[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                  STRENGTHENING MEDICARE FOR SENIORS:
                    UNDERSTANDING THE CHALLENGES OF 
                 TRADITIONAL MEDICARE'S BENEFIT DESIGN

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


                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 11, 2013

                               __________

                           Serial No. 113-28


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov




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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania             GENE GREEN, Texas
MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
  Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana                  Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
CORY GARDNER, Colorado               BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas                  PETER WELCH, Vermont
ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          JIM MATHESON, Utah
PHIL GINGREY, Georgia                GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            JOHN BARROW, Georgia
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
H. MORGAN GRIFFITH, Virginia         KATHY CASTOR, Florida
GUS M. BILIRAKIS, Florida            JOHN P. SARBANES, Maryland
RENEE L. ELLMERS, North Carolina     HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)



                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     3
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     4
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     5
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     6

                               Witnesses

Glenn Hackbarth, J.D., Chairman, Medicare Payment Advisory 
  Commission.....................................................     7
    Prepared statement...........................................    10

                           Submitted Material

Document entitled, ``Ideas for Reforming the Medicare Benefit 
  Design: A Historical Year Review of Bipartisan Support,'' 
  submitted by Mrs. Ellmers......................................    54
Statements for the record, submitted by Mr. Pallone
    USW..........................................................    56
    CHA, CMA, and MRC............................................    62
    UAW..........................................................    72
    NAHCH........................................................    75
    NCPSSM.......................................................    86


  STRENGTHENING MEDICARE FOR SENIORS: UNDERSTANDING THE CHALLENGES OF 
                 TRADITIONAL MEDICARE'S BENEFIT DESIGN

                              ----------                              


                        THURSDAY, APRIL 11, 2013

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:01 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Present: Representatives Pitts, Burgess, Blackburn, 
Gingrey, Cassidy, Guthrie, Griffith, Bilirakis, Ellmers, 
Pallone, Dingell, Matheson, Green, Christensen, Sarbanes, and 
Waxman (ex officio).
    Staff present: Matt Bravo, Professional Staff Member; Steve 
Ferrara, Health Fellow; Julie Goon, Health Policy Advisor; Brad 
Gantz, Policy Coordinator, Oversight and Investigations; Sydne 
Harwick, Legislative Clerk; Robert Horne, Professional Staff 
Member, Health; Katie Novaria, Professional Staff Member, 
Health; John O'Shea, Professional Staff Member, Health; Monica 
Popp, Professional Staff Member, Health; Andrew Powaleny, 
Deputy Press Secretary; Heidi Stirrup, Health Policy 
Coordinator; Phil Barnett, Democratic Staff Director; Alli 
Corr, Democratic Policy Analyst; Amy Hall, Democratic Senior 
Professional Staff Member; Elizabeth Letter, Democratic 
Assistant Press Secretary; Karen Lightfoot, Democratic 
Communications Director and Senior Policy Advisor; and Karen 
Nelson, Democratic Deputy Committee Staff Director for Health.

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

    Mr. Pitts. The time of 10 o'clock having arrived, the 
subcommittee will come to order. The Chair will recognize 
himself for an opening statement.
    Nearly 50 million seniors rely on the Medicare program for 
their health care. It is important for us to understand 
Medicare's current benefit structure and look at ways to 
modernize it to better serve beneficiaries and protect them 
from catastrophic costs.
    When it was created in 1965, Medicare's benefit design was 
modeled on private insurance products available at the time. 
However, while the private insurance market has undergone 
dramatic changes in the last half century, Medicare's 
traditional benefit structure has remained essentially 
unchanged.
    Unlike most private insurance today, which has a single 
deductible for all medical services, Medicare has separate 
deductibles for Part A, hospital services, and Part B, 
physician and outpatient services. While the Part A deductible 
is rather high--$1,156 in 2012--the Part B deductible is 
relatively low--$140 in 2012.
    Medicare fee-for-service also has a complex and sometimes 
confusing copayment structure. In addition to the Part A 
deductible, beneficiaries also pay daily copayments for stays 
at hospitals and skilled nursing facilities. Depending on how 
many hospital stays a senior incurs in a year, he or she may 
owe more than one hospital deductible for a year. In addition 
to the Part B deductible, beneficiaries also pay a monthly Part 
B premium, and generally pay 20 percent of most charges for 
outpatient and physician services.
    As Medicare's current benefit structure has no cap on how 
much out-of-pocket spending a beneficiary can incur, seniors 
are left open to considerable financial risk and uncertainty. 
They don't know what they will have to pay when they go in for 
a procedure or test, and ultimately this uncertainty threatens 
every senior with the potential of medical bankruptcy. Due to 
this financial uncertainty, and the lack of comprehensive 
coverage in fee-for-service, almost 90 percent of beneficiaries 
purchase or receive supplemental insurance.
    Everything about our health care system has changed 
dramatically since the 1960s as health care has become more and 
more complex. The models and standards of care, tests, 
treatments, drugs, and medical breakthroughs that we enjoy 
today were unknown when Medicare was enacted. In 1965, 
insurance protected us against hospital costs from conditions 
that were most likely fatal--heart disease, cancer, and stroke. 
Today, we use insurance to help manage chronic illnesses and 
treat diseases, allowing beneficiaries to live for decades and 
to stay in home and community settings for much longer.
    The only part of our health care system that has not 
evolved since Medicare's inception is Medicare's fee-for-
service benefit design itself. We don't give our seniors 1960s 
medical care--in many cases that would be considered 
malpractice today--so why do we continue to give them a 1960s 
insurance product?
    We have an obligation to modernize Medicare and standardize 
its cost-sharing structure. We should have a single deductible 
for Parts A and B, and we should streamline benefits so that 
fewer seniors will have to purchase supplemental coverage with 
money from their own pocket. We should institute a catastrophic 
cap on out-of-pocket spending to protect seniors from the 
threat of medical bankruptcy. And with Medicare's unsustainable 
financial footing--according to its trustees, Medicare will be 
insolvent by 2024, and as soon as 2017--we need to expand means 
testing for higher-income beneficiaries, in order to protect 
the most vulnerable seniors. Let us bring Medicare into the 
21st century.
    I would like to thank MedPAC Chairman Glenn Hackbarth for 
agreeing to testify today. In recent years, MedPAC has made 
many recommendations on how to improve the Medicare program, 
and we are eager to hear about some of them.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    The Subcommittee will come to order.
    The Chair will recognize himself for an opening 
statement.Nearly 50 million seniors rely on the Medicare 
program for their health care. It is important for us to 
understand Medicare's current benefit structure and look at 
ways to modernize it to better serve beneficiaries and protect 
them from catastrophic costs.
    When it was created in 1965, Medicare's benefit design was 
modeled on private insurance products available at the time.
    However, while the private insurance market has undergone 
dramatic changes in the last half century, Medicare's 
traditional benefit structure has remained essentially 
unchanged.
    Unlike most private insurance today, which has a single 
deductible for all medical services, Medicare has separate 
deductibles for Part A, hospital services, and Part B, 
physician and outpatient services.
    While the Part A deductible is rather high--$1,156 in 2012, 
the Part B deductible is relatively low--$140 in 2012.
    Medicare fee-for-service (FFS) also has a complex and 
sometimes confusing copayment structure.
    In addition to the Part A deductible, beneficiaries also 
pay daily copayments for stays at hospitals and skilled nursing 
facilities. Depending on how many hospital stays a senior 
incurs in a year, he or she may owe more than one hospital 
deductible for a year.
    In addition to the Part B deductible, beneficiaries also 
pay a monthly Part B premium, and generally pay 20% of most 
charges for outpatient and physician services.
    As Medicare's current benefit structure has no cap on how 
much out-of-pocket spending a beneficiary can incur, seniors 
are left open to considerable financial risk and uncertainty. 
They don't know what they will have to pay when they go in for 
a procedure or test, and ultimately this uncertainty threatens 
every senior with the potential of medical bankruptcy.
    Due to this financial uncertainty--and the lack of 
comprehensive coverage in FFS--almost 90% of beneficiaries 
purchase or receive supplemental insurance.
    Everything about our health care system has changed 
dramatically since the 1960s as health care has become more and 
more complex.
    The models and standards of care, tests, treatments, drugs, 
and medical breakthroughs that we enjoy today were unknown when 
Medicare was enacted.
    In 1965, insurance protected us against hospital costs from 
conditions that were most likely fatal--heart disease, cancer, 
and stroke. Today, we use insurance to help manage chronic 
illnesses and treat diseases, allowing beneficiaries to live 
for decades, and to stay in home and community settings for 
much longer.
    The only part of our health care system that has not 
evolved since Medicare's inception is Medicare's fee-for-
service benefit design itself.
    We don't give our seniors 1960s medical care--in many cases 
that would be considered malpractice today--so why do we 
continue to give them a 1960s insurance product?
    We have an obligation to modernize Medicare and standardize 
its cost-sharing structure. We should have a single deductible 
for Parts A and B, and we should streamline benefits so that 
fewer seniors will have to purchase supplemental coverage with 
money from their own pocket.
    We should institute a catastrophic cap on out-of-pocket 
spending to protect seniors from the threat of medical 
bankruptcy.And with Medicare's unsustainable financial 
footing--according to its Trustees, Medicare will be insolvent 
by 2024, and as soon as 2017--we need to expand means-testing 
for higher-income beneficiaries, in order to protect the most 
vulnerable seniors.
    Let's bring Medicare into the 21st century.
    I'd like to thank MedPAC's chairman, Glenn Hackbarth, for 
agreeing to testify today. In recent years, MedPAC has made 
many recommendations on how to improve the Medicare program, 
and we are eager to hear about some of them.
    Thank you, and I yield the remainder of my time to Rep. --
--------------------------------.

    Mr. Pitts. At this point I will recognize the ranking 
member, Mr. Pallone, for 5 minutes for opening statement.

