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

                        EXAMINING TRADITIONAL MEDICARE'S
                                 BENEFIT DESIGN

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

                                    HEARING

                                   before the

                             SUBCOMMITTEE ON HEALTH

                                     of the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                   __________

                                 FIRST SESSION

                                   __________

                               FEBRUARY 26, 2013

                                   __________

                              Serial No. 113-HL01

                                   __________

             Printed for the use of the Committee on Ways and Means

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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                          COMMITTEE ON WAYS AND MEANS

                         DAVE CAMP, Michigan, Chairman

    SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
    KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    DAVID G. REICHERT, Washington        XAVIER BECERRA, California
    CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
    PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
    JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
    TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
    VERN BUCHANAN, Florida               RON KIND, Wisconsin
    ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
    AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
    LYNN JENKINS, Kansas                 ALLYSON SCHWARTZ, Pennsylvania
    ERIK PAULSEN, Minnesota              DANNY DAVIS, Illinois
    KENNY MARCHANT, Texas                LINDA SANCHEZ, California
    DIANE BLACK, Tennessee
    TOM REED, New York
    TODD YOUNG, Indiana
    MIKE KELLY, Pennsylvania
    TIM GRIFFIN, Arkansas
    JIM RENACCI, Ohio

            Jennifer M. Safavian, Staff Director and General Counsel
                      Janice Mays, Minority Chief Counsel

                                     ______

                             SUBCOMMITTEE ON TRADE

                          KEVIN BRADY, Texas, Chairman

    SAM JOHNSON, Texas                   JIM MCDERMOTT, Washington
    PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
    DEVIN NUNES, California              RON KIND, Wisconsin
    PETER J. ROSKAM, Illinois            EARL BLUMENAUER, Oregon
    JIM GERLACH, Pennsylvania            BILL PASCRELL, JR., New Jersey
    TOM PRICE, Georgia
    VERN BUCHANAN, Florida
    ADRIAN SMITH, Nebraska

                                C O N T E N T S

                                   __________
                                                                       Page

    Advisory of February 16, 2013, announcing the hearing............     2

                                   WITNESSES

    Glen M. Hackbarth, Chairman, Medicare Payment Advisory Commission     6
    A. Mark Fendrick, M.D., Director, University of Michigan Center
      for Value-Based Insurance Design...............................    31
    Tricia Neuman, Senior Vice President and Director, Kaiser Program
      on Medicare Policy, Kaiser Family Foundation...................    39

                                     ______

                           SUBMISSIONS FOR THE RECORD

    AARP, letter.....................................................    81
    AFL-CIO, statement...............................................    84
    AFSCME, statement................................................    89
    Alliance for Retired Americans, statement........................    93
    American Academy of Actuaries, statement.........................    97
    California Health Advocates, statement...........................   107
    Center for Fiscal Equity, statement..............................   117
    Council for Affordable Health Insurance, statement...............   121
    Leadership Council of Aging Organizations, letter................   126
    National Alliance on Mental Illness, statement...................   128
    National Association for Home Care and Hospice, statement........   133
    National Committee to Preserve Social Security and Medicare,
      statement......................................................   143
    UAW, statement...................................................   145
    USW, statement...................................................   148

                EXAMINING TRADITIONAL MEDICARE'S BENEFIT DESIGN

                                  ----------

                           TUESDAY, FEBRUARY 26, 2013

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                        Subcommittee on Health,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:26 a.m., in
    Room 1100, Longworth House Office Building, the Honorable Kevin
    Brady [chairman of the subcommittee] presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

    FROM THE
    COMMITTEE
     ON WAYS
    AND
    MEANS

     Chairman Brady Announces Hearing on Examining Traditional Medicare's
                                 Benefit Design

    Washington, Feb. 2013

        House Ways and Means Health Subcommittee Chairman Kevin Brady (R-
    TX) today announced that the Subcommittee on Health will hold a hearing
    to review the current benefit design of the Medicare Fee-For-Service
    program and consider ideas to update and improve the benefit structure
    to better meet the needs of current and future beneficiaries. The
    hearing will take place on Tuesday, February 26, 2013 in 1100 Longworth
    House Office Building, beginning at 10:30 a.m.

        In view of the limited time available to hear from witnesses, oral
    testimony at this hearing will be from invited witnesses only. However,
    any individual or organization not scheduled for an oral appearance may
    submit a written statement for consideration by the Committee and for
    inclusion in the printed record of the hearing. A list of witnesses
    will follow.

    BACKGROUND:

        Created in 1965, the Medicare benefit was originally modeled on the
    Blue Cross Blue Shield plans that were prevalent throughout the nation
    at that time. However, the last half-century has seen significant
    changes in how health care benefits are designed and delivered. Yet
    Medicare retains the original bifurcated system of hospital and
    physician services, and has an array of confusing deductibles and
    coinsurance levels that neither creates incentives for beneficiaries to
    make better decisions about their health care needs nor protects
    beneficiaries from unexpected health costs. Not surprisingly, many
    beneficiaries purchase additional coverage to bring more certainty and
    clarity to their out-of-pocket costs.

        To address these and other concerns, the Medicare Payment Advisory
    Commission (MedPAC) made recommendations in its June 2012 Report to
    Congress to redesign the traditional Medicare benefit package. In this
    report, MedPAC suggested improving and updating Medicare's current cost
    sharing structure, by maintaining on aggregate the same level of cost
    sharing as the traditional benefit, but redistributing cost sharing
    through the use of tiered copayment, coinsurance and a new combined
    deductible for Medicare Parts A and B. MedPAC also recommended
    providing an out-of-pocket maximum for beneficiaries in traditional
    Medicare, protection that is currently required of Medicare Advantage
    plans or obtained by beneficiaries through the purchase of supplemental
    insurance. A number of other bipartisan commissions have recommended
    similar changes to traditional Medicare's benefit design.

        In announcing the hearing, Chairman Brady stated, ``There is
    bipartisan recognition that the current structure of the Medicare
    benefit is outdated, confusing, and in need of reform, and taking steps
    to improve the current array of confusing deductibles, copayments and
    coinsurance is long overdue. This hearing will enable the Subcommittee
    to investigate the limitations, inefficiencies and inadequacies of
    traditional Medicare's cost sharing structure and identify ways to
    bring the Medicare program into the 21st Century.''

    FOCUS OF THE HEARING:

        The hearing will review the current Medicare benefit design and
    examine ways to improve it.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    for the hearing record must follow the appropriate link on the hearing
    page of the Committee website and complete the informational forms.
    From the Committee homepage, http://waysandmeans.house.gov, select
    ``Hearings.'' Select the hearing for which you would like to submit,
    and click on the link entitled, ``Click here to provide a submission
    for the record.'' Once you have followed the online instructions,
    submit all requested information. ATTACH your submission as a Word
    document, in compliance with the formatting requirements listed below,
    by the close of business on Tuesday, March 12, 2013. Finally, please
    note that due to the change in House mail policy, the U.S. Capitol
    Police will refuse sealed-package deliveries to all House Office
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    please call (202) 225-1721 or (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
    Committee by a witness, any supplementary materials submitted for the
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    written comments must conform to the guidelines listed below. Any
    submission or supplementary item not in compliance with these
    guidelines will not be printed, but will be maintained in the Committee
    files for review and use by the Committee.

        1. All submissions and supplementary materials must be provided in
    Word format and MUST NOT exceed a total of 10 pages, including
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    relies on electronic submissions for printing the official hearing
    record.

