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



 
           THE NEED FOR MEDICAID REFORM: A STATE PERSPECTIVE

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 12, 2013

                               __________

                           Serial No. 113-51


      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...........................................     2
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     4
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     5
    Prepared statement...........................................     6
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................     7

                               Witnesses

Seema Verma, MPH, Consultant, SVC, Inc...........................     9
    Prepared statement...........................................    11
    Answers to submitted questions...............................    82
Joseph W. Thompson, Surgeon General, State of Arkansas, and 
  Director, Arkansas Center for Health Improvement...............    17
    Prepared statement...........................................    19
    Answers to submitted questions...............................   101
Anthony E. Keck, Director, South Carolina Department of Health 
  and Human Services.............................................    25
    Prepared statement...........................................    27
    Answers to submitted questions...............................   110

                           Submitted Material

Statement of the Rand Corporation, submitted by Mr. Pallone......    59
Report by the National Alliance on Mental Illness, submitted by 
  Mrs. Christensen...............................................    65
Article entitled ``The Oregon Experiment--Effects of Medicaid on 
  Clinical Outcomes,'' New England Journal of Medicine, May 2, 
  2013, submitted by Mr. Burgess.................................    80


           THE NEED FOR MEDICAID REFORM: A STATE PERSPECTIVE

                              ----------                              


                        WEDNESDAY, JUNE 12, 2013

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10 a.m., in room 
2322 of the Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Burgess, Whitfield, 
Shimkus, Murphy, Blackburn, Lance, Cassidy, Guthrie, Griffith, 
Bilirakis, Ellmers, Upton (ex officio), Pallone, Dingell, 
Capps, Schakowsky, Green, Barrow, Christensen, Castor, 
Sarbanes, and Waxman (ex officio).
    Staff present: Gary Andres, Staff Director; Sean Bonyun, 
Communications Director; Matt Bravo, Professional Staff Member; 
Julie Goon, Health Policy Advisor; Brad Grantz, Policy 
Coordinator, Oversight and Investigations; Sydne Harwick, 
Legislative Clerk; Monica Popp, Professional Staff Member, 
Health; Andrew Powaleny, Deputy Press Secretary; Chris Sarley, 
Policy Coordinator, Environment and Economy; Heidi Stirrup, 
Health Policy Coordinator; Alli Corr, Democratic Policy 
Analyst; Amy Hall, Democratic Senior Professional Staff Member; 
Elizabeth Letter, Democratic Assistant Press Secretary; 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. This subcommittee will come to order. The chair 
will recognize himself for an opening statement.
    Medicaid was designed as a safety net for the most 
vulnerable Americans, including pregnant women, dependent 
children, the blind and the disabled. With more than 72 million 
Americans, or nearly one in four, enrolled in Medicaid at some 
point in fiscal year 2012, we need to closely examine the 
quality of care the program provides, reduce the cost of the 
program to both the federal government and the States, and 
encourage bold, new state innovations to better serve this 
population.
    Those enrolled in Medicaid today face significant 
difficulties in accessing care. According to a recent analysis, 
while 83 percent of physicians are accepting Medicare patients, 
only 70 percent of physicians are accepting those in the 
Medicaid program. Other studies have shown that compared to 
those with private insurance, Medicaid beneficiaries find it 
more difficult to schedule follow-up visits after initially 
seeing a doctor; are twice as likely to report difficulty in 
accessing primary care services including prevention services; 
and are twice as likely to visit the emergency room. Clearly, 
we are failing those most in need of our help. And we are 
spending enormous amounts of money for substandard care, and in 
some cases, worse outcomes than those with no insurance at all.
    On average, States are spending approximately 25 percent of 
their budgets on Medicaid, and this percentage will only grow 
as the Affordable Care Act's Medicaid expansion goes into 
effect in many States in 2014. In my home State of 
Pennsylvania, we are already spending nearly one-third of the 
entire State budget on Medicaid alone. This crowds out 
investments in transportation, education, public safety and 
other vital areas. And over the next 10 years, the federal 
share of Medicaid expenditures is estimated at $5 trillion, 
with States spending nearly another $2.5 trillion over that 
same time period.
    Medicaid is in trouble. It has been on the Government 
Accountability Office's high-risk list for nearly two decades, 
and the Office of Management and Budget reported nearly $22 
billion in improper Medicaid payments in 2011.
    But we don't have to settle for subpar care or limited 
access and exploding costs. Many States have embarked on 
innovative Medicaid reforms to improve the quality of care and 
modernize their programs, ranging from payment incentives, to 
coordinated care, to consumer-driven options, to added services 
for their beneficiaries and more. This has been possible, in 
part, through the use of State demonstration waivers, but it 
can take years for the Centers for Medicare and Medicaid 
Services to approve these waivers. We need to provide States 
with the flexibility to pursue these options, not lock them in 
a one-size-fits-all model dictated by Washington.
    Several reforms have been outlined by this committee in a 
recent policy paper issued by Chairman Upton and Senator Hatch. 
The Making Medicaid Work blueprint is a product of significant 
input from the States that merits bipartisan consideration and 
legislative action.
    [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.Medicaid was designed as a safety net for the most 
vulnerable Americans, including pregnant women, dependent 
children, the blind, and the disabled.
    With more than 72 million Americans--or nearly 1 in 4--
enrolled in Medicaid at some point in fiscal year 2012, we need 
to closely examine the quality of care the program provides; 
reduce the cost of the program to both the federal government 
and the states; and encourage bold, new state innovations to 
better serve this population.
    Those enrolled in Medicaid today face significant 
difficulties in accessing care. According to a recent analysis, 
while 83% of physicians are accepting Medicare patients, only 
70% of physicians are accepting those in the Medicaid program.
    Other studies have shown that, compared to those with 
private insurance, Medicaid beneficiaries find it more 
difficult to schedule follow-up visits after initially seeing a 
doctor; are twice as likely to report difficulty in accessing 
primary care services, including prevention services; and are 
twice as likely to visit the emergency room.
    Clearly, we are failing those most in need of our help. And 
we are spending enormous amounts of money for substandard care 
and, in some cases, worse outcomes than those with no insurance 
at all.
    On average, states are spending approximately 25% of their 
budgets on Medicaid, and this percentage will only grow as the 
Affordable Care Act's Medicaid expansion goes into effect in 
many states in 2014.
    In my home state of Pennsylvania, we are already spending 
nearly one-third of the entire state budget on Medicaid alone. 
This crowds out investments in transportation, education, 
public safety, and other vital areas.
    And, over the next 10 years, the federal share of Medicaid 
expenditures is estimated at $5 trillion, with states spending 
nearly another $2.5 trillion over that same time period.
    Medicaid is in trouble.
    It has been on the Government Accountability Office's high-
risk list for nearly two decades, and the Office of Management 
and Budget reported nearly $22 billion in improper Medicaid 
payments in 2011.
    But we don't have to settle for sub-par care, limited 
access, and exploding costs.
    Many states have embarked on innovative Medicaid reforms to 
improve the quality of care and modernize their programs, 
ranging from payment incentives, to coordinated care, to 
consumer-driven options, to added services for their 
beneficiaries, and more.
    This has been possible, in part, through the use of state 
demonstration waivers, but it can take years for the Centers 
for Medicare and Medicaid Services (CMS) to approve these 
waivers
    We need to provide states with the flexibility to pursue 
these options, not lock them in a one-size-fits-all model 
dictated by Washington.
    Several reforms have been outlined by this Committee in a 
recent policy paper issued by Chairman Upton and Senator Hatch. 
The Making Medicaid Work blueprint is a product of significant 
input from the states that merits bipartisan consideration and 
legislative action.
    I look forward to hearing from our witnesses today.
    Thank you, and I yield the remainder of my time to Rep. --
--------------------------------.

    Mr. Pitts. I look forward to hearing from our witnesses 
today. Thank you, and I yield the remainder of my time to the 
vice chair of the subcommittee, Dr. Burgess.
    Mr. Burgess. I thank the chairman for yielding.
    We are here today to discuss Medicaid, and of course, 
Medicaid is a shared federal and State partnership but there 
are wide differences amongst the States with the populations 
served and this underscores the need for flexibility within the 
program's administration. But as we ensure its flexibility, we 
certainly can't ignore the problems that have perpetually 
plagued the Medicaid system including insufficient access to 
care for beneficiaries, lack of continuity of care, and rapid 
growth in the program costs, and I would add to that as the 
chairman rightfully mentioned, the difficulties with diversion 
of funds for activities which might be deemed as inappropriate. 
I applaud the way the States have implemented innovative 
reforms but state flexibility will not solve all of the 
problems that we face.
    One of the biggest is Medicaid reimbursement. Medicaid 
reimbursement rates are already embarrassingly low, forcing 
many providers to refuse new Medicaid patients. In Texas, only 
31 percent of physicians in Texas currently accept new Medicaid 
patients. This trend only foreshadows the threat to access for 
millions of new Medicaid beneficiaries beginning next year. To 
sustain provider and plan buy-in, we must demand accountability 
from both the federal and State partners. That is the purpose 
of this hearing today. That is what we are investigating this 
morning. I certainly look forward to the testimony of our 
witnesses, and I will yield back to the chairman.
    Mr. Pitts. The chair thanks the gentleman and now yields 5 
minutes for an opening statement to the ranking member, Mr. 
Pallone.

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

    Mr. Pallone. Thank you, Mr. Chairman.
    More than 70 million Americans depend on Medicaid services 
every year, and recipients are often low-income families or 
individuals with disabilities with long-term needs who would 
otherwise not have access to insurance because it is 
unaffordable, unavailable or inadequate. Providing affordable 
health coverage is crucial not only to protect the vulnerable 
population but also to keep health care costs down. By 
providing affordable essential health benefits, emergency room 
visits and hospitalizations, which are more expensive, can be 
reduced.
    I fought hard to make sure that the expansion of Medicaid 
was included in the Affordable Care Act because it will not 
only improve access to health care for individuals across the 
country but it will improve States' economic health as well. 
While we expect all States to participate in the Medicaid 
expansion because it is an advantageous fiscal arrangement, I 
am troubled and discouraged that there are many who still have 
not decided to expand. I do believe, however, that eventually 
all States will recognize the importance of this provision to 
the health care system as a whole.
    Nearly half of all States recognize that the Medicaid 
expansion under the ACA is a good deal and have indicated that 
they will expand, and I anticipate that our witness, Mr. Joe 
Thompson from Arkansas, will share with us why his State opted 
for expansion. And let me tell you that from New Jersey's 
perspective, expanding Medicaid just makes sense and that is 
why Governor Christie chose to expand. It will save New Jersey 
billions of dollars while providing care to an estimated 
300,000 new Medicaid beneficiaries. With all of New Jersey's 
pressing needs right now, it is assuring that the billions in 
savings will help us to devote more resources towards building 
our economy and creating jobs.
    Now, while Republicans will tell you that States need 
greater Medicaid flexibility, I would argue that under the 
current law, a great deal of flexibility exists while 
simultaneously providing a baseline of protections for 
beneficiaries. States have the ability to manage the design of 
their Medicaid programs. Within federal guidelines, they can 
alter benefits or change cost sharing and premiums. The concept 
that States have significant flexibility in the management of 
their programs is reflected by the fact that States when they 
want to are taking on innovative approaches to improve their 
Medicaid programs. For example, States are experimenting with 
programs to reduce expensive and unnecessary hospital 
readmissions, programs to improve health and promote prevention 
and medical home models as well.
    So let me talk for a moment about the Republicans' 
proposal, which I believe has been presented under the guise to 
provide greater flexibility. I am extremely concerned that 
their proposal will simply lead to higher premiums and greater 
financial burdens on low-income elderly or disabled Medicaid 
beneficiaries. Their call for block grants or a per capita cap 
on future Medicaid funding would reduce federal beneficiary 
protections currently in Medicaid since States would be 
permitted to eliminate benefits or restrict enrollment 
eligibility. While examining costs and exploring the 
relationship between the federal government and States is 
clearly important, we must be sure that we do not strip away 
protections from Medicaid recipients who depend on the program 
for access to quality, affordable health care.
    Thank you, Mr. Chairman. Before I yield, I would like to 
ask unanimous consent to enter into the record an article or 
testimony, I should say, from Carter C. Price from the RAND 
Corporation on expanding Medicaid and the financial options for 
States.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pallone. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the chair of the full committee, Mr. Upton, 5 
minutes for opening statement.

