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





                            MEDPAC'S ANNUAL
                        MARCH REPORT TO CONGRESS

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 15, 2013

                               __________

                          Serial No. 113-HL02

                               __________

         Printed for the use of the Committee on Ways and Means




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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 HEALTH

                      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 March 15, 2013 announcing the hearing................     2

                                WITNESS

Glen M. Hackbarth, Chairman, Medicare Payment Advisory Commission     6

                       SUBMISSIONS FOR THE RECORD

Center for Fiscal Equity, statement..............................    50
George Mason University, statement...............................    57
 
                            MEDPAC'S ANNUAL
                        MARCH REPORT TO CONGRESS

                              ----------                              


                         FRIDAY, MARCH 15, 2013

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 9:32 a.m., in 
Room 1100, Longworth House Office Building, Hon. Kevin Brady 
[Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
Friday, March 15, 2013
HL-02

                  Chairman Brady Announces Hearing on

                MedPAC's Annual March Report to Congress

    House Ways and Means Health Subcommittee Chairman Kevin Brady (R-
TX) today announced that the Subcommittee on Health will hold a hearing 
on the Medicare Payment Advisory Commission's (MedPAC) annual March 
Report to the Congress which details the Commission's recommendations 
for updating Medicare payment policies. The Subcommittee will hear from 
MedPAC's Chairman, Glenn Hackbarth. The hearing will take place on 
Friday, March 15, 2013, in 1100 Longworth House Office Building, 
beginning at 9:30 a.m.
      
    In view of the limited time available to hear the witness, oral 
testimony at this hearing will be from the invited witness 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.
      

BACKGROUND:

      
    MedPAC advises Congress on Medicare payment policy. The Commission 
is required by law to submit its annual recommendations on Medicare 
payment policy by March 15. In its March Report to Congress, MedPAC is 
required to review and make recommendations on payment policies for 
specific provider groups, including hospitals, skilled nursing 
facilities, physicians, and Medicare Advantage plans.
      
    In announcing the hearing, Chairman Brady stated, ``MedPAC provides 
critical information to policymakers about the adequacy of provider 
payments in the Medicare program. With its Hospital Insurance Trust 
Fund set to go bankrupt as early as 2023, it is clear that Medicare is 
facing significant financial challenges. This hearing will afford 
Members the opportunity to understand where Medicare payments can be 
adjusted in a way that is fair to providers and taxpayers, while 
protecting seniors' access to care.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on MedPAC's March 2013 Report to the 
Congress on Medicare payment policies.
      

