies in health care that
can further enhance wellness opportunities for the millions of people
across the country the company serves. Humana offers a wide array of
health and supplemental benefit plans for employer groups, government
programs, and individuals, serving 11.8 million medical members and 7.7
million specialty-benefit members across the country. Humana is also
one of the Nation's largest Medicare Advantage contractors with 2.2
million Medicare Advantage beneficiaries. In addition, Humana owns 318
medical centers and has 271 worksite medical facilities.
    Humana is committed to strengthening our Nation's health care
system through partnerships with providers to implement new models of
delivery and payment that seek to achieve the National Quality
Strategy's three aims of: better care, healthy people/healthy
communities, and affordable care.
    Our statement focuses on the following areas:

     Characteristics of the new health care landscape;
     Humana's initiatives in delivery system reform; and
     Lessons learned from these private sector efforts to
maximize the opportunity for improvement systemwide.
                evolution of a new health care landscape
    Historical perspective: The existing gaps in health care quality
and variation in clinical practice are well-documented. Often cited is
research by the RAND Corporation that found that nearly half of all
adult patients fail to receive recommended care. More recent research
finds that poor quality continues to plague our health care system. For
example, elderly individuals undergo medical screening tests more
frequently than is recommended, putting them at risk for unnecessary,
invasive diagnostic followup and complications.\1\ Variation in care
also continues to exist, with no consistent pattern of care found among
even the Nation's top academic medical centers for Medicare patients
with advanced cancer.\2\ In addition, according to the National
Committee for Quality Assurance (NCQA), as many as 91,000 people in the
United States die each year because they do not receive recommended
evidence-based care for chronic conditions like high blood pressure,
diabetes, and heart disease. These are just some of the many examples
of the effect our fragmented health care system has on the quality and
effectiveness of care. All of this has led to an overwhelming
recognition of the need to move from an encounter-based health care
system to one that is seamless, coordinated and focused on the full
continuum of patient care.
---------------------------------------------------------------------------
    \1\ Sima CS, Panageas KS, Schrag D. Cancer screening among patients
with advanced cancer. JAMA 2010; 304:1584-91 and Goodwin JS, Singh A,
Reddy N, Riall TS, Kuo Y. Overuse of Screening Colonoscopy in the
Medicare Population. Arch Intern Med 2011; 171(15):1335-43.
    \2\ Goodman DC, Fisher ES, et al. Quality of End-of-Life Cancer
Care for Medicare Beneficiaries: Regional and Hospital-Specific
Analyses, A Report of the Dartmouth Atlas Project. November 16, 2010.
http://www.dartmouthatlas.org/downloads/reports/Cancer_report_11_16
_10.pdf.
---------------------------------------------------------------------------
    Characteristics of the New Landscape: The private sector, and
increasingly the public sector, has implemented a range of different
models of care designed to achieve the Nation's goals of improving the
quality and value of health care. While health care delivery will
continue to evolve as we learn new and better ways to provide safe,
effective, and affordable care, there are several key elements common
to our new health care landscape that characterize these initiatives.
     Cooperation/Partnerships: First and foremost is a renewed
sense of cooperation. Recognition on the part of health plans and
clinicians alike of the urgent need for practice transformation has
resulted in a more collaborative process in identifying priority areas
for improvement and performance goals. In fact, a recent study of
health plan and provider accountable care partnerships showed a clear
trend toward longer term, less adversarial relationships. This same
study showed a willingness on the part of both parties to adopt
customized arrangements that reflect the different needs and varying
levels of capability of the provider groups involved.\3\ A better
understanding of the strengths each partner brings to these new
arrangements leads to increased flexibility in the design of these
models and avoids the pitfalls of a one-size-fits-all approach.
---------------------------------------------------------------------------
    \3\ Higgins, A. Early Lessons from Accountable Care Models In The
Private Sector: Partnerships Between Health Plans And Providers. Health
Aff (Millwood). 2011:30(9):1718-27.

     Improved Performance Standards: Improved performance
standards, many of which emphasize patient outcomes, have enabled
health plans and providers to focus on specific areas of care and
demonstrate tangible improvements. Goals related to efficiency and
value are looked at in concert with quality goals, rather than in
isolation, resulting in contract negotiations that have moved beyond
merely setting payment rates to identifying achievable quality and
efficiency goals. These improved performance standards are supported by
an enhanced ability to measure, collect, aggregate and analyze
information on provider performance to pinpoint gaps in care and help
drive quality improvement.
     Emphasis on Patient-Centered Care: Patient engagement in
treatment decisions, as well as self-management tools, help patients
make informed decisions, better manage their own care, and adhere to
treatment plans and wellness programs designed to their specific
conditions. Increasingly, value-based benefit designs that promote the
utilization of evidence-based health care services, offer patients a
role in helping the Nation achieve its health goals by offering patient
incentives for making evidence-based health care choices. Health plans
implementing new models of care are continuing to explore additional
incentives that might be used to further support the patient role in
attaining better quality and reduced cost.
     Use of Health Information Technology (HIT) and Decision
Support Tools: These models rely heavily on the optimal use of HIT and
decision support tools--both by the clinician and the patient. Whether
through electronic health records, patient registries, or an
alternative HIT infrastructure, better use of data and HIT supports
population health management, disease and case management, treatment
decision support, and performance measurement--activities critical to
improving patient outcomes at the point of care and identifying
additional opportunities to bridge gaps in care.
        humana's leadership in innovative delivery system reform
    Humana has used this new health care landscape as a foundation upon
which to build innovative partnerships and models of care with
hospitals and physicians that offer better care and better value. To
this point, Dr. David Nash, one of Humana's board members and the
founding Dean of the Jefferson School of Population Health, compares
our current health care system to ``an NFL football team that never
practices together, but plays games on Sunday''--outcomes in sports and
in medical care are going to be better when teammates know each other
and work together regularly and cooperatively. For all these reasons,
Humana is working with providers on a variety of new, collaborative
delivery system models which I will outline below--first generally, and
then focusing in on our initiatives around Accountable Care
Organizations and Patient-Centered Medical Homes.
    Highlights of Humana's innovative provider engagement initiatives
include:

     Twenty-five years' experience with various accountable
care models with system capabilities that center on robust exchange of
clinical and financial information (data transmission and data sharing)
with provider partners and engage a variety of flexible reimbursement
models.
     Humana's Provider Rewards programs, a primary care
provider rewards initiative designed to encourage quality and reward
physicians. Unlike other ``pay-for-performance'' models, Humana's
program is designed to help meet physicians on their own terms based on
level of practice complexity as well as to encourage quality
improvements. During the first 9 months in 2011, the program resulted
in such improved health outcomes as a 2 percent improvement in
colorectal cancer screenings and a 4 percent increase in spirometry
testing. Additionally, over the same time period, there was an over 50
percent increase in the number of participating physician practices
meeting and/or exceeding patient care measures and 40 percent increase
in assuring that patients got needed preventive and chronic care
screenings.
     Partnering with electronic health record (EHR) vendors to
advance a Medical Home EHR Rewards Program centered on ``meaningful
use,'' aiming to support national adoption of electronic medical
records in physician practices with subsidies, among other offerings.
     Addressing the shortfalls in primary care access by
expanding primary care and urgent care centers and workplace wellness
sites in 550 point-of-care locations through our new Concentra business
division.
     Partnering with clinic-based Primary Care Centers to
provide coverage in specially designed medical centers to seniors in
primarily low income, underserved neighborhoods.
     Partnering with HHS's Center for Medicare and Medicaid
Innovation to promote a primary care initiative across two geographies.
     Building information and clinical analytical models under
our Anvita Health and CareHub systems to enhance care and health
outcomes by integrating clinical guidance based on real-time data for
physicians, identifying gaps in patient care and alerting both patients
and providers to necessary care treatments. For example, our Anvita
rules engine identified approximately 355,000 actionable gaps in care
for our members that, in turn, generated a multitude of alerts to
nurses, providers, members and our service operations teams. As a
result, 31 percent of these gaps in care were converted into actions to
improve outcomes for those members.
     Teaming initially with Blue Cross/Blue Shield of Florida
in 2001 (now expanded to include Health Care Services Corporation, Blue
Cross Blue Shield of Minnesota and Wellpoint), Humana co-founded
Availity, a cross-health plan, cross-provider, health information
technology network that physicians and hospitals use free of charge to
help with collecting payments, keeping track of referrals, detecting
potential adverse drug-to-drug interaction and prescription drug fraud
and abuse and ultimately, creating a comprehensive, multi-payor
electronic patient health record. Availity now delivers health
information solutions to a growing network that currently includes more
than 200,000 physicians and providers of care, 1,000 hospitals, 1,300
health plans and 450 industry partners. Over 1 billion transactions are
processed annually.
 humana delivery system innovations in more detail: humana/norton aco
                   and patient-centered medical homes
Accountable Care Organizations--Humana's partnership with Norton
        Healthcare System
    Our partnership with Norton Healthcare System, a Louisville, KY-
based, not-for-profit integrated delivery system, provides an excellent
example of the type of delivery system advancement and outcomes that
can occur when two partner organizations with different, but
complimentary, expertise come together to serve individuals in a
coordinated manner. Under this ACO-type approach, Humana has entered
into a pilot with Norton Healthcare, sponsored by the Dartmouth
Institute for Health Policy and Clinical Practice and the Engelberg
Center for Health Care Reform at the Brookings Institution (Dartmouth-
Brookings). Humana brought the opportunity to participate in the pilot
to Norton; Norton had an immediate interest. Participation in this
pilot has allowed the development of a global quality/cost payment
model. Providers are evaluated based on their performance on specified
quality measures, such as diabetes measures, cancer screening, asthma
care and cardiac care. Recently, the Commonwealth Fund highlighted this
partnership in a case study and symposium.\4\
---------------------------------------------------------------------------
    \4\ Norton Healthcare: A Strong Payer--Provider Partnership for the
Journey to Accountable Care, The Commonwealth Fund, Case Study Series,
January 2012.
---------------------------------------------------------------------------
    Central to this pilot is accountability of measured outcomes, cost,
and patient delivery, focusing on industry-standard performance
measures. The partnership is guided by three core principles: (1)
integrated care delivery among provider teams; (2) defined patient
population to measure; and (3) pay-for-results based on improved
outcomes and cost.
    Already, the partnership has shown significant results. Our most
recent data, based on Year-Two outcomes, showed marked improvement
relative to baseline in quality, utilization and physician visits
following hospitalization:

     Quality: 9.1 percent decrease in unnecessary antibiotic
treatment for adults with bronchitis; 6.1 percent improvement for
diabetic testing and 8.6 percent improvement for cholesterol management
in diabetics;
     Utilization: 12.9 percent improvement in appropriate
emergency room visits (per 1,000); and
     Patient Followup: 36.6 percent improvement in physician
visits within 7 days of discharge.
Patient-Centered Medical Homes
    Humana has long supported the notion of patient-centered medical
homes through various arrangements. Over the years, we have established
Patient-Centered Medical Home arrangements in Florida, Ohio, Colorado,
Illinois, Michigan, Kentucky, Texas, Tennessee, Missouri and South
Dakota--serving over 70,000 Medicare Advantage and over 35,000
commercial health insurance members. Under some of these arrangements,
Humana provides financial assistance to help selected physician
practices acquire electronic health record (EHR) systems, which can
help facilitate enhanced care coordination and allow them to meet
Meaningful Use criteria.
    In 2008, Humana joined in helping establish the Patient-Centered
Primary Care Collaborative, founded by Dr. Paul Grundy--a coalition of
more than 900 employers, consumer groups, quality organizations,
hospitals and clinicians. The Collaborative is dedicated to advancing
patient-centered medical homes that have the following attributes: (1)
ongoing relationships with a personal physician; (2) physician-
directed medical practice; (3) whole-person orientation; (4)
coordinated and integrated care; (5) enhanced access to care; and (6)
payment that appropriately recognizes the added value of services
provided.
    We began our first medical home arrangement in 2007 with WellStar,
an integrated delivery system located in Atlanta, GA. This pilot was
one of the first in the country. Overall, it produced a 6 percent
improvement in diabetic management (A1c levels) and blood pressure
management. Additionally, there was a 20 percent improvement in
management of ``bad'' cholesterol levels.
    Our current partnership with Cincinnati, OH-based Queen City
Physicians similarly is built on a model of integrated care delivery,
strong data integration and focused care coordination. This approach
has shown demonstrable results:

     34 percent decrease in emergency room visits;
     10 percent improvement in diabetic management (A1c
levels);
     15 percent improvement in blood pressure control; and
     22 percent decrease in patients with uncontrolled blood
pressure.

   lessons learned: maximizing the opportunity for improving quality
                          and value systemwide
     It is now widely understood that a major impediment to
practice transformation is the lack of alignment between traditional
payment and value in health care. Humana's efforts represent a
progression toward better alignment of incentives.
     Different models are not mutually exclusive; it is not
uncommon to see combinations of these models used for the same enrolled
populations.
     Public sector initiatives that build on the promising
results observed in the private sector will be best positioned to
achieve the goals of the National Quality Strategy. Alignment and
harmonization is important--disparate quality metrics, for example,
will spread finite resources too thin, diluting the effectiveness of a
national quality measurement strategy. Use of a well-established,
tested set of performance measures is critical.
     Humana's experience has shown the importance of allowing
for flexibility in payment redesign, based on the readiness of provider
groups. Adoption of a one-size-fits-all approach will undermine the
ongoing active collaborations to customize arrangements to meet the
needs and capabilities of a wide range of provider groups.
     Better use of data and HIT capabilities to promote
information exchange has proven to be essential to making progress
toward quality and resource targets, while continuing to advance the
national agenda of connectivity.
     Continued exploration of additional ways to recognize the
role of the patient in achieving desired outcomes will be necessary to
support the health plan and clinician roles.

    Thank you again for holding this hearing to highlight the important
role delivery system reform plays in improving both the quality and
value of health care and furthering the goals of the National Quality
Strategy. We look forward to continuing our work with the committee in
pursuit of these goals.

    Senator Whitehouse. Thank you very much, Ms. James.
    Our final witness is less from the front lines than from
the policy side. His name is James Capretta. He is a fellow at
the Ethics and Public Policy Center, and a visiting fellow at
the American Enterprise Institute. He was an associate director
at the White House Office of Management and Budget from 2001 to
2004.
    And at the Ethics and Public Policy Center, he studies a
wide range of public policy and economic issues with a focus on
health care and entitlement reform, U.S. fiscal policy, and
global population again. He is also a visiting fellow at the
Heritage Foundation.
    Earlier in his career, Mr. Capretta served in Congress as a
senior analyst for health care issues and for 3 years, he was a
budget examiner at OMB. He has an M.A. in public policy studies
from Duke University and a B.A. in government from the
University of Notre Dame.
    Mr. Capretta, welcome.

   STATEMENT OF JAMES C. CAPRETTA, FELLOW, ETHICS AND PUBLIC
    POLICY CENTER, AND VISITING FELLOW, AMERICAN ENTERPRISE
                   INSTITUTE, WASHINGTON, DC

    Mr. Capretta. Thank you, Senator Whitehouse. Thank you,
members of the committee.
    I am very pleased to be here to participate in this very
important hearing on health care delivery system reform.
    Let me begin with what I think is a point of agreement,
which is that Medicare fee-for-service, as the program is
currently constituted, is a primary cause of widespread
systemic deficiencies in health care delivery that we all want
to see addressed.
    Why do I think this is a point of agreement? If you look at
the 2010 health care law, the key delivery system reforms that
are being promoted and pushed, mainly by the Administration,
are mainly within the Medicare program itself. Although I am
skeptical of the policy prescription, I agree that the changes
in Medicare are the right place to start.
    Despite the many virtues of American health care, there is
no denying that it is all too often highly inefficient. The
system is characterized by extreme fragmentation; physicians,
hospitals, clinics, labs, and pharmacies are all autonomous
units that are financially independent of one another. They
bill separately from the others when they render services to
patients. What is worse, there is very little coordination of
care among them, which leads to a very high level of
duplicative services and low quality care in too many
instances.
    At the heart of this dysfunction, actually, is the Medicare
fee-for-service program. In a June 20, 2009 article in ``The
New Yorker,'' Atul Gawande, kind of a very famous article,
contrasted the high use, high cost care provided in McAllen, TX
to the less costly and higher quality care provided in other
cities such as El Paso, TX and also at institutions such as the
Mayo Clinic.
    Robert Book, however, later pointed out that the real
lesson from the Gawande study may be quite different from what
most assumed initially. At the time, President Obama and others
cited the article as an example of how physician culture and
practice patterns have run amok in certain regions of the
country, and why bending the cost curve would require
addressing these problems.
    Yet upon closer inspection, it became clear that the cost
differences between McAllen and El Paso were largely confined
to Medicare. For the non-Medicare population, the cost
differential between the two cities is practically nonexistent.
As Book explained, this suggests that Gawande covered a problem
with Medicare in McAllen, TX not a problem with medical
practice in general in McAllen. Indeed, Gawande's article never
really explained who was paying for McAllen's overbuilt system.
    It turns out it was largely Medicare fee-for-service with
its emphasis on expensive, volume-driven delivery structure.
Without Medicare fee-for-service payments for every physician
prescribed diagnostic test and surgical procedure, the
expensive infrastructure in McAllen would never have been
viable.
    CBO reports that the average beneficiary--and this is not
just located in McAllen--CBO reports that the average
beneficiary used 40 percent more physician services in 2005
than they did just 8 years earlier. Spending for physician-
administered imaging and other tests was up approximately 40
percent in 2007 compared to 2002, according to MedPAC.
    The Administration is trying to address these problems
caused by Medicare in the delivery system with initiatives
championed by the Centers for Medicare and Medicaid Services.
As you probably gather, I am a little bit skeptical that these
efforts will solve the problem.
    The most prominent delivery reform now being pursued is the
effort to move more care delivery into Accountable Care
Organizations. Interestingly, a 5-year pilot project on ACO's
has already come up short of the high hopes placed upon it.
    According to a 2011 story in The Washington Post,

          ``In 2010 the final year, just four of the ten sites
        that were part of the study, all long-established
        groups run by doctors, slowed their Medicare spending
        enough to qualify for a bonus.''

    Moreover, the Congressional Budget Office has
systematically examined many demonstration initiatives carried
out by CMS over the past decade or so, all of which were aimed
at carrying out, in various ways, delivery system reform so
that costs would moderate and patient care would improve. The
results have been terribly disappointing.
    As CBO's director, Douglas Elmendorf, put it,

          ``The demonstration projects that Medicare has done
        in this and other areas are often disappointing. It
        turns out to be pretty hard to take ideas that seem to
        work in certain contexts and proliferate that
        throughout the entire health care system.''

    I believe there are two reasons to be skeptical about
whether or not this is going to be something that can be taken
throughout the whole system. First, Medicare fee-for-service
looks and operates as it does today for a reason. It is simply
much easier for Government-run insurance models to impose
across the board payment rate reductions to hit budget targets
than it is to make distinctions among providers based on
quality and cost data.
    This might be thought of as CMS's version of what others
have called, and I have called in the past, ``the Lake
Woebegone effect.'' Basically to the Government, all providers
of medical care are slightly above average. Repeated attempts
over the years to steer patients toward preferred physicians or
hospitals that have a better record have failed miserably
because the political oversight of the program and regulators
have never been able to withstand the uproar that comes when
some providers are favored over others.
    I have other things I would like to cover, and we can do
that, I am sure, in the question and answer period.
    Thank you very much.
    [The prepared statement of Mr. Capretta follows:]
                Prepared Statement of James C. Capretta
    Senator Whitehouse, Ranking Member Enzi, and members of the
committee, thank you for the opportunity to participate in this very
important hearing on health care delivery system reform.
    I would like to make three basic points in my testimony today:

    1. The source of many of our problems in health care delivery is
the dominant Medicare fee-for-service (FFS) program. It will be nearly
impossible to move to a high-value, low-cost delivery system if
Medicare FFS continues to operate as it does today.
    2. The 2010 health care law's efforts at ``delivery system
reform''--most of which fall within Medicare--are very unlikely to be
the solution people are hoping for because the Federal Government is
not good at fostering a high-value, low-cost provider network.
    3. A more reliable approach to higher-quality and lower-cost
patient care is strong competition in a functioning marketplace.
         medicare's role in dysfunctional health care delivery
    Let me begin with what I think is a point of agreement: Medicare
fee-for-service (FFS), as the program is currently constituted, is a
primary cause of the systemic deficiencies in health care delivery that
we all want to see addressed.
    Why do I think this is a point of agreement? By looking at the 2010
health care law. The key ``delivery system reforms'' that are being
pushed and promoted by the Administration are mainly in the Medicare
program. In effect, the Administration is hoping to change how health
care is delivered for everyone in the United States by changing how
Medicare buys services for its enrollees.
    Although I am skeptical of the policy prescription, I agree that
changes in Medicare are the right place to start.
    American health care has many virtues. The system of job-based
insurance for working-age people and Medicare for retirees provides
ready access to care for most citizens (although access is more
problematic for the poor through Medicaid). We have the most advanced
network of clinics and inpatient facilities found anywhere in the
world. And U.S. health care is also open to medical innovation in ways
that other health systems around the world are not.
    But there is no denying that health care in the United States is
all too often highly inefficient. The system is characterized by
extreme fragmentation. Physicians, hospitals, clinics, labs, and
pharmacies are all autonomous units that are financially independent of
one another. They bill separately from the others when they render
services to patients; what's worse, there's very little coordination of
care among them, which leads to a disastrous level of duplicative
services and low-quality care in too many instances. The bureaucracy is
maddening, the paperwork is burdensome and excessive, and there is very
little regard for making the care experience convenient and pleasant
for the patient.
    At the heart of this dysfunction is Medicare--and more precisely,
Medicare's dominant FFS insurance structure.
    In a June 2009 article in The New Yorker, Atul Gawande contrasted
the high-use, high-cost care provided in McAllen, TX, to the less-
costly and higher-quality care provided in other cities, such as El
Paso, TX, and at institutions such as the Mayo Clinic.\1\ However, as
Robert Book later pointed out, the real lesson from the Gawande study
may be quite different from what most assumed initially.\2\ At the
time, President Obama and others cited the article as an example of how
physician culture and practice patterns have run amok in certain
regions of the country and why ``bending the cost curve'' would require
addressing these problems.
---------------------------------------------------------------------------
    \1\ Atul Gawande, ``The Cost Conundrum: What a Texas Town Can Teach
Us About Health Care,'' The New Yorker, June 1, 2009, at http://
www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande.
    \2\ Robert Book, ``Medicare Variation Revisited: Is Something Wrong
with McAllen, TX, or Is Something Wrong with Medicare?'' The Foundry,
December 14, 2010, at http://blog.
heritage.org/2010/12/14/medicare-variation-revisited-is-something-
wrong-with-mcallen-texas-or-is-something-wrong-with-Medicare/.
---------------------------------------------------------------------------
    Yet upon closer inspection, it became clear that the cost
differences between McAllen and El Paso were largely confined to
Medicare. For the non-Medicare population, the cost differential
between the two cities is practically nonexistent.\3\ As Book
explained, this suggests that Gawande uncovered a problem with Medicare
in McAllen, not a problem with medical practice in McAllen.
---------------------------------------------------------------------------
    \3\ Luisa Franzini, Osama I. Mikhail, and Jonathan S. Skinner,
``McAllen and El Paso Revisited: Medicare Variations Not Always
Reflected in the Under-Sixty-Five Population,'' Health Affairs, Volt.
29, No. 12 (December 2010), PP. 2302-09.
---------------------------------------------------------------------------
    Indeed, Gawande's article never really explained who was paying for
McAllen's overbuilt system. It turns out it was Medicare FFS, with its
emphasis on an expansive, volume-driven delivery structure. Without
Medicare FFS payments for every physician-prescribed diagnostic test
and surgical procedure, the expensive infrastructure in McAllen would
never have been viable.
    Medicare's FFS insurance is the largest and most influential payer
in most markets. As the name implies, FFS pays any licensed health care
provider when a Medicare patient uses services--no questions asked.
Nearly 75 percent of Medicare enrollees--some 37 million people--are in
the FFS program.\4\ Physicians, hospitals, clinics, and other care
organizations most often set up their operations to maximize the
revenue they can earn from Medicare FFS payments.
---------------------------------------------------------------------------
    \4\ 2012 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Insurance Trust Funds,
April 2012, Table IV.C1.
---------------------------------------------------------------------------
    For FFS insurance to make any economic sense at all, the patients
must pay some of the cost when they get health care. Otherwise, there
is no financial check against the understandable inclination to agree
to all of the tests, consultations, and procedures that could be
possible, but not guaranteed, steps to better health.
    But Medicare's FFS does not have effective cost-sharing at the
point of service. Of course, the program requires some cost-sharing,
including 20 percent co-insurance to see a physician. But the vast
majority of FFS beneficiaries--nearly 90 percent, according to the
Medicare Payment Advisory Commission (MedPAC)--have additional
insurance, in the form of Medigap coverage, retiree wraparound plans,
or Medicaid, which fills in virtually all costs not covered by FFS.\5\
Further, Medicare's rules also require providers to accept the Medicare
reimbursement rates as payment in full, effectively precluding any
additional billing to the patient.
---------------------------------------------------------------------------
    \5\ Joan Sokolovsky, Julie Lee, and Scott Harrison, ``Reforming
Medicare's Fee-for-Service Benefit Design,'' Medicare Payment Advisory
Commission, February 23, 2011, at http://www.medpac.gov/transcripts/
benefit%20design%20jsjl.pdf.
---------------------------------------------------------------------------
    In the vast majority of cases, then, FFS enrollees face no
additional cost when they use more services, and health care providers
earn more only when service use rises. It is not at all surprising,
then, that Medicare has suffered for years from an explosion in volume
of services used by FFS participants.
    CBO reports that the average beneficiary used 40 percent more
physician services in 2005 than they did just 8 years earlier.\6\
Spending for physician-administered imaging and other tests was up
approximately 40 percent in 2007 compared to 2002, according to
MedPAC.\7\
---------------------------------------------------------------------------
    \6\ Congressional Budget Office, ``Factors Underlying the Growth in
Medicare's Spending for Physician Services,'' June 2007, Table 3.
    \7\ Medicare Payment Advisory Commission, Healthcare Spending and
the Medicare Program: A Data Book, June 2009, p. 102.
---------------------------------------------------------------------------
    Medicare's dominant FFS design also stifles much-needed innovation
in service delivery. As Mark McClellan, former Administrator of the
Centers for Medicare and Medicaid Services (CMS), put it:

          In traditional FFS Medicare, benefits are determined by
        statute and cannot easily include many innovative approaches to
        benefit design, provider payment, care coordination services,
        and personalized support for beneficiaries. . . . When
        providers are paid more when patients have more duplicative
        tests and more preventable complications--as is the case in FFS
        payment systems--it is more challenging to take steps like
        adopting health IT or reorganizing practices in other ways to
        deliver care more effectively.\8\
---------------------------------------------------------------------------
    \8\ Mark McClellan, testimony before the Committee on the Budget,
U.S. House of Representatives, June 28, 2007, at http://
www.allhealth.org/briefingmaterials/mcclellantestimony-818.pdf.
---------------------------------------------------------------------------
        the limitations of government-led delivery system reform
    The Obama administration is trying to address these problems caused
by Medicare in the delivery system with initiatives being championed by
the Centers for Medicare and Medicaid Services (CMS). I am very
skeptical that these efforts will solve the problem.
    The most prominent delivery system reform now being pursued is the
effort to move more care delivery into accountable care organizations
(ACOs).
    An ACO allows doctors and hospitals to join voluntarily with others
in new legal entities that are responsible for providing care across
institutional and outpatient settings. The idea is to put physicians
and hospitals in new organizational arrangements in which they share
Medicare revenue and keep the savings if they provide quality care at
less cost than FFS Medicare would normally pay. The physicians and
hospitals participating in an ACO would keep a substantial portion of
the resulting savings. In effect, ACOs are the latest in a long series
of efforts to persuade physicians and hospitals to form provider-run--
as opposed to insurance-driven--managed care entities.
    Interestingly, a 5-year pilot project on ACOs has already come up
well short of the high hopes placed upon it. According to a 2011 story
in The Washington Post,

          ``In 2010, the final year, just 4 of the 10 sites, all long-
        established groups run by doctors, slowed their Medicare
        spending enough to qualify for a bonus, according to an
        official evaluation not yet made public.'' \9\
---------------------------------------------------------------------------
    \9\ Amy Goldstein, ``Experiment to Lower Medicare Costs Did Not
Save Much Money,'' The Washington Post, June 1, 2011, at http://
www.washingtonpost.com/national/experiment-to-lower-Medicare-costs-did-
not-save-much-money/2011/05/27/AG9wSnGH_story.html.

    Moreover, the Congressional Budget Office (CBO) has systematically
examined many demonstration initiatives carried out by CMS over the
past decade or so, all of which were aimed at carrying out, in various
ways, ``delivery system reform'' so that costs would moderate and
patient care would improve.\10\ The results have been terribly
disappointing. As CBO Director Douglas Elmendorf put it:
---------------------------------------------------------------------------
    \10\ Congressional Budget Office, ``Lessons from Medicare's
Demonstration Projects on Value-Based Payment,'' January 2012, at
http://www.cbo.gov/sites/default/files/cbofiles/attachments/WP2012-
02_Nelson_Medicare_VBP_Demonstrations.pdf.

          The demonstration projects that Medicare has done in this and
        other areas are often disappointing. It turns out to be pretty
        hard to take ideas that seem to work in certain contexts and
        proliferate that throughout the health care system. The results
        are discouraging.\11\
---------------------------------------------------------------------------
    \11\ Cited in Merrill Goozner, ``Rising Health Care Curve Won't
Bend, Even for Obama,'' The Fiscal Times, July 13, 2011, at http://
www.thefiscaltimes.com/Articles/2011/07/13/Rising-Health-Care-Curve-
Wont-Bend-Even-for-Obama.aspx.