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

    Mr. Pallone. Thank you, Chairman Pitts, and I am very 
pleased that you have decided to consider today's topic. 
Improving and strengthening Medicare for generations to come is 
a primary goal of mine. In fact, I have dedicated time to 
ensure seniors have access to affordable health care options 
and the safety nets that they need to age with dignity and 
respect.
    It is no exaggeration to say that Medicare alone is the 
most successful health care and anti-poverty program ever, and 
this is why Medicare should be protected and improved, not left 
vulnerable to cuts in the years to come.
    The Affordable Care Act begins those improvements. It 
reduces Medicare spending, extends solvency, and brings growth 
in per-patient costs to record lows. In addition, preventive 
services are now free of charge to beneficiaries, and we 
finally have laid the groundwork to reward treatment value over 
volume.
    I believe more can be done, however. The fact is, we are 
faced with an inevitable reality that our Nation's baby boomers 
are aging into the program at very high rates, higher rates 
than we have seen in the past. In fact, 11,000 new seniors 
become eligible for Medicare every day. So I think we need to 
explore the option of modernizing the Medicare benefit design. 
Right now, some beneficiaries already pay too much out of 
pocket, and for years, my colleagues and I have explored the 
need for some type of catastrophic cap for seniors, in addition 
to the fact that Part A and Part B have such divergent cost 
sharing and deductibles might seem arbitrary and confusing. Why 
shouldn't Medicare be more seamless and simple?
    Given that the average beneficiary makes only $22,500 
annually and already spends disproportionately more on health 
care than a younger person makes this very challenging 
territory. When you change one side of the ledger, it has an 
impact on the other side, and any reform must be done without 
significant cost shifts to seniors.
    But what Republicans want to do when they talk about reform 
is to cut the structural foundation of Medicare, turn the whole 
thing over to insurance companies, and I can tell you right now 
that that option is simply a nonstarter. In addition, any 
proposals must be carefully examined not by how they might save 
money but how they will benefit beneficiaries, providers and 
the system as a whole. We can't restructure the program for the 
sake of generating savings, whether that is in the name of 
deficit reduction or to help pay for the SGR fix, because that 
is bad policy. We must modernize the program because it is good 
for the very real people that it serves and will serve for 
generations to come. We have to modernize because we recognize 
that perhaps it is not designed the most efficient or 
affordable way, and I stand ready to explore those options, but 
I will not stand by while others lose sight of the importance 
of Medicare to our Nation's seniors, and I yield back the 
balance of my time. I don't know if any of my colleagues want 
time. Then I will yield back the balance of my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the vice chairman of the subcommittee, Dr. Burgess, 
for 5 minutes for a statement.

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

    Mr. Burgess. I thank the chairman for the recognition.
    We have heard it several times this morning already. The 
12,000 new beneficiaries added to Medicare every day put 
pressure on the system and does move it closer towards 
insolvency. In its current form, Medicare will not be able to 
meet the promise it has made in a few short years. It is not a 
surprise. We expect a program designed in 1965 to adapt to the 
needs and usage pattern of beneficiaries in the 21st century. 
Medicare's current benefit design needs to be reformed in a way 
that more adequately reflects the needs and expectations of 
today's seniors.
    The first step in moving toward a higher-performing 
Medicare program must be the elimination of the flawed 
Sustainable Growth Rate formula. Last-minute fixes to the 
formula certainly have burdened this committee, but it has been 
devastating to beneficiaries and providers, producing an 
unpredictable payment environment and has risked beneficiaries' 
access to care. Last week, the majority along with the Ways and 
Means Committee released the second draft of a proposal to 
repeal or replace the broken Sustainable Growth Rate formula. 
The proposal realizes that the key to reforming the system is 
to enable providers to have flexibility to participate in 
payment and delivery models that best fit their practice.
    There will always be areas where providers choose or need 
to practice in a fee-for-service model. We must also continue 
to seek out innovative models that can adapt to changes in 
clinical guidelines and best practices, but the heart of the 
issue remains the beneficiary--the patient. As cost pressures 
increase, we risk the ability to provide access to services for 
our patients. We must seek reforms that provide patients with 
greater control of their health care. If we ask a beneficiary 
to participate in their health care through cost sharing, we 
are obligated to provide them with transparent cost information 
so that they can plan for their future needs. It is hard to 
plan for what 20 percent coinsurance means when you don't know 
what 20 percent is part of. Enabling patients to be more 
involved in their care not only allows them greater control of 
their health care spending but provides greater protections for 
patients and moves an outdated program into the future.
    We have neglected these problems for far too long. We know 
the structural and fiscal problems in the health care system. 
The only question now is how long will Americans tolerate 
Congress staring at these problems without actually fixing them 
for future generations.
    I am very grateful to see Mr. Hackbarth back with us this 
morning. He has been before our committee several times. MedPAC 
has recommended a range of different policies over the years to 
reform Medicare's benefit structure. I certainly look forward 
to hearing more of these ideas in Mr. Hackbarth's testimony, 
and I would now like to yield to the gentleman from Georgia, 
Dr. Gingrey.
    Mr. Gingrey. Mr. Chairman, I thank the vice chairman for 
yielding to me.
    As a physician for over 30 years, it was my job to engage 
with patients and offer them a straight answer no matter the 
seriousness of the prognosis, and I think at this point it is 
incredibly important for Congress to do the same thing, to 
engage seniors on the urgency of Medicare's fiscal situation 
and work to explain how changes to the current Medicare benefit 
can decrease personal risk and increase the solvency of the 
program.
    I don't think that anyone here would disagree that the 
Medicare program of today is in trouble. The hospital trust 
fund is to set to run out somewhere between 2017 and 2024, 
whoever you believe, but clearly it is coming. What will happen 
once this point occurs is anybody's guess. The looming fiscal 
disaster must certainly be addressed before the fund is 
exhausted lest we leave beneficiaries with unacceptable costs 
or lack of access to care, or both.
    Mr. Chairman, we must look for ways to improve the Medicare 
benefit not only for our current seniors but to ensure those 
benefits are there for future generations. We have a system 
that was created in the 1960s, as Dr. Burgess was just 
mentioning, very few adjustments since then. The way we 
practice medicine today has changed, and it is time for the way 
we pay for medicine to reflect that, and I thank you, Mr. 
Chairman, for calling this hearing. I look forward, as I know 
my colleagues do, to hearing from Mr. Hackbarth. He has been 
with us, as has been said, a number of times, and his 
suggestions for restructuring the benefits and incentives to 
improve Medicare for this country's beneficiaries are welcome. 
So I thank Dr. Burgess, and I will yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the ranking member of the full committee, Mr. 
Waxman, 5 minutes for opening statement.

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

    Mr. Waxman. Thank you, Mr. Chairman.
    For more than four decades, Medicare has been a critical 
program for ensuring the health and the financial well being 
for senior and disabled people. I appreciate the opportunity to 
talk about ways we can continue to improve the program by 
broadening the protections for beneficiaries and improving the 
value of the program for both beneficiaries and taxpayers.
    I welcome our witness from MedPAC, Mr. Hackbarth. I 
appreciate your coming back to our committee. The recognition 
by MedPAC that we should improve beneficiary benefits by 
putting a limit on out-of-pocket catastrophic spending, 
rationalizing deductibles, and making coinsurance and 
copayments more predictable makes sense, but with any policy, 
the devil is in the details.
    The median income for Medicare beneficiaries is only 
$22,500 a year. A lot of people think that the elderly are the 
wealthiest, and there are wealthy elderly but the median income 
is $22,500. Medicare beneficiaries already pay more out of 
pocket for health care than individuals under 65. So any 
proposal to redesign Medicare that leaves beneficiaries holding 
the bag is not one that I could endorse.
    That is why I am glad to see that a key element of MedPAC's 
proposal is that it is ``beneficiary liability neutral''. That 
is, on average, beneficiary out-of-pocket payment should not 
increase, and at the same time, we need to keep in mind that 
there will inevitably be winners and losers within the Medicare 
population.
    There are other elements of MedPAC's redesign option that I 
believe need more careful scrutiny. MedPAC also recommends 
adding a charge for supplemental insurance policies, whether 
provided by employers or purchased by individuals, to offset 
the financial impact to Medicare of first-dollar coverage. I 
think there are two important points to be made here, one, that 
these are not separate proposals. The proposal to reform 
supplemental coverage is linked and not severable from 
improving beneficiary benefits. This is important because I 
would hate to see some of my colleagues who are more concerned 
with cutting costs than securing benefits try to do one without 
the other. We also need to carefully assess the impact this 
could have on the near poor, who do not qualify for Medicare 
extra help for their out-of-pocket costs and may not have the 
means to afford any additional costs.
    My second point has to do with the unintended consequences 
that eliminating first-dollar coverage could have on necessary 
utilization. The problem is that the relationship between cost 
sharing and service utilization is not the same in low-income 
and elderly populations, especially sick, elderly populations, 
as it is in younger, healthier populations. The Medicare 
population is older, poorer, with 50 percent of beneficiaries 
at or below 200 percent of the federal poverty level, and 
sicker, with 40% having three or more chronic conditions, than 
the general population. As a result, if we make supplemental 
insurance less affordable or reduce the level of coverage, 
Medicare beneficiaries are at greater risk of deferring not 
only unnecessary care, but necessary care, negatively impacting 
their health.
    As we think about opportunities to improve the benefit 
package in Medicare, we must add protections for beneficiaries 
and at the same time be careful not to generate both 
predictable and unintended consequences. We must continue to 
protect our most vulnerable seniors. Finally, we must make sure 
that we are not using program redesign as a pretext for 
reducing spending by shifting costs onto those beneficiaries.
    Thank you, Mr. Chairman. I yield back the time.
    Mr. Pitts. The Chair thanks the gentleman. That concludes 
the opening statements of the members.
    We have one witness today, and our panel today we have Mr. 
Glenn Hackbarth, Chairman of the Medicare Payment Advisory 
Commission. Thank you for coming. You will have 5 minutes to 
summarize your testimony, and your full written testimony will 
be placed in the record. At this point you are recognized for 5 
minutes.