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 Friday, March 29, 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 
Buildings. For questions, or if you encounter technical problems, 
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 
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printed record, and any written comments in response to a request for 
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 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    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 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman BRADY. Good morning everyone. I want to welcome 
everyone to the second hearing of the Subcommittee on Health 
for the 113th Congress.
    Today we will be hearing from the Medicare Payment Advisory 
Commission, MedPAC, on the recommendations in their March 2013 
report on Medicare payment policies. We heard from MedPAC 
during our Medicare structural reform hearing 2 weeks ago. It 
was insightful to hear the Commission's recommendations for 
improving the design of Medicare in a way that is less 
confusing for seniors, limits their out-of-pocket costs, and 
provides financial incentives to seek the most appropriate care 
in the most appropriate setting. It is my hope that the 
Committee can work together in a bipartisan way to advance 
these much-needed structural reforms to save Medicare for the 
long haul.
    Today, however, we are hearing from MedPAC on the topic of 
Medicare payments to providers. We are pleased to have the 
Commission here to discuss the recommendations in its report, 
which was released this morning, for updating payments in a way 
that ensures Medicare families have access to high-quality care 
while also being fair to local healthcare providers and the 
American taxpayers. The insight and guidance we receive from 
MedPAC is very important as we seek ways to reform the Medicare 
program--for instance, improving the accuracy of provider 
payments.
    The MedPAC recommendations also focus on payment system 
changes that encourage accountability by local healthcare 
providers to deliver high-quality care at the most affordable 
cost. These are important discussions as we move toward 
payments that reward providers for the quality they provide 
rather than the quantity of what they have done. I really 
appreciate the point that Ranking Member Jim McDermott made in 
our first hearing. To paraphrase, he said we need to bring 
value over volume to the Medicare program. The challenge, of 
course, is to find common ground as we seek these solutions.
    One payment system I want to mention specifically is the 
physician payment system that is governed by the sustainable 
growth rate formula, or SGR. Democrat or Republican, the truth 
is; enough is enough. This year, right now, we have a golden 
opportunity to eliminate the long, problematic SGR once and for 
all and reform how Medicare pays physicians. I know that MedPAC 
has put significant thought into this topic. I look forward to 
hearing more about those ideas today.
    Structural changes to the program and payment systems that 
are accurate and provide the right incentives are complementary 
pieces. I applaud the MedPAC Commissioners and staff for the 
work they have done in this area, but, as I mentioned last 
hearing, I respectfully ask you to do more.
    It is abundantly clear Medicare is on an unsustainable 
path. In fact, two independent agencies, the Congressional 
Budget Office and the actuaries at the Department of Health and 
Human Services, estimate that Medicare's Part A trust fund will 
be bankrupt by 2023. Additionally, CBO projects that by 2222 
Medicare spending will top $1 trillion. That is 90 percent more 
than we currently spend. If these trends continue, we can't 
save Medicare for every generation or guarantee a sustainable 
future. Finding solutions to these problems now is our 
challenge.
    The President's healthcare law didn't actually lower 
healthcare spending. Congressional Budget Office Director 
Elmendorf recently testified that it could not attribute any 
particular factor to explain the recent lower healthcare 
spending other than, of course, the economy. Additionally, CBO 
estimates that ObamaCare delivery changes will yield a 
miniscule $14.7 billion in savings. That barely registers.
    But regardless of how we feel about the new healthcare law, 
the glaring fact remains: Medicare's hospital insurance trust 
fund will go bankrupt in 10 years. We have to act now; the 
clock is ticking. And today's hearing will help us address our 
challenges. MedPAC's analysis is invaluable in helping us 
better understand when growth in Medicare spending is 
appropriate and when Medicare payments need to be adjusted.
    We also look forward to receiving MedPAC's next report to 
Congress in June, which will highlight additional opportunities 
for reform beyond just changes in the payment system. We rely 
on MedPAC's recommendations because they are based on strong 
data analysis. That is a key element in designing policies that 
improve the Medicare program and save it over the long term.
    So I welcome our invited witness, MedPAC Chairman Glenn 
Hackbarth. Thank you for joining us today, and I look forward 
to hearing your testimony.
    So 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. Where is your St. Paddy's Day tie?
    Chairman BRADY. I am in trouble.
    Mr. MCDERMOTT. You know it is coming.
    Chairman BRADY. In a serious way, I am in trouble.
    Mr. MCDERMOTT. Mr. Chairman, I am grateful for your calling 
this hearing today. It is one of our regular reports from CMS. 
And it is important that we actually have people come in and 
make these reports and give us a chance to ask questions.
    And I appreciate Mr. Hackbarth coming back. You were here 
the other week. We won't always agree on the recommendations 
that MedPAC makes, but it does good work and it takes seriously 
its charge to ensure appropriate payment and access.
    Government oversight keeps people accountable to the 
interests of the people and to the experts of our field. It is 
sometimes easy for us, sitting up here, to stand on our 
respective sides screaming at each other across the aisle, but 
your agency can help us to find common ground and to cut 
through the self-serving claims of the special interests. Our 
offices are filled with them.
    Today's discussion will also be useful as we look at the 
Affordable Care Act's opportunities to explore innovative 
payment and delivery systems, some of which are based on 
MedPAC's work. With the freedom to think in new ways about how 
to pay for services, aligning the needs of providers and 
patients, and deliver care, I believe we can continue to 
improve cost and quality for everyone while still protecting 
benefits.
    I appreciate MedPAC's commitments to evidence-based data. I 
am one of those that believes that you can have whatever 
opinion you want, but you can't have your own facts. And I like 
the fact that you are a fact agency. This agency has proved 
itself to be credible, nonpartisan, and committed to 
transparent and well-founded methodologies and results. 
MedPAC's efforts to take a comprehensive look each year at the 
underlying economics of each sector drive thoughtful 
recommendations rooted in reality. We share your goals in 
ensuring that payments are both appropriate and adequate.
    Medicare is an entitlement to a defined set of benefits. It 
is not an entitlement to specific reimbursement for providers 
or plans. While we need to ensure that hospitals and doctors 
and others earn enough off of Medicare to preserve access, 
sometimes people lose sight of the program's purpose, which is 
to serve the people. We, likewise, have an obligation to 
taxpayers to ensure that the payments are appropriate and not 
too high.
    That said, given Medicare's size and the health needs of 
the Medicare population and our reimbursement rates, many in 
the healthcare sector have made and will continue to make a 
very pretty penny off the program. I remember when doctors 
didn't have a certain way to get paid when they saw old people. 
They had to rely on the children of or the collection agencies 
or bags of potatoes or whatever.
    So when people come in to cry poverty over a proposed 
regulation or piece of legislation, we would all be well-
advised to take such claims with a grain of salt. And then we 
should pick up the phone to call MedPAC to find out just how 
pressed the group in question is.
    Even so, while data are important, we mustn't let ourselves 
lose sight of the people behind the numbers. As health 
economist Uwe Reinhardt noted, you can put a person on a hot 
stove and another one on a block of ice. On average, sure, they 
are a comfortable temperature. Individually, they might 
disagree.
    With that in mind, I hope that we will receive the 
recommendations in the context of our current environment and 
consider the challenges of the year ahead. In the time since 
these recommendations were voted on, the sequester has been 
implemented, with no end in sight. Republicans failed to 
address this in the budget. Instead of replacing blunt, across-
the-board cuts with more justifiable, targeted proposals, they 
kept the sequester and they added to it.
    These recommendations are a healthy and timely reminder 
that there are still plenty of well-justified potential 
provider savings that should be pursued before asking patients 
to pay more.
    And I thank you again for joining us, and we look forward 
to your testimony.
    Chairman BRADY. Thank you, Mr. McDermott.
    And today Glenn Hackbarth, the Chairman of MedPAC, joins 
us. Mr. Hackbarth is no stranger to the Subcommittee, having 
served as MedPAC's Chairman for more than 11 years and having 
appeared before the Subcommittee numerous times.
    We are pleased to have you with us, Mr. Chairman. As you 
know, we have reserved 5 minutes for your opening statements. 
Your entire written statement will be made a part of the 
record. You are recognized.