    I believe there are two reasons to be skeptical that the health
care law's efforts will turn out differently. First, Medicare FFS looks
and operates as it does for a reason, which is that it is much easier
for government-run insurance models to impose across-the-board payment
rate cuts than it is to makes distinctions among providers based on
quality and cost data. (This might be thought of as the CMS's version
of the ``Lake Wobegon effect:'' to the government, all providers of
medical care are ``slightly above average.'') Repeated attempts over
the years to steer patients toward preferred physicians or hospitals
have failed miserably because politicians and regulators have never
been able to withstand the uproar that comes when some providers are
favored over others.
    The private-sector delivery models that are rightly admired--such
as Geisinger, the Cleveland Clinic, and Intermountain Health Care--
operate very differently. They do not take just any licensed provider
into their fold. They operate highly selective, if not totally closed,
networks, which allows them to control the delivery system. Low-quality
performers are dropped or avoided altogether, and tight processes are
established to streamline care and ensure some level of uniformity.
Most importantly, these models have succeeded despite Medicare's
perverse incentives, not because of them.
    A second flaw can be seen clearly in the ACO design. The name
Accountable Care Organization begs the key question: accountable to
whom? Because in the ACO design the beneficiaries are really not part
of the equation. Initially at least, the beneficiaries are to be
assigned to ACOs based on their use of physician services. They won't
be asked up front if they want to join them. Moreover, the
beneficiaries will share in none of the supposed savings from the ACOs.
If the ACO effort is found to cut costs, the savings will be shared
among the providers and the Government. What incentive do the
beneficiaries have to enroll in what will very likely be seen as
``managed care?''
    In short, the ACO model is built around a flawed understanding of
accountability. The ACO will be accountable to the Government with data
and other requirements. But the ACO concept is not intended to give the
beneficiaries a choice of competing plans and models. This is a very
shortsighted way to look at delivery system reform. ACOs will be
effective at reducing costs only by becoming more integrated and closed
networks of providers who follow data-driven protocols for care. It
would be far more effective if beneficiaries voluntarily signed up with
such delivery models because it would reduce their costs too. As
matters stand, the beneficiaries will have no financial incentive to
give up complete autonomy in the choice of providers.
    Moreover, for the ACO model to work, some high-cost, low-quality
providers must be excluded from the ACO networks. As soon as that
becomes evident, and provider revenue is threatened, the Government
will come under intense pressure (as it has in the past) to loosen the
ACO concept and allow virtually all licensed providers to become
``preferred ACO providers.'' When that happens, the only way to control
costs will be the old-fashioned way: with blunt, across-the-board
payment rate reductions in Medicare (which is exactly what the 2010
health care law did to hit its budget targets).
                  relying on a functioning marketplace
    The alternative to relying on a CMS-led delivery system reform
effort is a functioning marketplace with cost-conscious consumers.
    In 2003, Congress built such a marketplace, for the new
prescription-drug benefit in Medicare. Two features of the program's
design were important to its success. First, there was no incumbent
government-run option to distort the marketplace with price controls
and cost shifting. All private plans were on a level playing field.
They competed with each other based on their ability to get discounts
from manufacturers for an array of prescription offerings that are in
demand among beneficiaries and their physicians.
    Second, the Government's contribution to the cost of drug coverage
is fixed and is the same regardless of the specific plan a beneficiary
selects. The contribution is calculated based on the enrollment-
weighted average of bids by participating plans in a market area.
Beneficiaries selecting more expensive plans than the average bid must
pay the additional premium out of their own pockets. Those selecting
less-
expensive plans pay a lower premium. With the incentives aligned
properly, participating plans know in advance that the only way to win
market share is by offering an attractive product at a competitive
price because it is the beneficiaries to whom they must ultimately
appeal.
    This competitive structure, with a defined contribution fixed
independently of the plan chosen by the beneficiary, has worked to keep
cost growth much below other parts of Medicare--and below expectations.
At the time of enactment, there were many pronouncements that using
competition, private plans, and a defined government contribution would
never work because insurers would not participate, beneficiaries would
be incapable of making choices, and private insurers would not be able
to negotiate deeper discounts than the Government could impose by fiat.
All of those assumptions were proven wrong.
    What actually happened is that robust competition took place,
scores of insurers entered the program with aggressive cost-cutting and
low premiums, and costs were driven down.
    The result has been a strong record of success. In 2012, the
average beneficiary premium is just $30 per month for seniors.\12\ Over
the 6 years that the program has been operating, the monthly premium
has gone up an average of about $1 per year.\13\ Overall, Federal
spending has come in roughly 30-40 percent below expectations.
---------------------------------------------------------------------------
    \12\ Department of Health and Human Services, ``Medicare
Prescription Drug Premiums Will Not Increase, More Seniors Receiving
Free Preventive Care, Discounts in the Donut Hole,'' press release,
August 4, 2011, at http://www.hhs.gov/news/press/2011pres/08/
20110804a.html.
    \13\ For the average premium in 2006, see Medicare Payment Advisory
Commission, ``A Data Book: Healthcare Spending and the Medicare
Program,'' June 2007.
---------------------------------------------------------------------------
    Similar changes--what might be called a defined contribution
approach to reform--must be implemented in the non-drug portion of
Medicare, as well as in Medicaid (excluding the disabled and elderly)
and employer-provided health care.
    In Medicare, that would mean using a competitive bidding system--
including bids from the traditional FFS program--to determine the
Government's contribution in a region. Beneficiaries could choose to
enroll in any qualified plan, including FFS. In some regions, FFS might
be less expensive than the competing private plans. But in some places,
it almost certainly would not be, and beneficiary premiums would
reflect the cost difference. This kind of reform could be implemented
on a prospective basis so that those already on the program or nearly
so would remain in the program as currently structured.
    Moving toward a defined-contribution approach to reform would allow
for much greater Federal budgetary control, which is of course a
primary objective and tremendously important for the Nation's economy
and long-term prosperity. But this isn't just a fiscal reform. It's a
crucial step toward better health care too because it would put
consumers and patients in the driver's seat, not the Government. With
consumers making choices about the kind of coverage they receive as
well as the type of ``delivery system'' through which they get care,
the health system would orient itself to delivering the kind of care
patients want and expect.
                               conclusion
    I commend the committee for holding this hearing today because it
gets to the heart of the matter. To slow the pace of rising costs, we
do need delivery system reform. But I do not think the Federal
Government has the capacity or wherewithal to make it happen. Like
other sectors of our economy, if we want higher productivity and better
quality, we are going to need to rely on the power of a functioning
marketplace.

    Senator Whitehouse. Thank you, Mr. Capretta.
    Since this is my hearing and I am going to be here until
the end, and to accommodate my colleagues' busy schedules, I am
going to defer my questions until the end. I will turn, first,
to our first Senator to arrive, Senator Franken.
    Senator Franken. Well, I am going to be here until the end,
I think, too. So I understand Senator Mikulski----
    Senator Mikulski. That is OK. Go ahead, Senator Franken.
    Senator Franken. OK.
    Senator Whitehouse. Good.
    Senator Franken. Thank you.
    Ms. James, and by the way, it is Louie-ville not Louis-
ville, as the Chairman mispronounced it.
    Ms. James. Thank you for the correction.
    Senator Franken. OK. I have to do that.
    Senator Whitehouse. He is this way all the time.
    Senator Franken. Well, you know. OK. Let us see. I have a
question I wanted to ask that is different, quite different, a
little different.
    We heard some great things that you are doing for your
beneficiaries to promote better health care, quality, and lower
costs, which is really the definition of delivery system
reform.
    The Diabetes Prevention Program, DPP, is a structured
intervention for people with pre-diabetes. It includes
nutritional information and exercise, and the program has been
shown to reduce the risks that participants will be diagnosed
with Type 2 diabetes by nearly 60 percent. This is the program
that Senator Luger and I, actually, put in to the Affordable
Care Act. It is one of the many cost reduction pieces that is
in here.
    It costs $300 for the DPP. It costs over $6,000 to take
care of someone with diabetes, and the DPP reduced by nearly 60
percent the number of pre-diabetics who became diabetic. It was
successfully piloted by the CDC in St. Paul and in
Indianapolis, hence me and Senator Luger, and I authored the
bill and he was my chief co-sponsor.
    I talked with the CEO of United Health about this program
right away, and they decided to cover it. The CEO told me that
United Health will save $4 for every $1 they spend on the
Diabetes Prevention Program.
    Ms. James, do you not think that cost savings interventions
like the DPP are a critical part of a delivery system reform?
    Ms. James. Yes, I do believe that there are programs out
there like that, like the Diabetes Prevention Program that can
save significant dollars. I do believe that.
    Senator Franken. And if you were diagnosed with pre-
diabetes, would you not want to have access to a diabetes
program, prevention program, like this one?
    Ms. James. Absolutely, and Humana has several diabetes
prevention programs in place, as well, to identify patients who
are pre-diabetic, and we have our diabetes prevention
programming in place.
    Senator Franken. OK. Good. And I would urge you to look at
ours, and maybe perhaps cover that as well.
    Ms. James. I would be happy to bring that information back
to Humana, Senator.
    Senator Franken. Do you not think it makes sense for
Medicare to be covering a program like this, since it saves
money?
    Ms. James. Well Senator, I cannot answer for Medicare.
    Senator Franken. OK, OK. Never mind. I want to go to Dr.
Kurose.
    In Ms. James' testimony, she writes that a huge problem in
our health care system is that we reward volume and not the
quality of the care, and Mr. Capretta is basically saying that
about fee-for-service. In other words, if you are a physician
or a hospital in the current system, you get paid based on how
many patients you see, and how many costly procedures you can
perform, not whether they get better before or after you see
them. So even though Minnesota continues to be a national
leader in providing high quality care at low cost, we actually
receive extremely low Medicare reimbursements.
    Thankfully, the health care law made several changes that
will help reward quality rather than quantity. For instance,
several of us pushed to make sure that the law included a value
index, which will reward the kind of high quality, low-cost
care that physicians in Minnesota and doctors in your practice
provide. Unfortunately, the law only applies the value index to
physicians and not the hospitals.
    Doctor, do you not think that it makes sense to reward high
value care in the way we pay hospitals, not just our individual
providers?
    Dr. Kurose. Absolutely. I think that the delivery of value
on health care has to be redefined at every level in the
system.
    As somebody who practiced for 20 years and tended to see
maybe 18-20 patients a day, spend the time with them, talk to
their families, to look across town and see somebody who is
doing 40 visits a day, who is just killing it financially, who
is really being rewarded. And so looking at my own practice
thinking, ``Gosh, I am actually being disadvantaged by taking
this time to do a good job, to listen to people, to think
carefully, to see 18 or 20 patients a day.''
    That is why we are so excited about accountable care
because it is taking that system of perverse incentives, which
is all volume-driven, and changing it so that it actually makes
a difference whether you do a good job, whether you take good
care of people. You put in quality incentives. You put in pay-
for-process so that as you build new services for people that
is rewarded. And then ultimately, you go to a system that makes
payment based on quality and cost, and I think that has to
apply at every level of the system.
    So absolutely, I think it is something we can all agree
about, probably, in this room that the fee-for-service system
is a big piece of what got us where we do not want to be, here,
today.
    Senator Franken. Right.
    Dr. Kurose. If you would indulge me for 1 second, I just
have to tell you on the pre-diabetes, we have gone one step
further.
    We have a pediatric overweight and obesity trial going on
called Food, Fitness, and Fun where we are collaborating with
kinesiology students from the University of Rhode Island. We
are bringing in nutritionists. We have a multidisciplinary
pediatric trial working on improving kids who are above a
certain percentage of ideal body mass index. That is really
where the money is in terms of treating this epidemic of
diabetes, and all the medical problems that are related to
obesity, is to really start early. So we are excited about
that.
    Senator Franken. Thank you. I assume we will get to a
second round, and we will get into more of this fee-for-
service, and that kind of thing.
    Thank you, Mr. Chairman.
    Senator Whitehouse. Let me now recognize Senator Mikulski,
who is the primary author of the quality provisions of the
reform bill.