        2. Copies of whole documents submitted as exhibit material will not
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        3. All submissions must include a list of all clients, persons and/
    or organizations on whose behalf the witness appears. A supplemental
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        The Committee seeks to make its facilities accessible to persons
    with disabilities. If you are in need of special accommodations, please
    call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
    business days notice is requested). Questions with regard to special
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        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Chairman BRADY. The subcommittee will come to order.
    Welcome to the first hearing of the Health Subcommittee for the
    113th Congress. Today we will review the outdated and confusing
    benefit design of the traditional Medicare program, the
    structure of which is essentially unchanged from its inception
    in 1965 it maintain separate programs and benefits for hospital
    and physician services, and doesn't coordinate care between the
    two.
        Because of the outdated structure of the Medicare benefit,
    today's beneficiaries are inundated with an array of confusing
    deductibles, coinsurance and copayments with no protection from
    high healthcare costs unless they enroll in a private plan. As
    a result, over 90 percent of seniors must obtain some type of
    supplemental coverage, whether a purchase on their own, through
    an employer or from Medicaid.
        Despite vast improvements and innovations in the healthcare
    sector that have transformed how care is delivered, Medicare
    has lumbered through the past half century on the same
    trajectory. Can you imagine a world where someone has to buy
    hospital and nursing home coverage from one insurance company,
    physician office coverage from another insurance company,
    prescription drug coverage from yet another company, and likely
    supplemental coverage from a fourth insurance company? Yet this
    is exactly how the current Medicare benefit is designed. No
    private insurance company in its right mind would design and
    offer a benefit that looks like this. And given a choice, most
    seniors wouldn't accept it.
        The need to reform the outdated Medicare benefit is long
    overdue. I appreciate the work of the nonpartisan Medicare
    Payment Advisory Commission and bipartisan groups like the
    Bowles-Simpson Commission and Bipartisan Policy Center to
    further this issue. Their effort to dig into this complicated
    topic and advance long-overdue reform has been critical.
        Updating the Medicare benefit design will bring the program
    into the 21st century and meet the needs of current and future
    seniors. It will bring the traditional Medicare benefit in line
    with the types of benefits and cost sharing that one in four
    beneficiaries currently enjoy from Medicare Advantage plans.
    These plans are able to offer predictable copayments versus
    coinsurance, protection against high out-of-pocket costs, and
    are often able to incentivize beneficiaries to receive care in
    high-quality and efficient settings.
        However, as we will hear today, because of changes included
    in Obamacare and regulations developed by the Centers for
    Medicare and Medicaid Services, Medicare Advantage plans have
    fewer opportunities to design the benefit packages that
    beneficiaries want. Instead of promoting this model, the
    President's new healthcare law is pulling these plans and the
    13 million beneficiaries enrolled in them back into the 1960s.
        For the sake of our seniors, we need to break down barriers
    and give these plans greater flexibility to continue to
    innovate and offer affordable coverage while improving patient
    outcomes. This is something traditional Medicare has not been
    able to do. Moving from Medicare's half-century old design to
    one that provides beneficiaries with rational cost sharing and
    protection from high healthcare costs will be challenging, but
    it is necessary. Simply maintaining the current outdated,
    confusing and inefficient structure while the program remains
    on a quiet path to insolvency, is not the answer. Instead we
    have to move forward to improve this critical program,
    providing greater protections for seniors and placing the
    program on sound financial footing.
        It is my hope that this hearing will be the start of
    efforts to work in a bipartisan fashion to modernize the
    Medicare program for all seniors and people with disabilities.
        Before I recognize Ranking Member McDermott for the
    purposes of an opening statement, I ask unanimous consent that
    all Members' written statements be included in the record.
    Without objection, so ordered.
        Chairman BRADY. I now recognize Ranking Member McDermott
    for his opening statement.
        Mr. McDERMOTT. Thank you, Mr. Chairman. I look forward to
    this process. And I was just sitting up here thinking that Mr.
    Johnson and I were the only two people who sit on this
    committee who remember the last time this committee tried to
    reform the benefit package. That was 1988. It was a
    catastrophic--it was called the Medicare Catastrophic Coverage
    Act. It had an outpatient prescription drug benefit and a cap
    on beneficiaries' out-of-pocket costs. And my first vote in the
    Congress in 1989 in this committee was to vote against the
    repeal of that change. So I think that as we move forward into
    this area, we really ought to keep in mind what happened then.
        Republicans often assert that Medicare is outdated and
    needs reform, and I agree. No social program could ever be
    designed that anticipates what is going to happen 50 years
    later, or 60 or 70 years later, but they ignore that
    substantial progress has already been made to strengthen the
    essential program.
        The ACA reduces Medicare spending, extends its solvency,
    and brings growth to per-patient costs to record lows.
    Preventive services are now free of charge to beneficiaries,
    and we finally have laid the groundwork to reward treatment
    value over volume.
        Yet further improvements are needed, but much of the
    current Republican proposal does more harm than good, in my
    view. Benefit restructuring specifically to generate savings,
    whether in the name of deficit reduction, paying for other
    initiatives, or simply masquerading as reform, is bad policy
    and bad politics; 1989. It may be tempting when running the
    numbers and calculating the averages, but it is all too easy to
    lose sight of the very real people whose lives and well-being
    hang in the balance.
        For example, we long sought to add catastrophic coverage to
    Medicare, and I have talked about that. If it is combined with
    a unified deductible to offset the change, it inevitably will
    mean raising the costs to roughly four out of five
    beneficiaries. Moving to a combined deductible of $500 or more
    will triple the current Part B deductible. A surprising number
    of beneficiaries have costs below $500 and so would pay monthly
    premiums for benefits they never use. Meanwhile, the
    catastrophic cap almost certainly will be set at such a high
    level that it will benefit only a few, probably 5 percent or
    so, of the beneficiaries.
        These challenges become even more complicated if cost
    sharing is reconfigured by creating new copays or increasing
    coinsurance for current services like hospital visits and home
    health care. And given the average beneficiary makes only about
    $22,500 and already spends disproportionately more on health
    care than a younger person, additional premium cost is done at
    some risk.
        At a minimum, benefit redesign would require a substantial
    expansion of the Medicare Savings Program to ensure
    affordability for low-income Medicare patients. And with all
    but 12 percent of Medicare participants receiving supplemental
    coverage that insulates them from potential changes, the
    question is, why do it? The answer is because some want to
    prohibit or discourage first-dollar coverage in supplemental
    plans.
        Then the tradeoffs get even more tricky. Do you want to
    dictate terms of private insurance? Do you instead penalize
    beneficiaries for choices they made in the free-enterprise
    system? Do you tell employers what retiree benefits they can or
    cannot offer? What do you say to people who have already traded
    lower wages for better retiree coverage?
        Now, we are all searching for the ever-elusive health
    policy holy grail that promotes value over volume and quality
    over quantity, but there isn't a simple answer. Our ability to
    reliably measure quality and value is in its infancy, and there
    is much work to be done. Even with good information, purchasing
    health care is different from making other expenditures. Few
    patients can shop around for bargains when their health is on
    the line, nor should we expect it of them.
        On a final note, I want to express my optimism that
    bipartisanship will enable the committee to move forward on the
    SGR reform. We are all tired of doing the SGR patch. The recent
    Republican outline leaves plenty of room for agreement if
    people want to find it. If done smartly, this issue could
    reshape our entire health economy for the better, but costs
    can't just be hoisted onto the backs of the beneficiaries.
    There are better options with stronger policy justifications to
    pay for the needed SGR policy changes.
        With that, I look forward to discussing the many tradeoffs
    inherent in reconfiguring Medicare's benefit package with
    today's expert witnesses.
        Thank you, Mr. Chairman.
        Chairman BRADY. Great. Thank you, sir.
        Chairman BRADY. Today we will hear from three witnesses:
    Glenn Hackbarth, Chairman of the Medicare Payment Advisory
    Commission; Dr. Mark Fendrick, director of the Center for
    Value-Based Insurance Design at the University of Michigan; and
    Tricia Neuman, senior vice president of the Kaiser Family
    Foundation and Director of the Foundation's Program on Medicare
    Policy.
        Thank you all for being here today. I look forward to your
    testimony. You will be recognized for 5 minutes for the
    purposes of an opening statement.
        Mr. Hackbarth, we will begin with you.

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

        Mr. HACKBARTH. Thank you, Chairman Brady, Ranking Member
    McDermott, and members of this Health Subcommittee. It is a
    pleasure to be here to talk to you about the Medicare benefit
    design.
        Mr. McDermott, I am also one who has very sharp memories of
    catastrophic insurance. In 1988, I was the Deputy Administrator
    of the Health Care Financing Administration, so I join you and
    Mr. Johnson in those recollections.
        The current Medicare benefit package is both inadequate and
    confusing. It is inadequate because it lacks catastrophic
    coverage, one of the most important features of any insurance
    program, and it is confusing for all of the reasons that Mr.
    Brady mentioned in his opening statement; Part A and B, and
    various deductibles, and use of coinsurance instead of
    copayments. Given that, it is not surprising that many Medicare
    beneficiaries, in fact the vast majority, want to have
    supplemental coverage to augment Medicare.
        MedPAC has recommended redesign of the Medicare benefit
    package using five principles as guideposts. First of all,
    there should be no increase in average liability for Medicare
    beneficiaries. We believe the existing Medicare benefit package
    is not too rich. If anything, given the population served, it
    may be too lean, and so we recommend no reduction in the
    actuarial value of the benefit package.
        Second, we recommend that an out-of-pocket limit be added
    to the program, catastrophic coverage.
        Third, we recommend that design of the benefit be
    simplified so it is more readily understood and more
    predictable for Medicare beneficiaries.
        Fourth, we recommend that the Secretary of HHS be given
    broad authority to modify cost sharing, both reduce and
    increase cost sharing, based on the value of the services
    provided, and that assessment, of course, should be based on
    scientific evidence.
        And finally, we recommend a charge on supplemental
    insurance. When a beneficiary buys supplemental insurance, that
    increases the cost of care incurred by the Medicare program.
    The premium paid by the beneficiary only covers a fraction of
    that added cost. We think it is appropriate for there to be a
    charge on that supplemental insurance to reflect, in effect,
    the implicit subsidy from the taxpayer for supplemental
    coverage.
        I want to emphasize that we do not recommend prohibiting
    various types of supplemental coverage. If a beneficiary wishes
    to buy first-dollar coverage, he or she should be able to do
    that, but they ought to face more of the added cost to the
    Medicare program resulting from that private choice.
        Whenever you talk about patient cost sharing, two types of
    concerns are raised. In fact, during MedPAC's discussion of
    this issue, we spent a lot of time on each of these questions.
    The first concern is that cost sharing reduces the use of both
    appropriate and inappropriate services. The evidence is pretty
    clear on that. So if our supplemental charge were to cause
    Medicare beneficiaries to stop having first-dollar coverage and
    face more cost sharing, there would be the risk that some
    appropriate services would be stopped as well as inappropriate
    services.
        The fear, of course, is that when that happens, two bad
    things can occur. One is the total cost of care could increase.
    If patients don't get needed care, they could end up with
    hospitalizations that cost more. In addition, they could end up
    with a worse outcome, which none of us want. This is why it is
    so important to give the Secretary of HHS authority to modify
    copayments based on the value of the services provided. If a
    service is shown to be a very high value for patients, we ought
    to seek to lower the cost sharing. If the value is low, we
    ought to seek to increase the cost sharing.
        The second concern that is often raised when patient cost
    sharing is discussed is the effect on low-income beneficiaries,
    and that would be true, of course, also with our charge on
    supplemental insurance. If the concern is protection of low-
    income beneficiaries, as well it might be, we think a targeted
    approach is preferable.
        For example, expansion of the Medicare Savings Program, the
    program for qualified Medicare beneficiaries that pays cost
    sharing for low-income beneficiaries. That sort of a targeted
    approach is preferable to this implicit subsidy that is offered
    for supplemental coverage that is available to beneficiaries of
    both low and high incomes. So target our response to these
    problems.
        With that, Chairman Brady, I look forward to your
    questions.
        Chairman BRADY. All right. Thank you, Mr. Hackbarth.
        [The prepared statement of Mr. Hackbarth follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BRADY. Dr. Fendrick.

     STATEMENT OF A. MARK FENDRICK, M.D., DIRECTOR, UNIVERSITY OF
            MICHIGAN CENTER FOR VALUE-BASED INSURANCE DESIGN