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

    Mr. Hackbarth. Thank you, Chairman Pitts and Ranking Member 
Pallone and Vice Chairman Burgess and Ranking Member Waxman. I 
appreciate the opportunity to talk about MedPAC's 
recommendations on redesigning the Medicare benefit package.
    In our view, the current Medicare benefit package is both 
inadequate and confusing. It is inadequate in the sense that it 
lacks catastrophic coverage, that is, a limit on the maximum 
out-of-pocket costs that can be incurred by a patient. It is 
confusing with its bifurcated Part A and B structure and a 
complex system of patient cost sharing, a mixture of copayments 
and percentage coinsurance. In our view, the status quo, the 
current benefit package, is not good for Medicare beneficiaries 
nor for taxpayers.
    Because of the inadequate and confusing nature of the 
Medicare benefit package, many beneficiaries are induced to buy 
supplemental coverage, often at a very high price. Taxpayers in 
turn must pay for the increased costs resulting from 
supplemental coverage that often covers even the first dollar 
of out-of-pocket expense. In our view, the principal winners 
from the status quo are the insurance companies that sell 
supplemental coverage. It is a lose-lose proposition for 
Medicare beneficiaries and for taxpayers.
    With these inadequacies in mind, MedPAC has recommended 
redesigning the Medicare benefit package consistent with five 
principles. First, there should be no increase the average 
Medicare beneficiary liability for out-of-pocket costs. In 
other words, the benefit package should not be reduced in its 
actuarial value. We don't believe that Medicare currently is 
too rich a benefit package. If anything, it is too lean, given 
the population served. Second, we believe that a redesigned 
Medicare benefit package should include an out-of-pocket limit, 
that is catastrophic coverage. Third, we believe that wherever 
possible, the Medicare benefit package should be simplified, 
for example, by substituting fixed dollar copays for percentage 
coinsurance. Our research with beneficiaries shows that fixed 
dollar copays are much more readily understood and provide some 
comfort to beneficiaries about what their costs will be for 
particular services. Fourth, we believe that Congress should 
give the Secretary of HHS the authority to modify the Medicare 
benefit package consistent with the principles of value-based 
insurance design. That means that the Secretary should have the 
authority to reduce out-of-pocket payments for beneficiaries 
for services that are established by scientific evidence to be 
of high value to patients. Conversely, the Secretary should be 
able to increase copayments for services that evidence shows 
are of low value to patients. Finally, we recommend that 
Congress institute a charge on supplemental coverage. The 
purpose of the charge would be to ensure that beneficiaries who 
elect to buy supplemental coverage share at least a portion of 
the additional costs that that private decision results in for 
the taxpayers and the Medicare program. The premium that a 
beneficiary pays for supplemental coverage only covers a 
fraction of the additional costs that the program incurs as a 
result of supplemental coverage.
    Let me conclude with three points that I think bear 
particular emphasis. One is that patient cost sharing is an 
imperfect method of controlling costs, albeit a necessary one 
in the context of a free choice of provider, largely fee-for-
service insurance program. We don't believe that patient cost 
sharing should be the only or even the principal method of 
trying to control costs. Indeed, most of MedPAC's work focuses 
on changing how we pay providers, providing better incentives 
for high-value care.
    The second point I would like to emphasize is that by 
giving the Secretary the authority to institute value-based 
insurance design, we can improve the targeting of cost sharing, 
making it less likely that cost sharing will have an adverse 
effect on quality and outcomes.
    Finally, I would like to emphasize that we would not 
prohibit Medicare beneficiaries from buying supplemental 
coverage, even first-dollar coverage, if they so desire. We 
only think that Medicare beneficiaries should face some of the 
additional costs that decision imposes on the Medicare program 
and the taxpayers. I should also emphasize that the 
supplemental charge we would envision only as part of an 
overall package. All of these recommendations we see as an 
integrated package, not isolated recommendations.
    With that, Mr. Chairman, I welcome your questions.
    [The prepared statement of Mr. Hackbarth follows:]

    [GRAPHIC] [TIFF OMITTED] 
    