                     Statement of Senator Mikulski

    Senator Mikulski. Thank you very much, Mr. Chairman or Mr.
Acting Chairman for today; chairman du jour.
    I really want to thank you for this wonderful report that
you put out on the health care delivery system. And I think,
perhaps, you have all seen the report because it is a one-stop-
shop that essentially tells us what we did and why we did it,
and now this hearing asks, ``What are we getting out of it? ''
I would hope that there would be a series of these types of
reports and hearings, and that they would be more broadly
participated in by both sides of the aisle. I really want to
congratulate you on your work.
    I would like to ask Dr. Kurose and Ms. James two questions,
and then if there is time, two questions to Mr. Capretta.
    When Senator Kennedy spoke during the health care debate,
he asked there to be three task forces: one on access, one on
prevention, one on quality. I was assigned quality, which
really goes to prevention, I think. Senator Kennedy, throughout
his wonderful career, was focused on access to make sure
Americans had access to health care.
    My focus as a social worker was what happened after you got
access, because I was not convinced that once you had access,
it made a difference rather than present a hollow opportunity.
Dr. Kurose, you compared access to practices. That is where we
got into quality. Let me get to where I am heading.
    Our taskforce had very definite proposals. The first was to
use technology to help create a kind of virtual medical home, a
techno-medical home where the practitioners and clinicians
involved with the patient would know the data narrative.
    The second was to really use the tools that manage chronic
illness, which is why we looked toward the medical home where a
primary care doctor could do the best of what medicine offered,
but could also call in either other medical specialists or
those related to lifestyle and other challenges affecting the
patient.
    And the third was that if there was hospital admission, how
to prevent re-admission using discharge planning, compliance
with drug protocols, et cetera.
    So now, let me get to you all. What you say in your
testimony is stunning. It is exactly what we had envisioned; it
is exactly what we wanted. So my question to you is: how did
you achieve it? And, how did having a medical home work in
practice?
    Because, again, one of the things that usually derails
everything is the lifestyle of the patient. They say genetics
loads the gun, but lifestyle pulls the trigger. So even after
brilliant medicine, if someone is a diabetic and they are still
having two Coca-Cola's for lunch, two beers for dinner, and
pizza as a snack, that patient is in trouble.
    How did you do what you did? Is the medical home one of the
primary reasons you could do what you did, from a delivery and
patient standpoint--not from the bottom line standpoint? Is the
medical home the way to go in the same sense?.
    Dr. Kurose. Let me begin by saying I think----
    Senator Mikulski. It was a long----
    Dr. Kurose. I took some notes, so I think I got it--we are
about halfway along our journey. I do not want to create the
impression that this is anything but a work in progress because
it is absolutely that. To pick up on some of the points that
you made.
    With technology, the electronic medical records have been a
game changer. We are really embracing this team concept of care
delivery. It is the primary care physician, but we have learned
that there are interactions with patients that are executed
better by nurse care managers. Not just that you are offloading
this task from a physician, but the nurse care manager has
specialized training, they have more time. You have nurse care
managers, you have clinical pharmacists, you have the medical
assistant, you have the front desk people, you have the
specialty doctors, you have the hospital providers, everybody
is caring for this same patient. And the electronic medical
record allows us all to be on the same page.
    Certainly, in the medical home, we are all on the same
page. We are working on interoperability with various hospital
systems so that we can get cross talk with their information
systems. We have made some really good progress with that, but
it still is a work in progress and we are still building our
State's health information exchange. It is up and running, but
we need more people using it.
    The approach to patients with chronic illness is really
important; 5 percent of the sickest patients consume up to 50
percent of the health care dollar. Again, the team approach is
critical, and we are looking more to reach out to patients, not
only in the medical home, but outside of the medical home.
    So yes, when they come to our office, they may be seen by
multiple people, but we have a nurse care manager who is
visiting with patients while they are still in the hospital
now, and ensuring that their discharge planning is correct. If
that does not happen, we call them within 2 days of discharge.
    Our innovation grant proposals have community-based teams
that will be going out to peoples' homes including even things
like a transportation tech and a vehicle to go pick somebody
up. Because we are, honestly, I have seen, you are talking to a
patient at 10 a.m., they have no transportation. They are sick.
They are elderly. Their kids do not get out of work, their
grown kids, until 5 o'clock. You get halfway through the
conversation, they get anxious and they say, ``Oh, I am just
going to call 9-1-1.'' We could say, ``No, we will pick you up
in 45 minutes. You will see your doctor within the hour.''
These are things that we can do to make care so much better.
    The whole re-admissions piece, again, I think if we can
touch patients in the hospital, it really helps. If we are
really focused on transition----
    Senator Mikulski. Could you come back to the lifestyle?
    Dr. Kurose. Sure, sure.
    Senator Mikulski. I have not heard about social work, and I
have not heard where you intervene in terms of truly helping
people with lifestyle issues?
    With transportation and so on----
    Dr. Kurose. There's transportation.
    Senator Mikulski. Do you know what----
    Dr. Kurose. The teams in the grant that we proposed
included a behavioral health specialist, a nurse care manager,
a community outreach worker, the transportation person, and a
clerical support person.
    We do have diabetes education programs, but again, that are
out of the individual medical homes. It is a work in progress.
I met a group of doctors from Ohio that have 10 diabetes
classes a week; 10 a week, every week. That is the kind of
consistency of execution that, honestly, we are still working
on.
    We have some offices who are doing great classes, you know,
adult male diabetic----
    Senator Mikulski. My time is----
    Ms. James, did you want to comment on what I said?
    Ms. James. Yes, absolutely. Thank you.
    That is a great question and from the Humana perspective, I
want to talk a little bit about the patient-centered medical
home and how we support that. I mean, we are very involved on a
high level with the patient-centered primary care collaborative
with Paul Grundy.
    We support, through our programming, health information
technology adoption with meaningful use along with our medical
home program. But more importantly, I want to talk a little bit
about how we assist the practices. You are saying, ``How do we
get there? '' And one way, because we believe strongly in
medical home, is to help practices transform. So early on, we
assisted practices with gap analysis and helping them to become
medical homes.
    Another way that we are assisting practices and how we get
there with re-admission rates, for example, is that with our
medical homes in Ohio, we provide daily census to them on their
patients that have been admitted to the hospital. So we all
know that sometimes that communication does not always take
place. We provide, on a daily basis, census, ``Here are your
patients who were admitted,'' so that they can do outreach to
those patients immediately.
    If you want to talk about lifestyle, the lifestyle piece in
our Florida medical homes, again, we have transportation that
will take those patients if they do not have a way to get to
the physician. We have a division devoted called Humana Cares
that has social workers, nurse case managers, and support
systems for the patient that assists the practices.
    So for practices that do not, or may not, have those
essential pieces for the patient, Humana as a health plan can
help provide that.
    Thank you.
    Senator Mikulski. Thank you very much, Mr. Chairman. Maybe
we could hear the answer to two questions later. First, could
they have done this if we had not passed the Affordable Care
Act? And second, if we go to a voucher model, would there be
support for a National Insurance Commissioner to keep an eye on
them?
    Senator Whitehouse. Let me now turn to Chairman Bingaman,
in addition to being chairman of the Energy Committee, served a
unique role during the Affordable Care Act because he sat both
on the HELP Committee, this committee and on the Finance
Committee, which were the two primary committees that drove
this. He was the only person on our side on both committees.
    Senator Bingaman.