        Dr. FENDRICK. Good morning, and thank you, Chairman Brady,
    Ranking Member McDermott and Members of the Subcommittee. I am
    Mark Fendrick, a professor at the University of Michigan. I
    address you today as a primary care physician, medical
    educator, and a public health professional.
        Mr. Chairman, I completely agree with your statement that
    the current structure of the Medicare benefit is outdated,
    confusing, and in need of reform. Moving from a volume-driven
    to a value-based system requires both a change in how we pay
    for care, and how we engage consumers to seek care.
        With some notable exceptions, most U.S. health plans
    including Medicare implement cost sharing in a ``one size fits
    all'' way, in that beneficiaries are charged the same amount
    for every doctor visit, every diagnostic test and every
    prescription drug. As Mr. Hackbarth just mentioned, asking
    Americans to pay more for all services results in decreases in
    both non-essential and essential care. While this blunt
    approach may reduce short-term expenditures, noncompliance with
    high-value services often leads to adverse health outcomes and
    higher overall costs. This is penny wise and pound foolish.
    Conversely, asking Americans to pay less for all services can
    lead to the overuse of harmful services and those that provide
    little value. The concept that medical services differ in the
    health benefits they produce is referred to as clinical nuance,
    and clinical nuance should be utilized in the reallocation of
    medical spending.
        Mr. Chairman, does it make sense to you that my Medicare
    patients pay the same copayment for a life-saving cancer drug
    as a drug that will make their toenail fungus go away? Due to
    the lack of appropriate incentives, Medicare beneficiaries use
    too little high-value care, and too much low-value care. It is
    common sense; when barriers to high-value treatments are
    reduced and access to low-value treatments is discouraged, we
    obtain more health for every dollar spent.
        Medicare is a key component to our Nation's commitment to
    our elderly and disabled, and it must be sustained. Even with
    the recent advantage regarding preventive services, as Mr.
    McDermott mentioned, traditional Medicare allows little
    flexibility to implement clinically driven benefits.
    Specifically program administrators cannot lower cost-sharing
    levels for services recommended in clinical guidelines, and
    they are also limited in the amount they can increase
    coinsurance rates for a harmful procedure.
        Since changes to traditional Medicare are difficult, an
    interim step could be to legislate changes to Medicare
    Advantage. Today the tools available to MA are also blunt
    instruments. Legislative and regulatory restrictions prevent
    clinical nuance in MA, including the lack of flexibility to
    steer patients to high-performing providers in a very rigid
    benefit design.
        To this I recommend the following recommendations: First,
    MA plans should have the flexibility to vary cost-sharing for a
    particular service according to where the service is provided
    and by whom. The Commonwealth Fund recently estimated that
    nearly $200 billion in savings would accrue to Medicare over
    the next decade if we were to ``develop a value-based design
    that encourages Medicare beneficiaries to obtain care from
    high-performing systems''. Currently MA plans use provider
    networks, but they are limited in how they may vary cost-
    sharing within that network. This restriction forces MA plans
    to either exclude low-performing providers completely or permit
    complete access to them. There is no intermediate step.
        Second, MA plans should have the flexibility to impose
    differential cost sharing based on evidence. There are
    evidence-based services that I beg my patients to do, such as
    critical treatments for asthma, diabetes, and depression. There
    are also other services that are harmful or unnecessary, and
    according to the literature, these services account to nearly
    20 percent of Medicare expenditures.
        Last, MA plans should have the flexibility to set enrollee
    cost sharing based on clinical information, such as diagnosis.
    MA plans are currently constrained by non-discrimination rules
    that prohibit different benefits for targeted subgroups of
    beneficiaries. Even though the clinical appropriateness of a
    specific service may vary widely among MA enrollees, cost
    sharing for any service must be the same for everyone. The
    flexibility to enroll cost sharing based on scientific evidence
    and clinical information is a crucial element to the safe and
    efficient allocation of Medicare expenditures.
        So as you consider changes to Medicare benefits, it is my
    hope that you will take the commonsense step to allow MA plans
    to vary cost sharing on the amounts of health produced. Despite
    the urgency to bend the cost curve, Congress should avoid blunt
    changes that reduce quality of care. Using benefit design to
    encourage utilization of high-value services and deter access
    to low-value services can improve health, enhance personal
    responsibility, and reduce costs.
        I look forward to your questions.
        Chairman BRADY. Thank you, Doctor, very much.
        [The prepared statement of Dr. Fendrick follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BRADY. Ms. Neuman.

    STATEMENT OF TRICIA NEUMAN, SENIOR VICE PRESIDENT AND DIRECTOR,
      KAISER PROGRAM ON MEDICARE POLICY, KAISER FAMILY FOUNDATION

        Ms. NEUMAN. Thank you, Chairman Brady, Ranking Member
    McDermott, and distinguished Members of the Subcommittee. I
    appreciate the opportunity to testify at a hearing examining
    the traditional Medicare benefit design.
        Since the 1970s, the idea of simplifying benefits under
    traditional Medicare has been under discussion, but proposed
    solutions have typically involved very difficult tradeoffs. A
    change in the benefit design could streamline and simplify
    benefits, could provide greater financial protections to people
    with significant expenses, and minimize the need for
    supplemental insurance, but as structured to produce Medicare
    savings, such a change could also be expected to increase costs
    for the majority of beneficiaries.
        Medicare provides highly valued health insurance for 50
    million people, Americans, many of whom have significant
    medical needs and modest incomes. Four in ten have at least
    three chronic conditions; one in four has a mental or cognitive
    impairment; half live on an income of less than $23,000.
        As noted in your announcement for today's hearing, Medicare
    has a complicated benefit structure. It also has high cost-
    sharing requirements and no limit on out-of-pocket spending for
    services covered under Parts A and B.
        As a result people on Medicare tend to have relatively high
    out-of-pocket costs, including cost-sharing requirements for
    Medicare, but also premiums for Medicare, premiums for
    supplemental coverage and for uncovered services. Health
    expenses now account for nearly 15 percent of Medicare
    household budgets. On average that is three times the share for
    non-Medicare households.
        Proposals to change the traditional Medicare benefits
    design can have different goals which have direct implications
    for beneficiaries and for program spending. Proposals to change
    the benefit design could simplify benefits, encourage the use
    of highly valued services as you have just heard, improve
    benefits, or trim them back. Achieving Medicare savings could
    be a high priority or not.
        Several recent proposals would simplify benefits, set a
    limit on cost-sharing obligations, and also reduce Federal
    spending. The Kaiser Family Foundation, with Actuarial Research
    Corporation researchers, examined an option to simplify the
    benefit design and achieve Medicare savings based on an
    approach specified by the Congressional Budget Office in their
    budget options report in 2011. That option includes a $550
    unified deductible for Parts A and B, a uniform 20 percent
    coinsurance, and a new $5,500 limit on cost sharing. This
    approach would be expected to reduce spending for a very small
    share of the Medicare population, but generally people who are
    very sick with high costs.
        Five percent of beneficiaries in traditional Medicare are
    expected to have lower out-of-pocket costs than they would
    under current law, and they would receive substantial savings
    on average. This would affect, for example, people with
    multiple inpatient stays, or a lot of postacute care, so it
    would be helped by the limit on out-of-pocket spending. But
    most, and the analysis estimated 71 percent, would be expected
    to face higher costs. So seniors in relatively good health who
    may go to the doctor or see a couple of specialists in a year
    would see their deductibles triple from current levels to $550.
    And that illustrates the tradeoff.
        This particular benefit redesign could be modified in a
    number of ways. Lowering the cost-sharing limit would help more
    people, but could also lead to higher Medicare spending.
    Raising the limit would help even fewer people and generate
    additional savings.
        Another modification also described by the Congressional
    Budget Office would include restrictions in supplemental
    coverage along with a benefit design. It would prohibit Medigap
    from covering the unified deductible by limiting Medigap
    coverage beyond that point to a certain extent. This approach
    would increase the Medicare savings, mainly because people who
    have Medigap would be expected to use fewer services when
    confronted with higher cost sharing. Under this option nearly a
    quarter of people on Medicare would see costs decline, mainly
    due to lower Medigap premiums, but half would be expected to
    pay more; again, a difficult tradeoff.
        Another modification would incorporate stronger protections
    for low-income beneficiaries in conjunction with a benefit
    design. Such an approach would simplify the program for all
    beneficiaries, protect those with limited means, but could
    diminish Federal savings, if not result in higher Federal
    spending.
        Mr. Chairman, Medicare today enjoys strong support among
    seniors. Finding an approach that will streamline benefits,
    encourage beneficiaries to use highly valued services, and
    provide greater protections to those with high out-of-pocket
    expenses, all without shifting undue costs onto beneficiaries,
    remains a challenge, particularly in a deficit-reduction
    environment.
        And I thank you, and I look forward to working with you and
    answering your questions.
        Chairman BRADY. Great. Thank you.
        [The prepared statement of Ms. Neuman follows:]