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

    Mr. Upton. Thank you, Mr. Chairman.
    You know, it has been years since President Johnson signed 
the 1965 Social Security Amendments into law, and as many 
historians have noted, those high-profile negotiations centered 
mostly on Medicare with Medicaid out of the spotlight. While 
Medicaid covered approximately 4 million people in the first 
year, there were more than 72 million individuals enrolled in 
the program at some point in fiscal year 2012--nearly one in 
four Americans.
    Those enrollment figures on their own, and their potential 
drain on the quality of care of the Nation's most vulnerable 
folks is cause for alarm. But once the President's health care 
law is fully implemented, another 26 million more Americans 
could be added to this already strained safety net program.
    Medicaid enrollees today already face extensive 
difficulties finding a quality physician because, on average, 
30 percent of the Nation's doctors won't see Medicaid patients, 
and studies have shown that Medicaid enrollees are twice as 
likely to spend their day or night in an emergency room than 
their uninsured and insured counterparts.
    Instead of allowing State and local officials the 
flexibility to best administer Medicaid to fit the needs of 
their own populations, improve care and reduce costs, the 
federal government has created an extensive, one-size fits-all 
maze of federal mandates and administrative requirements. With 
the federal debt at an all-time high, closing in on $17 
trillion, and States being hamstrung by their exploding 
budgets, the Medicaid program will be increasingly scrutinized 
over the next 10 years. Its future ability to provide coverage 
for the neediest kids, seniors and disabled Americans will 
depend on its ability to compete with State spending for other 
priorities including education, transportation, public safety 
and economic development.
    Energy and Commerce Committee Republicans remain committed 
to modernizing the Medicaid program so that it is protected for 
our poorest and sickest citizens. We will continue to fight for 
those citizens because they are currently subjected to a broken 
system. The program does need true reform, and we can no longer 
tinker around the edges with policies that add on to the 
bureaucratic layers that decrease access, prohibit innovation 
and fail to provide better health care for the poor.
    In May, last month, Senator Hatch and I introduced Making 
Medicaid Work, a blueprint and menu of options for Medicaid 
reform that incorporated months of input from State partners 
and policy experts from a wide range of ideological positions. 
My hope is that this morning's hearing is the next step in 
discussing the need for reform so that we can come together in 
finalizing policies that improve care for our most vulnerable 
citizens. Washington does not always know best. We have a lot 
to learn from our States, and that is what this is all about, 
and I yield the balance of my time to Dr. Cassidy.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    It has been nearly 50 years since President Johnson signed 
the 1965 Social Security Amendments into law. As many 
historians have noted, those high profile negotiations centered 
mostly on Medicare--with Medicaid out of the spotlight.
    Surprising to most, however, Medicaid today covers more 
Americans than any other government-run health care program, 
including Medicare.
    While Medicaid covered approximately four million people in 
its first year, there were more than 72 million individuals 
enrolled in the program at some point in Fiscal Year 2012--
nearly 1 in 4 Americans.
    Those enrollment figures on their own, and their potential 
drain on the quality of care of the nation's most vulnerable 
folks is cause for alarm. But once the president's health care 
law is fully implemented, another 26 million more Americans 
could be added to this already strained safety net program.
    Medicaid enrollees today already face extensive 
difficulties finding a quality physician because, on average, 
30 percent of the nation's doctors won't see Medicaid patients. 
Studies have shown that Medicaid enrollees are twice as likely 
to spend their day or night in an emergency room than their 
uninsured and insured counterparts.
    Instead of allowing state and local officials the 
flexibility to best administer Medicaid to fit the needs of 
their own populations, improve care, and reduce costs, the 
federal government has created an extensive, ``one-size fits-
all'' maze of federal mandates and administrative requirements.
    With the federal debt at an all-time high, closing in on 
$17 trillion and states being hamstrung by their exploding 
budgets, the Medicaid program will be increasingly scrutinized 
over the next 10 years.
    Its future ability to provide coverage for the neediest 
kids, seniors, and disabled Americans will depend on its 
ability to compete with state spending for other priorities 
including education, transportation, public safety, and 
economic development.
    Energy and Commerce Committee Republicans remain committed 
to modernizing the Medicaid program so that it is protected for 
our poorest and sickest citizens. We will continue to fight for 
those citizens because they are currently subjected to a broken 
system.
    The program needs true reform, and we can no longer tinker 
around the edges with policies that add on to the bureaucratic 
layers that decrease access, prohibit innovation, and fail to 
provide better health care for the poor.
    In May, Senator Hatch and I introduced Making Medicaid 
Work--a blueprint and menu of options for Medicaid reform that 
incorporated months of input from state partners and policy 
experts from a wide range of ideological positions. My hope is 
that this morning's hearing is the next step in discussing the 
need for reform so that we can come together in finalizing 
policies that improve care for our most vulnerable citizens. 
Washington does not always know best--we have a lot to learn 
from our states.
    Thank you, Mr. Chairman and I yield my remaining time to --
----------------.

    Mr. Cassidy. Thank you, Mr. Chairman.
    For 20 years, I have treated patients in a safety-net 
hospital. For 20 years, I have seen politicians over-promise 
and underfund, and as I do so, it is the patient that suffers.
    Now, the federal government spends almost half of every 
dollar on health care payments for Medicaid and Medicare. These 
programs are breaking federal and State budgets and they are 
unsustainable in current form. On behalf of my patients, I know 
that we must change them so that they become sustainable.
    Now, in Washington, Medicare reform has been greatly 
considered but thoughtful solutions from Medicaid not so much. 
Now that Obamacare has added 20 million Americans to the 
Medicaid roles, it is imperative that Congress begin to address 
the sustainability of this important safety-net program.
    Now, I will say I think that States are the best innovators 
for cost containment, far better equipped to offer thoughtful 
solutions addressing unique patient needs. One size does not 
work. The federal government should construct thoughtful 
incentives encouraging States to take an active role in 
restructuring Medicaid. I am pleased that the Energy and 
Commerce Committee has started to shed light beginning with 
this hearing. I look forward to hearing from the witnesses 
today, and I 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. I want to thank you 
for holding this hearing. I welcome and look forward to hearing 
from all our witnesses today. I am particularly interested in 
the testimony of Mr. Thompson of Arkansas on how his State has 
been working to reform the delivery system and how the 
Affordable Care Act will positively affect his State's 
residents.
    There are different paths we can take to ensure long-term 
health and to promote innovation and efficiency within the 
Medicaid program. States can and do innovative actions today, 
and they do it without undermining critical protections for 
patients.
    On the other hand, what my Republican colleagues have 
proposed in their two recently released reports is a cost shift 
to States, patients and providers, and abdication of federal 
responsibility. Block grants, per capita caps and increases in 
beneficiary premiums and copays do not reduce health care 
costs; they simply shift costs on to the beneficiaries, the 
providers and the States, and they make it less likely that 
people will be able to access care when they need it.
    The Medicaid program operates with efficiency. Medicaid 
costs are nearly four times lower than average private plans. 
Over the next decade, annual Medicaid per capita costs are 
expected to grow by only 3.2 percent compared to 6.9 percent in 
the private market. Additionally, the Congressional Budget 
Office's most recent estimates of projected Medicaid spending 
have dropped by $200 billion through 2020. This refutes the 
claim that burgeoning Medicaid spending is compromising the 
program's mission and therefore necessitates funding redesign 
and cost shifting to our Nation's most vulnerable.
    Let us face the realities at hand and not myths. The issues 
are that millions of Americans who were previously shut out of 
having insurance, particularly the working poor, will now have 
access to Medicaid coverage beginning in 2014.
    Unfortunately, a number of States have not yet opted to 
provide insurance coverage for their residents. A RAND study 
estimates that these States will leave 3.6 million people 
uninsured, and these people will continue to seek high-cost 
services in the emergency department of a hospital and 
experience increased hospitalizations from lack of primary and 
preventive care. As a result, the study estimates that these 
States should expect to spend $1 billion more annually on 
uncompensated care. So much for the States that choose not to 
cover their very poor people under Medicaid even with 100 
percent federal financing for the first several years.
    There are things we could do to improve the program. 
Certainly, for example, we should extend the Medicaid primary 
care payment increase that is helping bring Medicaid rates on 
par with Medicare rates. Any member concerned about access to 
doctors for Medicaid beneficiaries should surely embrace that. 
Additionally, we can continue to improve care for the dual 
eligibles who comprise 15 percent of the Medicaid population 
but account for nearly 40 percent of its expenditures. We can 
target prevention including obesity and smoking to keep people 
healthy.
    The alternative path that we began in 2010 with passage of 
the Affordable Care Act is entitlement reform in a thoughtful 
way through delivery system reform that improves both 
efficiency and quality. The Affordable Care Act includes 
incentives to reward physicians and other providers for better 
coordinating care and improving health. It also includes 
policies to cut waste and inefficient care. But above all, it 
improves access to care, particularly preventive care, that 
saves dollars and lives.
    Reviewing the facts, we see that health reform is 
entitlement reform. It is this kind of reform that builds a 
better health care system for all Americans at the same time 
that it lowers costs and helps support the long-term 
sustainability of our public health care programs.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Pitts. The chair thanks the gentleman. That concludes 
our opening statements. We have one panel with us today, three 
witnesses. I will introduce them at this time.
    On our panel today, we have Ms. Seema Verma, consultant 
with the Strategic Health Policy Solutions. We have Dr. Joseph 
Thompson, Surgeon General of the State of Arkansas, Director of 
the Arkansas Center for Health Improvement, and we have Mr. 
Tony Keck, Department of Health and Human Services from the 
State of South Carolina.
    Thank you each for coming. Your written testimony will be 
made a part of the record. You will be given 5 minutes to 
summarize your testimony. So at this time, the chair recognizes 
Ms. Verma for 5 minutes for opening statement.

  STATEMENTS OF SEEMA VERMA, MPH, CONSULTANT, SVC, INC.; DR. 
  JOSEPH W. THOMPSON, SURGEON GENERAL, STATE OF ARKANSAS, AND 
 DIRECTOR, ARKANSAS CENTER FOR HEALTH IMPROVEMENT; AND ANTHONY 
  E. KECK, DIRECTOR, SOUTH CAROLINA DEPARTMENT OF HEALTH AND 
                         HUMAN SERVICES

                    STATEMENT OF SEEMA VERMA

    Ms. Verma. Good morning, members of the committee. My name 
is Seema Verma. I am the President of SVC, Inc., a policy 
consulting company, and in this role have been advising 
governors' offices, State Medicaid programs and State 
departments of health and insurance. I have worked in a variety 
of States including Indiana, South Carolina, Maine, Nebraska, 
Iowa and Idaho. I am also the architect of former Indiana 
Governor Mitch Daniels' Healthy Indiana Plan, the Nation's 
first consumer-directed health plan for Medicaid beneficiaries.
    Designed in 1965 for our most vulnerable populations, the 
Medicaid program has not kept pace with the modern health care 
market. Its rigid, complex rules designed to protect enrollees 
have also created an intractable program that does not foster 
efficiency, quality or personal responsibility. The impact of 
these issues is more pronounced as States are entrenched in the 
fierce debate around Medicaid expansion. Reluctance to expand 
is not indifference to the plight of the uninsured, but 
trepidation for the fiscal sustainability of the program and 
knowledge that expanding without reform will have serious 
consequences on Medicaid's core mission to serve the neediest 
of Americans.
    Medicaid comprises nearly 24 percent of State budgets, and 
its costs are growing. This is due to growth, population 
demographics and federal requirements. The aging baby boomer 
population will soon require expensive long-term care. The 
Affordable Care Act requires maintenance of effort and 
implementation of hospital presumptive eligibility, modified 
adjusted gross income that eliminates asset tests for the non-
disabled, and the ACA insurer tax will cost States an estimated 
$13 to $14.9 billion. Additionally, there is the clawback 
provision burden where States have an unprecedented requirement 
to finance the Medicare program.
    Despite growing outlays of public funds, a Medicaid card 
does not guarantee access or quality of care. In a survey of 
primary care providers, only 31 percent indicated willingness 
to accept new Medicaid patients. In 2012, 45 states froze or 
reduced provider reimbursement rates. Medicaid access issues 
are tied to undercompensation of providers. On average, 
Medicaid payments are 66 percent of Medicare rates and many 
providers lose money seeing Medicaid patients. Medicaid 
beneficiaries struggle to schedule appointments, face longer 
wait times and have difficulty obtaining specialty care. These 
access challenges will be more pronounced as Medicaid 
recipients compete with the tens of millions of newly insured 
under the ACA. Studies also show Medicaid coverage does not 
generate significant improvements in health outcomes, decrease 
emergency room visits or hospital admissions, and participants 
have higher ER utilization rates than other insured 
populations.
    At Medicaid's core is a flawed structure. While jointly 
funded, by the federal and state governments, it is not jointly 
managed. States are burdened by federal policy and endure 
lengthy permission processes to make routine changes. 
Notwithstanding the cumbersome procedure, 1115 waivers provide 
a pathway for State innovation. However, the approval route is 
so daunting that States often abandon promising ideas if a 
waiver is necessary. Absent are evaluation guidelines, required 
timelines, and there is a capricious nature to the approvals, 
as waivers do not transfer from one State to another. Even with 
positive outcomes, a new Administration has the authority to 
terminate a waiver. Despite intense federal oversight, results 
vary substantially and there are no incentives for States to 
achieve quality outcomes. For example, the average cost to 
cover an aged Medicaid enrollee is roughly $5,200 in New Mexico 
versus almost $25,000 in Connecticut, and annual growth rates 
also very. Replacing oversight of day-to-day administrative 
processes, the federal and State governments should collaborate 
to identify program standards and incentives. States should be 
provided with flexibility to achieve these goals, and 
successful States should be rewarded with reduced oversight.
    Medicaid's uncompromising cost-sharing policies are 
illustrative of a key failure. These regulations disempower 
individuals from taking responsibility for their health, allow 
utilization of services without regard for the public cost, and 
foster dependency. While some policies may be appropriate for 
certain populations, in an era of expansion to non-disabled 
adults, they must be revisited. Revised cost-sharing policies 
should consider value based benefit design and incent enrollees 
to evaluate cost, quality and adopt positive health behaviors. 
Indiana's Healthy Indiana Plan waiver applied principles of 
consumerism with remarkable results, lowering inappropriate ER 
use and increasing prevention.
    Congress should reform Medicaid to assure long-term fiscal 
sustainability and access to quality services that improve the 
health of enrollees. A fundamental paradigm shift in management 
is required and the program should be reengineered away from 
compliance with bureaucratic policies that do not change 
results to aligning incentives for States, providers and 
recipients to improve outcomes. States are positioned to 
develop policies that reflect the local values of the people 
they serve and should be given the flexibility to do so. Thank 
you.
    [The prepared statement of Ms. Verma follows:]

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    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes Dr. Thompson 5 minutes for an opening statement.