                     Statement of Senator Bingaman

    Senator Bingaman. Well, thanks for having this hearing, and
all of this work that you have put into it, and your excellent
publication here.
    Let me ask Mr. Capretta. Your testimony makes the case, or
the argument, that what we need to do is to rely more on the
marketplace to get efficiencies and cost savings. And you say
that the alternative to relying on a CMS-led delivery system
reform effort is a functioning marketplace with cost conscious
consumers.
    Now, one of the things we were trying to do in the
Affordable Care Act was to have health insurance exchanges
established to get us to that kind of a circumstance where
there would be more ability by consumers to choose, and more
transparency in what is being offered, and all of that. We
cannot get a lot of States to even start down that road; they
are very resistant to that.
    You cite the substantial success with what was done in 2003
with the prescription drug benefit for Medicare, and how that
was designed in a way that allowed for consumer choice and
keeping costs down.
    Could you give me your thoughts on whether or not an
insurance exchange has a value in this process? Is that a crazy
idea that we had to try to establish insurance exchanges?
    Mr. Capretta. Well, you are putting me on the spot right
away, Senator. It is terrific.
    Look, the concept of an insurance exchange is not
necessarily a faulty concept. I would say that the opponents of
it have lots of reasons other than the concept to be against
the version that was passed in the health care law.
    One thing to understand is that the concept of moving
toward something like a premium support model, is taking the
Medicare Part D model and extending it to the rest of Medicare.
What you would be doing is taking people that are in a fee-for-
service structure, moving them out of that, largely, into
something where delivery system reform could take place, and
the consumer would be much more engaged than they are today.
    There is a concern on the other side for the under-65
population that establishing the exchanges the way they were
done under the health care law will actually bring more of a
regulatory and governmental approach to delivery of health
services in that part of the marketplace than exists today.
    In other words, when you do it in Medicare, you are pulling
people out of a heavily government-driven system. When you do
it for the under-65 population, it is more of a mixed bag. Some
of the people that will be pulled into the exchanges may
actually be in a better system than they will get through the
exchanges.
    Senator Bingaman. But you are going to have 50 million who
are in no system at all. An estimated 30 million would wind up
with coverage under the Affordable Care Act according to the
Congressional Budget Office.
    Mr. Capretta. I agree with that. That is certainly what CBO
found, and that is an independent question about whether or not
the exchange concept is good or bad in that context.
    Senator Bingaman. But does not the general idea or the
structure that we had in mind with an exchange, does it not
help consumers to have more choice and get us away from fee-
for-service?
    I mean, in the sense that if everyone gets coverage, you
are going to be under some kind of system of coverage, then you
would still have to reform Medicare. You would still have to
reform Medicaid, I understand that, to get away from fee-for-
service in those government-run programs.
    Mr. Capretta. It depends. In the State of Massachusetts, it
is true that there is some level of consumer choice that was
put together as part of the Connector. But the State also
reserved the right, and executed that right, to limit the
number of plans that participated in the Connector, and
excluded plans that otherwise were licensed providers from
actually being offered to the people on the Connector. They did
that for, what they thought, were cost control reasons. But I
could see California has adopted an exchange concept that
allows the State of California to do the same.
    So over time, it is quite possible that for the under-65
population with that kind of a design feature, you will
actually limit the number of choices and not expand them. I
think that is a really--some people say, ``Well, you will get
more leverage that way. You have these fewer insurers, you will
get more leverage.''
    I think barriers to entry in that regard are really short-
term thinking.
    Senator Bingaman. Well, all I can say is if you have 30
million people who are going to have coverage under the
Affordable Care Act that do not have coverage today, presumably
a lot of that will be done, I know, some of it will be done
through Medicaid, but a lot of it will be done through these
exchanges as well.
    For those folks who do not have coverage today, you are not
limiting choices. You are giving them some coverage. It does
not seem to me that the big problem with it is that you are
limiting their choices too much.
    Let me ask about another problem that Professor Reinhardt--
oh, I guess my time is up. Excuse me.
    Senator Whitehouse. Go ahead.
    Senator Bingaman. Let me ask this one other question.
    Professor Reinhardt wrote an article in ``Health Affairs,''
which I thought was very interesting, where he basically
pointed out that the charge for various procedures varies
dramatically from one institution to another. He cited the
range of costs for a colonoscopy going from $500 to over $3,500
in one area, I think, in New Jersey where he was looking at it.
And he felt that there ought to be some more transparency, and
more ability to rationalize this process.
    What is the solution to that? Is this health information
system that you, Doctor, referred to in Rhode Island, is that
going to provide that information? I mean, is this something
that we can get away from some way or other? I mean, there is
no reason why one provider ought to be charging 7 times what
another provider charges for the very same procedure in the
same location.
    Dr. Kurose. I think what you are getting at is kind of the
heart of where Coastal is really trying to focus right now, and
it is very early in the game for us, but understanding
utilization of services and cost of services.
    Another example is we looked at what, in our population of
commercial and Medicare patients, what were the commonest
diagnoses for hospitalization? We were surprised to find out
that joint replacement is No. 1. So for some of these very sort
of discrete procedures--colonoscopy, joint replacement--you
should be able to generate reasonable outcomes data. What is
the complication rate? In joint replacement, how often are
people re-admitted, and how often do they get an infection, et
cetera?
    I think whenever you talk about price comparisons, you have
to be also clear that you are looking at quality at the same
time. In fairness to consumers, we would only consider changing
our referral patterns if we were referring to somebody who is
more cost efficient, but also equal or superior in quality. So
I would want to bring quality into the equation. But yes, how
we get the price information is difficult.
    The way we get it on Blue Cross is sort of reverse
engineering off of claims data, and that is complicated and
difficult. And various commercial payer contracts have
confidentiality clauses in them, so we cannot get that
information. It is definitely the case that it would be a game
changer if there were price transparency, and I think that that
is really important. But quality reporting has to go hand-in-
hand with it in a way that is meaningful. And as you move from
relatively straightforward procedures to the management of
illnesses, the definition of quality becomes a lot more
complex.
    Senator Bingaman. Thank you, Mr. Chairman.
    Senator Whitehouse. Thank you.
    The one thing I would add to your question, Senator
Bingaman, is that in addition to the price for the procedure
varying between $500 and $3,500, I suspect what the patient
paid for it varied depending on who their insurer was, whether
they had coverage, and that could vary by a factor of maybe 3
or 4 times. So the cloud of bad or nontransparent information
about price in the health care system is even worse than the
Reinhardt report suggests.
    But to the extent, I think, that you are beginning to see
organizations like Dr. Kurose's take responsibility or an ACO
take responsibility like Ms. James does, for a whole episode of
care, now they are in a position to demand price transparency
in a way that is, I think, more helpful.
    One of the things I worry about with Mr. Capretta's theory
that you would want a lot of really sensible consumers out
there in health care is that, a rough number, that 5 percent of
the customers use 50-plus percent of the services, and they
tend to be really sick; some of them are even unconscious, and
some of them are very, very elderly. And when you are really
sick, or elderly, or unconscious, you are not in a really good
position to be a very good cost-conscious consumer. It is fine
if you are going out for a simple procedure. But in those
circumstances--and that is where a lot of the big money is--
that is where the system has to support these reforms.
    One of the things, Ms. James, that struck me in your
testimony was that in some of the areas where you were talking
about quality improvement and lowered costs, you were actually
talking about providing additional services. And No. 2, that
come to mind out of your testimony, you mentioned increases in
breast cancer screening, and you mentioned improved or
increased physician visits within 7 days after discharge.
    So what I understand is, and I will ask you to comment on
it, this is not just a question of going to this existing
health care system and saying, ``We want to have you have less
of everything.'' You are being selective and intelligent about
it saying, ``There are some things we want you to have more of
because that will improve the care and lower the cost.''
    Could you elaborate on that point?
    Ms. James. Absolutely. In terms of the visits back to the
physician within 7 days of discharge, we are absolutely
supporting that. So patients can be seen and evaluated by their
physician after discharge from the hospital. We all know that
when patients are seen after discharge, then there is less of a
chance of the patient getting confused with their medications.
    And in terms of the breast cancer screening, that is
exactly right. We are encouraging more patients getting
screened for preventative services and chronic care services.
    Senator Whitehouse. So in both cases, it is good for the
patient, but in both cases, it is also good for the overall
cost. It is good for the bottom line across the board for all
of us, correct?
    Ms. James. That is exactly right because you look at
patients who are seen within 7 days of discharge have less re-
admit rates. Patients who get breast cancer screening, you find
out earlier.
    Senator Whitehouse. You also mentioned in your written
testimony your partnership in Cincinnati with Queen City
Physicians. You had some pretty amazing results come out of
that partnership.
    Could you take a moment and just walk us through that?
    Ms. James. Yes. Yes, that is with Queen City in Cincinnati.
That group, that particular group, and we talked a little bit
earlier about electronic medical records. Queen City Physicians
has been using their medical record system for over 8 or 9
years. So they had a lot of experience with their EMR system
and were able to utilize that system in their patient-centered
medical home to get really high, high results on the quality
side.
    We have a great relationship in terms of providing them
with discharge information. That was a piece they did not have
previously. So that led to improvements all the way around.
    Senator Whitehouse. Your testimony quantifies that a 34
percent decrease in emergency room visits, a 10 percent
improvement in diabetes management--Senator Franken's concern--
15 percent improvement in blood pressure control, and 22
percent decrease in patients that had uncontrolled blood
pressure, all of which is better care at lower cost for
patients.
    Ms. James. Yes, sir.
    Senator Whitehouse. Let me turn to Senator Franken for a
second round, but before I do, I would like to put without
objection, into the record, a statement of the Boeing Company,
which has offered a statement in support of it.
    Boeing provides health care coverage to nearly half a
million employees, retirees, and dependents in 48 different
States. It spends over $2.2 billion providing these benefits.
    In 2007, Boeing began testing its intensive outpatient care
program to provide customized, quality care at lower cost to
individuals with the most complex and expensive conditions.
These individuals represent 10 to 20 percent of the population,
but account for approximately 80 percent of health care
spending.
    After piloting the program for 2\1/2\ years, the results
were impressive. Total annual health care spending per capita
for participant was reduced by 20 percent compared to a control
group, thanks largely to reduced emergency room visits and
hospitalizations. Additionally, quality improvement metrics
showed notable improvements in physical and mental functioning.
    Once again, this is from a major corporation on the
customer side of the health care system. Their statement will
be admitted into the record.
    [The information referred to may be found in Additional
Material.]
    Senator Whitehouse. Senator Franken is recognized.
    Senator Franken. Thank you, Mr. Chairman.
    Dr. Kurose, I am going to ask you about the work you are
doing to prevent diabetes, even in your youngest patients.
Diabetes is a huge part of the cost of our care, all chronic
diseases are the majority of the cost of our health care, and
diabetes is one of the most, if not the most, costly chronic
disease. You are doing this preventive work.
    As you may know, there is some debate in Congress right now
about whether we fund the Prevention and Public Health Fund
which, by the way, pays for the Diabetes Prevention Program
that I talked about, which reduces by 60 percent those who
participate in it from going from pre-diabetes to diabetes.
    My colleagues on the other side wanted to use the
Prevention and Public Health fund to pay for the bill to keep
student loan interest rates low. Whereas, we want to close a
loophole for which I can see absolutely no purpose; people in S
Corporations not paying FICA on their income because of a
reading of the rule.
    As a provider, what do you think? Is prevention worth it?
Should we keep investing in it?
    Dr. Kurose. I am no expert on policy, but I can tell you
this. Diabetes, the effects of that disease in terms of its
impact on a typical adult primary care practice is enormous
because when you look at all of the complications, the
peripheral vascular diseases, the circulatory problems in the
legs, the incidence of stroke, the incidence of coronary artery
disease and heart attack, the incidence of kidney failure, the
incidence of eye problems. This is a disease that consumes a
gigantic amount of resources.
    The results you spoke of in terms of reducing progression
from pre-diabetes to diabetes are impressive. Again as I
mentioned earlier, I think that the earlier we can focus on
lifestyle issues that lead to somebody becoming a diabetic
later in life, the better off we are.
    At Coastal, just looking at my notes here, we had 70
percent of diabetics well controlled, meaning that their A1C
number was less than 8. Again, I think that is good and it is
better than the target we were supposed to hit, but we can do
better than that.
    I think there is so much room for us to improve, and I
think the area of prevention is really fertile ground. It is
probably the key to our success in the future in controlling
health care costs here because, ultimately, the goal of
improving the health of the population is something we really
need to keep talking about. Historically, medicine has been
focused on one physician-patient encounter at a time.
    Senator Franken. Sick care rather than health care.
    Dr. Kurose. Right.
    Senator Franken. I want to move on a little bit, and I want
to congratulate you on your use of health information
technology.
    I am proud to say that Minnesota, we consistently rank
among the most wired States in health IT. We both know,
however, that adopting electronic health records is really just
beginning. Being first carries a special responsibility to
continue to innovate, and lead, and how to use health IT to
transform our health care system.
    In Minnesota, the Hennepin County Medical Center reduced
medication errors upon hospital discharge by having pharmacists
check the medication orders before the patient was discharged.
They found that this initiative reduced hospital admissions by
half. The Mayo Clinic in Minnesota also implemented a similar
intervention using electronic health records with similar
success.
    A couple of weeks ago, I sent a letter to CMS Administrator
Tavener highlighting how this meaningful use of health IT could
be part of the Electronic Health Record Incentive Program.
    Dr. Kurose, are you familiar with the benefits of having
pharmacists look at medication orders before patients are
discharged from the hospital?
    Dr. Kurose. I think it is a great idea. We do not have
pharmacists in the hospital today. Our clinical pharmacists
work in our offices, but it was not even a week ago that I
spoke with the director of our clinical pharmacy program to
talk about a collaboration with the hospital-based pharmacists.
I think that is a terrific idea.
    And we also are working with the Community College of Rhode
Island and the URI College of Pharmacy to have a training and
certification program for medical assistants to do medicine
reconciliation to, or at least match up, the pill bottles,
match up the lists. But a collaboration with folks in the
hospital at the pharmacy end sounds like a very fertile place
for us to be working.
    Senator Franken. Thank you.
    Mr. Chairman, I have run out of my time, and I would be
very curious to hear what you have to say, and then come back
to me.
    Senator Whitehouse. Why do we not continue back and forth?
    Senator Franken. I think that is a lovely idea.
    Senator Whitehouse. We have a great panel, and I think this
is a really good issue.
    Let me ask Dr. Kurose two questions. The first is I just
want to ask you a little bit about your personal experience as
a doctor in the last, let us say, since 2005 about what it is
like. How fast has the rate of change been for you? You have
used the word ``game changer,'' twice in your oral testimony. I
get the impression that we are in a period of real innovation
and real almost upheaval in the delivery of care.
    Is that something that you experience in your day to day
work? Is there something new and different going on out there
that you think is noticeable? I am not a doctor. Frankly, the
less I see you guys, the better.
    Dr. Kurose. I think the doctors, and the mid-levels, the
nurse practitioners and P.A.'s, every member of the staff in
the offices feel like the pace of change has been really fast.
The sensation of having a fire hose in your face is actually
the term that we use around the offices. It has been really
brisk.
    The adoption of electronic medical records is a painful
process when you first start that. It is an incredible amount
of work and it is really difficult. But the good news is, I do
not think that anybody would turn back. I would say that the
physicians would say the electronic medical record has been a
distinct improvement.
    I think team-based care is really starting to hit the mark
now so that physicians feel like their patients are getting
better care. And that they are spending more of their time
doing only those things that they can do, ``working at the top
of their license,'' and having a team of people that can handle
some of the other tasks so that overall they do a more
consistent job in delivering those services.
    Senator Whitehouse. Yes. I hear from our community health
centers, from nursing homes, from medical practices, from
hospitals the same thing that it was torture going through the
electronic health record adoption process, but they would never
dream of going back. That once you get through it, it is a real
blessing, not only for you, but also for the patients that you
are charged with to serve.
    One of the issues that we see is the problem of the
misalignment that Ms. James spoke about between the payment and
the performance that is paid for. I saw this when we started
the Rhode Island Quality Institute years ago and we determined
that one of the first steps that we would take would be to try
to apply the Pronovost Principles that had been first really
tried out in Michigan in the hospital intensive care units.
    So every hospital in Rhode Island signed up and they went
through the Hospital Acquired Infection Reduction Checklist
procedures that had been proven out so effectively in Michigan,
and we saw similar results. Laura Adams, who runs the Quality
Institute, was here in Washington just a couple of days ago
and, if I remember correctly, she said that it has been 18
months with virtually zero in hospital-acquired infections in
the intensive care units. And, of course, that saves a lot of
money.
    But I remember the hospital executives coming in when they
agreed to do this and saying, ``Look. We are totally onboard.
We want to serve our patients better, but as long as you are
getting into this,'' I was then the attorney general, ``We want
to explain something to you; what this will do to our bottom
line.'' And they explained how because they were actually
getting reimbursed for the treatment of people who had acquired
a hospital-acquired infection. When they eliminated those, they
could go back and they could pretty much track what it was
going to do to their top line, and that was going to go right
through to their bottom line, and this was a time when they
were kind of hanging on by their fingernails financially.
    So they said,

          ``Please, do not ever forget how tough this is and
        how we do not receive any financial reward, in fact, we
        receive financial punishment for doing what we know is
        right for ourselves and for our patients.''