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        Chairman BRADY. All three witnesses are very helpful.
        Mr. Hackbarth, for seniors listening today, besides just
    simplifying it and making it less confusing to handle all of
    the deductibles, copays, everything that goes with that, are
    the two biggest benefits to modernizing the design that, one, a
    cap on that out-of-pocket cost so that you sort of have that
    peace of mind that if you are one of those who hits the high-
    cost health care, and many seniors do, you know you are limited
    to what damage that might do? And secondly, looking at copays,
    which is a fixed dollar amount, versus coinsurance, again on
    that very expensive health care again, that too many seniors
    fear, for seniors are those the two biggest benefits of
    redesigning the system, and how many seniors will be impacted
    by that over their lifetime?
        Mr. HACKBARTH. Yes. Chairman Brady, those are, I think, the
    two big benefits.
        With regard to how many people benefit from catastrophic
    coverage, it is important to look at that over time. So in any
    given year, we estimate the number of beneficiaries that exceed
    $5,000 in out-of-pocket costs is about 6 percent. But if you
    look at a 4-year time horizon, that number doubles. And
    obviously, over the duration in Medicare of the typical
    Medicare beneficiary, the percentage grows and grows over time.
    So it is important to look at that value not 1 year at a time,
    but over the course of participation in Medicare.
        Chairman BRADY. Yeah. And this is what I want to ask Ms.
    Neuman. One, I appreciated reading your analysis and testimony.
    Did you look at--is your analysis done over the lifetime of a
    Medicare senior or someone on disabilities, again, who is
    likely to face higher costs over a lifetime?
        Ms. NEUMAN. No. We looked at a--we did a 1-year analysis of
    what the effects would be, and I don't disagree with Mr.
    Hackbarth. I think for a catastrophic benefit, there would
    certainly be more people who would benefit from a spending
    limit over time. Whether they perceive their lifetime risk is a
    different question, but we did not look at that. We looked at a
    single year.
        Chairman BRADY. Can you do that? And here is why. One, the
    analysis was very interesting to read, and helpful, but,
    looking at 1 year of Medicare is like looking at the cost of 1
    year of auto insurance, the year you didn't have an accident.
    Yeah, the price looks pretty high, but spread over time, and
    the difference here being everyone is likely to get sick. Many
    are likely to be seriously ill. Most are going to drive up some
    pretty healthy costs. So while on the front end there may be
    higher monthly premiums, deductibles, copays, over time that
    could be a significant savings for a senior. And Kaiser Health
    Foundation has a great reputation. Would you consider redoing
    that analysis and looking at it so we could look at a senior's
    healthcare costs over a longer period?
        Ms. NEUMAN. We would certainly be happy to take a look at
    that.
        Chairman BRADY. That would be very helpful. Thank you.
        And, Dr. Fendrick, I read your testimony, but it was in
    four-point type, and so for us old geezers, you might consider
    making that a little bigger in the future, for those of us who
    are struggling to read these days.
        The design that both encourages the use of value-based--I
    mean, the services you really need to make sure a senior
    wouldn't skip health care that they really need, how would you
    design--as we simplify it and unify it, how would you design it
    to make sure that we are encouraging seniors into those
    essential value services? What would be the key ingredient?
        Dr. FENDRICK. First off, I would make sure----
        Chairman BRADY. Can you hit that microphone?
        Dr. FENDRICK. First thing I would recommend, no copayment
    for you to see your eye doctor so you could read my testimony.
        I think the nice thing about the three witnesses, we all
    agree that the discussion should go beyond how much we spend on
    Medicare, but instead how well. In this concept of clinical
    nuances, you mentioned some good services which are highly
    recommended by professional societies, other organizations, are
    those that we would immediately identify and have already done
    in hundreds of organizations in the private sector to say these
    services are so important that patients should not pay a
    substantial out-of-pocket for them. As Mr. McDermott mentioned,
    that is currently the case for preventive services in most
    public and private plans, and we are, in fact, trying to extend
    these services for common chronic diseases for doctor visits,
    diagnostic tests, and drugs that have been identified by
    professional societies as the things that should be performed.
    And that would be the basic premise for us to move forward on
    the carrot side, or the high-value side, of value-based
    insurance design.
        Chairman BRADY. On a scale of 1 to 10, how difficult is it
    now that--what we know today versus half a century ago?
        Dr. FENDRICK. Given that almost all of your expenditures in
    Medicare are in chronic diseases, and most of those chronic
    diseases can be lumped into about 14 of them, and the fact that
    there are guidelines that are evidence based in most of those
    conditions, I would say that that is fairly straightforward.
        Chairman BRADY. All right.
        Well, thank you all very, very much. This was helpful.
        Dr. McDermott.
        Mr. McDERMOTT. Thank you, Mr. Chairman. I don't think--
    there is general agreement across this dais, I am sure, on the
    need for catastrophic limit. I don't think that is the
    question. The question really is, how do you pay for it? Now,
    we tried once in 1989, and maybe we will do better this time,
    but that is really the issue here. And, Mr. Hackbarth, I--or
    Dr. Hackbarth, I guess.
        Mr. HACKBARTH. Mr.
        Mr. McDERMOTT. Mr., did MedPAC in their looking at this, at
    the redesign, expect any savings to come out of the redesign of
    the way the payment was made?
        Mr. HACKBARTH. From the redesign of the benefit package,
    no. As I said in my comments, we think the existing benefit
    package is not too rich, and so we were looking at a
    restructuring of the benefit package while holding average
    beneficiary liability at the current level.
        Mr. McDERMOTT. If you shift the cost to beneficiaries, how
    does that get paid for?
        Mr. HACKBARTH. So the other major feature of our proposal
    was the charge on supplemental insurance. And if you have a
    charge on supplemental insurance set at about 20 percent, then
    you generate additional revenues that can be used to either
    reduce federal spending or to cover additional benefits.
        Mr. McDERMOTT. What did you assume was too high a
    supplemental coverage when you put that 20 percent surcharge
    on?
        Mr. HACKBARTH. Well, we don't say that you can't have a
    particular type of supplemental coverage.
        Mr. McDERMOTT. You could have it----
        Mr. HACKBARTH. You could have it----
        Mr. McDERMOTT [continuing]. But if you have a certain
    income, you are going to pay a surcharge? Is that the way it
    works out?
        Mr. HACKBARTH. Yeah. What we modeled was everybody pays a
    surcharge under supplemental insurance. Then there is the
    question if you want to provide adequate protection to low
    income beneficiaries, how do you do that? Rather than having no
    surcharge, we think the way to do the low income protection is
    through something like the Qualified Medicare Beneficiary
    Program.
        Mr. McDERMOTT. I remember in the Simpson-Bowles proposal,
    there was a lot of talk about this whole issue, and they said
    broad-based entitlement reform should include protections for
    vulnerable population. So I think it is generally accepted by
    everyone that whatever manipulation you do, you have to take
    care of the people at the bottom. Is that fair to say?
        Mr. HACKBARTH. Yes.
        Mr. McDERMOTT. And it is true that any proposal needs to be
    packaged with additional financial insurance--assurance for
    those in need, including not just people at 135 percent of
    poverty, but up to 200. Would you say?
        Mr. HACKBARTH. Well, we have not made any recommendations
    on exactly where to set that level. Under the Qualified
    Medicare Beneficiary Program, the level is set at 100 percent
    of poverty level.
        Mr. McDERMOTT. Is that high enough?
        Mr. HACKBARTH. Again, if your goal is to protect low income
    beneficiaries, that number ought to be increased. Now, we do
    have some additional Medicare savings programs that go a little
    bit higher, but they are focused on paying the Part B premium
    as opposed to cost sharing at the point of service.
        Mr. McDERMOTT. Ms. Neuman, you are probably aware of the
    National Association of Insurance Commissioners that reviewed
    the literature and produced a letter that says that they were
    unable to find evidence that cost sharing encouraged
    appropriate use of health care service. Are you aware of that?
        Ms. NEUMAN. Yes, I am.
        Mr. McDERMOTT. I ask unanimous consent to have that letter
    put into the record, Mr. Chairman.
        Chairman BRADY. Without objection.
        [The letter follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. McDERMOTT. What does that mean in terms of using copays
    as a way of getting people to make decisions about their--I
    mean, if you are in an automobile accident and the ambulance
    comes and picks you up, do you shop at that point for which
    emergency room to go to?
        Ms. NEUMAN. Cost sharing can be a blunt instrument. In some
    cases, for example, in the Part B drug benefit, it is a little
    bit more straightforward with generics versus brand name drugs.
    And even at the pharmacy, there is some----
        Mr. McDERMOTT. I will give you drug benefit. Now, tell me
    some----
        Ms. NEUMAN. But beyond that----
        Mr. McDERMOTT. Give me some other area where people shop--
    --
        Ms. NEUMAN. Beyond that point, this is where I was heading,
    it gets----
        Mr. McDERMOTT. Do people shop for artificial knees?
        Ms. NEUMAN. I don't think so.
        Mr. McDERMOTT. Well, I mean, one of my colleagues just had
    his knee replaced. Do they go around and ask the doctor, how
    much do you charge and how much do you charge? And I am going
    to take the cheaper one?
        Ms. NEUMAN. It is generally very difficult for patients to
    do that, and often patients are motivated to do what their
    doctors tell them to do. That is why a lot of the work that has
    been done has been focused more on the providers side to give
    providers information to drive people to more value-based
    services, because in theory, the doctors have more information
    to sift together in order to advise their--advise consumers, so
    they don't use services that are not needed.
        Mr. McDERMOTT. My point is, Mr. Chairman, patients don't
    shop, they follow what doctors tell them to do.
        Chairman BRADY. Hence the problem. Mr. Johnson, you are
    recognized.
        Mr. JOHNSON. Thank you, Mr. Chairman. I would like to
    follow up on his question, because you didn't answer it. If you
    break a leg or something and an ambulance comes, you don't have
    a choice of where to go or what doctor to see, generally
    speaking. They take you to the emergency room of some close
    hospital, or the county hospital if it happens to be close by.
    So how do you explain fixing that charge in Medicare? Any of
    you. Hackbarth, you have addressed that before.
        Mr. HACKBARTH. Yeah. So I agree that when a person is in an
    automobile accident and they need to go to the emergency room,
    there is zero opportunity for shop, and nobody is thinking
    about which emergency room to go to and what the cost is. But
    there are decisions that beneficiaries make where they do make
    a decision about whether cost matters or not. For example, a
    decision about how many times to see a physician, or decisions
    about some tests. You hear from physicians all the time about
    patients saying, well, you know, I want the extra test, I want
    to be really sure. If there is some cost sharing on those
    decisions, patient decisions change, and so it is at that end
    of the spectrum, not the catastrophic illness end. We all agree
    that we need complete coverage for really sick patients.
        Mr. JOHNSON. Well, you know, I just experienced one with a
    hospital right here in Washington. They ordered some x-rays,
    and for crying out loud, you go in the x-ray room and they
    don't x-ray what the doc tells them to x-ray. They x-rayed
    about 10 or 15 other things, and they are going to charge you
    for it.
        Dr. FENDRICK. If I could----
        Mr. JOHNSON. And you are a doctor. Tell me how you avoid
    that?
        Dr. FENDRICK. No. If I may, I think the very important
    point that is emerging, as Ms. Neuman said, that most of the
    initiatives that have come out both in the private and public
    sectors have been how to change how we pay and manage care on
    the supply side.
        I think the important discussion, as we talk about
    reforming Medicare's benefit design, is to absolutely make sure
    that the patient and the doctors are aligned and, in fact,
    there is no conflict. The example, Mr. Johnson, I will give you
    is as I practice in a medical home, I am given a financial
    bonus to get my patients' diabetes under control and get their
    eyes examined. At the same time, cost sharing to get their
    insulin and to get their eyes examined have gone up. So the
    important alignment of provider and consumer incentives is
    critical.