    
    Mr. Pitts. Thank you, Mr. Hackbarth. The Chair recognizes 
himself for 5 minutes for questioning.
    Mr. Hackbarth, many experts have noted that traditional 
Medicare is an outdated form of health insurance coverage and 
needs to be modernized. In 1999, AARP's Public Policy Institute 
published a paper entitled ``The Effects of Merging Part A and 
B of Medicare.'' They said, ``Medicare's two-part system 
continues to mirror the structure of private insurance at the 
time of Medicare's inception in 1965, a structure that often 
included separate insurance for hospital and physician care.'' 
Do you agree with the AARP that Medicare's separate hospital 
and physician benefits closely resemble the type of insurance 
available to consumers in the 1960s?
    Mr. Hackbarth. Yes.
    Mr. Pitts. Medicare Advantage, a more modern type of 
coverage signed into law in the late 1990s, is also modeled 
closely after the types of insurance available to consumers at 
the time. Do Medicare Advantage plans use separate insurance 
for hospital and physician care?
    Mr. Hackbarth. No, not to my knowledge, sir.
    Mr. Pitts. Medicare drug plans are even more modern, having 
been passed into law by Congress in 2003. Do Medicare drug 
plans have catastrophic coverage caps?
    Mr. Hackbarth. Yes.
    Mr. Pitts. Is the traditional Medicare benefit the only 
type of comprehensive coverage in Medicare that does not have a 
catastrophic coverage cap?
    Mr. Hackbarth. Yes.
    Mr. Pitts. And for the record, is it MedPAC's position that 
Congress should update traditional Medicare fee-for-service to 
include a catastrophic coverage cap, among other reforms, 
because these reforms would benefit seniors.
    Mr. Hackbarth. Yes.
    Mr. Pitts. Thank you. Nearly 50 years have passed, and 
Medicare's model has become outdated. Seniors deserve a modern 
product that meets their needs and helps them control cost. I 
think it is time for Congress to strengthen and save Medicare, 
making sure that current beneficiaries get what they need and 
also that future retirees can count on the program being there 
for them one day.
    Now, AARP's Public Policy Institute paper also states that 
``A third criticism of two systems of financing for Part A and 
Part B has hindered management of the original fee-for-service 
Medicare. Integrating all of Medicare's funding sources into 
one pool of money would enhance management of health resources 
and improve accountability for health spending in FFS 
Medicare.'' Can you tell us your thoughts on what impact this 
antiquated two-tiered financing system within traditional 
Medicare has on CMS's ability to manage health spending 
appropriately, and do you believe it is possible that the 
antiquated manner in which traditional Medicare fee-for-service 
is financed might be contributing to the amount of waste, fraud 
and abuse lost each year?
    Mr. Hackbarth. So you are asking about the financing, 
separate financing of A and B with payroll tax used to finance 
Part B and premiums and general revenues for Part B?
    Mr. Pitts. Yes.
    Mr. Hackbarth. We have not specifically looked, Chairman 
Pitts, at the financing mechanisms and what the implications 
would be for fraud and abuse. We have focused on the benefit 
design and payment methods for providers primarily.
    Mr. Pitts. Now, you state in your testimony one key purpose 
of insurance is to reduce the financial risk posed by 
catastrophic medical expenses. To avoid such risk, individuals 
should be willing to pay a higher premium than the average cost 
of care they might face. Can you expand on that idea for us?
    Mr. Hackbarth. Well, probably the single most important 
feature of any insurance program is a limit someone can incur. 
Now, the medical expense is that most of it is unpredictable. 
So any given beneficiary in any given year might pay a premium 
but not use the insurance, may not use the catastrophic cost 
yet you pay the premium against the risk that it might be your 
year to have a very serious illness and incur high bills. That 
is the nature of insurance. A lot of people pay an amount, 
don't use the full amount, they pay premiums higher than their 
actual incurred expenses so that when their day comes and 
unfortunately they suffer a severe illness, the protection is 
there for them.
    Mr. Pitts. My time is expired. Thank you. The Chair 
recognizes the ranking member of the subcommittee, Mr. Pallone, 
for 5 minutes for questions.
    Mr. Pallone. Thank you, Mr. Chairman.
    Mr. Hackbarth, I am just following up to some extent on 
what the chairman just said. While MedPAC included a unified 
deductible combining the Part A and B deductible into one 
unified deductible, in your illustrative scenario you did not 
actually recommend a unified deductible. So why is that? Can 
you talk about the pros and cons of a unified deductible?
    Mr. Hackbarth. You are correct, Mr. Pallone. We did not 
specifically recommend a unified deductible. We felt that the 
precise structure of the cost sharing is a decision that ought 
to be delegated to the Secretary in keeping with the principles 
of value-based insurance design. The argument for a combined 
deductible is that it is simpler and that it is more in keeping 
with the basic principles of insurance where you want to 
provide the most protection to patients that have the highest 
cost. The current structure, as you well know, has a relatively 
low deductible on Part B and a significantly higher----
    Mr. Pallone. So what is the downside then?
    Mr. Hackbarth. The downside of moving to a combined 
deductible is the impact on beneficiaries who use only Part B 
services in any given year. They would have a higher deductible 
than the current $147 that they have in Part B deductible.
    Mr. Pallone. All right. Let me ask about SGR reform. I 
appreciate the fact that MedPAC continues to lead and support 
SGR reform and I share the sentiment of the commissions that it 
is past time to take action. I also appreciate the recognition 
that we need to move delivery systems and payment systems 
reform to more value-based systems that were included in the 
ACA like the medical homes and accountable care organizations. 
But with regard to SGR reform, is my understanding correct that 
MedPAC is not recommending that costs be shifted to 
beneficiaries?
    Mr. Hackbarth. Well, we have recommended in benefit design, 
as I said in my opening comment, that the average liability for 
beneficiaries not be increased.
    Mr. Pallone. OK. So just to clarify further, MedPAC has not 
recommended that an SGR fix be offset within Medicare. Is that 
accurate?
    Mr. Hackbarth. We did not recommend that. We believe that 
is Congress's decision to make. What we have tried to do is 
offer options for offsetting the cost within Medicare if 
Congress elects to fully offset SGR within Medicare.
    Mr. Pallone. But you are not recommending that be offset 
within Medicare?
    Mr. Hackbarth. We have not.
    Mr. Pallone. Now, I am concerned that some people are 
eyeing this idea of Medicare benefit redesign as a way to 
simply get budgetary savings by shifting more costs onto the 
backs of beneficiaries. However, in looking at your redesign 
recommendations, I notice that you recommend beneficiary 
liability remains neutral, that overall beneficiary cost-
sharing levels stay the same in aggregate. So even though some 
beneficiaries will see their costs go up and some will see 
their costs will go down, the overall out-of-pocket costs for 
the average beneficiary will stay the same. So am I reading 
that correctly, that MedPAC doesn't envision or propose any 
savings from benefit redesign itself?
    Mr. Hackbarth. From the redesign itself, no, sir.
    Mr. Pallone. So in your proposal, isn't it true that the 
savings come from the tax on first-dollar supplemental 
coverage?
    Mr. Hackbarth. That is correct.
    Mr. Pallone. And was keeping beneficiary liability neutral 
an important principle for the commission? Did you want to 
comment on that?
    Mr. Hackbarth. Yes, it is a very important principle from 
our perspective. As I said in my opening comment, we don't 
think the current benefit package is too rich. If anything, it 
is too lean. Our principal concerns about it are its 
inappropriate structure. It is not well designed for the needs 
of the Medicare population, and we think it should be 
restructured.
    Mr. Pallone. Can you share with us why not cost shifting to 
beneficiaries was felt to be so important? Do you want to 
comment on that as well? I know you have to some extent.
    Mr. Hackbarth. Well, as I say, we think for the population 
served, which is an older obviously somewhat higher-risk 
population, this is not a rich benefit package compared to what 
employment-based coverage offers, for example, and so rather 
than try to achieve savings by cutting benefits, we thought it 
was better to redesign them. Now, it is possible that if we 
have a simpler design and one that includes catastrophic 
coverage that some beneficiaries will choose to forego 
supplemental insurance over time, and if that happens, we would 
expect that that might result in lower utilization because 
there would be most cost sharing at the point of service but it 
would be the beneficiary's choice to do that.
    Mr. Pallone. All right. Thank you so much. Thank you, Mr. 
Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the vice chairman of the subcommittee, Dr. Burgess, 
for 5 minutes for questions.
    Mr. Burgess. Thank you, Mr. Chairman.
    Mr. Hackbarth, let me just ask you, in a Medicare Advantage 
system, would a patient buy supplemental insurance for Medicare 
Advantage?
    Mr. Hackbarth. Typically, they would not. Medicare 
advantage is offering a different set of tradeoffs, so 
typically patients have lower cost sharing at the point of 
service in exchange for agreeing to perhaps network limitations 
that they are steered to particular providers by the insurer or 
their benefits are subject to utilization management, you know, 
prior authorization or other management controls, so that is 
the tradeoff: lower cost sharing, more management.
    Mr. Burgess. I guess I am having a hard time understanding. 
It seems like if someone buys a supplemental insurance policy 
as they enter into Medicare, they are doing the responsible 
thing by putting some of their own dollars into their future 
health care by covering against what would be excessive out-of-
pocket costs if they get sick. So they are--it looks to me from 
a physician's standpoint, they are doing the prudent thing. 
Now, I honestly can't tell you that I ever got a reimbursement 
check from a Medigap policy, so I don't know. Maybe those 
dollars never go where they are supposed to. But it looks like 
the patient is doing the prudent thing with doing that, but you 
seem to articulate a different opinion.
    Mr. Hackbarth. Well, our view is not for or against the 
purchase of supplemental insurance. We believe that 
beneficiaries should have the option of buying supplemental 
insurance, even first-dollar supplemental coverage, if that is 
what they wish. We do think that they ought to see more of the 
costs that result from that private decision. The premium that 
they pay for supplemental insurance reflects only a fraction of 
the additional costs that result from that decision.
    Mr. Burgess. But ultimately that is why someone buys 
insurance, correct, so they are not hit with the entire cost of 
whatever the event might be that they are insured against.
    Mr. Hackbarth. Yes, but even insuring against this event, 
they are underpaying for that cost. The right price for 
insurance should reflect the full cost of the purchasing 
decision. In the case of supplemental insurance, it does not. 
It reflects only a fraction of the cost.
    Mr. Burgess. Let me interrupt you because my time is going 
to run. I don't want to say whose fault is that, but why 
penalize the poor person who is trying to do the right thing 
and buying supplemental coverage with their own hard-earned 
dollars? It doesn't make sense to me to penalize or tax that 
person additionally if you want them to be bringing some of 
their own dollars to the system to keep the system solvent.
    Mr. Hackbarth. But we only want for beneficiaries to see 
more of the cost of the decision that they make.
    Mr. Burgess. I don't disagree with you. I mean, I think we 
have anesthetized people as to what health care really costs, 
and that is the argument for the entire health savings account 
third-party payment mechanism that is ubiquitous in health 
care, and perhaps we can talk about that at another time.
    When President Obama was doing his charm offensive up here 
a couple of weeks ago and met with House Republicans down in 
the basement, I have got to tell you, several years ago in one 
of the SGR fixes that I have introduced since coming to 
Congress, and there have been several, but one of them actually 
did away with Part A and Part B and melded them together. I got 
a lot of pushback when I introduced that. So I was surprised to 
hear the president say sort of one of the throwaway lines in 
answer to a question was, we could combine Part B and Part B. I 
guess as I further understand it, that was combining the 
deductibles. But is that a rational approach to dealing with 
some of these difficulties?
    Mr. Hackbarth. Well, again, we in our recommendation did 
not specifically recommend a combined deductible. We did 