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

    Mr. HACKBARTH. Thank you, Chairman Brady and Ranking Member 
McDermott. I appreciate your kind words about MedPAC.
    Since there are some new Members of this Subcommittee, I 
thought I would take just a second to introduce MedPAC a little 
bit further.
    We are a nonpartisan advisory body to the Congress. We have 
17 Commissioners appointed by the GAO. Six of our current 
Commissioners have clinical training either as physicians or as 
nurses; five have experience as hospital executives; five as 
leaders of integrated delivery systems; four in health plan 
management; two former presidents of the National Rural Health 
Association; three with high-level government experience; as 
well as several eminent academics. And, of course, some of us 
have more than one of these credentials in our background.
    By law, our March report presents to the Congress our 
update recommendations for the various Medicare payment 
systems. Our statutory assignment from you is to recommend 
rates that are consistent with the efficient delivery of 
services to Medicare beneficiaries.
    Our analysis of payment rates considers the supply of 
providers, their access to capital, their financial 
performance, and the quality of care they provide. In 
considering an update recommendation, we start with zero--in 
other words, keeping the rates at the current prevailing level. 
And then any increase in the rates or decrease needs to be 
justified with evidence in one of the categories I just 
mentioned.
    Our March report this year includes a total 19 
recommendations, including 4 related to special needs plans 
under Medicare Advantage. Across those 19 recommendations, 
there were a total of 302 ``yes'' votes from MedPAC 
Commissioners, 5 ``no'' votes, and 3 abstentions. So there is a 
substantial consensus in the Commission in favor of the 
recommendations in our report.
    If I could highlight just one thing in my opening 
statement, it would be our recommendation to repeal the SGR 
system, the sustainable growth rate system, in the Medicare 
physician payment program. As you well know, CBO recently re-
estimated the cost of repeal, and it is dramatically lower than 
it has been in recent years. From our perspective, SGR repeal 
is now on sale, and the sale price may not last. And so we urge 
you to take advantage of this opportunity.
    We also urge you to include in the repeal legislation two 
other things: One is provisions aimed at rebalancing payments 
between cognitive and procedural services, with particular 
emphasis on primary care; and, second, provisions designed to 
encourage movement toward new payment systems.
    As we see it, payment reform--that is, moving away from 
fee-for-service to new payment models like accountable care 
organizations, bundling around episodes of care, or medical 
home--movement to payment reform is the single most important 
step to improve quality for Medicare beneficiaries while 
minimizing taxpayer burden.
    Payment reform is essential because it encourages and 
supports delivery system reform, whereby clinicians and other 
providers accept joint responsibility for both the quality of 
care and the total cost of care. Medicare's current payment 
systems, which are siloed payment systems based on provider 
type, in fact facilitate, if not encourage, fragmented care 
delivery and inhibit collaboration across providers and inhibit 
the smooth flow of resources to where clinicians think they can 
do the most good for Medicare payments.
    So those are my opening comments, Mr. Chairman, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Hackbarth follows:]
    