        And as a physician I will tell you, the emergency example
    is one reason why there is no recommendation in value-based
    insurance design to lower or raise cost sharing, because it is
    not a patient-sensitive issue, but the decision to get your
    fourth endoscopy or to see your seventh specialist, I think
    there are many situations where we could use soft paternalism
    and cost sharing to get patients to make better informed
    decisions, to A, get the high value care they need and, maybe
    more importantly, to cut the 20 percent waste that is driven by
    reasons that are not really understood.
        Mr. JOHNSON. You know, it is kind of hard to get all the
    docs on the same page all across this country, too, because of
    the differences in where they live and how they operate. That
    is a real problem.
        You know, Mr. Hackbarth, I appreciate your work to figure
    out which approach can improve the coordination of care in our
    fragmented system, but I reject the notion that the bureaucrats
    in Washington can tell providers how to care for patients, and
    I am interested in how you think that using payment policies
    to--reward good outcomes, and how do you approach that system
    with the docs and hospitals?
        Mr. HACKBARTH. Yeah. So our thinking about payment reform,
    Mr. Johnson, is that we want to put more decision-making
    authority in the hands of clinicians as opposed to in the hands
    of bureaucrats. So one payment reform that moves those
    decisions out, but when you do that, there needs to be
    accountability for results both on total cost and quality. If
    we don't have that sort of payment reform, what I fear is
    increasing intrusion, defining the rules about what qualifies
    for fee-for-service payment and the like. So I think we are in
    accord on what the objective should be.
        Mr. JOHNSON. Thank you, sir. Thank you, Mr. Chairman.
        Chairman BRADY. Great. Thank you, sir. Mr. Thompson is
    recognized.
        Mr. THOMPSON. Thank you, Mr. Chairman. Thank you for
    holding this very important hearing.
        Ms. Neuman, is Medicare really as popular as those of us
    who go back to our district every weekend hear from our
    constituents? Do you have data or polling information?
        Ms. NEUMAN. Yeah. I mean, our polling shows that Medicare
    is not only popular with the general--with seniors, but also
    very popular with the general public. Seniors like the way it
    works and say it is working well for them.
        Mr. THOMPSON. So as complicated as it is, what is it about
    Medicare that makes it so popular with the general populace as
    opposed to a big corporate plan?
        Ms. NEUMAN. Medicare gives people peace of mind when they
    get--have a disability or when they get older that they will
    have most of their health expenses covered.
        Now, Medicare, as we have been talking about, has high
    cost-sharing requirements, but a lot of people have
    supplemental coverage. A lot of people who are retirees have
    gotten retiree health benefits from their former employers,
    others have MediGap, the very low income have Medicaid, so a
    lot of people have a pretty full package of benefits. That is
    not to say they don't pay for the services they receive in many
    instances, but they do have supplemental coverage.
        Mr. THOMPSON. Thank you. As we deal with the whole issue of
    benefit redesign, it seems to me that that is going to--
    whenever you reform something, you are disrupting the current
    system, so you are going to have some beneficiaries who end up
    paying more and some who end up paying less. And I guess my
    question to all of you is how is that going to be perceived in
    the beneficiary community? Is it going to disrupt the
    popularity of Medicare? Will beneficiaries think it is a fair
    redistribution of the benefit? And we could start with you, Mr.
    Hackbarth.
        Mr. HACKBARTH. Yeah. I think, Mr. Thompson, the commune----
        Mr. THOMPSON. I can't hear you.
        Mr. HACKBARTH. I am sorry. I think that communication is
    really important. The nature of insurance is a lot of people
    pay a little so that a smaller number of people are protected,
    and so the fact that a redesign might mean that a lot of people
    pay a little bit more to provide catastrophic coverage for the
    most seriously ill, that is just basic principles of insurance.
        What people don't often take into account is the issue we
    discussed earlier. Don't think of this on a 1-year basis; think
    of this on the basis of your full time in Medicare as a
    beneficiary. The likelihood that you are going to benefit from
    that back-end protection grows dramatically over the course of
    your time as a Medicare beneficiary. That is not well
    understood, and it needs to be communicated.
        Dr. FENDRICK. Mr. Thompson, I will just say two things:
    First, the movement toward free or low cost preventive care,
    both in public and private programs is universally accepted and
    one of the most important and well received aspects of
    healthcare reform.
        As we have done focus groups in both commercial populations
    and in seniors, the idea of explaining to them about this one-
    size-fits-all system and giving them the comparison as opposed
    to paying the same for a drug that will save your life as one
    that is so dangerous, you wouldn't give to your dog, and
    instead set up a system that will encourage you to get the
    services that are recommended by their own doctors and their
    professional societies, and make it a little bit harder to get
    those services that are recommended by those same societies in
    an initiative called Choosing Wisely is almost universally
    accepted.
        It is the communication piece that Mr. Hackbarth mentions
    that is so important in explaining to them the system that does
    not delineate your benefit design at all on what makes you
    healthier and what makes you harmful. And you can imagine with
    the right communications techniques, this is something in our
    focus groups that is seen almost universally as positive.
        Ms. NEUMAN. Mr. Thompson, I think it would be a massive
    communication effort that would be required. In at least our
    polling, people, seniors are----
        Mr. THOMPSON. To preserve the popularity and----
        Ms. NEUMAN. To preserve the popularity of the program with
    what people perceive to be our increases in cost sharing. You
    know, for good or for bad, the public is pretty resistant to
    increases in cost sharing, perhaps because they are sensitive
    to the costs that seniors are already incurring.
        So a catastrophic benefit, while very important for
    financial protection and would help more people if you look at
    it over a life span, it may be difficult to convince the public
    of that in the short term. And I am mindful of the experience
    of the catastrophic coverage program, which would have provided
    a catastrophic benefit, but it was a very tough sell and it was
    a very tough repeal, and despite efforts at communications, it
    just didn't work out.
        Mr. THOMPSON. Thank you.
        Mr. HACKBARTH. Could I just mention one other point on this
    I think may be useful to the committee? What we found in focus
    groups was that people who are not yet Medicare beneficiaries,
    may be in their 40s or 50s, early 60s seem to have different
    attitudes about redesign than current Medicare beneficiaries.
    The younger people are more receptive to the idea of, oh, I pay
    a little bit more at the front end in exchange for a better
    protection at the back end. So that may be something to
    consider also.
        Chairman BRADY. Thank you, sir. Mr. Roskam is recognized.
        Mr. ROSKAM. Thank you, Mr. Chairman. You know, I was
    interested in the exchange, Ms. Neuman, between you and Mr.
    Thompson a minute ago in that you were describing the
    popularity of Medicare, which I agree with, but it is sort of
    the smooth ride as we are going towards the cliff and then,
    yeah, the road can be smooth and you can't maybe perceive the
    problem, but 12 years out when insolvency is upon us, that is a
    stark reality that this committee, I am sure you appreciate,
    has to deal with. So popularity notwithstanding, there is a
    real challenge there in terms of the reality.
        The other thing was, I sensed from you a little bit of an
    admonition and a word of caution about a massive effort being
    required in terms of large changes, and yet at the very
    beginning of this hearing, Mr. McDermott pointed out there is
    going to be a massive effort and we were told to gird up in
    terms of the calls and so forth into our district offices as it
    relates to the implementation of the Affordable Care Act. So
    Congress hasn't shied away in the past from some massive
    efforts and it is upon us, but I think the reality is that
    these things are here. So I don't expect a reply, but just a
    word about the exchange.
        Mr. Hackbarth, question. In your testimony, or in your
    report, you highlighted how a lot of the durable equipment
    doesn't have a copay, and that is basically a thing of the
    past. Could you elaborate on that? Or it should be a thing of
    the past?
        Mr. HACKBARTH. Well, durable medical equipment does have a
    copay under the----
        Mr. ROSKAM. I am sorry, home health.
        Mr. HACKBARTH. Yes. Home health services is one of the few
    services under the current benefit that does not have any
    copay. A year or so ago, we recommended the addition of a copay
    on home health services. Again, we think part of any fee-for-
    service insurance program is to have modest, appropriate
    copays.
        Mr. ROSKAM. And what is your hope and your expectation of
    having that?
        Mr. HACKBARTH. Well, you know, we have seen very rapid
    growth in the number of home health episodes. And we are
    talking about not people being admitted to home health after
    hospital admissions, but admissions from the community. And
    that care is, to some degree, discretionary care, and so we
    think it is appropriate for the beneficiary to pay some
    contribution to that so they think carefully about whether this
    is needed versus other alternatives they might have.
        Mr. ROSKAM. A minute ago you were referencing some of the--
    shifting gears--you were referencing some of the attitudes of
    younger----
        Mr. HACKBARTH. Yes.
        Mr. ROSKAM.--future beneficiaries. Could you speak to that?
    Could you give us a sense of sort of the range of their
    tolerance for change? The earlier you implement the change,
    sort of is there an arc to it, is there a science to it? Did
    you come to any conclusions?
        Mr. HACKBARTH. Well, our information is based on focus
    groups, so it doesn't lend itself to quantifying this dynamic,
    but it was a pretty clear one that the younger population is
    used to thinking about these trade-offs, they have experienced
    change in their employer-based coverage perhaps, where, they
    have been asked to pay more front end copays in exchange for
    something else. So it is just more familiar, they are more
    receptive to it. They don't have the same reflex reaction that
    some existing beneficiaries might have.
        Mr. ROSKAM. Thanks. And then, just another observation. It
    seems in the discussion that the three of you had a minute ago
    with Mr. Johnson, you know, there is this feeling that we have
    got a system essentially where it is very difficult to interact
    and get answers about price from a consumers point of view.
        Dr. Fendrick, you used the phrase ``soft paternalism,''
    which makes us all very nervous, and, you know, sounds like
    slight discomfort during a medical procedure, but there is an
    inability on the part of a lot of patients to find out just
    sort of clear information. And we have--all of us are complicit
    in creating a health care system where asking a physician the
    cost of the procedure is almost--is a taboo question. And you
    can imagine going in, hey, doc, what is this going to run me?
    It is like, well, I don't--I don't know. It is almost as if we
    have asked, you know, how much does your spouse weigh or
    something. It is that kind of question. And we are admonished,
    no, you got to go to talk to the front office. I don't deal
    with this.
        That is unsustainable, and that, I think, is one of the
    factors that is driving part of our challenge today. And I
    think that is why I appreciate the chairman having a hearing
    focused in on redesign with an idea of patient empowerment,
    setting aside the weaknesses of a market that isn't highly
    functional in some areas, but is highly functional in others.
        And I see the red light, so I will yield back.
        Chairman BRADY. Thank you.
        Dr. FENDRICK. I will just briefly say that in this issue of
    deciding about clinical nuance or not, in a typical branded
    drug copayment system, you pay the same out of pocket for
    insulin, depression drugs, critically important drugs for
    health as you would for drugs for allergies and male pattern
    baldness and other types of things.
        And terminology notwithstanding, when we talk to Medicare
    beneficiaries and ask them do they understand inherently that
    some physician visits are more important than others, that some
    medications that they take are more important than others, they
    universally say yes. And when asked, would you prefer to have
    your insulin and your depression drugs and your anti-seizure
    drugs to be lower cost because they are more important, as
    opposed to the current system that make them lower cost because
    they are lower cost and even though they might make you
    healthier, is almost universally accepted.
        Chairman BRADY. Right.
        Dr. FENDRICK. And I think that is why we have seen clinical
    nuance in terms of cost sharing recommended by all three of the