                  STATEMENT OF JOSEPH THOMPSON

    Dr. Thompson. Thank you, Mr. Chairman, members of the 
committee. I am Joe Thompson. I am a pediatrician and member of 
the faculty of the University of Arkansas for Medical Sciences. 
I direct the Arkansas Center for Health Improvement and have 
served as the lead candidate level advisor of surgeon general, 
first under Republican Governor Mike Huckabee and now under 
Democratic Governor Mike Beebe. I had the opportunity to work 
with two Administrations in the federal government.
    Our entire health care system has changed dramatically over 
the last five decades since the inception of Medicaid with 
increased therapeutic and diagnostic opportunities, increased 
treatments. The costs have grown, and with that have grown the 
cost on both the public and the private sector. Our private-
sector costs in Arkansas have doubled over the last decade from 
$6,000 to 12,000 for a family of four's premium. The costs have 
also increased for Medicare and Medicaid. As you have 
discussed, I want to commend this committee. The Medicaid 
partnership in funding for States and federal government is 
under intense duress and significant tension.
    But I would like to back up. It is not just a Medicaid 
problem. Our entire health care system is under a cost threat 
that threatens our families, our communities, and indeed, the 
economic vitality of our Nation. It is not a new issue, it has 
been growing, but suddenly we are forced to face it, and if I 
can, we started off with private insurance, largely through 
employers, and Medicaid for the vulnerable, the poor and the 
disabled. I will leave Medicare off because that is not the 
topic of your discussion. Over time as we grew the therapeutic 
and diagnostic opportunities, we grew the ability to do things 
to and for people, and the costs grew and the valley of the 
uninsured, people who could not afford care, grew also, so we 
started having more and more uninsured individuals. Private 
costs went up but the private employers or affluent families 
could continue to afford those costs. The Medicaid program did 
not keep pace with those costs, and neither federal government 
nor State government budgets could afford it, and so we ended 
up with a huge, large valley of the uninsured. We ended up with 
expensive private insurance that some can afford, and we have 
Medicare programs that cannot afford either on the federal or 
State budget, so we end up with what is a problem of the iron 
triangle: cost, access and quality. If we are not willing to 
pay, we are going to have access problems. If we have access 
problems, we suddenly have quality problems. This is not a 
single issue about Medicaid. This is a systemic issue about our 
failure to gain control of rapidly rising health care costs 
that have outpaced federal and State budgets, that only a few 
employers and families are able to continue to afford and that 
have grown the valley of the uninsured.
    So with that backdrop, let me share with you our experience 
in the State over the last 10 years. As of last year, we were 
operating nine different waiver programs designed by the State 
and approved by the federal government to provide Arkansans 
with better access, higher quality and more cost-effective 
care. Under the past Administration, President Bush's Secretary 
successfully supported our proposal to develop a waiver for 
support of small businesses for businesses with fewer than 10 
employees who virtually had no option for private employer-
based health insurance coverage. This small business was titled 
the AR Health Networks Program. It was a low-cost, limited-
benefit program, largely successful at maximum uptake. It will 
be absorbed into the Affordable Care Act now for small business 
support going forward, but we started that in 2005, eight years 
before the implementation of the Affordable Care Act will go 
into place.
    Four years ago, we started to tackle the issue of cost 
containment. Our Governor, our private sector recognized that 
the costs in the fee-for-service system were largely the cause 
for outpacing the growth potential of our revenue streams. So 
we understood a payment improvement initiative led by Medicaid 
which changed from a fee-for-service service to an outcomes-
based incentives system with upside and downside risk for 
providers based upon what the outcome of the patients were so 
there would be engagement with patients. This required federal 
government approval, which we got through a State plan 
amendment within 2 months. It was an achievable goal because it 
was a programmatic need.
    More recently, our Republican legislature and the general 
assembly with the Governor's support authorized use of the 
Affordable Care Act Medicaid programmatic funds to offer a 
totally new premium assistance program to buy health insurance 
premiums through the health insurance exchange, not to expand 
the Medicaid program in the traditional way, essentially to 
fill that valley in with private insurance, not to expand a 
State-run Medicaid program fraught with some of the issues that 
Ms. Verma alluded to. We will need to get a streamlined waiver 
from the Administration this summer. We have already started on 
that, and we have not identified a barrier to being able to do 
that at this point. So moving forward, we anticipate that of 
our 25 percent of the uninsured, we may have as many as a 
quarter million or almost 8 percent of our population not be in 
the Medicaid program but be in the private health insurance 
program.
    In conclusion, our State is not alone, other States need 
help, but it is a partnership based upon a long-term history 
that must be brought into the 21st century, not abandoned 
because we didn't bring it into the 21st century. Thank you.
    [The prepared statement of Dr. Thompson follows:]

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    Mr. Pitts. The chair thanks the gentleman and now 
recognizes Mr. Keck 5 minutes for an opening statement.

                  STATEMENT OF ANTHONY E. KECK

    Mr. Keck. Good morning, Mr. Chairman and members of the 
subcommittee. My name is Anthony Keck. I am the South Carolina 
Director of Health and Human Services, the State Medicaid 
agency. I appreciate the invitation to discuss my thoughts on 
improving health through Medicaid.
    While we don't run a $6 billion agency on anecdote, I would 
like to share a simple story with you that sums up our common 
challenge. I once ran a community clinic in a poor but vibrant 
and politically active New Orleans neighborhood known as the 
St. Thomas/Irish Channel. During that time, I took part in a 
focus group of pregnant teenage girls enrolled in Medicaid who 
were participants in a separate citywide program that matched 
each girl with a doula--a birthing coach--to help her better 
connect to the health care system and prepare for motherhood. 
One conversation still stands out. Paraphrasing her almost 20 
years later, one of the participants said with exasperation 
near the end of our time together ``Look, I love my doula and 
my doctor and I appreciate all the help they give me, but I've 
slept on a different couch almost every night for the past 3 
weeks, and that's why I'm having a really hard time.''
    The limits of our programs, expressed in the statement of 
that teenager, are clear. She needed stable housing; what we 
had were doulas. She probably needed both. Her personal 
struggle captures the truth that years of public health 
research on social determinants of health has revealed: the 
primary drivers of health and well-being are income, education, 
community and family support, personal choices, environment, 
race, and genetics, while health care services contribute to a 
much lesser extent.
    Yet our health system is built on the tenuous logic model 
that health insurance leads to access to effective health care 
services, which then leads to health. We are so beholden to 
this common wisdom that even though the Institute of Medicine 
estimates up to 30 percent of all health care spending is 
excess cost, we now spend almost 18 percent of our paycheck, 
payrolls and government budget on health care services while we 
fall further and further behind on health status compared to 
the rest of the world.
    David Kindig, one of the country's leading public health 
researchers, recently wrote that for all of our health 
spending, mortality increased for women in 43 percent of U.S. 
counties between 1992 and 2006 with no correlation to medical 
care factors such as health insurance status or primary care 
capacity. He calls for a robust strategy to address this 
appalling trend, and I quote, ``Such a strategy would include 
redirecting savings from reductions in health care inefficiency 
and increasing the health-promoting impact of policies in other 
sectors such as housing and education.'' He goes on to say that 
``Each county, not each State, each county needs to examine its 
outcomes and determinants of health to determine what cross-
sectoral policies would address its own situation most 
effectively and quickly.''
    Yet Medicaid today operates under the default position that 
different populations and geographies face similar challenges 
and equity in health insurance benefits is the goal of the 
program rather than improvement in population health. Medicaid 
currently treats States more like subcontractors operating at a 
discount than partners contributing over 40 percent of the 
bill. Deviations from the norm require State plan amendments 
and special waivers. This may give the illusion of 
accountability, but promotes neither quick or effective local 
solutions nor cross-sectoral solutions, which consider public 
health, education, housing, employment, food security, personal 
responsibility and community action as important contributors 
to achieving better health and well-being for individuals and 
communities.
    The truth is there are few, if any, long-term population 
health goals currently negotiated between States and the 
federal government so it is no wonder that we cannot agree on 
Medicaid's value. In addition, for all the federal efforts to 
manage expenditures through maintenance of effort requirements, 
limiting state revenue maximizing strategies, and focusing on 
fraud and abuse, the program continues to grow while access to 
health services suffers.
    I believe there is a developing bipartisan interest among 
States for flexibility to manage programs locally in exchange 
for more accountability for improved health and more 
predictability in expenditures at the State and federal level. 
I ask you to consider the proposals both before you and in 
development that would accomplish this goal. Thank you.
    [The prepared statement of Mr. Keck follows:]