recommend catastrophic covers both A and B. On the issue of the 
combined deductible, we think that actually that is a decision 
that ought to be part of an overall redesign of the cost 
sharing in keeping with the principles of value-based insurance 
design.
    Mr. Burgess. We do of course end up with some people who 
don't participate in Part B. They have their Part A coverage 
because of the payroll deduction that they have contributed 
throughout their working lives. So it is not a completely 
universal population.
    Let me just ask you another question. Cardiologists in this 
country 4 to 5 years underwent a practice upheaval, and largely 
because of the administrative pricing brought to them by 
Medicare. In other words, to do an echo or a treadmill test in 
the office suddenly was undervalued and it was overvalued, in 
my opinion, to do that in the hospital, and as a consequence 
you have seen cardiologists leave their individual practices 
and be hired by hospitals and insurance companies so that the 
private practice, solo practice of cardiology has gone away and 
yet the technology is changing such that, I don't know, NBC has 
a special on the other night where Dr. Snyderman interviewed 
Dr. Topol out of San Diego, and with a smartphone and a couple 
of little adapters, he was able to do an EKG, an echocardiogram 
and a continuous transcutaneous glucose monitoring. He was 
providing a lot of care at a very low cost in an office setting 
but we have kind of actually priced him out of business, have 
we not, with our administrative pricing in Medicare?
    Mr. Hackbarth. Well, as you know, Dr. Burgess, one of the 
issues that we are working on currently is synchronizing the 
payment systems between the hospital outpatient departments and 
physician offices. So historically, there have been 
dramatically different prices paid for the same service based 
on the location, physician office versus outpatient department. 
That is the problem, and that is skewing incentives, and we 
think contributing to the migration of physician practices 
including cardiology practices from outpatient privately owned 
offices into hospital outpatient departments.
    Mr. Burgess. But I think Medicare was the cause of that 
rather than the effect, your reimbursement.
    I realize my time is up, Mr. Chairman. I will yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the ranking member emeritus, Mr. Dingell, for 5 
minutes for questions.
    Mr. Dingell. Mr. Chairman, thank you for holding this 
hearing and thank you for the recognition, and to our witness, 
thank you. You have given us very excellent testimony this 
morning.
    As you will recall, it is my practice to ask for yes or no 
answers. I invite you, if you can, to give us supplemental 
information as you might deem to be appropriate.
    Mr. Hackbarth. I will try, Mr. Dingell.
    Mr. Dingell. We very much appreciate that.
    My old friend Hubert Humphrey once said the moral test of a 
government is how the government treats those who are in the 
dawn in life, in the twilight of life and in the shadows of 
life. Medicare helps our country meet that moral test by 
ensuring that our sick and elderly have access to care in the 
time of need. My old dad was one of the architects of Medicare, 
and it has endured as one of the great and significant pieces 
of legislation.
    Now, Mr. Hackbarth, I want to again express my appreciate 
for your fine testimony this morning. You note in your 
testimony that the cost-sharing structure of fee-for-service 
benefit has remained unchanged since 1965. Is that correct?
    Mr. Hackbarth. Literally, no, it has not. There have been 
some changes.
    Mr. Dingell. Have there been any really significant 
changes?
    Mr. Hackbarth. No.
    Mr. Dingell. All right. Would you submit that for the 
record?
    The current fee-for-service benefit has significant cost-
sharing requirements for beneficiaries. Is that correct?
    Mr. Hackbarth. Yes.
    Mr. Dingell. Almost 90 percent of fee-for-service 
beneficiaries have supplemental coverage. Is that correct?
    Mr. Hackbarth. Yes.
    Mr. Dingell. Do you agree that the beneficiaries may choose 
to have supplemental coverage due to cost-sharing requirements 
in the current fee-for-service system?
    Mr. Hackbarth. Yes.
    Mr. Dingell. MedPAC has proposed an additional charge on 
supplemental coverage on Medigap and employer-sponsored retiree 
plans. Is that correct?
    Mr. Hackbarth. Yes.
    Mr. Dingell. And you have proposed this charge because the 
commission believes that supplemental coverage leads to 
increased utilization and spending. Is that correct?
    Mr. Hackbarth. Yes.
    Mr. Dingell. And it would also be fair to say, as you have 
observed earlier, that it is necessary for us to recoup some of 
the additional burdens that that imposes on the Medicare trust 
fund. Is that right?
    Mr. Hackbarth. Yes.
    Mr. Dingell. Do you think that an appropriate charge would 
be--what do you think would be an appropriate charge on 
supplemental coverage?
    Mr. Hackbarth. Can I----
    Mr. Dingell. That is not a yes or no answer.
    Mr. Hackbarth. Good. We modeled 20 percent, a 20 percent 
charge, but we did not recommend a specific number.
    Mr. Dingell. I would appreciate if you would make some 
additional submissions to us on that point because it is a very 
important question.
    Who would be required to pay this charge? Now, we have some 
potentials here. Would it be individual policies?
    Mr. Hackbarth. We would impose it on the insurance company, 
and then it could be passed through in the premium, depending 
on how the market sorts it out.
    Mr. Dingell. Would it be on employer-sponsored retiree 
plans?
    Mr. Hackbarth. Yes.
    Mr. Dingell. And would it be applied only to new 
beneficiaries?
    Mr. Hackbarth. No.
    Mr. Dingell. Would it be applied to everybody?
    Mr. Hackbarth. Yes.
    Mr. Dingell. I know the Administration seems to be saying 
that these charges will be applied only to new beneficiaries 
after 2017.
    Mr. Hackbarth. Yes.
    Mr. Dingell. Do you agree that the supplemental charge 
would cause Medicare beneficiaries to face additional cost 
sharing? Now, you have some comments on that. Do you want to 
amplify on that?
    Mr. Hackbarth. Could you just repeat it again?
    Mr. Dingell. OK. Do you agree that the supplemental charge 
would cause Medicare beneficiaries to face additional cost 
sharing?
    Mr. Hackbarth. Well, certainly the supplemental charge 
itself would be an additional cost. How beneficiaries would 
respond to that is difficult to predict. What we think would 
happen is, the current beneficiaries may not change their 
choice of policies as significantly as new beneficiaries coming 
into the program over time.
    Mr. Dingell. Now, you have indicated that you don't intend 
to increase the burden on the population of beneficiaries 
generally. Am I correct in that?
    Mr. Hackbarth. In our benefit redesign?
    Mr. Dingell. Yes.
    Mr. Hackbarth. No. We went to hold that constant.
    Mr. Dingell. Now, do you agree that the supplemental charge 
could cause some beneficiaries to drop or reduce their 
supplemental coverage due to the additional charge?
    Mr. Hackbarth. We that it may cause some beneficiaries to 
change their choices. As you well know, there are a wide range 
of supplemental plans. Some have front-end cost sharing; some 
do not. So there might be a move from first-dollar supplemental 
coverage to policies that have some cost sharing at the point 
of service.
    Mr. Dingell. Now, I have to think that a charge on 
supplemental coverage could result in Medicare beneficiaries 
not seeking out the services and care they need or delaying 
treatment or care until it is too late. I think that is a 
potential risk but first, is it a risk, and second, what do we 
do about it?
    Mr. Hackbarth. It is a risk, and this is why we think it is 
very important to give the Secretary to the authority to adjust 
cost sharing based on the principles of value-based insurance 
design. In other words, reduce cost sharing for services of 
proven high value to patients and perhaps increase cost sharing 
for low-value services.
    Mr. Dingell. So you are suggesting the Secretary should 
have authority to adjust those charges but that should be 
subject again to requirements in law that would say he can't 
necessarily change the overall structure to create a 
disadvantage to the population. Is that right?
    Mr. Hackbarth. Exactly.
    Mr. Dingell. Mr. Chairman, I have gone over time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Virginia, Mr. Griffith, 5 minutes 
for questions.
    Mr. Griffith. Thank you, Mr. Chairman.
    I was intrigued with your testimony in regard to 
secretarial authority to alter or eliminate cost sharing based 
on the evidence of the value of services, and I was wondering 
if you could expand on that because one of my concerns would 
be, I understand if something has a high benefit, lowering that 
cost pay, but you could theoretically raise the copay so high 
that people couldn't afford it, even if they really wanted to 
do that, and I am concerned that for a particular patient and a 
particular doctor, they may make a decision that perhaps 
universally might not have great benefit but could to that 
patient. I was wondering if you could expand on that. My 
thought was, maybe put caps on the high end.
    Mr. Hackbarth. So as you know, a number of private insurers 
and employers have been moving towards the idea of value-based 
insurance design. Typically, the focus has been on reducing 
patient copays for services of high proven value. An example 
would be having low copays for services provided to diabetics 
or patients with multiple chronic illnesses to make sure that 
they get the care they need to prevent worsening of their 
health and potentially higher bills as a result of that. There 
has been less done in terms of increasing copays for low-value 
services, probably for the obvious reason that there is more 
controversial than reductions are. So I would anticipate that 
at least initially most of what the Secretary might do with 
this authority is lower copays. That said, there are services 
that sometimes can be quite expensive but are of low value to 
patients, and rather than prohibit access to those services and 
say oh, you are a Medicare beneficiary, you can't have that 
service at all, the idea would be to say oK, you can have it 
but you are going to pay a bit more of the cost of that service 
if it is a proven low-value service.
    Mr. Griffith. And I don't come from a medical background. 
Can you give me an example of one of those that across the 
country would have low benefit and might need to have the fee 
raised?
    Mr. Hackbarth. Since I am not a physician either, I would 
be reluctant to do that. What I would say is that, you know, 
this should be done thoughtfully and will be done as part of a 
notice and comment rulemaking process so the Secretary would 
have to publish the evidence to support this low-value 
assessment, and all relevant parties would have the opportunity 
to contest that evidence and respond to it, and I think that is 
the way it ought to be decided by experts, not by people like 
me.
    Mr. Griffith. As a representative of the public, and while 
I generally think experts do a pretty good job, sometimes I 
have big disagreements with them and I would just have to say 
that while I kind of like the idea, Mr. Chairman, I would want 
to see--if we were to authorize the Secretary to do that, I 
would want to see some kind of a cap on the top of the--as a 
top number so that you wouldn't be in a position where suddenly 
a procedure is completely voided because the cost is just so 
horrendous that nobody can justify it except for the extremely 
rich. So I do appreciate that.
    With that, Mr. Chairman, I will yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Utah, Mr. Matheson, 5 minutes for 
questions.
    Mr. Matheson. Thank you, Mr. Chairman, and thank you, Mr. 
Hackbarth, for being here today.
    It seems to me that one of the outcomes of your suggested 
change in this benefit design has something to do with 
overutilization and trying to address that issue in terms of 
having the individual patient have a little more of a consumer 
orientation. Is that a fair assumption?
    Mr. Hackbarth. That is part of it, Mr. Matheson, but the 
most important part from our perspective is to improve the 
benefit package for beneficiaries including catastrophic 
coverage.
    Mr. Matheson. I wanted to talk a little bit about a 
particular component of overutilization. I may be getting a 
little off the specific benefit design topic of this hearing, 
but I know in your MedPAC March report you identified some 
specific geographic areas where there is a strong reason to 
believe that certain inappropriate billing practices are at 
play in the home health care industry, and I have seen some 
data that is pretty phenomenal in my mind. I compare my State 
to Miami-Dade County. I got 190,000 Medicare beneficiaries in 
Utah. There are about that many in Miami-Dade County. However, 
there is 700 home health care providers in Miami-Dade County 
and about 100 in Utah. Home health services in Utah cost 
Medicare a lot less than the services performed in Miami-Dade. 
The average cost per enrollee in Utah is $560. The average cost 