    witnesses and from management and labor and a number of
    organizations who see that one size fits all is truly archaic.
        Chairman BRADY. Thank you, Doctor. Mr. Roskam, my favorite
    is, ``You may feel a pinch with this.'' That means get ready
    for searing pain coming your way. Mr. Kind.
        Mr. KIND. Thank you, Mr. Chairman. And I want to thank our
    panelists today. But just to stay on the line of questioning
    about benefit redesign and greater cost sharing, Ms. Neuman, I
    think you are exactly right. I think there will be great
    resistance with current Medicare beneficiaries for any
    increased cost sharing that might be asked of them. I was taken
    aback a little bit with the stats that you were reading off at
    the beginning of your testimony. One half of current Medicare
    beneficiaries are surviving on $23,000 or less in the system?
    So to be talking about greater cost sharing with that
    population is going to be met with fierce political resistance,
    I would predict.
        And, Mr. Hackbarth, it is not surprising that the younger
    population might be more amenable to some changes and greater
    cost sharing or benefit redesign, but they are not the problem.
    I mean, if we continue to exempt current Medicare beneficiaries
    to any changes or the 55-and-above population, which is the
    Baby-Boom generation, we are really not advancing the ball that
    well and addressing the huge health care cost issue that we
    face with the budget. So to me it tells me we have got to
    continue today to move forward on delivery system and payment
    reform today with the eye towards cost saving while still
    enhancing quality and not jeopardizing access.
        Dr. Fendrick, I understand your laudable goal of trying to
    drive consumer decisions to more value-based care and less low
    value care and have a price commensurate with that, but I have
    always found that the health care field is different. We do
    have asymmetrical information out there. I think the providers
    are the experts. I am reasonably astute when it comes to health
    care decisions, but when I go into a doctor's office, I don't
    know if I need a CT scan or an MRI and I don't know what the
    best course of treatment is going to be for me.
        So at lot of this is going to have to be provider-driven,
    which means they are going to need information on what makes
    and what doesn't work, which brings us back to comparative
    effectiveness research. Do you think that is something we need
    to continue to go forward on, doing comparative effectiveness
    research and driving that into the hands of doctors and
    patients alike so they know what the most effective treatment
    option is?
        Dr. FENDRICK. So obviously as an academic, I support
    research that will tell us the services that help patients and
    the services that harm patients. I think that we have to think
    very hard about this decision in understanding the asymmetry of
    information, but it is possible. The enormous popularity of the
    free preventative services in Medicare and in health care
    reform justify that.
        I think, given the numerous studies that show the large
    amount of waste in the system, I have to go on record that I
    would like to see increased cost sharing for harmful care. And
    if--the initiative called Choosing Wisely, which I mentioned
    forward, is over 20 medical specialty societies, not
    bureaucrats, but physicians themselves saying that there are
    services that individuals should talk with their doctors very
    carefully about, because the evidence would suggest that not
    that we are not sure, which I am totally happy leaving the
    value-based cost sharing outside, but for those services where
    the evidence is of harm, I do believe that this is a
    conversation that we--all of the stakeholders are willing to
    engage in.
        Mr. KIND. Well, Dr. Fendrick, I mean, we had some bruising
    battles, you know, discussing this over the last few years or
    so, whether it was funding for comparative effectiveness
    research under the American Recovery Act, under ACA. We
    actually instituted the Patient Center Outcome Research
    Institute to help sponsor clinical studies out there so we can
    get better information into the hands of providers. Do you
    think that was a good idea to move forward on?
        Dr. FENDRICK. Research to answer the tough questions about
    how to spend our health care dollars are important, both from
    the private and public sector, but I think, Mr. Kind, what is
    really important to say is that our own work shows that even in
    the setting of solid scientific evidence, without the
    appropriate incentives for both patients and their providers,
    the best possible care is not provided. There are these no-
    brainers. You know, we are not talking about in the middle.
    There are these no-brainers: diabetic eye exams, physical
    therapy that people don't----
        Mr. KIND. Doctor, you got me on that.
        Dr. FENDRICK. Okay.
        Mr. KIND. I am in complete agreement. This is where we need
    to be going as far as health care decisions and that, but I am
    you a little surprised that in the course of today's hearing
    and the questioning, the R word hasn't been mentioned yet,
    because we are really talking about rationing. I mean, if you
    are talking about changing the cost incentives within the
    system and that and driving people to high value care and away
    from less value care, that is a form of rationing, which I get,
    I understand. We need smart rationing within the health care
    system, because you don't want to be spending money on stuff
    that doesn't work or leave patients even worse off when they go
    in.
        So I don't think we should be necessarily scared or
    frightened from that concept, yet it is such a political
    bludgeon around here. When you start talking about comparative
    effectiveness research and making smart decisions, suddenly it
    becomes rationing, and that is a big bugaboo that we can't
    approach and that.
        So, you know, I commend your message and what you have been
    working on, but there are political minefields that, you know,
    all this too that I just caution you about.
        Dr. FENDRICK. All I will say, is very quickly, is that the
    option that we have before us is whether the benefit design
    should be nuanced or not. And if you feel that Medicare
    beneficiaries should spend equal out-of-pocket amounts for
    things that hurt them and things that incredibly well benefit
    them, then I would keep the status quo.
        What we have seen both in public and private plans thus far
    is that people really do prefer a nuanced approach, working
    from the edges for the things we are really certain on the
    things that help and the things that harm, and avoid the
    contentious issues that your committee and the public have
    dealt with over decades.
        Mr. KIND. Okay.
        Chairman BRADY. The time has expired. Mr. Price.
        Mr. PRICE. Thank you, Mr. Chairman. And I want to thank
    you, congratulate you on chairing the Health Subcommittee and
    look forward to working with you, and I want to thank you for
    this most important hearing today, and I look forward to having
    many more.
        People ought to be sitting up and taking notice as we use
    terms like ``soft paternalism'' and ``rationing'' within almost
    the same paragraph.
        The real question is how does this affect patients? As a
    physician who took care of patients for over 20 years, I can
    tell you that when they felt that somebody else was making the
    decision that potentially adversely affected what their doctor
    could do for them, that is when they said that this isn't the
    system I want to participate in. We need to be very, very
    careful in what direction we head.
        The home health was talked about, I think, by Mr. Roskam.
    The current design of a new benefits package for home health is
    now in phase 2 by CMS. And I would suggest to you that it is
    harming patients, making access to home health care more
    difficult for patients. Is it going to cost less? Yeah. You
    know, we will pound our chests up here and say how wonderful it
    is because it costs less, but it is hurting people. And that is
    the challenge that we have, is to design a system that doesn't
    hurt people.
        So then you have to ask the question, okay, well, who is
    going to decide whether it hurts or not? And that is where the
    whole issue of one-size-fits-all really gets to the heart of
    the issue.
        Dr. Fendrick, you talked about the current system being
    one-size-fits-all, and it is. Do you have any concern that we
    trade one one-size-fits-all system that doesn't necessarily
    work for everybody for another one-size-fits-all system that
    doesn't necessarily work for everybody but may work better for
    government?
        Dr. FENDRICK. My consideration is the Medicare beneficiary.
    And I look at exorbitant amounts, billions of dollars that
    could be spent on services that would improve the quality and
    length of life of those beneficiaries that are instead being
    wasted on things for which medical societies say harm patients.
        So I understand that there are issues and challenges, but
    all I can tell you, the popularity among patients and
    physicians to see cost sharing removed for services that save
    lives, whether they be preventive services or management of
    chronic diseases, seems to me like something that we move
    forward in. And almost all the implementations thus far of
    clinically-nuanced benefit designs have been around subsidies
    of high value services. Because most high value services, as
    you well know, tend to increase costs in the short term instead
    of lower them, the fiscal pressures that we have confronted has
    required us to look at not just the motivation for me to get
    into this is to make the high value services more accessible to
    patients and their providers, but also understand this waste
    problem. And it is MedPAC and other organizations that continue
    to tell us the billions of dollars that are spent on harmful
    care.
        And I think as--having some fiscal responsibility, we need
    to understand that we could reallocate these funds, maybe not
    perfectly, but in a better way than we currently are with no
    clinical oversight.
        Mr. PRICE. Let's talk about the patient that we come up
    with this grand design for a new benefits package for folks and
    a system that is going to work better than the current system,
    and we say to our senior population, you have got to see do
    this, should there be any flexibility in that? Should a senior
    be allowed to, I don't know, opt out of that system?
        Dr. FENDRICK. You are the legislator, I am not. All I am
    going to say is another----
        Mr. PRICE. No. For the patient. You are talking about the
    patient.
        Dr. FENDRICK. I think the important point that I may have
    glossed over is that these type of benefit designs never decide
    what is covered and what is not. And for you as a physician as
    well as a congressman know that there is a multiplicity of
    small print in cost sharing, both in Medicare as well as in
    private plans. So this idea of confusion is going on already.
    And my simple point is instead of using profits or the cost of
    a service to generate how often it is done, that we think about
    taking advantage of the points that were made by a number of
    you moving from volume to value, and value must include
    clinical nuance.
        Mr. PRICE. My time is short, but the concern that many of
    us have is that value is quality over cost. And quality is in
    the eye of the beholder, so what is quality for you as a
    patient, what is quality for me as a patient or another patient
    may be something completely different. That is not to say that
    there ought not be comparative effectiveness research, because
    there ought to be. As scientists, we all understand that you
    have got to--that you want to know the best thing to do for a
    patient. But at the end of the day, it is patients and families
    and doctors that ought to be making these decisions about what
    kind of care they receive, and not anybody else.
        Dr. FENDRICK. I agree.
        Mr. PRICE. Yield back.
        Chairman BRADY. Thank you, sir. Mr. Blumenauer.
        Mr. BLUMENAUER. Thank you. I find this very interesting and
    very helpful. I guess my concern is that we have a situation
    that too often it is not so much dictating services, we have a
    system where nobody decides, where we kind of are a captive of
    the original program design, add-ons that continue. I don't
    know about soft paternalism or hard paternalism like just
    cutting you off with money, or just going along till we run
    out, or somebody figures out how to game the system. And what I
    hear you saying is there may be some ways that we can do a
    better job of incenting everybody to make the right decisions,
    and I am comfortable with that.
        We have had experience on this committee where people would
    not agree to allow the results of comparative effectiveness
    research to be used in determining how much the government is
    going to pay for what. Seems kind of goofy, but that is the
    political process. And the complexity that some people want is
    just going to add costs and water down the ability to deliver
    overall high quality service, which is, I think, in microcosm,
    why we pay more than anybody else in the world for results that
    are mediocre on average. And so I am intrigued with the--Mr.
    Chairman, with your bringing the witnesses here and for us to
    think about benefit structure and how it impacts it.
        I want to just go back to something, Dr. Fendrick, you had
    when you talked about infusing clinical nuance into Medicare