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    Mr. Pitts. The chair thanks the gentleman. I will begin the 
questioning and recognize myself 5 minutes for that purpose.
    First, if you listen to many, you would think that all it 
took for our most vulnerable to be healthy was a Medicaid card. 
Yet as Ms. Verma notes in her testimony, despite more spending, 
a Medicaid card does not guarantee access or quality of care. 
We know how difficult it is for States to customize care in a 
way that makes sense for each enrollee not under a one-size-
fits-all approach, and I believe the best way to improve the 
care of the 72 million Americans on Medicaid is through local 
action on the ground in a way that empowers States to work with 
stakeholders, providers and patients.
    Ms. Verma, States often ask the federal government to cut 
the useless red tape that strangles innovation. Would you be 
specific? What specific bureaucrat hurdles are at the top of 
your wish list that you would like to see removed for States in 
an effort to improve care and reduce cost?
    Ms. Verma. Thank you for the question. I think first of 
all, there has got to be some sort of a triage process if there 
are routine changes, changes in rates, changes in benefits, so 
these are routine changes, that some changes shouldn't require 
permission from the federal government, and I think we need to 
understand or to define what requires permission and what 
requires just informing the federal government that the State 
is making a change. So that would be the first one. I think the 
other piece in terms of especially around innovation and around 
waivers is to have some very defined criteria about how these 
waivers and State plan amendments are going to be evaluated, 
what the timelines are. I think it is very important for a 
State for planning purposes to be able to know if they submit a 
waiver, you know, when they can expect to receive a response 
from the federal government, and also how that is going to be 
evaluated. I think reciprocity is also important, and I think 
if a waiver has been granted to one State or a State plan 
amendment in one State, that that should be applied to another 
State and that would also reduce some of the timelines there.
    Mr. Pitts. Mr. Keck, do you want to add to that list? 
Specific bureaucrat hurdles.
    Mr. Keck. Yes. First, I want to echo exactly what Seema 
said, that reciprocity is important. We spent a lot of our time 
trying to figure out what other States have negotiated with 
their regional office or with the federal office, and many 
times we know that our State has been denied. I think deadlines 
are important. We run on a State fiscal year, and when I need 
to respond to my legislature's budgeting process and their 
requirements to implement policies I cannot do that very 
effectively when we operate on such long timelines with the 
federal government. I have a waiver issue that is being 
resolved right now that has taken 5 years to work through the 
system, and it involves $3 million worth of federal money but 
it has taken years to negotiate and hundreds, if not thousands, 
of hours of staff time.
    And then finally, template changes. I believe there are a 
series of routine changes related to rates, related to quality 
measures and so on, that States are fully capable of making on 
their own. It is actually rare that they get denied but we 
spend many, many months and many, many man-hour responding to 
questions and so on, and again, being on a State fiscal year 
where we have to get changes implemented on a timely basis, it 
adds significant problems in our operations.
    Mr. Pitts. If you will continue, Mr. Keck, many private 
employers and insurers have successfully lowered health care 
costs and improved patient outcomes through value-based 
insurance design--VBID. States have often asked for greater 
flexibility to offer VBID plans to Medicaid enrollments. What 
is South Carolina doing to ensure patients can achieve better 
health outcomes?
    Mr. Keck. We are strong believers in the VBID concept, and 
actually we are the first State to work with the University of 
Michigan Value Based Insurance Design Institute on implementing 
a VBID program in Medicaid. When we first met the folks that 
run this program, it was a Mill Bank conference and they were 
talking about the possibilities for VBID to work in State 
employee benefit programs. And along with one of my State 
senators, I raised my hand and said well, what about Medicaid 
because Medicaid is one of the most important payers in the 
country, if not the most important, and they said well, we 
don't do anything with Medicaid because the restrictions are so 
strong and Medicaid folks don't contribute to their premiums 
and they generally don't' have copays that are enforceable so 
we just ignored it, and we pushed them during that 2 days and 
said you can't just ignore it, we have to be able to build 
these concepts into Medicaid. The problem is, they are 
generally one-sided. When you talk to VBID folks, it is a set 
of carrots and sticks, and they have different effectiveness in 
different situations but unfortunately, generally in Medicaid, 
it is all carrots, and sometimes you need sticks, but right now 
we are generally stymied. There has been some recent 
flexibility that has been granted by the federal government 
related to copays but we are still convinced we need to go much 
further, and so in the next several months we will be 
approaching CMS with some of our ideas out of the VBID 
concepts.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the ranking member 5 minutes for questions.
    Mr. Pallone. Thank you, Mr. Chairman. I wanted to ask some 
questions of Dr. Thompson.
    You and I both have a number of concerns about some of the 
proposals to convert Medicaid to a block grant program or a 
system of per capita caps while a block grant or per capita cap 
would save federal dollars by cutting payments to States caring 
for vulnerable families. Those dollars would be saved on the 
backs of the most vulnerable members of our communities. In 
addition to the very real risk of beneficiaries being subjected 
to reduced health care coverage and increasing personal health 
care costs, you also commented in your testimony that both of 
these proposals are likely to curb innovation. So could you 
explain what you mean when you say that these proposals will 
curb innovation and also share your thoughts more broadly about 
the potential impact of these proposals?
    Dr. Thompson. Thank you, Mr. Co-Chair. Our health care 
system is incredibly complex, and I think what we see in short-
term fixes are essentially what has been around for a long 
time. It is an easy fix, which rarely works in a complex 
situation. We have found that when we bring to the 
Administration, and it has not mattered which Administration, 
an approach that is inclusive of the needs of the low-income 
and vulnerable population that is part of the long-term State 
strategy and that moves the system forward, we have been able 
to work through the regulatory challenges that are there. It is 
not always with the speed, and I think there are some comments 
by Ms. Verma and Mr. Keck that could be incorporated, are being 
incorporated by this Administration on streamlined waivers. But 
I think if we don't take the root problem that our payment 
system is causing us to have a growth in health care that does 
not equal value or outcomes, then we are not going to have a 
quick fix that increased flexibility. We will squeeze the 
balloon in one place and it will open up in another place, 
probably on State budgets or at the expense of the vulnerable 
and poorest of our citizens.
    Mr. Pallone. Now, in the end, won't capping federal support 
for the program merely shift costs elsewhere on private 
businesses, patients and providers as well as State 
governments? I mean, you sort of suggested that but if you 
could just answer.
    Dr. Thompson. This is what led our Republican leadership in 
part to take advantage of the Affordable Care Act. We have 25 
percent of our Arkansas 19- to 64-year-olds that are uninsured. 
We have 40 percent, approaching 40 percent in some counties. 
Those individuals are not well. Fifty percent of our population 
has a chronic condition. They are seeking care. They are using 
the emergency room in an inefficient way. And so by taking 
advantage of the Affordable Care Act but, importantly, tying it 
to our payment reforms and putting it in the private sector 
with the new cost sharing and copayments, which we intend to 
push on and expand, we hope that we can actually design a new 
and sustainable health care system inclusive of Medicaid and 
one that rewards providers for the care that they give and 
achieves equal high-quality care for all regardless of income.
    Mr. Pallone. Thank you. Can I ask you, what was your 
experience as far as the flexibility, responsiveness, 
timeliness of CMS, you know, the Centers for Medicare and 
Medicaid Services, when you applied for the State plan 
amendment for this?
    Dr. Thompson. Our State plan amendment went through in 
roughly less than 2 months, and this was from our inception to 
our successful achievement. It was like Mr. Keck mentioned, 
important to be timely because we were concurrently running 
rules and regulations in our general assembly, so we had to get 
both general assembly through rule and regulation and federal 
government support, and I think it is important for the feds 
and for the local general assemblies to recognize those are 
often in concert, not totally separate issues. But we 
successfully got approval to have upside and downside risk on 
our providers within 2 weeks of request from the Centers for 
Medicare and Medicaid Services.
    Mr. Pallone. All right. Thank you very much. I yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the vice chair of the committee, Dr. Burgess, 5 
minutes for questions.
    Mr. Burgess. Thank you, Mr. Chairman. I will try to make 
good use of Mr. Pallone's time that he yielded to me.
    Mr. Keck, I have got to ask you, for the good of the 
committee and our general knowledge, spend just 2 seconds and 
tell the committee what a doula is.
    Mr. Keck. A doula is essentially a birthing coach that is 
of the committee that generally she but sometimes he works in 
to help----
    Mr. Burgess. Not a medical person?
    Mr. Keck. Not a medical person.
    Mr. Burgess. So not a midwife?
    Mr. Keck. That is right.
    Mr. Burgess. Basically someone who daubs a forehead and 
says it will be all right. Is that correct?
    Mr. Keck. Well, and also helps a woman connect with the 
health care system that is sometimes very difficult.
    Mr. Burgess. So is it correct to think of a doula as sort 
of a navigator or a precursor to a navigator?
    Mr. Keck. I would consider them a community health worker 
but to help navigate the health system because it is so 
complex.
    Mr. Burgess. And no disagreement there. And in fact, so 
good to have all of you all at this hearing. I cannot tell you 
the number of times we had hearings in 2007 and 2008 where you 
wondered where Mitch Daniels was when we were having all the 
discussions how to provide more for less, and you correctly 
identified Governor Daniels as being a leader in this issue, 
and he found 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. Would that be a correct observation 
of the Healthy Indiana program?
    Ms. Verma. Yes, that is correct. I mean, within the Healthy 
Indiana Plan, participants are required to make contributions 
into an account. The State also funds that account, and then 
they use those dollars to cover their first $1,100 of health 
care services, and if they complete their preventive health 
care, then at the end of the year whatever money is left in 
that account rolls over and it decreases the amount that the 
person would have to pay in the subsequent years. And so we 
have had great results, lower emergency room, higher generic 
use.
    Mr. Burgess. And this is the Medicaid population, not the 
State employee population that also was written about in the 
Wall Street Journal. Is that correct?
    Ms. Verma. That is correct.
    Mr. Burgess. And what kind of savings did you achieve in 
the Medicaid program with Healthy Indiana?
    Ms. Verma. I think what we have seen in the Healthy Indiana 
program in terms of savings is a real shift in patient 
behavior. We have seen patients----
    Mr. Burgess. May I interrupt you there for a moment because 
that is the important point, and the Commonwealth Fund, I don't 
generally agree with everything they talk about, but a few 
months ago they talked about the concept of an activated 
patient being one where health care expenditures were reduced, 
and essentially that is what you found, isn't it?
    Ms. Verma. That is correct. I mean, I think that so many of 
the policy changes or regulations are aimed at providers, they 
are aimed at insurance companies, pharmaceutical companies, but 
we sort of miss the point that the individual has a very 
significant role to play in controlling health care costs, and 
that is not just for commercial populations but even the low-
income population. They are perhaps the best consumers of a 
dollar. They have had experience stretching a dollar, and I 
think when you empower them that they start to make decisions 
about where to seek their health care, how to seek care in more 
appropriate ways and seeking more preventive care.
    Mr. Burgess. Yes, I liked everything about your testimony 
except that you were way too nice, and you need to be a little 
harsher in your assessments than saying there is trepidation 
about the future fiscal sustainability. Governors are scared to 
death, and I could use another word there, but I will be nice, 
they are scared to death about what is going to happen by 
taking on this obligation. The federal government has proven 
itself to be an absolutely unreliable fiscal partner when it 
comes to health care. Ask any doctor out there who takes 
Medicare what has happened to their reimbursement.
    Let me just for a moment, you have identified something 
that is, I think, to Healthy Indiana, and that is the 
participation in the preventive programs. Is that a correct 
observation?
    Ms. Verma. That is correct.
    Mr. Burgess. And the reason that that is so important, of 
course, is, we will all talk about it here in glowing terms 
that an ounce of prevention is worth a pound of cure, and so we 
are basically paying for that ounce of prevention but we want 
to see the pound of cure. It is important because I am told by 
my staff that the total federal spending over the next 10 
years, combined federal and State spending over the next 10 
years for Medicaid is $7.5 trillion, $750 billion a month. I 
mean, that a phenomenal amount of money. If we could even bend 
the cost curve just a little bit with preventive care, that 
ounce of prevention, that is a hell of a pound of cure.
    Let me just ask you this. What is Indiana doing as far as 
Medicaid expansion is concerned?
    Ms. Verma. Well, I would defer to the State of Indiana to 
answer that officially but I think in the comments that I have 
read, I think that Governor Pence has indicated that he wants 
to understand what the future of the HIP program is before he 
can make a determination about what his position will be on the 
Medicaid expansion.
    Mr. Burgess. Thank you. Mr. Chairman, I just have to 
observe that I was there on the second day of the Supreme Court 
oral arguments, and the discussion from the Solicitor General 
was repeatedly, it is the cost of these free riders that are 
driving up our health care. No. We reimburse so poorly in 
Medicaid that the patients can only do what they have always 
done, which is go to the emergency room, the highest point of 
contact. If we expand the program, we are going to expand the 
problem. I yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the distinguished ranking member of the full 
committee, the Ranking Member Emeritus, Mr. Dingell, 5 minutes 
for questions.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy 
and I thank you for holding this hearing.
    Medicaid is an important and timely topic, especially as we 
are about to greatly expand eligibility of the program as a 
part of the Affordable Care Act. Some of our colleagues here 