    And I have never forgotten that message.
    In what ways do you see changes happening that encourage
you financially in taking the steps that you have taken? And,
is there more that we could be doing? How is that working? Let
me ask that of both Dr. Kurose and Ms. James.
    Dr. Kurose. So the incentive for us to take on the
challenge of Accountable Care is really important to us. If we
were stuck in a strictly fee-for-service paradigm, for us to go
through all the work that is necessary for us to understand and
try to manage the total cost of care would be incredibly
expensive, and we would have no business model to support it.
    We have, at Coastal, the Blue Cross contract, which is a
shared savings contract that will be very much like the
Medicare Shared Savings ACO opportunity and so, that is
supporting that work.
    Frankly, we are taking a bit of a flyer because we are
embracing total cost of care for all of our populations in a
setting where we do not yet have a business model to support
that. In the last 3 weeks, I have hired a chief medical
officer. I have hired a data manager. These are new people with
new kinds of expertise that we are going to need.
    The Medicare Shared Savings ACO application is still
pending. If we do not get that, we are still committed to doing
this work, but it is going to be slower and it is going to be
more difficult.
    Nurse care managers, when you are working in a system where
you do not have alignment and harmonization, it is difficult.
When we started last year with nurse care managers, the only
patients they were allowed to see were Blue Cross patients
because they were paid for by Blue Cross. This year, I got
United to pay for them. This year, I got my partners to agree:
if we do not get any other funding source, we are going to just
pony up for the Medicare nurse care managers because we feel so
strongly that this is a better way to deliver care that we do
not want to have a tiered system of treating patients that
looks different depending on what insurance you have.
    So we are making that commitment, but having the Federal
incentives, having the Medicare ACO Shared Savings opportunity,
these things are huge for us. And having a very progressive
partner in Rhode Island Blue Cross has really made the
difference in pushing us along.
    Senator Whitehouse. Yes. Let me give Peter Andruszkiewicz,
the new head of Blue Cross, a lot of credit for the way he has
operated.
    Ms. James.
    Ms. James. Thank you.
    Humana really wants to be part of the solution in this
whole arena, which is why, several years ago, we developed our
Rewards Program to improve quality and provide incentives for
physicians who do that. But, like Dr. Kurose, there has to be
harmonization. Everybody has to be on the same page with the
incentives and wanting to align incentives.
    But further, our pilot with Norton Hospital System, same
thing. It is a big hospital system with physician practices
around it. We have developed a shared savings program with that
hospital system as part of our Dartmouth and Brookings pilot.
But I think that our goal is to see the quality improve and
provide incentives for physicians. That is critical. That is
going to move the dime.
    Senator Whitehouse. Senator Franken, do one last round and
then close the hearing.
    Senator Franken. OK, if you insist. I like the hearing.
    Your story about re-infections or infections in the
hospital reminded me of something. I was talking to the
president of Mayo, this was about maybe a year ago, and he was
talking about ABC News or somebody had come, or the Discovery
Channel, had come to do a little 5 minute story or a 4 minute
story on how great Mayo was. And he was interviewed, and at one
point, they interviewed a housekeeper who was cleaning the
hospital room, and disinfecting everything, going through the
checklist. She had a checklist.
    And the producer from the ABC News organization or
Discovery News station said, ``Why are you cleaning with this
checklist. Why are you doing that?'' She said, ``Oh, I am not
just cleaning the room. I am saving lives.''
    That is what this is all about. That is prevention and that
is just smart. That is Atul Gawande's checklist.
    By the way, investing in community-based prevention shows a
$5.60 return on $1 investment according to the Trust for
America's Health. That is why I think we would be not smart to
be paying for the student loan not doubling by paying for it
from there.
    Mr. Capretta, speaking of Atul Gawande, in his article
``The Cost Conundrum,'' he compares Medicare spending in
McAllen, TX with spending in El Paso, TX and Rochester, MN, and
he finds the health care spending in McAllen to be much higher
than in El Paso or Rochester. The article raised some important
questions about the way our current system fails to pay for
value.
    And then in your written testimony, you argue that Gawande
missed the point, and the cost differences between McAllen and
El Paso were due to differences in Medicare spending, not
spending in private insurance. In support of your argument, you
cite an article that found that Medicare spending was
significantly different between McAllen and El Paso, but that
private insurance spending was, in fact, very similar. So you
argue that Medicare must be the problem.
    Actually, the article you cite is out of date, and I am
wondering if you are aware of that.
    Mr. Capretta. It was published in ``Health Affairs,'' in,
let me see the citation, I think it was maybe 2 years ago,
something like that.
    Senator Franken. Well, subsequently, the same author who
wrote the article that you cite----
    Mr. Capretta. 2010.
    Senator Franken. Yes, subsequently Luisa Franzini and many
of the other same authors published a more recent, expanded
article looking at the State of Texas as a whole to see whether
the findings from her first study could be generalized. And
this study found that McAllen was an outlier. In this, I mean,
you kind of said this was the exception that proved the rule,
but in a certain way--well, you used Lake Woebegone, which I
always resent when anyone not from Minnesota uses that.
    Mr. Capretta. I am sorry.
    Senator Franken. OK, that is fine.
    Mr. Capretta. I apologize for that.
    Senator Franken. But this study which looked at the fuller
picture, rather than the situation in an individual town, found
that Medicare and private insurance spending was similar across
the State.
    Here is the conclusion in this piece, ``Over the State of
Texas, regions of high Medicare spending also tend to be
regions of high private insurance spending.''
    Mr. Capretta. You know, I do not think we need to--I
actually agree with you that there is going to be largely a
correlation.
    My quibble with the original Gawande article was not that,
based on these follow-on ``Health Affairs'' studies, it was
really that he never diagnosed Medicare fee-for-service's role
in all of this.
    That if you look at the cost drivers around the country, if
you go around and you talk to people that are practicing care
on the ground, I am not a physician. I am not in the business
of actually delivering care, but I have been doing policy work
for a long time, and invariably they will say, ``Medicare fee-
for-service is a huge determinant of the organization of the
delivery system.'' It is not the only one. There are other
pressures here and there, but if you had to pick one that was
dominant it is Medicare fee-for-service, just because of the
nature of the volume, and the claims paying process, the----
    Senator Franken. Well, I am not in total----
    Mr. Capretta. And so, I think we are mainly in agreement.
    Senator Franken. Yes.
    Mr. Capretta. I guess my point really was that it is not--
what was going on in McAllen is very traceable back to Medicare
fee-for-service.
    Senator Franken. Sure. Would you care to take a few, a
couple of extra minutes, since you are cutting it off after
this?
    Senator Whitehouse. Please.
    Senator Franken. Would you agree? I really would love to
extend the value index. Again, Minnesota has this very high
value care and we get reimbursed like 30 percent less in
Medicare per patient than Texas. Now, some of that might be
demographic, but it is not all.
    Would you like to see, forgetting the Affordable Care Act
and maybe your objections to it, would you like to see the
value index within that, or that theory, applied to hospitals
as well as to individual doctors?
    Mr. Capretta. Yes. I worked in the Senate, one of Senator
Whitehouse's bio that he read, I worked in the Senate for
Senator Domenici for a decade at the Budget Committee. Senator
Domenici represented a State that did not quite match
Minnesota, but was not too far behind.
    And so for a long time, we pursued various reforms that
were really not all that different from your concept of the
value index. In other words, there are constituents in your
State and in other States, namely New Mexico, Oregon,
Washington State, frankly Utah----
    Senator Franken. Vermont, Wisconsin, the Dakotas.
    Mr. Capretta. That are basically low, low cost----
    Senator Franken. Rhode Island.
    Mr. Capretta. Relatively high--I am not sure Rhode Island
is quite there yet, but they are working on it. They are
working on it.
    Senator Franken. I was trying to get more time.
    Mr. Capretta. Yes, my point is, Senator, that this issue of
maybe unfairness, frankly, in a lot of the governmental
reimbursement systems is traceable back 15 years. It is very
difficult to crack.
    I think one idea is the value index. Other concepts are to
work within the Medicare system so that we do not have such
huge cross-subsidies across regions. So I would be open to
that. I would have to think a little bit more about the value
index in this context.
    Senator Franken. OK.
    Mr. Capretta. But I am definitely open to the notion that
governmental programs have locked in some unfairness.
    Senator Franken. OK. Well, thank you. I am way over my
time, and I would like to thank all of the witnesses for their
testimony and for their service to Senator Domenici, to Humana,
to your patients, to the Heritage Foundation.
    Senator Whitehouse. Thank you, Senator.
    Senator Franken. That was a joke, the last one; just a
small one.
    Mr. Chairman.
    Senator Whitehouse. I just want to comment on Senator
Franken's support for the value index. I think that that is a
very good idea. Rhode Island does very well on quality. It does
not do so well on cost. It is not clear how much of that has to
do with demographics.
    We are the second most densely populated State, and urban
health care seems to be higher cost than rural health care. I
do not know whether that is a question of availability, or just
the additional stresses of urban life. We also tend to have an
older population. And so I think that we would actually do well
in a properly adjusted, demographically adjusted value index.
    And I think, frankly, even if we did not, it would be an
important goal to set out there because a lot of these changes
that need to be made to get us moving in the right direction
are ones that nobody can do alone. It takes, for instance, the
whole community to get together and build a health information
exchange so that the electronic health records in different
practices and hospitals all talk to each other.
    I think that there is a way to begin to force folks in
these incredibly low quality, high expense States to have to
get together and face their problem, or have there be----
    Senator Franken. Can I just say----
    Senator Whitehouse. Yes, please.
    Senator Franken [continuing]. One last thing. It's just
that this is not about pitting Minnesota or New Mexico against
Texas or Florida. This is about incentivizing Texas and Florida
to become more like Minnesota.
    Senator Whitehouse. Yes.
    Senator Franken. Thank you.
    Senator Whitehouse. Understood.
    Let me ask one last question of Dr. Kurose, because when I
talk about where we are, the analogy that I often use to
compare delivery system reform to something that people can
have a little bit more sense of is the early days of aviation.
    You can go from the Wright Brothers and the Wright Flyer to
the 747's that are landing right now at Dulles Airport not too
far from here, and the principles are pretty much the same. Air
moving fast over a curved surface generates lift, a rapidly
spinning air screw generates propulsion, and when you bend the
wings, you can control your direction. All those things are
common from the Wright Flyer at Kitty Hawk to a 747.
    What has changed is how well we implement those principles.
We have gone from canvas and rope and wood, to steel and even
more advanced materials. We have air conditioning, and
pressurizing, and most significantly that pilot landing at
Dulles comes down an electronic glide slope tube of decision
support all the way through, and it does not take away anything
from the pilot's autonomy to have that decision support. But it
provides the pilot information that they need to know when they
need to know it.
    If you are closing in on a landing strip and your landing
gear is not down, you need to know that, and the aircraft tells
you. If you are flying too slow, and you are risking hitting a
stall speed, you need to know that, the aircraft tells you. If
there is wind shear ahead on the runway, your aircraft will
tell you, because that is being broadcast from the airport.
    And the decision support that is provided and the
advancement which was done by constant innovation, nobody could
have taken the Wright Flyer and decreed, ``Thou shalt produce a
747.'' You had to trust innovation and you had to support
innovation. And we did it by a lot of military spending, and we
did with a lot of subsidies along the way, but we really
developed a national industry in this.
    And the difference is that if you do not get it right about
the aircraft, it reports to you pretty quickly. Down you go. It
is a lot harder to know when you are failing and when you are
succeeding in health care because it is so hard to pull the
information out of the system that tells you.
    So if you could just say one word as we close about this
data analyst that you just added. You said you hired a chief
medical officer and a data analyst.
    Talk about the role of data, and why you needed the data
analyst, and how important that is to you in providing
direction and accountability in your practice.
    Dr. Kurose. I think that is a great topic to touch on.
    At Coastal, we believe we need to become a data-driven
organization. And when I say ``data,'' I mean data about
patient experience, there is patient survey data, data about
clinical quality so that sort of typical quality indicators
that we all know about. More data about outcomes for patients
in various episodes of care, and then we need utilization data
and price data.
    So if we are really going to execute on the line, improve
the health of this population, improve their health care, make
their health care more cost efficient, we need all of that
information at our fingertips, in a very usable format. So that
takes a lot of collaboration between people who are expert in
data and people who are expert in clinical care.
    There are a couple of other things in the ``secret sauce,''
if you will, at least the way I look at it, in terms of trying
to advance the cause here. I think there is a strong element of
culture here. I think that I am privileged to represent an
organization where there is a real culture of leadership in
both management and in physicians, and a real culture of
innovation. And I think that as a culture, we have a lot of
transformation to do ourselves in the public.
    This issue of promoting health as the key to the long-term
success of our health care system, I think, that is getting
traction, but we have a long way to go in sharing that message.
And you can just walk around the mall and look at folks, and
see that we have a long way to go.
    But I think that data is going to be the key to the way we
change things in the future. As in the aviation analogy,
technology is also going to be critically important. But
personally, I am very optimistic.
    Thanks.
    Senator Whitehouse. Let me thank all of the witnesses for
being here.
    And as I said in my opening statement, this is part of a
continuing effort to make sure that we are focused in our
health care discussions in the Senate and in Washington in this
area where I think there are colossal opportunities. And where
we really have, let me just say, grim alternatives if we do not
get the delivery system reform piece right.
    You can look at the health care system as a plumbing
problem or you can look at it as a benefits problem. If you do
not do anything about improving the plumbing, and if there is a
single signal that we need to improve the plumbing, it is that
we spend 18 percent of GDP on health care in this country, and
the most inefficient other industrialized country in the world
is at about 12.
    So when the United States of America, the home of
innovation and of ability is 50 percent more inefficient than
the least efficient competitor that we have, we have a pretty
strong signal that there is something that we can do about
this. And that the plumbing piece is the way to go.
    Your testimony has been important because it has shown that
when you go that way, it is a win-win. You are not just taking
things away from patients. You are actually giving them better
care, you are getting them well sooner, and the overall result
is lower cost for all the rest of us. If we do not get this
right, then one day we will be facing those benefit cuts.
    And to close with the remark that I began with from George
Halvorson, who knows a little something about health care as
the CEO of Kaiser,