in Miami-Dade County per enrollee is over six times that amount 
of $3,500. It strikes me that the vast majority of providers in 
the home health care industry in Utah are doing the right 
thing, and it strikes something is going on in Miami-Dade 
County that doesn't pass the smell test, and it seems to me 
that it is an important issue for us to look at in how we try 
to seek out these pockets of geographic areas where there is 
this huge overutilization going on and instead of doing a 
policy that may affect all providers including those that are 
doing the right thing that we target those who aren't. So in 
the instance of home health care, I was wondering, would it be 
better for Medicare in terms of saving money and decreasing 
overutilization to scrutinize the issue of new provider numbers 
or to look at reasonable limits on episodes of care in these 
high utilization areas like Miami-Dade County?
    Mr. Hackbarth. There are two types of problems in home 
health care as we see it, but before I focus on the problems, 
let me emphasize that we think that good home health care is an 
essential part of good quality care for Medicare beneficiaries.
    Mr. Matheson. And I agree.
    Mr. Hackbarth. So in no sense are we against home health 
care, but there is, as you say, evidence that in some parts of 
the country we have extraordinary levels of use and 
extraordinary number of home health agencies and we think 
indications of fraud and abuse, and we have made 
recommendations for targeted efforts to deal with those 
problems including limits on the number of new agencies in 
those problem areas, so we think that is an important thing to 
do.
    Having said that, though, across the country, we believe, 
even in the low-use States we are paying too much for each 
episode of home health care. So even where there isn't that 
fraud and abuse, we believe the rates are too high relative to 
the costs incurred.
    Mr. Matheson. In terms of this situation where you have got 
some certain geographic locations where there appears to be 
extremely high overutilization compared to a peer comparison 
elsewhere, is it reasonable to assume that this situation is 
occurring in other aspects of Medicare services in this country 
outside of home health care?
    Mr. Hackbarth. Well, quite possibly, yes. Another area 
where we see extreme variation is durable medical equipment. So 
post acute care in general which includes home health care and 
DME account for a significant portion of the geographic 
variation that is the focus of so much attention in Medicare.
    Mr. Matheson. We feel like in our State, we practice 
medicine in a way that if the rest of the country did it, we 
would be saving a lot of money with outcomes just as good, and 
so I think this is something, Mr. Chairman, I know it is a 
little outside of the benefit structure of this hearing today 
but this issue of disparate discrepancies in utilization across 
different geographic areas is something I think is worthwhile 
for us all to take a look at and provide some real opportunity 
for some savings. With that, I will yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Kentucky, Mr. Guthrie, 5 minutes 
for questions.
    Mr. Guthrie. Thank you, Mr. Chairman, and I would like to 
follow up a little bit on what my friend from Utah was talking 
about, because you have talked about and you mentioned again 
the high margins in home health, and I know home health, in my 
understanding, has been cut, what, 21 percent since 2010 and 
for publicly traded home health--that is the information I was 
able to get--before tax margins in 2009 were 13.4 percent, in 
2012, 3.9 percent. I think there is four publicly traded. And 
after tax margin in 2012 was 2.5 percent. So it seems like if 
you had more in Miami, you would get better competition, so it 
is kind of counterintuitive how that works.
    And I guess my question is, you have a report that had the 
margins. What was your methodology in that report?
    Mr. Hackbarth. We used Medicare cost reports, so in 
contrast to the publicly traded companies, what we are looking 
at is Medicare-specific profit margins whereas for a publicly 
traded company, we would be getting a combination of Medicare 
margins and margins on private insurance as well.
    Mr. Guthrie. OK.
    Mr. Hackbarth. So it is an apples-to-oranges comparison.
    Mr. Guthrie. Well, thanks for that. On the supplementals, 
so you were saying the number you have suggested--I know you 
didn't recommend it--is 20 percent, or looked at 20 percent 
should be actually added to the--you said charge to the insurer 
but the premium should be 20 percent higher to reflect the true 
cost to the taxpayer for buying supplemental----
    Mr. Hackbarth. Yes, so the example that we modeled was a 20 
percent charge that would be imposed on the insurance. How that 
would affect the premiums would depend on, you know, market 
competition and different markets. In some cases, it might be 
all passed on. In other words, it might not be.
    Mr. Guthrie. So the additional cost that you are trying to 
capture is what the supplemental policy does in terms of 
utilization?
    Mr. Hackbarth. Increased utilization, so our analysis shows 
that beneficiaries that have supplemental coverage use about 
one-third more services after adjusting for differences in age 
and risk, etc.
    Mr. Guthrie. Because the more likely you are to use the 
system, the more you--so the sicker you are, the more likely 
you are to buy a supplemental policy?
    Mr. Hackbarth. But in our analysis, we adjust for risk.
    Mr. Guthrie. Well, thanks. I yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Texas, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Hackbarth, thank you for appearing today, and again, 
thank you for a lot of the information we worked on for many 
years. MedPAC's proposal for benefit redesign is careful to 
point out that aggregate beneficiary cost sharing would be kept 
the same. You point out in your testimony that the reason for 
this is the commissioners' judgment that traditional Medicare's 
benefit structure is not too rich, especially for the 
population covered. One of your goals is to protect the 
beneficiaries against high out-of-pocket spending while not 
reducing the actuarial value of the benefit package. Can you 
explain what you mean by the benefit package not being too 
rich?
    Mr. Hackbarth. Right. So a way to judge the richness of a 
benefit package is, what percentage of a patient's costs are 
paid through insurance as opposed to out of pocket. Using that 
as the standard, we don't think that the percentage paid by 
Medicare of total beneficiary costs is too high. In fact, if 
anything, it may be too low. So we accepted as a starting point 
that we ought not be cutting the amount paid by Medicare that 
would put too much of a burden on beneficiaries. We felt like 
there were a lot of things we could do to make the package 
better including providing catastrophic coverage and making it 
simpler. We thought that those changes in turn might cause some 
beneficiaries to say, you know, I don't need to pay $175 or 
$200 a month for supplemental insurance, which is a big burden 
on many beneficiaries as well.
    Mr. Green. Frankly, in our area, $175 or $200 a month is 
pretty small. I have seen some quotes for that.
    Now, switching gears. A lot of attention has been given to 
supplemental insurance plans like you just mentioned in 
Medicare, particularly those provided by employers or Medigap 
plans purchased by individuals. There is a lot of concern about 
Medicare patients not having enough skin the game, so to speak, 
because their supplemental policies often pick up deductibles, 
copays and coinsurance. As I understand your proposal, charging 
or paying a premium for this first-dollar supplemental 
insurance is intended to offset the cost of some of the other 
benefit design changes?
    Mr. Hackbarth. Well, the overall package that we modeled 
including the catastrophic coverage and the new structure of 
copays would have resulted in a modest increase in Medicare 
expenditures, about 1 percent, and so in our package we 
combined that modest increase with this 20 percent charge on 
supplemental insurance and the net result of those two things 
would be a modest reduction in total Medicare expenditures of 
about one-half of 1 percent.
    Mr. Green. I understand that correctly. Is it true that 
cost sharing reduces both necessary and unnecessary care?
    Mr. Hackbarth. Yes. That is what the evidence shows, and 
that is why we think that giving the Secretary the authority to 
do smarter cost sharing, not just across the board but targeted 
based on value is so important.
    Mr. Green. And I understand that we want patients more 
active in their decisions on their care but that may work for 
some of us that are younger elderly patients but a lot of our 
older patients how are sicker, they just may take a more 
passive role in their care and their decision making, and Mr. 
Chairman, I remember I was a State legislator in the 1980s and 
we had a Senator from Texas, Lloyd Bentsen, who worked on 
trying to do catastrophic and reform Medicare, and somehow the 
seniors got Congress's attention, and I remember talking to 
Senator Bentsen at that time and he said we just went too far 
for what our seniors would accept, and it was, you know, a 
revolution by those under Medicare almost in the late 1980s.
    Mr. Hackbarth. In fact, I worked in what was then HCFA, the 
Health Care Financing Administration, during that period, so I 
remember it well.
    Mr. Green. And I understand, Mr. Chairman, there are some 
good parts of this but we need to look at it because a lot of 
seniors would like not to have to have that high monthly 
premium for their Medigap coverage, if we could somehow equal 
it out.
    Mr. Hackbarth. And unfortunately, I think the current 
structure without catastrophic coverage almost compels seniors 
to pay that high monthly premium for supplemental insurance 
because the Medicare package does not offer them the most basic 
feature of a good insurance plan, an out-of-pocket limit.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady from North Carolina, Ms. Ellmers, 5 
minutes for questions.
    Mrs. Ellmers. Thank you, Mr. Chairman.
    Mr. Hackbarth, I have a document here which is basically a 
list of bipartisan quotes from both conservative and 
progressive authors relevant to the proposals, many of which 
you are proposing today, and I will just say that drawing from 
it, President Obama's National Commission on Fiscal 
Responsibility and Reform released in 2010 quoted--this is a 
quote taken from that bit of information: ``Currently, Medicare 
beneficiaries must navigate a hodgepodge of premiums, 
deductibles and copays that offer neither spending 
predictability nor protection from catastrophic financial risk. 
The ability of Medicare cost sharing to control costs either 
under current law or as proposed above is limited. Do you 
believe--and I think you can probably just give a yes or no 
answer to this. Do you believe that MedPAC's reforms ad they 
encourage more predictable out-of-pocket costs and limit on 
catastrophic costs may allow seniors to better plan for balance 
in their future health care and financial needs?
    Mr. Hackbarth. Yes.
    Mrs. Ellmers. Thank you. In 1995, Henry Aaron of the 
Brookings Institute and Robert Reischauer of the Urban 
Institute had this to say about combining Medicare Part A and 
Part B: ``Whatever rationale may once have existed for the 
distinction between services and Part A and Part B medical 
technology, the development of new reforms and service delivery 
and new patient structures have rendered it obsolete.'' I raise 
this point because we think it is important as part of the 
conversation today that we all understand that Medicare 
traditional benefits are obviously outdated and cause 
unnecessary harm for our seniors as a result. There again, in 
your opinion, yes or no, do you believe the concept of 
combining Part A and Part B is a good Medicare idea?
    Mr. Hackbarth. Yes. As I said earlier, our recommendation 
is for a combined A and B catastrophic limit. We have not 
specifically recommended an A and B combined part.
    Mrs. Ellmers. And do you believe that the concept of this 
can be characterized as a Republican idea?
    Mr. Hackbarth. Well, this package that I have described 
today was unanimously recommended by the members of MedPAC, 17 
members of various political persuasion.
    Mrs. Ellmers. So basically you would have to say no then?
    Mr. Hackbarth. We are a nonpartisan agency and we really 
try to live up to that billing.
    Mrs. Ellmers. To be bipartisan. OK. The AARP's Public 
Policy Institute had this to say about the traditional Medicare 
benefit designed in 1999: ``Medicare, widely considered to have 
been successful in improving access to care and lessening the 
financial burdens of health care for older Americans, is also 
viewed as a program in need of a more updated management 
structure. The two-part system that drives many of its payments 
and revenue policies almost certainly would not be adopted if 
the program were being designed today. The current design 
reflects some factors that while relevant when Medicare was 
initiated in 1965 are not now pertinent.'' In your opinion, do 
you believe that the current design of Medicare traditional 
benefits reflects some factors that may have been more relevant 