continue to ask for flexibility for the States to experiment 
with new and innovative methods of care. However, much 
flexibility already exists in the program, and many States are 
making significant changes using this. These questions are for 
Dr. Thompson, Surgeon General of the State of Arkansas.
    Doctor, I want to commend you for your helpful testimony. 
Doctor, did Arkansas recently implement the Arkansas Payment 
Improvement Initiative after receiving approval from the 
federal government? Yes or no.
    Dr. Thompson. Yes, sir.
    Mr. Dingell. Doctor, how long did it take for Arkansas to 
get that approval?
    Dr. Thompson. We worked 3 years on the development within 
the State but the approval itself was relatively rapidly 
received in 2 months.
    Mr. Dingell. What does that mean? How relatively rapid?
    Dr. Thompson. Two months after our request.
    Mr. Dingell. OK. Doctor, did this new initiative begin to 
transition away from the fee-for-service models towards a more 
value-based payment model? Yes or no.
    Dr. Thompson. Yes, sir.
    Mr. Dingell. And I happen to think, and will you confirm or 
deny this, that that is the direction we are going to have to 
go because one of the things about our system is it is broken 
because we are paying for work done and not for results 
achieved?
    Dr. Thompson. I believe we must align the financial 
incentives for the outcomes that we want, not for the services 
that are provided, and I think that is one of the fundamental 
issues that has yet to be resolved in our health care system.
    Mr. Dingell. Thank you. Doctor, have the reforms 
implemented in Arkansas resulted in cost savings which can be 
quantified? Yes or no.
    Dr. Thompson. Through the first three quarters of the year 
since we implemented this, we have seen a dramatic reduction in 
growth in the Medicaid program. It is lower than it has been in 
the last 25 years.
    Mr. Dingell. Would you submit this for the record? I gather 
the answer to that is yes.
    Dr. Thompson. Yes.
    Mr. Dingell. And would you please submit that for the 
record? Because I have got a lot of questions and very little 
time.
    Dr. Thompson. Yes, sir.
    Mr. Dingell. Doctor, could you now please submit for the 
record a detailed explanation of the initial results following 
the implementation of this new Arkansas plan, please?
    Dr. Thompson. I would be glad to.
    Mr. Dingell. Doctor, in your testimony you mentioned that 
nearly every State has a Medicaid waiver and that there are 
current 381 active waivers. Is that correct?
    Dr. Thompson. To the best of my knowledge, yes, sir.
    Mr. Dingell. It seems to me that the States currently have 
a viable existing pathway to get some flexibility under 
Medicaid. Do you agree with that statement?
    Dr. Thompson. I agree that they have that flexibility.
    Mr. Dingell. Now, this leads me to questions of how many of 
the reforms proposed in a recent report issued by my good 
friend, Chairman Upton, and my other good friend, Senator 
Hatch, titled ``Making Medicaid Work.'' This report proposes to 
eliminate the medical loss ratio provision in the Affordable 
Care Act, which gave the consumers over $1 billion in rebates 
in 2011. The report also suggests that we repeal the 
maintenance-of-efforts provision in ACA, which would allow the 
States to restrict eligibility for the program and would reduce 
access to care. Finally, instead of turning Medicaid into a 
block grant, as has been proposed in years past, this year the 
proposals are a per capita cap on Medicaid spending. Now, 
Doctor, would this new proposal still result in the loss of 
coverage and benefits for beneficiaries? Yes or no.
    Dr. Thompson. Well, sir, I think the report that you allude 
to has several recommendations that I would concur with. The 
three that you identified, I would agree have potential 
problems for the States. A per capita block grant to the States 
in the face of escalating health care costs that are not 
contained is a cost transfer to the State for future rate 
increases on health care.
    Mr. Dingell. It should scare the hell of the States, 
shouldn't it?
    Dr. Thompson. My advice to any governor for a block grant 
is watch out because you are getting a transfer of 
responsibility without control of future rate increases. We 
have to control the cost increases on health care before we can 
actually transfer fiscal responsibility or block off fiscal 
responsibility in the Medicaid partnership.
    Mr. Dingell. Now, Doctor, do you believe that the per 
capita would actually cause innovation by the States or would 
it cause a disruptive nature which would place consumer 
protection of our most vulnerable citizens at risk? I gather 
you agree with that statement, yes?
    Dr. Thompson. I have concerns, and I think I share those 
with others, that caps of any kind without a long-term strategy 
to assure quality while maintaining cost is a risk to the 
beneficiary and it is a transfer of financial and 
responsibility risk to whoever is being capped.
    Mr. Dingell. I am going to make a quick statement and ask 
this. I have the impression that our system is broken because 
we are paying for work done and not for accomplishments and for 
completion of assuring health for the people and that we are 
trying to figure a way to transfer from the current system to a 
system which recognizes the need to get results as opposed to 
just paying for work.
    Now, Dr. Verma and Dr. Thompson and Mr. Keck, do you agree 
with that statement? Yes or no.
    Mr. Keck. Yes.
    Mr. Dingell. Yes?
    Ms. Verma. Yes.
    Mr. Dingell. The reporter doesn't have a nod key so you 
have to say yes or no.
    Ms. Verma. Yes, I do.
    Mr. Dingell. Have you all agreed with that?
    Dr. Thompson. I will be the third to agree, yes.
    Mr. Dingell. Thank you. Mr. Chairman, I thank you for your 
courtesy to me.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Illinois, Mr. Shimkus, 5 minutes 
for questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Dr. Thompson, I want to follow up on Mr. Dingell's, your 
little discussion there. You said how many waivers you asked 
for? Three hundred and eighty?
    Dr. Thompson. No, that is the total number that are active 
across the United States from the most recent information we 
had from the Centers for Medicare and Medicaid Services.
    Mr. Shimkus. And so you all have submitted----
    Dr. Thompson. We have 12.
    Mr. Shimkus. You have 12. And were those 12 active waivers 
all adjudicated or decided in that 2-month window of approval?
    Dr. Thompson. No, some of those waivers took much longer. 
Some of the waivers, as Mr. Keck alluded to, in the past have 
taken years to get conclusion on.
    Mr. Shimkus. Go back through your timeline. Developing your 
program by the State of Arkansas took how long?
    Dr. Thompson. So specific to the payment improvement 
program, which is the most current experience that we have-- 
our Medicaid expansion will be this summer's experience--we 
started off with advice that Mr. Dingell alluded to. My advice 
to the Governor was that our fee-for-service system was broken 
3 years ago. So we spent 2 or 3 years working with both the 
public and private sector. We have Medicaid, we have Blue 
Cross, we have Qual Choice of Arkansas. We have had Walmart as 
a self-insured company join because of their interest in 
changing the way the health care system works. Last October, we 
had Medicare join in our patient-centered medical home effort. 
So we have been developing this over the last 3 years. This 
summer because we were changing the way that we were going to 
incentivize providers to engage with patients to increase the 
individual accountability of patients and also the outcomes 
availability of the providers, we needed to get a State plan 
amendment from the Centers for Medicare and Medicaid Services. 
We applied in, I can't remember if it was June or July but 
within two months had approval from CMS to implement those 
changes, and we started aligning different incentives on 
providers in October.
    Mr. Shimkus. So if nationwide there is 380, on average 
seven-plus waivers applications per State in the process, my 
interest is, obviously I am from the State of Illinois. In my 
personal opinion, we have done a very poor job, and what the 
State did last year, $1.6 billion of cuts to Medicaid program 
and established a moratorium on expansion for 2015, even though 
then we increased enrollment by 15 percent, and by the 
beginning of 2013 the State had a funding gap of $3 billion. 
Just last week, the State received yet another credit rating 
downgrade. It is our second. This is all the cost of a burden 
of States of pension and Medicaid benefits. These are real life 
stories so Illinois has now another credit downgrade, which 
means the cost of borrowing goes up.
    So if you were in the position of the State of Illinois, 
because we are going to expand its Medicaid under ObamaCare, 
bringing on new applicants to a system that is already spending 
$5 billion more, is already expanding our roles, what would you 
suggest the State of Illinois do? Let us go left to right, 
rapidly, because my time is----
    Ms. Verma. OK. I mean, I think you need to take a look at 
managing care, putting in more managed care. I think looking at 
expansion without addressing the core issues and where they are 
spending their money. I think they need to explore different 
innovations, value-based purchasing that we have talked about, 
you know, some sort of a reform on how providers--but I think 
it is also very critical to include the individual in that.
    Mr. Shimkus. The individual has to be in the process of----
    Ms. Verma. The individual has to be part of the equation.
    Mr. Shimkus. Dr. Thompson?
    Dr. Thompson. My quick advice to any governor, including my 
own, was, expansion without efforts to contain costs is a 
budgetary as well as a State failure.
    Mr. Shimkus. I will take that. Mr. Keck?
    Mr. Keck. I hesitate to make a suggestion for Illinois 
but----
    Mr. Shimkus. Please. We need any help we can get.
    Mr. Keck. We want to meet our commitments, and I think we 
are not meeting our current commitments, and what we have told 
our legislature is, we have to pay for our current commitments 
before we expand.
    Mr. Shimkus. And just to finish with Dr. Thompson on this. 
So the way Arkansas has approached this, since ObamaCare has 
really--we are buying off expansion with a promise of federal 
dollars which we will then walk away from the new expansions 
after that. So your bet is, you are going to have a reformed 
system within your State that is able to carry the increased 
Medicaid individuals past a time frame when ObamaCare and the 
additional dollars are gone?
    Dr. Thompson. We undertook payment improvement 3 years ago, 
so it predates our expansion that will go into effect this 
year. Your premise is correct. It is not just for the Medicaid 
program, however. It is that we think our private sector, that 
our business sector, that our economic attractiveness will 
outpace with all due respect our sister States around us 
because we are going to both expand and get coverage in place 
at the same time we are reforming the payment system to make 
sure that it is sustainable.
    Mr. Shimkus. I appreciate that. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from California, Ms. Capps, 5 minutes 
for questions.
    Mrs. Capps. Thank you, Mr. Chairman, and thank you all for 
being here today and for your testimonies.
    As we know, Medicaid is a critical program. It serves over 
70 million families, seniors and individuals with disabilities. 
I think it is important to keep in mind that it is a safety net 
for these people who are otherwise shut out of private 
insurance, either because it is unaffordable, unavailable to 
them or doesn't cover the benefits that they need. So we know 
that individuals with Medicaid are more likely to receive 
preventive health care and less likely to have medical debt 
than their uninsured counterparts. Medicaid, like private 
insurance and Medicare, is trying to confront the same 
challenges of improving quality and cost. So a dialog today 
about improving the system to provide cost-effective, high-
quality health care to many of these individuals who need it is 
really a valuable discussion to have.
    But I think we must be mindful about exactly who will be 
impacted by the decisions that we make or that Congress makes, 
and if we are truly improving care or just passing the buck to 
States, persons with disabilities, seniors, and struggling 
families, in other words, the vulnerable. We have a 
responsibility, I believe, to make our best-faith effort to 
improve the system on behalf of these individuals while 
protecting their access to affordable care. With the 
flexibility provided by Medicaid, a number of States have 
initiated quality improvement activities to improve access to 
preventive services, increased chronic-disease management and 
prevention, and addressed population health.
    So Dr. Thompson, you are here because the Arkansas Medicaid 
program has had great success in collaborating with health care 
providers and the Arkansas Foundation for Medical Care to 
improve quality of care and health outcomes. What are the 
quality issues? I know you have talked about this, but if you 
don't mind restating them, the quality improvement initiatives 
and how do you rank your success to date?
    Dr. Thompson. Well, our State is burdened with a heavy risk 
burden in our population. Fifty percent of our citizens have a 
chronic disease. Our QIO, the Arkansas Foundation for Medical 
Care, has worked closely with our providers, both physicians 
and hospitals, particularly on the hospital side, reductions in 
readmissions, improvements in outcomes after delivery, more 
recently, efforts to reduce premature delivery that then result 
in negative neonatal outcomes. So there are real interests and 
opportunities with providers if the engagement is right, if the 
incentives are aligned correctly to move the system forward in 
a positive way.
    Mrs. Capps. So that is exactly what I was hoping we could 
get at. Could you speak to the success of this program and the 
ways that you have seen care coordination improve across the 
Medicaid providers, and do you believe this program, some of 
the models that you are using, could be enhanced and expanded 
so that other States could take advantage of it?
    Dr. Thompson. What we have done is, we have taken what was 
a quality improvement effort, which is what I have just 
described, and we have now tied the payment mechanism for 
providers to reinforce quality outcomes. We have actually 
taken, for example, our hip and knee surgeries and we have said 
there is a responsibility of the surgeon from 30 days before to 
90 days after for the outcome, and now their payment is tied to 
what the outcome for that patient is. It increases engagement 
with the patient, it increases the decision process of the 
team, and we think it will reduce the cost and inefficiencies 
in the system over time.
    Mrs. Capps. Wow. And you have seen some indications that it 
is working?
    Dr. Thompson. We are starting to see provider behavior 
change, both within the OB episodes, within the hip and knee 
episodes, within the hospitalization episodes, and as we talk 
to providers, almost every association says there is 20 to 30 
percent waste in the system but nobody has ever aligned the 
financial payment mechanisms to have providers lead in 
eliminating that waste.
    Mrs. Capps. That is a good thing to discuss, ways to do 
that without making it seem punitive and punishing. Well, 
anyway, I wanted to get one last question on the table. The 
initiatives that you have undertaken, have they all been done 
within the current statutory and regulatory framework of the 
Medicaid statute? In other words, what kind of waivers have you 
used, how much of this have you been able to do 
straightforward?
    Dr. Thompson. Well, I hope they are all within the 
regulatory and statutory framework of the current Medicaid 
program, or somebody is in trouble. No, we have been able to do 
it. I think it is not an easy path. I think the current 
Administration is streamlining that path, and our recent 
experience has been much better than our past experience. 