    Advantage. That was the bold print that was 6-point type. But I
    wonder, Mr. Hackbarth, I don't think you referred to Medicare
    Advantage in your testimony. Would you react to that for a
    moment? I mean, this is kind of a grand experiment that we have
    had. We have found out that not all Medicare Advantage programs
    are equal. Some are hopeless rip-offs, where we found some
    people who figured out how to game the system. We had in the
    Affordable Care Act some incentives to try and reward better
    programs, and we are slightly ratcheting down the premium.
        I am old enough to remember when Medicare Advantage was
    supposed to deliver the same quality and quantity of health
    care and it was supposed to be able to do so for 5 percent
    less, using the magic of private sector and unshackling. Didn't
    quite work out that way, but we are ramping down the subsidy
    and we are seeing, at least the conversations I am having, that
    some people are starting to take advantage of that platform.
        But can you speak to ways from MedPAC that Medicare
    Advantage might be an area where we could make some adjustments
    to inject a little more nuance into the program and not
    sacrifice either quality or, again, lose cost control?
        Mr. HACKBARTH. Yeah. We think that Medicare Advantage,
    offering a choice of private plans to the Medicare beneficiary
    is an important part of patient engagement. So beneficiaries
    ought to be able to go in that direction if they wish.
        We do think that private plans have the opportunity to do
    some things that traditional Medicare finds difficult to do;
    for example, identify high value providers and steering
    beneficiaries to those providers, which is one of the points
    that Dr. Fendrick made. The regulations, we need to look at
    those regulations, make sure that they provide appropriate
    flexibility to private plans to identify high value providers.
    Similarly, they need to have appropriate discretion to vary the
    benefit structure.
        So recently one of our recommendations was that rather than
    having chronic care SNPs, special needs plans, that are focused
    on particular chronic illnesses, what we ought to be doing is
    give all Medicare Advantage plans the opportunity to adjust
    their benefits for diabetics versus asthmatics versus patients
    with cardiovascular problems. And, again, I think that is
    something that Dr. Fendrick recommended.
        Mr. BLUMENAUER. Thank you very much. Thank you, Mr.
    Chairman.
        Chairman BRADY. Thank you. Mr. Smith.
        Mr. SMITH. Thank you, Mr. Chairman. And thank you to our
    witnesses here today.
        Dr. Fendrick, I know you are obviously well studied on a
    lot of things relating to Medicare Advantage and current
    limitations. Would you have specific recommendations on how to
    break down some of the barriers to flexibility perhaps that
    would end up improving care?
        Dr. FENDRICK. I do. And I would just add on to what Mr.
    Hackbarth just said. I think they come into two most elemental
    buckets; is the first, the ability to allow the flexibility in
    MA plans to alter cost sharing, depending on the provider that
    chooses or where that is done. An example might be, for
    instance, a highly recommended service for individuals over 50
    is colonoscopy. You could get a colonoscopy in a number of
    settings, as shown in the Pacific Northwest, at a cost between
    $700 and $7,000. And I think to be able--in those situations,
    when most people do believe that colonoscopy is performed at
    reasonable, same quality in most places, that you might wants
    to encourage people to go to the lower cost centers that
    provide the same quality as those that are high.
        So provider and venue is the first, but the second and most
    important is this issue of allowing Medicare Advantage to alter
    cost sharing for specific services based on clinical
    information. And to follow up on what Mr. Hackbarth said, I
    think that one of the easier things to say, given the comments
    about the size of my testimony type, is the recommendation of a
    diabetic to see an eye professional on an annual basis.
        In Medicare Advantage, their current abilities now are to
    make eye exams either low cost or high cost regardless of your
    clinical condition. I would like to see a plan that offers
    annual low cost eye exams to diabetics but not offer that same
    benefit design for someone without that condition.
        Mr. SMITH. Ms. Neuman.
        Ms. NEUMAN. Medicare Advantage really could be an
    opportunity to learn more about benefit design changes that are
    being talked about today, because plans do have flexibility,
    not quite as much as might work, but there could be
    opportunities to learn more, and it may be something--the
    committee might want to consider perhaps giving the highly
    rated plans greater flexibility to modify the benefit design
    and use that as a learning opportunity to see what changes
    drive people to high value services and perhaps lower costs for
    the program.
        Mr. SMITH. Sure. And I realize that, you know, the term
    ``flexibility'' is very vague and oftentimes even
    misunderstood, but the fact is representing a rural
    constituency, I know that things are done differently in rural
    America, and oftentimes more efficiently, but, you know, a
    supply of health care means mere access in rural areas and it
    means more competition in urban areas. And so in trying to
    balance many of those things, I was wondering if, Chairman
    Hackbarth, if you could reflect a bit on the impact to rural
    communities, rural health care in terms of, you know,
    recognizing some of those differences that are out there.
        I mean, it amazes me how we empower medical professionals
    to make very intricate decisions based on their expertise, and
    yet in other areas of health care, we don't allow the judgment
    to be utilized of the very same medical professions.
        Mr. HACKBARTH. So you are talking, Mr. Smith, more broadly
    about Medicare as opposed to just within Medicare benefit
    design----
        Mr. SMITH. Right.
        Mr. HACKBARTH.--how do we--Well, as you well know, Medicare
    has a large number of special provisions related to rural
    providers. It tries to address the particular, the unique needs
    of rural providers, for example, ensuring access to care for
    beneficiaries in isolated areas through the Critical Access
    Hospital Program.
        One of the areas that we have started to look into a little
    bit, based on the interest of one of our commissioners who
    practices in South Dakota, is that medical professionals and
    staff are used differently in isolated rural facilities than
    they may be in an urban facility. And----
        Mr. SMITH. And it would seem to me that oftentimes that is
    undermined given a one-size-fits-all approach coming from
    Washington.
        Mr. HACKBARTH. Exactly. So I think that is one area to look
    at, and we have just begun to pay some attention to that, but
    we need to make adjustments to accommodate the unique
    circumstances that exist in, say, an isolated rural hospital
    and how they configure their staff and how they make decisions.
        Mr. SMITH. Okay. Thank you. And, Mr. Chairman, I yield
    back.
        Chairman BRADY. Thank you. Mr. Pascrell.
        Mr. PASCRELL. Thank you, Mr. Chairman. Ms. Neuman, can I
    just get a clarification, if I may, on policy and demographics,
    particularly on the issue of home health copays? Who are these
    people?
        Ms. NEUMAN. People who use home health services tend to be
    old, frail women. These are the oldest, the frailest that
    Medicare----
        Mr. PASCRELL. The most vulnerable?
        Ms. NEUMAN. Yes, sir.
        Mr. PASCRELL. Would you use that word?
        Ms. NEUMAN. Yes. I think that is fair.
        Mr. PASCRELL. Okay. Look, you have heard it many times:
    health care reform is entitlement reform. You may not agree
    with it, some folks here. Not only did it reduce costs for
    Medicare, but it also reduced costs for beneficiaries. That is
    what we know.
        The attempts to repeal reform and turn Medicare into some
    kind of other program will hurt the beneficiaries, that is my
    conclusion, because they have to pay more money out of their
    pocket. That has to be clarified. So I am not going to be
    disillusioned about the kinds of income seniors make. You
    mentioned in your testimony that the beneficiaries have an
    average income of close to $23,000, below $23,000, actually.
    They already spend 15 percent of their incomes on health care.
    And when you add that into how many people are living on their
    Social Security check and how that is increased over the last
    10 years, paying more out of pocket is just not an option for
    many of our seniors. Would you agree with that?
        Ms. NEUMAN. I would. And I want to come back to Mr.
    Hackbarth's comment when he talked about expanding coverage for
    the low income population and doing that in a targeted way. You
    know, while some with very low incomes do qualify for Medicaid,
    many low income Medicare beneficiaries are not on Medicaid----
        Mr. PASCRELL. That is right.
        Ms. NEUMAN [continuing]. Either because they are not
    eligible based on their assets or their income, but there are
    many people who would feel directly any change in cost sharing.
    So a lot of the proposals have talked about protecting the low
    income, but more work needs to be done on how that would be
    done and what vehicle would be used and who be helped.
        Mr. PASCRELL. Now, your organization, the Kaiser
    Foundation, found that 70 percent of Americans prefer
    Medicare's guarantied benefits to any other kind of plan. I
    think that it provides a clear picture of how our Nation values
    the program. The average Medicare beneficiary has an annual
    income of $22,500.
        So, Ms. Neuman, can you talk about these higher rates to
    some seniors that they have to pay disproportionate or whatever
    as you concluded?
        Ms. NEUMAN. Well, there are certainly some people on
    Medicare who are wealthy by standards that----
        Mr. PASCRELL. Right.
        Ms. NEUMAN [continuing]. Generally would be considered
    wealthy, but only 5 percent of people on the program have
    incomes of $85,000 or more. So for people with modest incomes,
    an increase in out-of-pocket costs would be a real issue.
        And what the research has shown is that it is people with
    lower incomes and people in poorer health who are
    disproportionately affected by increases in cost sharing,
    because higher people can probably absorb to pay more if it is
    worth to them.
        Mr. PASCRELL. Or possibly leave the program. You may raise
    the rates on those higher income seniors, which is a relative
    term when we look at what they are making, they may move--leave
    the program altogether. What is that going to result in?
        Ms. NEUMAN. Well, the issue there, I think, has to do with
    the Part B and Part D premiums----
        Mr. PASCRELL. Right.
        Ms. NEUMAN [continuing]. And the income-related premiums.
    And already today, people with higher incomes are paying higher
    premiums, and there is some discussion about expanding income
    premiums to cover more people.
        Mr. PASCRELL. What do you think about that?
        Ms. NEUMAN. What do I think about that? Well, I think, you
    know, the public certainly prefers to ask higher people to pay
    more than everybody else, but depending on what the policy
    looks like, it could scale back and start to hit middle income
    people.
        Mr. PASCRELL. But when you talk about higher income, that
    is a relative term in terms of the seniors that we are talking
    about who are very vulnerable. It is a different kind of
    situation than we are talking about when we refer to our tax
    policies, general tax policies. It is a very different
    situation altogether.
        We need to be very careful here about who we are helping
    and then what are the consequences of helping a few, and many
    people getting really hurt. So thank you, Ms. Neuman, for your
    testimony.
        Ms. NEUMAN. Thank you.
        Mr. PASCRELL. Thank you, Mr. Chairman.
        Chairman BRADY. Thank you. Ms. Schwartz.
        Ms. SCHWARTZ. Thank you. And I appreciate the invitation of
    the chairman to join you on this important discussion. And I do
    have to say, I have had some of these discussions a bit about
    redesign, benefits redesign, and I appreciate some of the work
    that you have done on this. And actually, the notion of
    simplifying the way we actually do this to make it more
    understandable is certainly important to include beneficiaries
    in this really very important debate we have about making sure
    that seniors have access to the benefits that they expect and
    they need, and doing it in the right way.
        Everyone knows that I have done a lot of work on redesign
    of the way we pay physicians and providers as key to this, and
    potentially I think maybe more important, because as we have
    all heard this morning, it really is very much in the--if your
    doctor recommends it, you are sort of inclined to do it, and
    you should be, and the potential of having copays get in the
    way of necessary services, something that many of us are very
    concerned about, and yet the--and you talked about it earlier,
    we have to protect poorer seniors so that they actually don't--
    so they are able to get the care they need. And maybe $50 a
    copay is enough to say, I can't get it now. And I am sure,
    Doctor, you have seen that. That we want to protect primary
    care. We have talked about already doing that; that we want to
    protect access to care of chronic--those with chronic diseases
    so they don't get sicker; that we also want to protect the
    sickest.