    
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    Chairman BRADY. Thank you, Mr. Chairman.
    Let's start at the beginning. The report acknowledges what 
we all know, which is Medicare will be broke in 10 short years. 
How urgent is it for us to act now to make that program solvent 
over the long term?
    Mr. HACKBARTH. Yeah, so, as I indicated in my comment, the 
most important thing for us to accomplish is to support reform 
and care delivery. That is where the action is.
    And the sort of changes that we are talking about--for 
example, moving to accountable care organizations or bundling 
around episodes--require providers to develop new relationships 
with one another. And we believe those relationships are 
important to quality of care, let alone cost.
    But they will take time to develop. And so moving in that 
direction now allows us to have the necessary delivery system 
reform in time to help us, you know, 5 or 10 or 15 years down 
the road.
    Chairman BRADY. In your view, is it possible to make Social 
Security solvent for the long haul without reforming fee-for-
service?
    Mr. HACKBARTH. No. We think reforming fee-for-service is an 
essential part of the effort.
    Chairman BRADY. In the report, you make two recommendations 
generally: one on the principles of SGR reform, breaking the 
link between expenditures and updates, and you outline some 
principles. Then you talk about offsets. Once we get the 
replacement right, which tells us the price, we have to do the 
hard work on the offsets.
    Mr. HACKBARTH. Right.
    Chairman BRADY. So can you talk for the Committee about 
some key principles on SGR reform in your mix of offsets for 
once we get that replacement right?
    Mr. HACKBARTH. Yeah. So the major principles I touched on 
in my opening statement: repeal, rebalance payments within the 
physician fee schedule, and encourage movement to new payment 
systems.
    In terms of offsets, in October 2011 we sent this Committee 
and the other committees of jurisdiction a letter with almost 
$300 billion in offsets. Actually, let me just clarify that. We 
had about $200 billion in offsets and $100 billion in suggested 
changes in the physician fee conversion factor. So, at the 
time, the total cost to repeal was about $300 billion, and we 
had a package that would roughly achieve that goal.
    Since that time, as I indicated, the cost of repeal has 
fallen dramatically, so not all of the things on that list 
would be required. We do have roughly $100 billion worth of 
current unenacted MedPAC recommendations before this Committee 
and the Congress.
    We would also think that it would be appropriate to have 
some balance between physicians and other participants in the 
Medicare system. In our October 2011 letter, we had the balance 
one-third physicians, two-thirds from all of the other 
participants in the Medicare system. There is no magic to that 
split, but it might be still a reasonable approach.
    Chairman BRADY. Final question is really advice for the 
Committee. As we look at this, it sort of reminds me of Parade 
magazine every year does an edition on what do people earn, you 
know. And you sort of thumb through it to find out what average 
people make.
    You are tempted, in looking at this report, to look at the 
margins to sort of--in the past, it has been who is ripe for 
picking in provider cuts going forward. But that has been part 
of the problem. We are really not focused on quality, reforming 
this process so it is not so reimbursement-driven.
    How should we as a subcommittee use this as a tool in 
designing a permanent, reliable, quality-driven SGR or 
replacement for the SGR?
    Mr. HACKBARTH. Yeah. Well, as you say, we don't think that 
you only look at the margins. In fact, we think sometimes 
looking at average margins is deceptive. What you have asked us 
via our statute is to recommend rates consistent with the 
efficient delivery of service. And sometimes the average 
margins don't help you understand what the efficient level of 
payment is.
    So we tend not to base our recommendations solely on 
average margins. That is just one input. In addition, we look 
at quality of care, the entrance and exit of providers in a 
particular area.
    Within our recommendations, there are, however, certain 
provider groups, namely skilled nursing facilities and home 
health agencies, where we have seen persistently very high 
margins for a long period of time, double-digit margins. And, 
in those cases, we have recommended an actual rebasing of the 
rates. In other words, don't just update from the current rate; 
lower the current rate so that it is more appropriate given the 
cost of delivery.
    So those are two areas where we think in particular there 
is an opportunity--skilled nursing facilities and home health 
agencies.
    Chairman BRADY. Thank you, Chairman.
    Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    One of the issues that we hear about, all of us go to 
various events, people come up and say, I can't find a doctor 
and I am on Medicare.
    I know you do an annual survey. I would like you to talk 