Again, that is not with any prejudicial interest on prior State 
or federal Administrations.
    I do think that when a State has a desire to come with a 
plan that safeguards the beneficiaries and their needs, that 
fits into a long-term State plan and that moves the Medicaid 
system as a whole forward, is a prerequisite for successful 
negotiations between the federal and State government.
    Mrs. Capps. Thank you, Mr. Chairman. This was good to hear.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentleman from Louisiana, Dr. Cassidy, 5 minutes 
for questions.
    Mr. Cassidy. Thank you, Mr. Chairman.
    Dr. Thompson, I notice you are wearing Arkansas colors in 
your tie, so I will just say, I am an LSU guy, I couldn't help 
but notice that.
    Listen, I was very intrigued by your testimony. You say 
that the State of Arkansas is contracting on a per-beneficiary 
payment to managed care companies. They are at upside and 
downside risk, correct?
    Dr. Thompson. We do not use a managed care mechanism so it 
is the State itself that is at risk for cost increases or cost 
savings.
    Mr. Cassidy. But there is a per-beneficiary amount, because 
you mentioned there is an upside and a downside.
    Dr. Thompson. The upside and downside risk that I mentioned 
was actually what we have now shifted to our episodes of 
payment to providers. Providers now have the responsibility, 
upside and downside, for the outcomes of the episodes as I 
mentioned.
    Mr. Cassidy. And I am sure they protested, but on the other 
hand, as you point out, they have been able to achieve cost 
savings and increased efficiency.
    Dr. Thompson. Actually, our providers are relatively, I 
will say with some caveat, supportive of our effort. They knew 
the system had to change. They did not want another bureaucrat 
layer put on top, and they said we will take responsibility for 
that clinical----
    Mr. Cassidy. I don't mean to interrupt. So, if you will, 
you are capping the amount of money that goes per episode, and 
I guess the point I am trying to make is that whenever my 
colleagues on the other side tend to suggest that any sort of 
cap whatsoever is going to be deleterious, in reality, you all 
have caps and you have actually seen success?
    Dr. Thompson. In actuality, sir, we have not capped 
anything. The providers----
    Mr. Cassidy. So when there is a bundle-of-care payment, 
that is not really a capped amount but rather it can be----
    Dr. Thompson. It is not a cap.
    Mr. Cassidy. So there is not a true upside and downside?
    Dr. Thompson. There is a target that the lead quarterback 
for the team will have financial impact, but every member of 
the team is still paid.
    Mr. Cassidy. I understand they are still paid, but if they 
exceed that target, do they lose money?
    Dr. Thompson. Not the members of the team but the 
quarterback does.
    Mr. Cassidy. The quarterback does. Yes, so for that 
particular quarterback, there is a cap.
    Dr. Thompson. There is a target.
    Mr. Cassidy. I think we must be using terminology because 
if there is a downside for them, then effectively there is a 
cap.
    Dr. Thompson. Again, sir, I would be glad to share, but we 
have not capped any provider's payment. We have set goals that 
they share in the gains----
    Mr. Cassidy. Then somebody I don't understand how your 
downside works, but let me ask, Mr. Keck speaks about how 
really on a county-by-county basis for somebody, there should 
be variability. I have to imagine our States are similar, that 
in the Delta there is a different patient population and 
different structure of health care as opposed to Fayetteville.
    Dr. Thompson. And without question, different health care 
needs.
    Mr. Cassidy. With that said, who is better equipped to make 
that determination? The county or the State official or rather 
somebody in Washington, D.C.?
    Dr. Thompson. Well, I would say it would be a local 
provider, local community.
    Mr. Cassidy. That seems right. So I think when Mr. Keck 
speaks about the flexibility, I think that is something we can 
all agree on.
    Next I would ask, on the other side there is a lot of 
defense of the status quo in terms of Medicaid, but Dr. 
Thompson, would you agree, I mean, are you aware that some 
States really manipulate the Medicaid system in order to 
maximize federal payments to their State? For example, New 
York, which has half the population of California, gets 33 
percent more federal payments than California.
    Dr. Thompson. I am aware of different strategies that 
States have employed that don't necessarily tie directly to 
patients.
    Mr. Cassidy. Yes, some people call it gaming, and that 
seems to be the legal way to describe it. I am struck that even 
the Democratic witness would agree that there is some problems 
with the status quo, which it seems as if the other side 
doesn't want to admit. In fact, I noticed that you were nodding 
your head yes when Ms. Verma stated that when Medicaid 
empowered patients to consider cost savings, there was actually 
good results that result from that. Could you accept what Ms. 
Verma was saying?
    Dr. Thompson. Well, I think our approach through our 
Medicaid expansion will have cost sharing on individual 
patients.
    Mr. Cassidy. So I was struck that Mr. Waxman suggested if 
any of that occurs, it is going to be terrible for the patient, 
but in reality, I think I am hearing from the witnesses that 
there is actually some positive things that happen both for the 
patient as well as for cost savings.
    Dr. Thompson. But it is with safeguards on the patient.
    Mr. Cassidy. Of course. Everybody accepts safeguards, but 
on the other hand, status quo is status quo, and right now if 
we can do something different, we may improve. I think even our 
Democratic witness is not agreeing with Mr. Waxman on that one.
    Mr. Keck, you seem to suggest that the States could accept 
some limitations on payments as long as they had flexibility 
and net they would come out better. Would you agree with that?
    Mr. Keck. And that is how we pay our managed care plans. We 
capitate them and give them a lot more flexibility and 
negotiate rates, to change benefit structures. They take 
significant risk. We are able to put high accountability on 
them in terms of performance measures.
    Mr. Cassidy. So when Mr. Waxman suggests that any cap 
whatsoever is unworkable and any flexibility given to the 
States to manage is going to be terrible for patients, you are 
saying that wouldn't necessarily be the case?
    Mr. Keck. I don't believe that would be the case at all.
    Mr. Cassidy. You have experience in two States with high 
poverty levels, both Louisiana and South Carolina, so you 
really are where the rubber meets the road, not an ivory tower 
in Washington, D.C., but really where you have to see those 
patients in New Orleans get care. Is that a fair statement?
    Mr. Keck. The rubber meets the road in both South Carolina 
and Louisiana.
    Mr. Cassidy. OK. I am out of time, and I yield back. Thank 
you.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Texas, Mr. Green, for 5 minutes 
for questions.
    Mr. Green. Thank you, Mr. Chairman.
    I know our committee started out with concerns about the 
reimbursement rates. I assume reimbursement rates in Indiana, 
South Carolina and Arkansas are the same as in Texas. 
Reimbursement rates for Medicaid are set by the State, correct?
    Ms. Verma. That is correct.
    Mr. Green. And I know the pecking order. You know, you have 
private insurance here, you have Medicare here, you have 
Medicaid here, and I found out when we started mobilizing our 
reserves in Houston 10 years ago how low TriCare reimbursed our 
physicians and hospitals. But that is set by the State.
    The other issue was, I don't think that in 3 years the 
federal government is going to walk away from--now at 3 years 
it is 100 percent and after that is 90 percent reimbursement. 
Is that correct?
    Ms. Verma. Yes.
    Mr. Green. I wouldn't quite call that walking away from the 
Medicaid responsibility. But anyway, just so we know that.
    I have a district in Texas, a very urban district, and one 
of the highest uninsured rates in the country. I am 
disappointed our legislature did not do something with 
expanding Medicaid similar to what Arkansas has worked on, and 
every once in a while I am jealous of Arkansas's football 
program too when they beat a Texas school. But I would hope we 
would see that change.
    One of my concerns is the churning rate, and in Texas we 
make folks come in for Medicaid every 6 months and even for the 
SCHIP program. Do any of your States have a longer term for 
enrollment than 6 months? Does Indiana have 6 months or a year? 
Arkansas?
    Mr. Keck. We make people redetermine every 12 months, but 
if they have a change in status----
    Mr. Green. Oh, sure, if they have a change in status, but 
you don't make them show up and redo it every 6 months?
    Mr. Keck. No, and we do redeterminations through express-
lane eligibility, which we found to be very effective.
    Mr. Green. What about Arkansas?
    Dr. Thompson. Ours is 12 months. I think important to your 
churning question, our expansion effort, which will use private 
plans, we believe will largely eliminate the churn process 
entirely. People will stay in the plan. The plan will re-enroll 
them. They will not have to touch the Medicaid program.
    Mr. Green. Ms. Verma, what about Indiana?
    Ms. Verma. Yes, in Indiana they have continuous 
eligibility. If there a change, it has to be reported.
    Mr. Green. Sure. That seems reasonable. If there is a 
change, you have the opportunity to go in and check it and do 
that.
    Congressman Barton and I both identified that as one of the 
concerns we have because as a former State legislator, I also 
know we can quantify if we do it every 6 months and 1 year as 
compared to a year how much money we can save over that period 
of time making Medicaid recipients come back and sign up, and I 
have seen the lines out in front of the offices. So hopefully 
we will look at that piece of legislation to have that, unless 
it is changed circumstances. That is the issue.
    Let me talk about Arkansas a little bit. Again, 
congratulations, Dr. Thompson, on some of the considerations. 
What do you think the consequence of not expanding Medicaid 
would have been for Arkansas?
    Dr. Thompson. I believe our health care system was at a 
tipping point. I mentioned earlier we had 25 percent uninsured 
statewide. We had some counties that were approaching 40 
percent of the 19- to 64-year-olds. These people were consuming 
care but not able to pay for it. Our providers were not able to 
stay in business to provide it. I think we were at a tipping 
point that the opportunity under the Affordable Care Act, which 
I won't speak for or against, but as an implementer of the 
Affordable Care Act, I think it led a safe line, particularly 
for our rural health care providers where the uninsurance rates 
were much higher.
    Mr. Green. Well, and again, I am concerned because our 
percentages are the same as Arkansas but with a lot more folks 
that are losing that kind of opportunity to have it.
    Mr. Keck, South Carolina has both a lower rate than Texas 
for churn because you do it on a year. Mr. Keck, in addition to 
the CHIP law, Congress enacted provisions that provide bonus 
money for States to go out and exceed expectations on enrolling 
low-income Medicaid children. I understand South Carolina 
received CHIP bonuses in 2011 and 2012. Would you agree that 
the bonus program is good and positive incentive for States to 
find and enroll lower-income children?
    Mr. Keck. Yes.
    Mr. Green. Do you know how much money the South Carolina 
program received? Because all that money goes back into 
Medicaid, I assume.
    Mr. Keck. We don't have our latest bonus calculated but we 
are committed to--when our legislature sets an eligibility 
limit, we are committed to getting everybody enrolled under 
that eligibility limit.
    Mr. Green. And again, I know private-sector employees 
offered health care benefits with continuous coverage for their 
employees as long as they remain there, and again, Mr. 
Chairman, I would hope we would look at considering that bill 
that Congressman Barton and I have, and I yield back my time. 
Thank you for being here.
    Mr. Pitts. The chair thanks the gentleman. The chair 
recognizes the gentleman from Pennsylvania, Dr. Murphy, 5 
minutes for questions.
    Mr. Murphy. Thank you, Mr. Chairman. I welcome the panel, 
particularly Dr. Thompson. I come from a long list of Murphys 
in Pennsylvania who are physicians: Garland Murphy, Dodie 
Murphy of Springdale, and I don't know if you know any of those 
but if you do, please extend my greetings to them.
    I wanted to ask you first, Dr. Thompson, some questions 
about where Arkansas stands. Your state has recently agreed to 
this Medicaid expansion proposal that carries with it the 
assumption that HHS will let you have approval. Now, my 
understanding is, HHS and CMS have consistently noted publicly 
that nothing is approved for your State. In fact, Administrator 
Tavenner recently said before the Senate Finance Committee: 
``We haven't approved anything.'' So could you outline for this 
committee what Secretary Sebelius in coordination with OMB has 
explicitly agreed to allow Arkansas to do in 2014 as it relates 
to individuals not currently enrolled in your Medicaid program 
under 138 percent of federal poverty level?
    Dr. Thompson. First, let me deal with the approval issue. 
Approval for a State-federal waiver is actually a financial 
contract. So until it is signed by both parties at the end of 
the process, there is no approval. Where we are in our process, 
what we call the private option on Medicaid expansion, which is 
to take Medicaid dollars and use them essentially for premium 
assistance on the private health insurance exchange is an 
accepted concept. Premium assistance has been used before by 
Medicaid programs in limited way to buy private employer-based 
coverage when it was more efficient, effective and cost 
beneficial to the Medicaid program. We are extending that in 
concept to be premium assistance for all newly eligibles on the 
newly established insurance exchange. We think that by 
harmonizing both the cost sharing on individuals above and 
below the Medicaid eligibility line, that we will educate our 
Medicaid eligibles on how to use the health care system as they 
then go up into the health insurance system. They will be 
better informed and prepared to use the health care system in a 
more appropriate way. We will eliminate churn, as we talked 
about before, because people will be in a health plan and 
probably stay in a health plan year after year. The health plan 
will want them to.
    So where we are now is, we have a conceptual agreement of 
where we are going. We are working through the specifics of 
what will end up being a streamlined waiver to get to the 
essentially contractual agreement between the State and the 
federal government on guarantees of coverage and the financial 
aspects of the agreement.
    Mr. Murphy. Let me add one other thing that you can provide 
for us as a follow-up, that is, to provide us with updated 
projected State and federal 10-year costs if Arkansas did not 
expand and thus the individuals above 100 percent of federal 
poverty level acquired private coverage, and two, expanded and 
every individual would be under traditional Medicaid below 130 
percent of federal poverty level, and three, to move forward 
under the legislature per your proposal. That is information I 
would like you to get for us in the future.
    Dr. Thompson. Sure.
    Mr. Murphy. Mr. Keck, I think in your testimony you said 
that 30 percent of health care is waste?
    Mr. Keck. According to the Institute of Medicine and many 
other sources. That is the latest estimate.
    Mr. Murphy. Let me ask you this. When Medicaid dollars come 
through in the federal government, the State level and other 
things, what percent of that is spent on a wide range of 
administrative costs that never get to actual patient care? Do 
you have some estimates of that? Under the current way things 
are spent, do you have any idea?
    Mr. Keck. Well, if you just look at the Medicaid expenses 
in terms of administering the program on the fee-for-service 