          ``There are people right now who want to cut benefits
        and ration care, and have that be the avenue to cost
        reduction in this country, and that is wrong. It is so
        wrong, it is almost criminal. It is an inept way of
        thinking about health care.''

    Thank you for showing us the intelligent way of thinking
about health care and not only that, going out into the world
in your businesses and proving it.
    The hearing will remain open for another week for any
additional comments that anybody wishes to make.
    And I appreciate that everybody participated.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

                Prepared Statement of The Boeing Company
                              introduction
    The Boeing Company is the world's largest aerospace company, the
largest U.S. manufacturing exporter and the leading manufacturer of
commercial jetliners and defense, space and security systems. The
Boeing Company has more than 170,000 employees in the United States
with major operations in 34 States, and offers products and tailored
services that include commercial and military aircraft, satellites,
weapons, electronic and defense systems, launch systems, advanced
information and communication systems, and performance-based logistics
and training.
    The Boeing Company provides high quality healthcare coverage to
approximately 485,000 employees, retirees, and dependents in 48 States,
and spends over $2.2 billion annually on health and insurance-related
benefits. We view the healthcare benefits we provide as a major
component of the total compensation we provide to employees.
Importantly, The Boeing Company works diligently to control costs
directly and indirectly associated with providing healthcare coverage
to our workforce. The ability to provide benefits tailored to our
population improves the health of our employees and is crucial in our
ability to remain competitive by attracting and retaining the best
talent.
    The Boeing Company is committed to improving health care delivery
for our employees and families, which is the main reason for developing
our Intensive Outpatient Care Program (``IOCP''), and we welcome this
hearing to examine and identify opportunities for delivery system
reform.
                   intensive outpatient care program
    The Boeing Company continually looks for ways to improve the
quality and efficiency of health care delivery. In developing the IOCP,
the company focused on chronically ill patients who drive a large
portion of overall health care costs. First piloted in 2007, IOCP
provides services similar to those provided by hospital Intensive Care
Units and targets a similar population. IOCP provides intensive
outpatient care that utilizes customized plans, a high level of
personal attention, different staffing models, and advanced
technologies to provide an increased quality of care at lower cost.
IOCP Population
    IOCP's target population consists of individuals that represent the
most complex and expensive conditions. All have multiple chronic
conditions, routinely see several specialists, are participating in
ongoing testing, are taking many medications, and have frequent
Emergency room visits and hospitalizations.
    This target population:

     Represents the most complex and most expensive 10 percent-
20 percent of the healthcare population.
     Incurs up to 80 percent of the population's healthcare
spending.
     Utilizes the current healthcare system the most yet is the
most underserved due to the current healthcare system which is often
reactive, fragmented, expensive, and difficult to navigate and access.

    The IOCP program participants are identified through an independent
and confidential analysis of past health insurance data and through a
clinical evaluation conducted by their provider.
IOCP Program Model
    IOCP was designed to improve health care delivery for employees and
family members who need the most complex health support and care.
Boeing worked with three Seattle area medical groups to design and
implement the program model. Partnering with these willing medical
groups was essential to the success of the program, which represents a
completely different model of care than the current healthcare delivery
system.
    The IOCP model provides customized care delivered by a personal
advocacy team to help manage their health issues and navigate the
system by using evidence-based medicine to provide high quality and
efficient care. Participants were invited to join the pilot program by
their current health care provider at no additional cost to the
participant.
    IOCP clinical sites provided participants with care not typically
delivered in the current system. The IOCP program model utilizes:

     Highly customized clinical care, social support and
navigation of the healthcare system.
     An intensive intake visit and a customized shared care
plan.
     A dedicated team supporting each participant.
     Access to 24/7 care via e-mail, phone and home visits.
     Proactive and reactive evidence-based care deeply
integrated with existing providers.
     A very high level of customer service provided to
employees and their families.
IOCP Goals
    IOCP's main goals are to improve clinical quality, patient
satisfaction and the overall health status of the patients, deliver
quality healthcare, resulting in lower costs for Boeing, its employees
and their families. These goals would be used to expand the model to
other Boeing employees and their family members.
Initial IOCP Results
    The program tested this new chronic care model for a 2\1/2\-year
period from early 2007 to July 2009. Patients who enrolled in the
Boeing pilot were connected to an IOCP care team that included a
dedicated nurse case manager (available in-person) and participating
primary care physicians who worked with the patients to implement a
mutually agreed-upon clinical improvement plan.
    The plan was executed through intensive in-person, telephonic and
e-mail contacts, including frequent proactive outreach by a registered
nurse, and education in self-management of chronic conditions. The
pilot program featured rapid access to care coordinated by the IOCP
team, daily care team meetings to plan patient interactions, and direct
involvement of specialists in primary care contacts, including
behavioral health specialists.
    The total cost of care was measured for 276 chronically ill
enrollees in the Boeing pilot program and then compared to 276
carefully matched patients who served as the control group. The total
annual per capita health care spending per participating patient was
reduced by 20 percent compared to the control group. The 20 percent
savings was primarily attributable to a reduction in emergency room
visits and hospitalizations.
    Multiple quality measures and clinical outcomes showed improvement
as compared to the baseline for the pilot project patients. Physical
functioning scores improved by 14.8 percent, mental functioning scores
improved by 16.1 percent, and patients who said they received care ``as
soon as needed'' improved by 17.6 percent. Patients reported a
significant decline in missed work days. A high level of staff
satisfaction was reported by both the physicians and the nurse case
managers working in the program.
                   current and future iocp activities
    Seattle: The original Boeing IOCP pilot in Seattle was completed in
July 2009 with promising results. The 20 percent savings target on
annual per member medical expenses was achieved. Regence Blue Cross
Blue Shield has adopted the delivery model to their Book of Business
for expansion in the Seattle market. The current program in the Seattle
market includes three delivery systems (The Everett Clinic, Virginia
Mason, and MultiCare) with more expected to launch in the third quarter
of 2012. Total program enrollment as of April 2012 was 1,500 members,
590 of which are Boeing members.
    St. Louis: United HealthCare Services (UHC) has adopted the model
in St. Louis. A partnership was formed with Boeing, UHC and five
medical groups in the St. Louis market. The program was launched in the
fourth quarter of 2011. Total program enrollment as of April 2012 was
860 members, 300 of which are Boeing members. General Electric and
Monsanto are also participating in the St. Louis program.
    Southern California: Boeing is working with the Pacific Business
Group on Health to lead an expansion into the southern California
market. Delivery systems within the Health Care Partners and St.
Joseph's networks will be utilized. The California Public Employees'
Retirement System is expected to join as a launch participant, with a
targeted program launch in fall of 2012.
                           iocp modifications
    The IOCP program has retained the critical elements and goals that
were developed during the original pilot. These include the requirement
for dedicated, embedded nurse case managers with a patient panel of
less than 200 high risk, medically complex patients, the development of
a patient care plan and the continued tracking of clinical and claims
based metrics.
    While the pilot program utilized a dedicated physician intensivist
at each site, study results concluded that dedicated nurse case
managers executing coordinated, team medicine is the critical element
to the program's success. As a result, the current program has moved
away from a dedicated physician intensivist, which was found not
crucial or financially viable.
    A simplification of the payment model and program evaluation
methodology is under consideration.
                               conclusion
    Efforts to improve the quality and efficiency of healthcare in the
United States through delivery system reforms are critical to
controlling rising health care costs and to ensuring the well-being of
Americans. These reforms should be a priority for policymakers,
employers, providers and patients. The Boeing Company will continue to
support ongoing efforts like the IOCP to positively influence the U.S.
health care system.

    [Whereupon, at 11:40 a.m., the hearing was adjourned.]

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