about what you have found in that survey.
    Mr. HACKBARTH. Yes. So each August, September we do a 
survey of 8,000 people--4,000 Medicare beneficiaries and 4,000 
people who are just prior to Medicare eligibility by age and 
are privately insured. And we ask a series of questions about 
their access to care and then also ask them about their ability 
to find a new physician if, in fact, they are seeking a new 
physician.
    On the issues about their satisfaction with access to 
quality of care, Medicare beneficiaries have consistently 
reported higher satisfaction with their access to care than the 
privately insured patients just under age 65. The differences 
aren't huge, but the pattern has been pretty consistent over 
time.
    On the questions related to finding a new physician if you 
are seeking one, Medicare beneficiaries report about the same 
level of difficulty as the privately insured patients. Those 
numbers have bounced around a little bit in recent years, but 
they are basically the same.
    Mr. MCDERMOTT. Is that basically the question of finding a 
primary care physician?
    Mr. HACKBARTH. Yes. Actually, we ask questions on both. We 
ask if you are looking for a new primary care physician and 
then a separate question, if you are looking for a new 
specialist. The challenges, both in Medicare and in private 
insurance, tend to be in terms of finding a new primary care 
physician.
    Mr. MCDERMOTT. So as we take on 30 million new people under 
the Affordable Care Act, we are going to be in some difficulty 
with primary care physicians?
    Mr. HACKBARTH. We have not looked specifically at the 
implications of the Affordable Care Act, but we do see 
indications, particularly in some portions of the country, 
finding a new primary care physician is difficult, again, for 
both Medicare and privately insured patients.
    This is the reason why, in talking about SGR repeal, I 
emphasized the importance of increased payment for primary 
care. That is where we see the potential access problems for 
Medicare beneficiaries.
    Mr. MCDERMOTT. Could I ask a question about Medicare 
Advantage programs? They cover everything that traditionally 
Medicare covers. Are they allowed to play with co-pays and 
other things to make a difference in how they are used or to 
limit the risk or make people say, well, I think I am going to 
get out of here because I have something that isn't covered, or 
it costs too much, or----
    Mr. HACKBARTH. Yeah. So they do have some flexibility 
around the benefit design. And for the reasons that we 
discussed in the hearing a couple weeks ago on benefit design, 
we think some flexibility is appropriate. In fact, we would 
like to see them have a bit more flexibility than they have 
currently in some areas--for example, having tailored co-pays 
for particular patients with particular illnesses. That is the 
idea behind value-based insurance design.
    Having said that, though, you need to take care that 
benefit design is not used to enroll a favorable selection of 
risk and discourage the higher-risk patients. So that 
flexibility needs to be within a regulatory framework that 
protects against risk selection activity. So we are trying to 
strike a balance: flexibility for a more value-based insurance 
design without skimming behavior----
    Mr. MCDERMOTT. Tell me about the spread. If I am in one 
plan and my diabetes is taken care of and it costs me $100 and 
in the other one it costs $40, is that spread possible between 
two Medicare Advantage programs and co-pays? Or is it a $5 
difference? Or what are we talking about here?
    Mr. HACKBARTH. Well, I can't answer that question off the 
top of my head, Dr. McDermott. I would be happy to respond to 
that in writing afterward.
    Mr. MCDERMOTT. As a final thing, I notice in today's paper 
the FTC is suing a hospital in Idaho for buying a doctor's 
practice under the noncompetitive questions.
    Mr. HACKBARTH. Uh-huh.
    Mr. MCDERMOTT. Some of the things in the ACA, the 
Affordable Care Act, these accountable care organizations, it 
seems to me that there are a lot of problems out there about 
how you control costs and how medical systems can move to do 
that that are inherent in the law. I would like to hear you say 
a little something about that.
    Mr. HACKBARTH. Yeah. Well, this is another challenging 
area.
    In general, we believe that developing formal relationships 
among different types of providers is a good thing and a 
necessary part of trying to improve the value of care. When 
providers of various types work independently without 
coordination, we know what the results are. That is the 
experiment we have run for the last 40 or 50 years. We get a 
high cost and uneven quality. So we favor some integration 
combinations. That doesn't always have to be in terms of a 
formal merger or ownership. There are a lot of different ways 
that configuration can happen.
    Having said that, there is a fear that as these 
combinations develop, that they will have undue market power 
and be able to, using that market power, get very high rates of 