side, it is about 3-1/2 percent. On the managed care side it is 
about 9-1/2 percent with a percent of that at risk, but that 
additional expenditure is because they are managing the care 
better.
    Mr. Murphy. So when that is being, rather than that being 
seen as three times the cost and they manage the care better, 
there is an actual difference in improved health care outcomes 
when they specifically coordinate that care of that patient?
    Mr. Keck. Absolutely. I mean, on an annual basis, our 
legislature requires that we compare the cost of our managed 
care programs on a per-member per-month basis to that of the 
fee-for-service program, and even with the additional costs, 
managed care is cheaper than fee-for-service and it produces 
better outcomes.
    Mr. Murphy. One of the things I look upon, when the managed 
care movement hit in the 1990s, I didn't care much for it 
because much of that was managed money and not managed care. 
That is why I like it at more as coordinated care where 
physicians and nurses are in charge of decisions.
    Let me ask another way this can be coordinated. The 
Federally Qualified Community Health Centers, can you tell me 
how your State may work with them with Medicaid to make sure, 
because I am concerned, a lot of people on Medicaid don't 
really have a primary person they keep going to as their home. 
Too often their lives are disrupted. They go from person to 
person to person. Can you give me as an example if that is 
something you work with in your State to help coordinate that?
    Mr. Keck. Absolutely. I mean, in a broad sense, we are 
working with all primary care providers. We are now making 
patient-centered medical home incentive payments. If you become 
certified, you get a per-member, per-month bump to encourage 
people to become certified and eventually we will convert that 
into broader care management payments to these folks. But 
specific to the Federally Qualified Health Centers, I think 
when we talk about the rates of uninsurance, we forget that in 
most States we have very robust networks of Federally Qualified 
Health Centers that were chartered to serve these folks, and we 
spend a lot of money on them and are a great resource, and this 
year in South Carolina we are actually putting quite a bit of 
additional investigation, probably the largest single 
investment that has been made by the State in the history of 
the Federally Qualified Health Centers to expand the presence 
of those and their ability to work with patients.
    Mr. Murphy. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentlelady from Virgin Islands, Dr. Christensen, 
for 5 minutes for questions.
    Mrs. Christensen. Thank you, Mr. Chairman.
    Just for informational purposes, I noted from a Kaiser 
report that in 2001, there were 36.6 million people enrolled in 
Medicaid, and by 2009, there was as many as 62.9 million. That 
was the year that President Obama took office. Just for 
informational offices.
    Dr. Thompson, as a person who worked with some of my 
colleagues when we were drafting the Affordable Care Act who 
advocated for everyone to participate in the exchange including 
those who were previously on Medicaid, I was really pleased to 
read and hear from you that you are transitioning to premium 
assistance, and so you are really demonstrating flexibility and 
the support over the last 3 years of CMS and the Department. So 
I want to applaud Arkansas's creativity and I want to say that 
I enjoyed being in Little Rock last year when the University of 
Arkansas and the Clinton Foundation joined several of us in 
having the conference on health disparities in Little Rock last 
year. So thank you for that.
    Are you using navigators of any kind as you plan that 
transition? Because many of the Medicaid beneficiaries would 
not have much experience in going to a private insurance 
market.
    Dr. Thompson. Since the action of our general assembly, we 
have actually increased the number of navigators our health 
insurance department planned to hire on a short-term basis to 
reach the lower-income community, communities of color, those 
that are Medicaid eligible in a more successful way. We are 
also looking at information we now have inside the Department 
of Human Services, for example, parents of children that are on 
the Our Kids program so that we may have already determined who 
is likely to be eligible for the private option, if you will, 
through the exchange that we have already done an income 
eligibility assessment.
    Mrs. Christensen. And when we were talking about this back 
4 years ago or so, there was concern about wraparound services 
in Medicaid that might be lost. Are you seeing that your 
Medicaid patients would lose anything by going to the exchange?
    Dr. Thompson. This is one of the issues that we are in 
negotiations with CMS about. All of the Medicaid eligibles are 
eligible for wraparound services. However, a majority don't use 
those. They are able-bodied, working individuals that are just 
low income, and so it is those individuals that we anticipate 
putting into the private market, letting them have a private 
experience, not be, if you will, managed by the State, but for 
those whom the private market is not going to be best 
mechanism, we will retain them in the State Medicaid program, 
assure them of the wraparound services and make sure that they 
get the guaranteed benefit as required under federal law.
    Mrs. Christensen. Thank you. And in the wake of the Newtown 
shooting, again to Dr. Thompson, last fall, and the recent 
shootings in Santa Monica, our Nation remains concerned with 
access to mental health services to people with mental illness. 
Congress passed mental health parity legislation in 2008 and 
additional provisions were included ensuring parity for mental 
health services in the Affordable Care Act. A significant 
barrier to access is, of course, not having health insurance, 
so how do you anticipate the Medicaid expansion will help 
Arkansas to address the issue of access to mental health 
services and what challenges do you see in the State for 
improving that access?
    Dr. Thompson. Yes, I believe the requirements under the 
essential benefit plan of the Affordable Care Act and our 
actions on the Medicaid program to buy into that essential 
benefit plan will singularly help both the mental health and 
the substance abuse community because it brings to true parity 
finally the financing mechanism for those services. It will 
have an effect on our workforce. We are going to have to look 
at the organization of our mental health workforce to make sure 
they are in the right place because rural Arkansas does not 
have as deep a bench when it comes to that workforce but I 
think financial barriers have been the number one reason we 
haven't had the right providers and the right place at the 
right time, and through we are trying to solve that first 
barrier.
    Mrs. Christensen. Thank you, and I am sure you have seen 
this report by NAMI, the National Alliance for Mental Health, 
titled ``Medical Expansion and Mental Health Care.'' They quote 
an analysis by SAMHSA that shows that if all States proceed 
with expanding Medicaid, as many as 2.7 million people with 
mental illness who are currently uninsured could get coverage 
that includes almost 1.3 million with serious mental illness, 
and Mr. Chairman, I would like to submit this report for the 
record.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mrs. Christensen. Thanks. I also want to agree with your 
statement, Dr. Thompson, that caps of any kind are a risk to 
the beneficiary, and I would like to add my own point of view 
that not setting the FMAP according to the jurisdiction's 
average income also presents a risk, and I want to thank the 
committee for, one, increasing our cap in the territories 
although we did not remove it entirely but I am still asking 
the committee to help me in passing my bill to change the match 
to give the territories State-like treatment. It costs nothing 
to the federal government but it saves lives and decreases the 
risk for our beneficiaries.
    Thank you. I yield back the balance of my time.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognize the gentlelady from North Carolina, Mrs. Ellmers, for 
5 minutes for questions.
    Mrs. Ellmers. Thank you, Mr. Chairman, and thank you to our 
panelists today for this important subcommittee hearing.
    I am a representative of North Carolina. North Carolina has 
chosen not to opt in to the Medicaid expansion, and I applaud 
that decision that Governor McCrory and the State legislature 
made. Just to quote Governor McCrory, ``The federal government 
must allow North Carolina to come up with its own solutions.'' 
It is a $13 billion program and he refers to it routinely as 
``broken'', and because of that does not want to expand a 
system that is in much need of fixing.
    So with that, and again, I appreciate your testimony today 
on this issue, I have a question for Ms. Verma and Dr. Thompson 
in relation to what Director Keck has basically said in his 
testimony, notes that he sees an opportunity for bipartisan 
agreement that States need more flexibility to manage programs 
locally in exchange for more accountability to improve health 
and reduce costs. Ms. Verma and Dr. Thompson, do you agree that 
Washington's approach, you know, this far with Medicaid is 
outdated, and do you also believe that States have the ability 
that they can with outcome measures and greater flexibility 
improve care and reduce costs?
    Ms. Verma. Yes, I do.
    Mrs. Ellmers. Thank you.
    Dr. Thompson. I think the whole health care system is going 
through a great transition and that States are bringing 
innovative ideas. I think this Administration and the new 
Center for Innovation has 41 different models for States to 
choose from, and I think the partnership between the federal 
and State government should be maintained because that is how 
we are going to get the whole U.S. health care system to a 
different place.
    Mrs. Ellmers. I also have a question, Mr. Keck, for you. In 
South Carolina, I know that South Carolina is working with CMS 
right now on integrating physical and long-term care services 
for 65,000 enrollees. Can you speak to the status of those 
negotiations and maybe give a little bit of a timeline where we 
may go with that in implementation?
    Mr. Keck. Well, we are very supportive of the dual 
integration to manage Medicaid and Medicare patients together 
under a cap, I might add, per member. We have a good working 
relationship with the Office of Dual Eligibles and are working 
hard on that, but to be honest, it is a very, very slow 
process. I think that is the experience that most States have 
encountered, and it is primarily because of working with the 
particular restrictions that Medicare has on the program, but 
we hope to get to a memorandum of understanding by the end of 
this month or the end of July and go live by the middle of 
2014, which is about 6 months behind schedule, but we think it 
is a good effort, and it is a needed effort. The dual eligibles 
are a very large portion of our expenditures, and for both 
Medicare and Medicaid, we have been doing great disservice to 
the taxpayers and to the individuals to not manage these folks 
together.
    Mrs. Ellmers. I agree. Thank you so much.
    And my last question, I have about a minute left. Ms. 
Verma, can you elaborate a little more on some of the 
innovations that your State is making right now to improve upon 
the Medicaid system?
    Ms. Verma. I work with a lot of different States, so it is 
kind of hard specifically, but I will take the Indiana example 
because I think that is the one that I have worked extensively, 
and I think other States are looking at Indiana because of some 
of the innovations it has done. I think what they have really 
done, as we discussed earlier, is trying to empower the 
individual and have the individual as part of the equation. I 
think some of the cost sharing policies are where Indiana and 
other States are seeking waivers, and it is not--you know, the 
cost-sharing policy is not to burden the individual or to, you 
know, try to ration care or limit them from getting care. I 
think it is to incentivize them and to empower them to be a 
part of the equation. And so I think that that is where a lot 
of States are very interested in those types of programs that 
really do put that individual in the position of focusing on 
prevention, focusing on outcomes, and I think a lot of the 
programs, you know, that are based on the physicians--we have 
talked a lot today about outcomes and physician outcomes. Well, 
the individual has to be a part of that. The physician is not 
going to be able to achieve those without it, and I think 
outcomes are also not just for the physicians but even for 
States, and we need to hold states accountable for outcomes as 
well, and so we need to align the providers, the individuals 
and States together in the same direction.
    Mrs. Ellmers. Thank you so much for your testimony, and I 
see my time is expired. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentlelady and now 
recognizes the gentlelady from Florida, Ms. Castor, 5 minutes 
for questions.
    Ms. Castor. Well, thank you, Mr. Chairman, and thank you 
very much to the panel today.
    Over the past decades, the federal-State partnership that 
is Medicaid has evolved and it has changed into more of a 
managed care system. More States have adopted managed care. CMS 
has been granted great flexibility for States to tailor managed 
care Medicaid services.
    I am concerned, though, that we lose some control to the 
managed care companies, some accountability. Could you all give 
me your opinion and identify the most effective waiver 
conditions, oversight initiatives in the states to ensure that 
our tax dollars actually go to medical care and health services 
and not to excessive administrative costs or to excessive 
profits for insurance companies and HMOs?
    Ms. Verma. I think there are a lot of strategies that 
States can take in their managed care contracting, and it all 
has to do with how that contract is set up. I think they can 
put in medical loss ratio requirements that would limit the 
amount of dollars that are spent on administration and on 
profit. There are outcomes measures, and I think that is one of 
the main differences between State government and contracting 
out with a managed care company is that you can require 
outcomes of managed care companies. You can have standards for 
access, standards for maternal and child health outcomes in 
terms of low-birth-weight babies. You know, whatever a State 
wants to attach to the contract, they can in terms of outcomes, 
and that is something that you don't have with, say, government 
with its regular fee-for-service within the Medicaid program 
there is no accountability for the outcomes they achieve.
    Dr. Thompson. I would concur with Ms. Verma. I would add, I 
think it is important to start with what the beneficiaries' 
needs are and make sure that the outcome indicators, the 
expectations of the managed care plan, a managed care plan that 
covers both an urban and a very rural area, network adequacy is 
an important issue so that access issues become important, and 
I think in the 30, 35 States that have large rural areas, an 
important aspect is, how are we going to actually manage care 
in a decentralized, relatively fragmented health care system.
    Mr. Keck. I would agree with both those statements. We have 
had much better luck actually assuring network adequacy in our 
State working with our managed care companies because they are 
able to negotiate individual rates and so if they are having a 
hard time getting a doctor in a particular area, they can pay 
more. We can't do that through our fee-for-service program. So 
we are very specific and spent a lot of time understanding our 
network through geo coding and so on. And we also put our plans 
at financial risk now for outcomes, and they have both 
incentives and they have withholds.
    Ms. Castor. So if they drop the ball, they are not 
providing the services. Are there penalties built into the 
waiver conditions or the contracts, and are you aware of States 
really holding their feet to the fire and providing proper 
oversight?
    Mr. Keck. We don't operate our managed care under a waiver 