in 1965 as opposed to now, 2013?
    Mr. Hackbarth. Yes.
    Mrs. Ellmers. Wonderful. I have a couple minutes. We are 
going to be taking part--Congresswoman Marsha Blackburn and I 
are going to be taking part in a committee idea lab, basically 
just bouncing some ideas and thoughts, after this hearing. Some 
of the proposals outlined by MedPAC will be included in our 
proposal and some of the questions we are going to be taking. I 
look forward to working with this committee over the next 
months to explore these ideas and push forward meaningful 
Medicare reforms that serve the best interest of Medicare 
seniors, and at this time I would like to ask unanimous consent 
to insert into the record this piece of information that we 
have here, this review of bipartisan support.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mrs. Ellmers. Thank you, Mr. Chairman, and I yield back the 
remainder of my time.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentlelady from Virgin Islands, Dr. Christensen, 
for 5 minutes for questions.
    Mrs. Christensen. Thank you, Mr. Chairman, and thank you, 
Dr. Hackbarth, for coming back to the committee. I appreciate 
MedPAC's recognition of the need for added protections, 
particularly with regard to the out-of-pocket spending caps in 
your benefit design proposal, and I think I understand but 
don't necessarily agree with some of the ideas behind the 
proposed reform of supplemental or Medigap coverage, but I am 
very concerned with the level of support and protections for 
low-income seniors and that analyses done on the impact of 
seniors as a group may not adequate capture the impact on those 
that are most vulnerable. Every study that I have reviewed 
looking at the impact of the cost sharing on patients and 
patient behaviors concludes the same thing, that patients use 
less services but do not differentiate between necessary and 
unnecessary and that those that are poorer and sicker are the 
most cost-sensitive and would be the ones that would reduce the 
use of services the most.
    So as you know, the Medicare beneficiaries are poorer and 
sicker than the population at large. Twenty-three percent have 
a cognitive or mental impairment. Forty percent have three or 
more chronic medical problems. About half of the beneficiaries 
have annual incomes below 200 percent of poverty level, and 
one-quarter have incomes less than $14,000 per year. So these 
beneficiaries are very much the patient population that is at 
greatest risk for reducing the use of necessary medical 
services or deferring important care that results in a 
preventable hospitalization, and I know you have thought about 
these issues because your proposal builds in protections for 
those currently covered by Medicaid. What about the other low-
income seniors and the ones, the 40 percent with multiple 
chronic diseases for whom we don't really want to create 
additional barriers to care.
    Mr. Hackbarth. So Dr. Christensen, I agree basically with 
your summary of what the evidence shows about cost sharing, and 
so I want to emphasize again, our goal is not to increase the 
average level of cost sharing but redesign the benefit to make 
it better for Medicare patients and perhaps reduce the need for 
them to buy supplemental coverage. We think that using value-
based insurance design is very important to get at some of the 
issues you have identified. We don't want to increase cost 
sharing on really high-value services, for example, for 
chronically ill patients. In fact, we may want to reduce cost 
sharing on those.
    With regard to the impact on low-income people, we think 
that there are targeted approaches to dealing with that issue 
that are better than what we now have. Right now, what we have 
is a system whereby in effect the taxpayers are providing an 
implicit subsidy for the purchase of supplemental coverage 
because the taxpayers pick up most of the bill for the added 
cost. That subsidy goes to all beneficiaries rich and poor 
alike. If the particular concern is low-income beneficiaries as 
well at might be, a more targeted way to deal with that issue 
would be to expand eligibility for the Medicare savings 
programs. So right now Medicare beneficiaries that have incomes 
less than 100 percent of poverty qualify to get their Part B 
premiums and cost sharing paid under Medicaid, but above that 
level, there is no contribution for offsetting cost sharing. Up 
to 135 percent of poverty, there are subsidies for the Part B 
premium but you still have to pay the cost sharing. So if 
Congress is concerned about low-income people and the impact of 
this on low-income people, a much more targeted approach would 
be to change eligibility for the Medicare savings programs, and 
I would note that the low-income subsidy under Part D has 
higher income thresholds for eligibility than we have in the 
Medicare savings programs for Part A and B, so there is already 
a precedent, if you will, for higher levels of eligibility.
    Mrs. Christensen. Thank you for that. That gives us some 
idea of where to go.
    You talk a lot about giving the Secretary flexibility to 
set copays for high value versus low value, and I have been 
following the Patient-Centered Outcome Research we created in 
the Affordable Care Act, and I am wondering, do you see that as 
being helpful, their work as being helpful to identify high 
volume, low value in that process?
    Mr. Hackbarth. Yes. A number of years ago, before the 
Patient-Centered Outcome Research Institute was created, we 
recommended to Congress that such an organization be created 
and that the federal government support the development of 
better information for physicians and patients about what 
works, and so to the extent that PCORI can increase the 
knowledge base that we have, that is information that could be 
used in value-based insurance design.
    Mrs. Christensen. Thank you. Thank you, Mr. Chairman. I 
yield back.
    Mr. Pitts. The Chair thanks the gentlelady and recognizes 
the gentlelady from Tennessee, Ms. Blackburn, 5 minutes for 
questions.
    Mrs. Blackburn. Thank you so much. We appreciate that you 
are taking the time to be here, and as Ms. Ellmers said, we are 
going to be spending some time looking at how you do help with 
the solvency, and I want to ask you just one thing. My class, 
when we came into Congress, we were focused on waste, fraud and 
abuse. We did an entire project, Wasteful Washington Spending, 
and of course, Medicare spending continued to come into that 
picture, and we had example after example of wasteful and 
fraudulent spending and the abuse of just millions of dollars. 
So do you think, in your opinion, do you think that the 
antiquated method, the fee-for-service method, is something 
that continues to make it possible for this continuation of 
waste, fraud and abuse every year and difficulty in running the 
traps on this and rooting it out?
    Mr. Hackbarth. Yes. We think that waste, fraud and abuse is 
a significant problem, particularly in some areas of the 
program. Earlier we were talking about home health care is an 
area where there is a lot, and where Medicare payments are 
really generous, and we think they are generous for home health 
care, that is almost an invitation to people who want to make a 
quick buck on Medicare.
    Mrs. Blackburn. A lot of quick bucks, it seems like.
    Mr. Hackbarth. A lot of quick bucks, and durable medical 
equipment is another area where we think there has been a fair 
amount of waste, fraud and abuse, and in part that is triggered 
by very attractive payment rates that bring in people who are 
more focused on making money than serving patients.
    Mrs. Blackburn. What would you say is the percent of 
expenditures that are going out the door, those payments going 
out the door? What percent do you think are fraudulent 
payments?
    Mr. Hackbarth. We really haven't looked at that issue. I 
think the Government Accountability Office has made estimates 
that----
    Ms. Blackburn. Right. They have. I just didn't know if you 
kind of lined up with them or if you had another opinion of 
that.
    Let me ask you, looking at that same thought and thinking 
about the solvency and the financing mechanisms, AARP has done 
reports going back 1998, 1999 looking at merging A and B and 
then looking at the financing end of that. Where do you stand 
with those knowing that people are concerned? We hear about it 
every day--tell me what you know is going to happen with 
Medicare, are we really in danger of going bankrupt. And so as 
you put your reforms forward today, what do you think they will 
do in helping with the solvency? If we did your reforms, how 
long would it encourage the solvency of Medicare? How many more 
years would we get out of this?
    Mr. Hackbarth. Well, that is a question better directed to 
the Medicare actuaries. What we have outlined is a package that 
would have a modest net reduction in Medicare spending on the 
order of about one-half of 1 percent so that, you know, $2.5 or 
$3 billion a year, $25 or $30 billion over 10 years. Now, what 
that assumes is a 20 percent charge on supplemental insurance 
and that nobody modifies their decisions, beneficiaries don't 
change their decisions about purchasing supplemental insurance. 
If in fact beneficiaries start to say, oh, this new redesigned 
benefit means I don't have to buy supplemental insurance or 
they buy one that doesn't have first-dollar coverage, then 
those savings may increase and you might go from $2.5 to $3 
billion a year to $5 or $6 billion a year.
    Ms. Blackburn. Well, yes, and that is always kind of the 
discussion we get into with whether we are using the static or 
the dynamic scoring ad the basis that people make their 
decisions on.
    I have one other question, but in the interests of time, 
Mr. Chairman, I will yield back my time and submit my third 
question.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from Maryland, Mr. Sarbanes, for 5 
minutes for questions.
    Mr. Sarbanes. Thank you, Mr. Chairman. Thank you, Mr. 
Hackbarth.
    Could you just talk a little bit about the relationship 
between the proposed benefit design change that would impose a 
higher cost-sharing impact on a patient for a lower-value 
service and a lower cost share for a higher-value service, the 
relationship of that proposal to the change in reimbursement 
methodology vis-`-vis the providers of care, which is another 
place where we are looking at this high-value, low-value 
dynamic? In other words, you have services now that a primary 
care physician might be prepared to offer but there is really 
no meaningful reimbursement for it so there is no incentive to 
do it so you can envision a situation where there is a service 
that is not getting covered at all by Medicare and maybe want 
to re-look at that but then at the same time we want to examine 
then what the cost sharing with Medicare's new obligation would 
be. It seems to me those have got to be interrelated to some 
degree.
    Mr. Hackbarth. So we think there are issues on both the 
patient cost-sharing side and the provider payment side, and I 
think at the SGR hearing a few weeks ago, the two of us talked 
about primary care services, which we think are high-value 
services that are often are underpaid under the existing 
Medicare fee schedule. So in the case of a primary care who has 
taken responsibility, for example, under a medical home to 
manage patients with multiple chronic illnesses, you know, 
ideally what you might have is lower cost sharing for really 
high-value services for the patient and richer payment for the 
physician for taking on this very important task of managing 
complicated patients. Right now, Medicare has fallen short on 
both the provider and the beneficiary side.
    Mr. Sarbanes. In that sense, it is kind of a double 
investment in redirecting or transitioning the emphasis of 
where the care happens and has to be premised on the idea that 
even that increased investment, which is a combination of 
higher reimbursement to the physician and lower cost sharing on 
the part of the patient, that we are going to see, it is going 
to yield savings down the road that justifies both of those 
investments we are making.
    Mr. Hackbarth. Yes. Ideally, we are working both sides, the 
provider payment and the beneficiary benefit structure, and 
doing it in a synchronized way. That is how we get the maximum 
impact.
    Mr. Sarbanes. Thank you.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Louisiana, Dr. Cassidy, 5 minutes 
for questions.
    Mr. Cassidy. Hi, Mr. Hackbarth. I will kind of scoot over 
so we can see each other.
    I always enjoy your testimony. I always consider it very 
thoughtful.
    Now, there does seem to be, though--I always make the point 
that people in Washington have kind of a centrally planned 
economy view of how we do things, and if you will, as great as 
your work is, it truly is trying to anticipate lots of very 
unique situations coming up for rules that with that 
anticipation work to very unique situations. The very premise 
seems untenable. Do you see my point?
    Mr. Hackbarth. Well, yes and no. On the one hand, I do 
believe, and I think we have talked about this in the past, 
that giving Medicare beneficiaries options, for example, to 
enroll in a Medicare Advantage plan, a private health plan, is 
a very important thing to do, and I think you agree with that 