payment from private payers, if not from Medicare. And so there 
is a balance to be struck. And, you know, we don't want 
complete consolidation, but we do need some reorganization of 
care.
    You know, this is one of the reasons why I personally favor 
physician-led ACOs. If all of the ACO development is hospital-
focused, you tend to get more consolidation, more market power 
that can lead to higher prices for private payers. Having 
physician-led ACOs I think can be consistent with a more 
competitive system.
    And so I am encouraged to see that, in fact, roughly half 
of the ACOs that have now been approved by CMS are, in fact, 
physician-led ACOs. I think that is a good sign.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Johnson.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Mr. Hackbarth, how many on your board are actually in 
private practice?
    Mr. HACKBARTH. In private practice. It is going to be hard 
for me to do a quick count off----
    Mr. JOHNSON. But you do have some?
    Mr. HACKBARTH. Yes, we do.
    Mr. JOHNSON. And not a preponderance, though, I would 
guess.
    Mr. HACKBARTH. Well, as I said, in our current membership, 
we have six clinicians. For example, one, Tom Dean, Dr. Tom 
Dean, practices in a small town in South Dakota and brings to 
us the experience of a family practice physician in that 
environment.
    Mr. JOHNSON. Good.
    As you know, ambulatory surgery centers' payment updates 
are based on Consumer Price Index-Urban, which reflects 
inflation in the entire economy. MedPAC previously said CPI-U 
is a poor proxy for input price increases.
    Since there is no empirical evidence to suggest that ASC 
inflationary challenges differ from hospitals--they both have 
to hire and retain nurses and purchase similar medical 
supplies--shouldn't their payment updates reflect the 
outpatient hospital market basket?
    Otherwise, payments between the two sectors will continue 
to diverge over time, as CPI tends to lag market basket by 
about a percentage point.
    Mr. HACKBARTH. Yeah. Well, as you indicated, Mr. Johnson, 
we don't think that the CPI-U is an appropriate adjustment 
factor for ASCs.
    We have recommended that cost data be collected from ASCs, 
one of the purposes of which would be to develop a more 
appropriate index for ASCs. Although there are some 
similarities in the services and inputs used by ASCs and 
hospitals, the mix is significantly different. So even the 
hospital inflator wouldn't be tailored to ASC patterns.
    Mr. JOHNSON. Well, how do you all adjust for those 
differences?
    Mr. HACKBARTH. Well, as I said, right now, without cost 
data, it is very difficult to do that. And that is one of the 
reasons why we think ASCs should be required to submit some 
cost data to Medicare.
    Mr. HACKBARTH. And they don't do that now?
    Mr. HACKBARTH. They do not.
    Mr. JOHNSON. Okay.
    In the report, the Commission found the current system 
undervalues primary care and overvalues specialty care. I agree 
primary care physicians are different. I am also aware of 
potential primary care shortages. Over half the doctors in 
Texas aren't taking new Medicare patients.
    However, is MedPAC concerned about the access to cognitive 
specialists, who bill a lot of office visits but would face 
cuts under your recommendation?
    Mr. HACKBARTH. Well, so we have made over the years a 
series of recommendations about how the relative values are 
calculated in the physician fee schedule. In general, those 
recommendations would increase the value for what we refer to 
as cognitive services, nonprocedural services.
    So specialists who provide a lot of those services actually 
could benefit from our recommendations, whereas those that are 
doing procedures or imaging would tend to be paid less.
    Mr. JOHNSON. Okay. Well, thank you very much.
    Mr. Chairman, I yield back.
    Chairman BRADY. Thank you.
    Mr. Kind.
    Mr. KIND. Thank you, Mr. Chairman.
    Mr. Hackbarth, thank you again for your testimony today and 
the work that MedPAC does.
    You are probably familiar with CBO's recalculation of 
Medicare spending between now and 2020. It just came out in 
February. They updated their baseline from just last August. 
This is what they found: They found a reduction in Medicare 
spending during that time period of 3\1/2\ percent, or $382 
billion, which is significant, which tells me something is 
happening out there, something is churning. And it may be a 
little bit too early to tell what exactly, but it does, I 
think, give many of us hope that have been working with MedPAC 
throughout the years, as far as the recommendations you have 
been making to this Committee and to this Congress in regards 
to delivery system and payment reform, which was included in 
the healthcare bill.
    And I don't know if you were familiar with the article that 
came out in USA Today last week on March 4 entitled, 
``Healthcare Spending is Transferred Out of ICU.''
    And, Mr. Chairman, I would ask unanimous consent to have 
this article inserted in the record at this time.
    Chairman BRADY. Without objection.
    [The information follows:]
    