        So we are starting to include a whole lot of seniors in
    this. We are narrowing the window of who we are actually asking
    to pay more.
        So really my question and the real discussion I would want
    to have is how we really don't pay doctors to sit down and
    really talk to their patients about what they shouldn't get. I
    mean, I think Dr. Price said let's not get in the way of the
    doctor-patient relationship, but right now there is somewhat of
    an incentive to say, here is a prescription, because that is
    quicker than the conversation about, you know, you really don't
    have to take this and you can call me in 3 days if you are not
    better, than just giving them a prescription, which they may or
    may not fill, of course, or some of the other--or go have this
    test, and somebody might come in and say, I heard that it is
    really important for me to get an EKG every month.
        Now, I don't know if that is true or not. I just made it
    up. I am not a physician. But, you know--but, in fact, maybe
    that is not such a necessary thing, and it may not be harmful,
    but it certainly is a cost to all of us. But taking time to
    say, no, here are the things that you ought to do instead of
    having these extra tests really does take more time.
        So we don't reimburse very well, except under patients in
    medical homes to do that, but can you speak to how important it
    is for patients to, yes, take some responsibility in this and
    not demanding more from their doctors than they necessarily
    need, but for that communication between the doctor and
    patients, and for us to incentivize providers to take that time
    to really provide what is important and necessary, not more
    than important.
        And right now, while Dr. Price will say, you know, one size
    doesn't fit all, right now we pay for everything, more or less,
    and that is what you are sort of trying to get to: how can we
    get the doctor and patient to actually engage in that
    conversation when in fact it is very difficult for patients to
    really know whether, in fact, they are asking for more than
    what is appropriate or less than is appropriate. It really is
    very much on the part of the provider.
        I believe strongly we should pay providers differently
    under this, under Medicare, and we ought to do it, but could
    you speak to that, about whether we--the risk of redesign of
    benefits really putting the burden on beneficiaries who really
    have a difficulty making this judgment and really need that
    relationship with their provider, it may be a doctor, may be a
    nurse practitioner, and really having the information not just
    about a cost, but really more about the appropriateness of
    services and the utilization, excessive utilization potentially
    of some services.
        And maybe, Mr. Hackbarth, do you want to start with that?
        Mr. HACKBARTH. Sure. So I want to emphasize that we think
    that it isn't enough just to reform the Medicare benefit
    package. You also need to reform how physicians and other
    providers are paid.
        Ms. SCHWARTZ. Yes.
        Mr. HACKBARTH. And one dimension of that----
        Ms. SCHWARTZ. Maybe first, even? I mean, do you think one
    comes before the other?
        Mr. HACKBARTH. I think it has to happen simultaneously. I
    wouldn't put an order on it. And one dimension of that you have
    touched on, Ms. Schwartz, which is we need to pay physicians
    for communicating with patients. And there have been some
    positive developments in that recently. Some new codes have
    been added for transitional care, a big part of which is
    communication with patients as they make a very difficult
    transition from a hospital admission to the community. So I
    think that is a very important complement to this.
        Other approaches you have alluded to are like medical home,
    where we are not even using the fee-for-service payment model
    exclusively, we are adding additional payments. They go hand in
    hand. It is not either/or, it is both are required.
        Ms. SCHWARTZ. Okay. Thank you. Do we have time for others
    to comment?
        Dr. FENDRICK. Yes. Briefly I will just say that the most
    important part is that we make sure that whatever is happening
    with the incentives on the physician side and the provider
    side, they must be aligned with the consumer side, because what
    I see in both the public and private programs, often they are
    in parallel, but often moving in the wrong direction.
        Conceptually, though, speaking about it from the patient
    side, cost sharing is an insurance tool to encourage
    beneficiaries to think twice or thrice about things they may
    not need. So when we think about home care or hospitalizations
    or visits, it requires me to pause and think why would there be
    cost sharing on something that is absolutely essential for the
    patient's health, which is the entire motivation for clinical
    nuance.
        So thus, I would like to close where I started, is that, I
    do believe that cost sharing has a role in Medicare and I think
    cost sharing should have a substantial role on those services
    that don't make beneficiaries any healthier.
        Ms. SCHWARTZ. Well, it seems to me we have a fairly high
    threshold on what is harmful or not. I mean, right now it is
    not absolutely clear, we don't have all the information----
        Dr. FENDRICK. I will just say----
        Ms. SCHWARTZ.--about what is actually too much or----
        Dr. FENDRICK. Very quickly, and why to the chairman's
    credit, this initiative called Choosing Wisely, which I suggest
    the staff learn about, is a physician-specialty society
    motivated initiative to identify services that may be overused.
    So this is a very important step not only for us to identify
    the services that we should make less expensive for which the
    evidence is strong, we also now have a physician-driven
    movement to identify those services that we may do less of.
        Ms. SCHWARTZ. I agree that is important.
        Chairman BRADY. Thank you. Dr. McDermott has asked for a
    question, and he is recognized.
        Mr. McDERMOTT. Thank you, Mr. Chairman. And I want to say I
    have appreciated your slow gavel so that we could allow the
    witnesses to finish what they have to say, and I think the
    committee is really interested in what happens. And one of the
    issues that I would like to ask a further question about is the
    whole question that you just raised, Dr. Fendrick, and beyond
    that, I would like for the committee, that you would submit to
    us, all of you, if you have it, evidence that backs up the
    theory that people go to the doctor more often than they need
    to, and if we put a copay on, they won't go.
        And I want to give you an example to let you--and there are
    thousands of examples. Everybody who is anticoagulated, who is
    on Heparin or on Coumadin is supposed to go back in to the
    doctor and get a checkup as to whether they are at the proper
    level, too high or too low or just right. There are problems on
    being too high, there are problems on being too low. The
    patient has no sense of what that is. They don't feel anything
    particularly until they have got a problem.
        So the idea that I have to pay $10 to go back in and put my
    finger out and have it stuck and have them then read it on a
    machine and tell me, yep, you are right in the right place,
    when I didn't feel anything, why would I do it if it is going
    to cost me 10 bucks?
        And so what I am looking for is how you think you can
    design, and is there any evidence, is there any across-the-
    board--same way with--the Time magazine this month has
    tuberculosis on the front page. And taking pills, in my
    experience personally, and I think probably for everybody in
    this room, you take pills when you feel bad; when you don't
    feel bad, you stop taking them, whether the doctor said you
    should take all 10 days doesn't make any difference. Every drug
    cabinet in every bathroom in this country has half finished ten
    packs, or Z-Paks.
        So what I am getting at is how do you--where is the
    evidence that people go to the doctor just because they don't
    have anything to do on Wednesday afternoon? That is really what
    I am looking at.
        Dr. FENDRICK. I will just start briefly by, your comment
    basically hits the essence of clinical nuance, that someone on
    Warfarin must be not only be discouraged, but must be
    encouraged to follow the protocol to maximize the health of
    that beneficiary. I am not so sure that someone not on Warfarin
    should have the same ability to go to see the doctor to have
    their blood checked to see how thin their blood is. And that
    is, as I said, the essence of clinical nuance.
        There is a lot of evidence that we are happy to supply to
    the committee, but one of the best examples in Medicare is The
    New England Journal of Medicine paper examining the impact of
    increases in cost sharing on ambulatory visits in Medicare
    Advantage.
        As you might expect, Mr. McDermott, beneficiaries went to
    the doctor less often. Those beneficiaries who went to the
    doctor less often, went to the ER more and were hospitalized
    more, and, in fact, total costs went up, which is why our
    proposal is that primary care visits in Medicare Advantage and
    in Medicare should be free.
        Now, there are other services actually where the money is,
    as Mr. Hackbarth knows better than anyone. It is not in primary
    care visits and it is not in prevention. It is in
    hospitalizations and the management of chronic diseases, for
    which--to respond to the chairman's question earlier, for those
    chronic diseases, we are fairly certain in the services that
    should be encouraged for which cost sharing should be minimal
    or not at all.
        Mr. HACKBARTH. So what I would highlight, Mr. McDermott, is
    the importance of doing both payment reform and appropriate
    cost sharing for patients. So one piece of evidence that we
    have that is relevant to your question is the prevalence of
    repeat testing of various types. There is a lot of it, a lot of
    it that exceeds all clinical guidelines, and there is huge
    variation across the health care system. Probably the most
    important reason for that is not patients demanding repeat
    testing, but physicians have incentives to do repeat testing.
    We need to change that, but when we change the physician
    incentive and they say, oh, well, maybe you don't need to be
    tested so often, you don't need so many return visits, we want
    the patient also to be aligned with that. We don't want the
    patient to say, well, I like the old pattern of, you know, I am
    going to come every month or every 2 months, whatever. If there
    is a modest appropriate copay, then the physician and patient
    are talking the same language.
        I believe physicians care about their patients and will
    modify the recommendations if the patient has some cost sharing
    involved, and will recommend things differently than if it is
    absolutely free to the patient.
        Ms. NEUMAN. Well, I would agree that there is a lot of
    evidence on the side that says if you increase cost sharing, it
    has an effect on utilization. I don't know about the evidence
    on decreasing utilization and whether there is, for example,
    too much of preventative services. And that might be something
    that one could take a look at, but it would be hard to imagine
    an effect like that in the literature, but we could take a look
    at it.
        I also agree on areas of where there is evidence of
    overutilization, there are a number of ways to attack the
    issue, one of which is cost sharing. And even then, in the
    example of home health, there are different ways of doing that
    that would have different effects on people depending on how--
    whether it is, for example, a copayment or a co-insurance,
    which would disproportionately affect the sickest of the sick.
    But if the issue is that there are too many people using too
    many services, then I would also agree on going at it, going
    around and going at the provider side, the supplier side and
    think about how to make changes that would slow the growth in
    this benefit without necessarily asking beneficiaries to parse
    out whether or not they need a service that their doctor has
    told them they needed.
        Mr. McDERMOTT. Thank you, Mr. Chairman.
        Chairman BRADY. No. Thank you. I would like to thank all of
    our witnesses for their testimony today. Obviously there is a--
    the current structure of Medicare benefit design needs a hard
    look at, has its challenges. I hope we continue to work
    together in a bipartisan way, to explore how we can try to
    limit those out-of-pocket costs, make a little more rational
    sense out of the design, but just as Mr. Hackbarth has asked
    Ms. Neuman,--go back, and I will send a letter to this effect,
    take a look at again the changes of the design over the life of
    a Medicare senior I think is very important.
        The other area, we sort of looked at one side of the
    ledger, okay, if you unify, A and B it may raise costs and some
    others, but what we didn't explore is what is the impact of
    MediGap, you know, do you need it? Does it have a different
    side? Does it carry a different cost that offset some of that?
    Any information any of you all have to that regard would be
    very helpful.
        As a reminder, any member wishing to submit a question for
    the record will have 14 days to do so. If any questions are
    submitted to the witnesses, I request you answer them as
    promptly as possible, please.
        With that, the subcommittee is adjourned.
        [Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
        [Submissions for the record follow:]

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