as well. On the other hand, I must confess, when I hear people 
criticize Medicare for its administered price system, it sets 
me a little bit on edge because I know better than most people 
the problems with administered prices. I have spent many, some 
would say too many hours working on these issues in my career. 
But when I look at Medicare pricing compared to pricing in the 
private sector, our system looks pretty good.
    Mr. Cassidy.No, believe me, I am not defending the private 
sector, and I actually like your proposal that if you put these 
physicians at two-sided risk with some sort of accountability 
as to outcomes and have the quote, unquote, activated patient, 
that is the better way to go. My concern is that if there is an 
innovation which is disruptive, it gives you a better outcome 
at a lower cost. It will be 3 years later before that may be 
priced accordingly or even given a code.
    Mr. Hackbarth. And, you know, overall, my goal is to 
decentralize decisions, put as many decisions as possible in 
the hands of physicians and patients, provided that there is 
accountability for the results, both quality and cost.
    Mr. Cassidy.Now, a conversation just to revisit we have 
probably had before, the ACO, I think you rightly put the 
physician-patient relationship at the center of our ability to 
improve outcomes and control costs. But I see a lot of what we 
are proposing are actually on the suprastructure, if you will. 
Here is the patient, physician, but here is the administrative 
cost and here is the ACO, etc., and that actually seems to be 
insulating or denying responsibility for this integral 
relationship. Any thoughts on that?
    Mr. Hackbarth. Well, so let us use ACOs as a potential 
framework for decentralizing decisions to physicians and 
patients, and as you know, from prior conversations, I believe 
in that. You know, right now we have got an ACO structure which 
I think is a step in the right direction but has some problems 
with it, and one that I would highlight in this context is, 
Medicare beneficiaries don't share in any of the savings from 
an ACO. All of the talk is about how the physicians, the 
hospitals and the government share in the savings but there are 
no real rewards for Medicare beneficiaries. We think across the 
board we need to work on improving provider payment and 
bringing Medicare beneficiaries appropriately into those 
discussions and allowing them to share in savings when they go 
to high-value providers.
    Mr. Cassidy.And we are totally in agreement on that. I 
think one thing I would also point out is that if we are going 
to bring this down to the smaller practice, I am not quite sure 
how an ACO would work for a four-person practice in a rural 
area, if only because you are only going to get settled up on 
the positive things you have done 2 years after you have done 
it. If you are in a cash-flow-dependent practice, you probably 
don't have the wherewithal to wait 2 years to have a settling 
up.
    Mr. Hackbarth. Although one of the ACO models does involve 
an advanced payment for just that reason, the physician-
sponsored ACOs. You know, I think it is too early to predict 
exactly how ACOs will develop, especially in sparsely populated 
areas like rural areas, but about half of the current ACOs 
involve either Critical Access Hospitals or Community Health 
Centers and deal with relatively challenging care delivery 
systems.
    Mr. Cassidy.I accept that, but we are going so far down the 
road in terms of planning and implementing political and 
bureaucrat capital in putting these in place. Not knowing where 
they are going to go and seeing that there are flaws inherent 
in them makes me troubled. I mean, is that unique relationship 
going to be preserved when, again, we just don't know where it 
is going.
    Mr. Hackbarth. Well, we certainly believe that preserving 
that relationship is really important, vital, essential, and I 
may be a little bit more optimistic than you are that in fact 
the movement is in the right direction, but I think we have to 
be vigilant about it.
    Mr. Cassidy.I am out of time. I yield back. Thank you.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Florida, Mr. Bilirakis, 5 minutes 
for questions.
    Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it 
very much.
    Mr. Hackbarth, your testimony really touches on the 
importance of transparency and predictability in pricing and 
out-of-pocket expenses for seniors in the Medicare program. No 
other industry I know of would facilitate customers not knowing 
the cost of service until after it has been performed. Can you 
explain your thoughts on the importance of out-of-pocket 
predictability as it relates to the reforms you have presented 
here today or even for future reforms to the program?
    Mr. Hackbarth. Well, Mr. Bilirakis, the most important 
thing is that we know from focus groups with beneficiaries that 
they find the current benefit structure confusing and more than 
a little bit frightening because they don't feel like they can 
predict what is going to happen, what the bill is going to be 
if they get sick or even when they go to a physician office 
because, as Dr. Burgess said, it is 20 percent of what. We 
don't know. And so what we have advocated is a focus on 
simplification and protection against overall costs, and we 
think that that will be very reassuring to Medicare 
beneficiaries and perhaps over time will influence their 
decisions about whether they need supplemental insurance and, 
if so, what kind they buy, and that would be a good thing for 
Medicare.
    Mr. Bilirakis. And you of course agree that seniors should 
be more active participants?
    Mr. Hackbarth. Absolutely.
    Mr. Bilirakis. Thank you. You reference in your testimony, 
and I think the gentlelady from the Virgin Islands referred to 
this, but your testimony, the suggestion that Congress should 
consider giving the power to the Secretary to reduce cost 
sharing on services if evidence indicates that doing so would 
reduce Medicare spending or lead to better health care 
outcomes, and vice versa. Can you elaborate on that?
    Mr. Hackbarth. Well, I am not sure I have a whole lot new 
to say on that, but we do think that services are of different 
value to patients. Certainly we know that some services are 
really important for beneficiaries with chronic illness, and we 
don't want cost sharing at the point of service to be a barrier 
to that care because patients will be worse off with worse 
health outcomes, and Medicare will incur higher long-run costs. 
And so as opposed to a crude approach to cost sharing which 
just says same rate for everything, you know, 20 percent across 
the board, we think we can do better than that and be smarter 
about it and have better results for patients.
    Mr. Bilirakis. Thank you very much. I yield back, Mr. 
Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from New Jersey, Mr. Lance, 5 minutes 
for questions.
    Mr. Lance. Thank you, Mr. Chairman. I would be happy to 
yield my time to Dr. Burgess.
    Mr. Burgess. I thank the gentleman for yielding.
    Mr. Hackbarth, just a couple of follow-up things, and thank 
you for mentioning HCFA. It brought back memories of when I 
thought HCFA was a four-letter word when I was in practice. 
Back in the 1990s with the passage of the Kennedy-Castelbaum 
bill, that behemoth that gave us HIPAA, but it also allowed for 
the first time the sale in this country of medical savings 
accounts, but if I recall correctly, they were very careful to 
keep that type of insurance out of the Medicare system. Is that 
correct?
    Mr. Hackbarth. Yes, I think that is correct.
    Mr. Burgess. Well, here is my question, and I still have a 
problem with the concept that--and let me very honest with you 
here. I have got someone in my household who is going to turn 
65 this year, and we are just deluged with stuff from people 
wanting to sell a supplemental policy. So I can certainly 
sympathize with the person who looks at all of this 
information, and oh, my god, I want to do the right thing, I 
want to be prepared for bad things that could happen so I will 
make this investment. It is hard for me to believe that that is 
an erroneous activity for that person for them to be engaged in 
that. You kind of indicate in your testimony that a lot of 
times what they are paying in for that supplemental is far in 
excess of anything they would get from a benefit from the 
supplemental payment. Why don't we make it easy to put 
additional dollars away for their health care in a Medicare 
health savings account that would be available them to draw on 
and need if there were costs over and above what the Medicare 
benefit would provide them?
    Mr. Hackbarth. Dr. Burgess, we haven't looked specifically 
at the issue of medical savings accounts for Medicare 
beneficiaries, so I don't have a MedPAC view on that.
    Mr. Burgess. Let me just offer you an observation. We talk 
about 10,000, 12,000 people a day entering Medicare. There are 
going to be more and more people who enter Medicare with a 
health savings account that actually has cash in it that was 
not used prior to the time of entering into Medicare. Are you 
looking over the horizon at all and trying to figure out how do 
you deal with--Bill Cassidy called them the activated patient. 
That is exactly right. Governor Mitchell Daniels when he 
provided his Healthy Indiana program to State employees 
essentially was a high-deductible health plan coupled with a 
health savings account, he made the observation that something 
magic happens when people spend their own money for health 
care, even if it wasn't their own money in the first place. But 
you have got these people arriving into Medicare, aging into 
the Medicare system with a large health savings account that 
they are holding. Why not allow them to participate in their 
care?
    Mr. Hackbarth. Well, this is an issue of personal interest 
since I am going to be 62 and actually my wife and I have a 
health savings account. We have been insured under a high-
deductible plan for quite some time now. So it is an important 
issue. It is not one that we have looked at at this point.
    Mr. Burgess. Let me just make another observation. I mean, 
I know fee-for-service gets a bad name and a bad rap in a lot 
of ways, and Dr. Cassidy referenced the small practice in rural 
setting. I always allude to the solo practitioner in Muleshoe, 
Texas, who really can't participate in an ACO. Yes, they can be 
acquired by a network. But, you know, every time I think of 
accountable care organizations, I have to ask myself, 
accountable to whom, because as Dr. Cassidy correctly pointed 
out, there are significant--because of the risk factor, there 
is a significant cash amount that needs to be available that is 
generally not available to the small and individual practice so 
that there is someone else who is going to have to be, if you 
will, a financial or fiscal partner in that endeavor. So it 
just begs the question, accountable to whom? Is it accountable 
to the hospital? If the doctor is accountable to an accountable 
care organization, is that really accountable to the hospital 
or to the government or to a health plan? It kind of begs the 
question, are they still accountable to the patient, and just 
speaking from a professional standpoint, I am worried about the 
direction in which that is going.
    Mr. Hackbarth. Well, there are to be sure lots of 
complicated issues that need to be examined and resolved around 
the development of ACOs. I think it is a step in the proper 
direction. I say that because I really am looking for 
structures that decentralize decisions so that clinicians and 
patients can make them together subject to accountability on 
quality and cost. Now, exactly how you set the cost and all the 
issues about the flow of the money, those are really important 
things, and I don't mean to diminish their importance, but if 
the goal is getting the federal government out of intrusion 
into medical practice, structures like this I think need to be 
part of the solution so let us focus on making them better as 
opposed to undermining them.
    Mr. Burgess. Thank you, Mr. Chairman. I will yield back, 
and I thank the gentleman from New Jersey for yielding the 
time.
    Mr. Pitts. The Chair thanks the gentleman. We have a 
unanimous-consent request.
    Mr. Pallone. Mr. Chairman, I ask unanimous consent to 
submit for the record various statements from the United Steel 
Workers, California Health Advocates, testimony on behalf of 
the UAW, a statement from the National Association of Home Care 
and Hospice, and a statement from the National Committee to 
Preserve Social Security and Medicare, and I believe you have 
all these.
    Mr. Pitts. Yes. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. That concludes the round of questioning. We have 
some members who have additional questions. I remind members 
they have 10 business days to submit any additional questions 
for the record, and I ask the witness to please respond to the 
questions promptly.
    Thank you very much for your time, your testimony this 
morning. And members should submit their questions by the close 
of business on Thursday, April 25.
    Thank you, and without objection, the subcommittee is 
adjourned.
    [Whereupon, at 11:39 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    
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