    
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    Mr. KIND. The article states, and I quote, ``Cost-saving 
measures under the healthcare law appear to be helping keep 
medical prices flat, according to healthcare providers and 
analysts. Also, weak demand may linger from the recession, 
which ended in June 2009, especially for optional care, such as 
cosmetic surgery.''
    And then later in the article, Dan Mendelson, who is the 
CEO of Avalere Health, which advises healthcare companies and 
investors, was quoted as saying, ``We are beginning a long 
period of adjustment in health care. Institutions are taking 
both cost control and quality improvement more seriously.''
    And a little bit later in the article, it states, ``In the 
4 years leading to the expanded health insurance, the 
government has used authority in the Patient Protection 
Affordable Care Act,'' the ACA, ``to try to reshape the 
economics of health care through regulation and financial 
incentives. That appears to be keeping a lid on medical 
costs.''
    And then later in the article, Peter Person, the chief 
executive of Essentia Health, a 13,000-employee hospital system 
up in Duluth, Minnesota, was quoted as saying, ``It all goes 
back to the Affordable Care Act and how it is changing so many 
components of the way we do business. The language I use now in 
the healthcare business is completely different from the 
language I used even 5 years ago.''
    And, again, there is more to the article in that.
    So there is something happening that is starting to gain 
traction right now. And, obviously, we listened closely to what 
MedPAC was recommending throughout the years and included 
virtually all of the delivery system reforms that MedPAC was 
making and the payment reforms in order to help drive the 
system to better quality, better access, at a better price. And 
now CBO is saying almost a $400 billion savings in Medicare 
over the next 8 years. And the verdict is still somewhat out as 
far as what is driving that.
    Mr. HACKBARTH. Uh-huh.
    Mr. KIND. But these are all, I think, signs of hopefulness 
with where the healthcare system is going. And, in fact, the 
ACOs that you were talking about a little bit earlier, medical 
homes is moving forward, trying to reduce preventable hospital 
readmissions as part of ACA, wider testing, the bundle of 
payments and that.
    What hope do you see as far as the implementation of these 
delivery system and payment reforms in regards to finally 
starting to bend the cost curve within the healthcare system 
and whether or not that might be sustainable in the long term?
    Mr. HACKBARTH. Yeah. Well, I am hopeful. I think there is 
change afoot. It is hard to go around the country and talk to 
physicians and hospital executives and other providers without 
being convinced that there are changes, meaningful changes, 
happening.
    As to what share of the change in the trend is attributable 
to those real changes in care delivery versus temporary factors 
like the economy, I don't know the answer to that. As you know, 
there is a robust debate about that issue.
    I would say, though, that even if you believe, as I do, 
that there are real changes happening, that is not quite the 
same thing as saying that they will be sustained in the long 
run.
    Mr. KIND. Right.
    Mr. HACKBARTH. In the 1990s, I was a private health plan 
executive and then the CEO of a large multispecialty medical 
group. That was, as you will recall, the period of managed 
care. Real changes were happening in healthcare delivery in the 
1990s, too. And, in fact, we saw a significant slowing of the 
rate of increase in healthcare costs.
    That did not last, that was not sustained, in part because 
those changes in delivery, that change in healthcare spending 
provoked a reaction.
    Mr. KIND. Uh-huh.
    Mr. HACKBARTH. Whenever we try to bend the cost curve, 
there will inevitably be some winners and some losers. And we 
know that the losers will push back at some point.
    Mr. KIND. Mr. Chairman, I would hope that in the future 
MedPAC might offer some recommendations on how we can 
accelerate some of the financial incentives or payment reforms, 
given the track record that is being established. That might be 
helpful for the Committee to consider, as well.
    Chairman BRADY. Yes. And I think SGR reform is the perfect 
opportunity for us to start making those changes together.
    Mr. Roskam.
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Mr. Hackbarth, thanks for your time today.
    Back in your 2007 report, and now it is reiterated in this 
current report, you raise concerns about the ease with which 
critical access hospitals could manipulate the Medicare 
hospital wage index system by converting to a prospective 
payment system hospital and pull national Medicare dollars into 
one State entirely.
    Since enactment of the Affordable Care Act, this very 
scenario has occurred and is referred to as the ``Bay State 
boondoggle.'' Can you give us a sense of this, how real is it, 
why it is that you are concerned about it?
    Mr. HACKBARTH. Yeah. So in our hospital payment system, we 
adjust the payments for local wages across the country since 
there is so much variation. And that is an appropriate thing to 
do.
    The problem that we have had, Mr. Roskam, is that over the 
years there have been a lot of ad hoc changes in that system 
for adjusting wages--special rules, special categories created. 
And what we saw in Massachusetts, the case that you refer to, 
is one of those special rules being manipulated for the purpose 
of increasing Medicare payment.
    We recommended in 2007, as you know, a complete overhaul of 
the wage index system, including wiping out all of these 
special rules that are subject to manipulation. Recently, the 
Institute of Medicine was asked by the Congress to look at the 
same issue and came up with recommendations quite similar to 
the ones that we made in 2007.
    So we need to get away from these special provisions that 
are sort of rifle-shot additions to the law, because they are 
subject to manipulation.
    Mr. ROSKAM. Because this is a zero-sum game, right?
    Mr. HACKBARTH. Right.
    Mr. ROSKAM. So when these things are manipulated--and I 
know that is a characterization, but I will characterize it as 
a manipulation--when they are manipulated, they are manipulated 
for benefit of one at the demise of another hospital or the 
demise of another State. Is that right?
    Mr. HACKBARTH. That is correct. The wage index system is a 
zero-sum game. It is an index, and it redistributes a fixed 
amount of dollars.
    Mr. ROSKAM. Let me just shift gears to the rehab side. As 
we all know, our former colleague and my Senator, Senator Kirk, 
had an incredibly difficult health experience in that he 
suffered a stroke. But we have all been heartened by the story 
of his recovery and now his return to the Senate. He gives an 
incredible amount of credit to an institution in Chicago, the 
Rehabilitation Institute of Chicago.
    I have a sister institution out in the suburbs called 
Marianjoy. And I want to get to this question of the 60 percent 
rule and how this is--or the 75 percent rule and the 60 percent 
drama.
    Mr. HACKBARTH. Right.