but through the contracts, we do hold their feet to the fire, 
and the amount of potential penalty that we have this year on 
our managed care plans could potentially be their entire profit 
margin, and so we are moving forward very aggressively with 
that. Some States are even more aggressive. But again, we 
clearly measure our outcomes and our cost per member per month, 
and we know that managed care, coordinated care is making a 
difference. We think there is a long way to go in terms of 
better managing care on the ground but this is the tool to do 
it.
    Ms. Castor. Dr. Thompson?
    Dr. Thompson. I think we are taking a little bit different, 
maybe a next-generation approach with our payment improvement 
initiative. We are asking the lead provider to manage the 
clinical risk and to have financial incentives, upside and 
downside, while we are retaining the actuarial risk, kind of 
the chance that somebody who has a hip replacement also has a 
heart attack back with the insurance company or with the State. 
So I think both are actually trying to put alignment of 
financial incentives with the outcomes that the State, the 
Medicaid program, the federal government desire, and I think we 
need to probably accentuate the sharpness of our knife that we 
start looking.
    Ms. Castor. In Arkansas, do you all have managed care or 
waiver for the elderly population, skilled nursing and services 
that keep folks out of--because Florida is about to embark on 
privatization of managed care for that population. That is news 
to us. All of the providers are scared to death. They don't 
want to go through a gatekeeper. What has your experience been?
    Dr. Thompson. We have not used a third party, a managed 
care entity, to exercise that option. We do have a waiver, our 
home- and community-based service waiver, that allows the 
family to use the allocated resources that would have been 
spent inpatient in a nursing home for skilled or family-
assisted living to help them stay at home. So we have a waiver 
in place. It is actually high sought after by our families to 
keep their loved one at home. It does not use a third-party 
manager in a manager care type of arrangement.
    Ms. Castor. Thank you very much.
    Mr. Pitts. The chair thanks the gentlelady. I recognize the 
gentleman from Virginia, Mr. Griffith, 5 minutes for questions.
    Mr. Griffith. Thank you, Mr. Chairman. I appreciate that.
    According to the CBO, Medicaid will cost the federal 
government $5 trillion over the next 10 years with as much as 
$638 billion of that directly linked to the expansion of 
Medicaid from PPACA. Recently, the Governor of my State, 
Governor Bob O'Donnell, laid out the need for vast reform to 
make Virginia's Medicaid program more cost-effective before the 
Commonwealth can consider an expansion. The State legislature 
set up a system where they can consider expansion if these 
reforms are met, and there were five tenets that he laid out 
for Medicaid reform: one, service delivery through efficient 
market-based system including more managed and coordinated 
care; two, reducing financial burdens to the State by getting 
assurance from the federal government that expansion will not 
increase the national debt; three, maximize the waivers that 
currently exist to achieve administrative efficiency through 
streamlining of payment and service delivery; four, obtain buy-
in from health care stakeholders in the State for statewide 
reform; and five, achieve greater flexibility by changes to 
federal law including value-based purchasing, cost sharing, 
mandatory engagement in wellness and preventive care, the 
development of high-quality provider networks and flexibility 
around essential health benefits. That is a mouthful. The 
bottom line is, these reforms that Virginia is now discussing 
are on part with the plan laid out by Chairman Upton and 
Senator Hatch to provide States with more flexibility to 
implement their Medicaid programs in a way that makes sense for 
them while better controlling costs.
    Ms. Verma, how do you feel about these Medicaid reforms 
that Virginia is currently exploring? What can we do to help 
the States better service the vulnerable populations that need 
Medicaid while giving the States the flexibility that improves 
the quality of their program, promotes access and gets costs 
under control?
    Ms. Verma. I think that Virginia has all the right elements 
there. I think they have covered the span of identifying 
incentives for providers and individuals but I think the key 
part there is that they are going to need flexibility from the 
federal government to implement those pieces, so that will be a 
critical component. But I think they have the required elements 
of a reform package.
    Mr. Griffith. So you think that that is a good first step?
    Ms. Verma. I think it is a good approach. I am, you know, 
glad to hear that they have also included the individual in 
that piece. I think that is important. They have got the 
providers. They are looking at the benefits. And I think they 
also recognize the important role that the federal government 
plays in this to making that happen.
    Mr. Griffith. Now, as a part of that flexibility for the 
States, how do you feel about the situation where, you know, 
yes, we want to reward folks for doing the right things but 
what if they consistently do the wrong things? Do you think 
there ought to be some kind of a stick that can also be applied 
in that flexibility if somebody continually goes to the most 
expensive health care provider because they just don't seem to 
care that they are running up the cost?
    Ms. Verma. Absolutely, but you have to use those sticks 
appropriately. You have to be mindful of the population. I 
think that the carrots and sticks work differently, the 
different populations. I think a disabled population, those are 
a little bit harder to apply. However, as we are talking about 
Medicaid expansion and able-bodied individuals, I think those 
are probably more appropriate populations that those could be 
effective.
    Mr. Griffith. And that does make sense.
    For everyone, there is always a lot of debate around when 
States can and cannot implement cost sharing. From your 
perspectives, when does cost sharing work and what can be done 
to really allow the customization of cost sharing at a local 
level?
    Ms. Verma. I think cost sharing needs the most work. I know 
CMS did put some proposed rules out that increased the cost-
sharing levels. I think it is a very rigid structure. It only 
requires copays. There is no opportunity to enforce premiums 
for people below 100 percent of poverty. There is no 
flexibility to do value-based where you would be able to vary 
the copays depending on the types of services. And I think the 
enforcement piece of critical. I mean, what happens with copays 
and the way that they have it structured is that it ends up 
being a decrease in the provider reimbursement because 
providers can't collect it.
    Mr. Griffith. And let me go to the others. I only have 
about 45 seconds left.
    Mr. Keck. I will add to that. My hospitals would be remiss 
if to that particular question about cost sharing, I didn't 
mention that we need to do some reforms to EMTALA because 
EMTALA has turned into sort of a blanket reason to be able to 
use the emergency room without regard for appropriate use.
    Mr. Griffith. Sure. Dr. Thompson?
    Dr. Thompson. I think we are on a path to change the 
Administration's proposed rule, which we have incorporated into 
our private option. It is on the right path. I think it is a 
complex system, and at some point, cost sharing, if you are 
only making $6,000 a year, does become a barrier to access. The 
other piece that we have had to work with on our providers and 
our workforce strategy, if you are working an hourly job and 
the doc is only open 8 to 5, you are going to end up going to 
the emergency room. So we need our docs have an after-hours 
clinic and weekend clinics where people are going to do exactly 
what you would expect them to do. They are not going to lose an 
hour's wage to go to the doctor in the middle of the day when 
they can go to the emergency room at night. So this is part of 
a total system change. It involves workforce, it involves 
access, and most importantly, it does involve finance.
    Mr. Griffith. I thank you all for being here. Mr. Chairman, 
I yield back.
    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 yield my 5 minutes to 
Dr. Burgess.
    Mr. Burgess. I thank the gentleman for yielding.
    Dr. Thompson and Mr. Keck, really to both of you, there 
seems to be a good deal of antipathy toward the fee-for-service 
system, and yet the fee-for-service system is what many doctors 
have grown up with, what we rely upon. I would submit--and I 
realize that the Medicaid system is not directly analogous to 
the food stamp system but I suspect that if you tried to do a 
food stamp system that was not fee-for-service based, taking 
the basket to the marketplace and not paying a fee for every 
service that you loaded into the cart would be problematic. Is 
that an unfair observation?
    Mr. Keck. Well, I think fee-for-service is not universally 
the cause of all our problems, and there is actually within the 
system places where you want to use fee-for-service to 
encourage volume and productivity, and there are other areas 
where you want to use bundled payments and capitation and so on 
to encourage parsimony in the use of services.
    Mr. Burgess. Dr. Thompson, do you have an observation on 
that?
    Dr. Thompson. Yes. I would just offer, our payment 
improvement still pays claims in the same way that we did under 
a fee-for-service system, so we are still paying providers for 
the care at the point of delivery when they have care. What we 
have done is, we have put a quarterback on the team that now 
has the responsibility for the outcome.
    Mr. Burgess. Let me ask you a question about that. Is the 
quarterback always a physician? You referenced prenatal care. 
Is the quarterback always the OB doctor in that instance?
    Dr. Thompson. The quarterback has been decided by our 
multi-payer effort to date consistently. It is the provider who 
has the most influence on the system, the most ability to make 
change and the most financial interest. It is usually the 
physician. With respect to congestive heart failure readmission 
rates, it is the index hospital because they know when they are 
discharging the patient and----
    Mr. Burgess. But they own all the doctors now so there is 
no--it has to be the hospital. There is no other entity to be 
identified.
    Well, you know, when I think about the food stamp system 
and the Medicaid system, when I go to my market at home and I 
am behind someone in line who has the Lone Star code, which in 
Texas is the food stamp, the way that is utilized, there 
oftentimes will be a brief discussion between the cashier and 
the individual buying the products, and, you know, they have 
identified out of a large bill, here is a certain number of 
dollars of things you have picked up that are not covered and 
you will have to pay cash for those, and there is no effort to 
embarrass the person. It is just simply they pay the dollars 
that are required. Why would it be hard to construct a system 
like that within the Medicaid system? That is, the patient 
comes and in fact some of the bill could be borne by the 
patient. You referenced the harshness of copayments or people 
who would have to pay some of their own money, but it seems 
like there has got to be a happy medium there where some 
additional money can be brought to the system by the person who 
is ultimately utilizing the system.
    Dr. Thompson. Well, let me use your food stamp example. Our 
payment improvement effort is like sending a nutritionist 
through the aisle with the patient, with the individual, so we 
are actually putting a nutritionist with that food stamp 
recipient as they buy their food. To your issue on sharing, 
that is exactly what the Affordable Care Act does through the 
exchange. We set an essential benefit plan. There is a tiered 
level of coinsurance, co-risk that decreases the lower a 
family's income is. What we have done in our State is, we have 
layered one more layer underneath that that says for the 
poorest of the poor, we will put some cost sharing in place but 
we are going to offer some protections.
    Mr. Burgess. And let me ask you a question about the 
concept of premium support because, I mean, to some degree that 
has gotten a bad rap here in Congress. It is called a voucher, 
and it is talked about in a derogatory term, but it sounds like 
you are using that to your advantage. Premium support is part 
of your so-called private option. Is that not correct?
    Dr. Thompson. We believe, our Republican leadership and our 
Democratic Governor believes using the private sector with 
competition for provider rates and with competition for 
patients essentially is the best way to consider expanding 
Medicare because it is not a traditional State Medicaid 
expansion. It does not have the cliff of people then wanting to 
stay on Medicaid and not moving to private insurance.
    Mr. Burgess. Let me ask you this, because Dr. Murphy asked 
a question about the Federally Qualified Health Centers. The 
liability coverage is handled differently in a Federally 
Qualified Health Center. Texas several years ago experimented 
with providing the first $100,000 of liability coverage to a 
provider who was doing a certain percentage of Medicaid in 
their practice. Have you looked at that in Arkansas as a 
possibility? You need to bring providers into the system. Most 
of us recognize that it is that first $100,000 of liability 
that is where the real vulnerability exists. Medicaid patients 
do sometimes carry higher liability risk. Have you looked at 
that in Arkansas?
    Dr. Thompson. We have not looked at that as a way of 
recruiting providers. We have a relatively high provider 
participation rate because we use electronic payment within 72 
hours of service delivery. So our discounted prices we have 
combated with increased cash slow and responsiveness to 
treatment, but that has been our tool. I think your suggestion 
would be very open to our medical society and probably our 
Medicaid program.
    Mr. Burgess. Is that something you are willing to look at?
    Dr. Thompson. I would be glad to.
    Mr. Burgess. Thank you.
    Mr. Chairman, I have a series of questions on Medicaid as 
the payer of last resort. I guess the appropriate think would 
be to submit that for the record because I would like each of 
you to respond to that. The Government Accountability Office 
did a study back in 2006 and looked at the States that were 
collecting from--that were covered under Medicaid but also had 
simultaneous coverage under either an individual plan or a 
group plan. For each of your States, it is about a 10 percent 
rate of people who are covered, have dual coverage, and I would 
just be interested in your thoughts as you expand managed care, 
are we going to make that problem worse, and how can we get 
at--I mean, when you talk of $750 billion a year, 10 percent of 
that is a lot so we really ought to attempt to--we can't just 
leave that money on the table. If it is owed by private 
insurers, it should be paid by private insurers. But I will 
submit that in writing. I would each of your responses to that.
    And finally, Mr. Chairman, I would like to ask unanimous 
consent to put into the record an article from the New England 
Journal of Medicine titled The Oregon Experiment: Effects of 
Medicaid on Clinical Outcomes.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. That concludes the questions from the members. 
The members will have additional questions that we will ask 
them to submit in writing. We will ask the witnesses to please 
respond promptly.
    Thank you very much for your testimony today, and let me 
remind members, they have 10 business days to submit questions 
for the record, and members should submit their questions by 
the close of business on Wednesday, June 26.
    It has been a very informative hearing. Thank you very 
much. Without objection, the subcommittee is adjourned.
    [Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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