    Mr. ROSKAM. Congressman Hyde, my predecessor, served in his 
last days at Marianjoy. And so it is an institution that has a 
great reputation, but they are under incredible downward 
pressure.
    Mr. HACKBARTH. Uh-huh.
    Mr. ROSKAM. And when I spoke to the president of Marianjoy, 
she said that they evaluated in the previous year more than 
7,400 patients, only admitting 2,400 patients, which means that 
2 out of 3 were turned away.
    Mr. HACKBARTH. Uh-huh.
    Mr. ROSKAM. It is a selective admission process. And their 
argument is, look, this shows that the system isn't being 
abused and so forth.
    Can you speak to this 60 percent rule----
    Mr. HACKBARTH. Sure.
    Mr. ROSKAM [continuing]. And what happens if it moves to 75 
percent? Because there is a number of us that have real 
concerns if we move in that direction.
    Mr. HACKBARTH. Yeah. So in the post-acute portion of 
Medicare, we have several different types of providers. We have 
the in-patient rehab facilities, we have long-term care 
hospitals, we have skilled nursing facilities, and home health 
agencies. And patients requiring services after a hospital 
admission can end up in any one of those four places. And what 
we see in the data is that patients with the same diagnosis, 
the same clinical problem can often wind up in any one of the 
four.
    The challenge is that the payment rates for those four 
different settings are dramatically different.
    Mr. ROSKAM. Right.
    Mr. HACKBARTH. And so, in the case of in-patient rehab 
facilities in particular, they are very important institutions 
for patients with a particular set of needs, that really need 
intensive rehabilitative therapy, but it is an expensive place 
to send patients who could be cared for just as well in a 
skilled nursing facility or home health. The cost is much 
higher in the in-patient rehab facility.
    And so the 60 percent rule or the 75 percent rule is a 
crude attempt to assure that the in-patient rehab service, an 
intensive high-cost service, is focused on the patients who 
really need it and not on patients who could be cared for just 
as well in a skilled nursing facility.
    It is an arbitrary rule, it is a crude rule, and it is the 
sort of rule that you need to impose when you don't have an 
accountable party, a clinician, making that choice on where to 
send a patient, coupled with responsibility for cost and 
quality.
    So the direction that we want to move is away from these 
arbitrary rules like the 60 percent or 75 percent to systems 
where a clinical organization would say, this patient with a 
hip replacement can go to a skilled nursing facility, this 
patient with a more complicated problem really needs to go to 
an in-patient rehab facility. And that person is accountable 
for the cost and quality of care. In a siloed payment system, 
there is no accountability.
    Mr. ROSKAM. Thank you.
    I yield back.
    Chairman BRADY. Thank you for raising that issue. The whole 
challenge on post-acute care and the reimbursements in those 
settings is clearly going to be a focus of the Subcommittee 
going forward. So thank you.
    Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    Dr. Hackbarth, I must say that you may be 17 unelected 
bureaucrats, but I think MedPAC has over the years served us 
very well. It is too bad there isn't a mechanism for Congress 
to be required to respond to your recommendations. The 
healthcare system would have been better off, and we would have 
saved a lot of money.
    Mr. THOMPSON. Is that a motion?
    Mr. BLUMENAUER. Just an observation, and not a political 
comment.
    There are three areas that I would appreciate your helping 
me with. One, you highlight in your report that we are 
overpaying some of the very low-performing Medicare Advantage 
programs; that, on balance, there was a concept of reward good 
ones, penalize poor ones. We have seen some improvement, but 
could you comment briefly about that problem that you see with 
the overpayment of the underachievers?
    Mr. HACKBARTH. Yeah. So, in general, as I have said before 
this Committee many times, I believe, we believe that having 
private plans as an alternative, a choice for Medicare 
beneficiaries is an important thing, because often they can do 
things that traditional Medicare finds difficult to do in the 
current siloed payment systems, like coordinate and integrate 
care for chronically ill patients. So that is a good thing.
    But that doesn't mean that all private plans are equally 
good and perform equally well at those activities. Some are 
truly exemplary and among, you know, the people that everybody 
points to as the very best in the country. But, in fact, there 
is a huge range of performance among Medicare Advantage plans.
    One context in which this came up recently was the CMS demo 
for quality bonuses. And what they did in this demonstration 
project was extend the bonuses for quality basically to, like, 
90 percent of all the plans participating in Medicare.
    We had two objections to that. One is, 90 percent probably 
don't deserve quality bonuses. But even more important than 
that, this demo, in effect, overrode the decisions made by the 
Congress in PPACA on how to structure a Medicare quality bonus 
for MA. So we thought the money was being spent 
indiscriminately.
    Mr. BLUMENAUER. And I am hopeful that we will be able to 
return to that because we really do want to coax more capacity 
and quality. All Medicare Advantage programs aren't the same.
    You also referenced hospice care----
    Mr. HACKBARTH. Yes.
    Mr. BLUMENAUER [continuing]. And some difficulties you see 
there. This is an area that I would deeply appreciate some 
brief comments here, but perhaps being able to follow up with 
you, because----
    Mr. HACKBARTH. Sure.
    Mr. BLUMENAUER [continuing]. We are seeing such dramatic 
advances in palliative care, that we are watching that people 
who choose this option in some instances actually have not just 
a higher quality of life but they actually live longer----
    Mr. HACKBARTH. Right.
    Mr. BLUMENAUER [continuing]. In that setting. And, 
coincidentally, it costs less than keeping people in intensive 
care or extreme procedures.
    Do we need to be reevaluating our principles of hospice, do 
some fine-tuning so we are not having areas of abuse but we 
capture the potential of higher-quality and lower-cost care for 
others?
    Mr. HACKBARTH. Yeah. It is, I think, safe to say that the 
current MedPAC Commissioners and all the Commissioners that I 
have served with in my tenure at MedPAC believe that the 
hospice benefit is extremely important for Medicare 
beneficiaries. And we are heartened by the fact that if you 
look back over the last 10, 15 years, in fact, utilization of 
the hospice benefit has increased over time. And we think that 
is a good thing, so long as that is what the beneficiaries 
want.
    We do have some concerns about the hospice payment system, 
however. And we believe that the current payment system is 
subject to manipulation. And the form that manipulation takes 
is very, very long hospice stays, in fact, often multiple 
recertifications of eligibility for hospice. And our concern is 
that is what the payment system currently rewards. And so we 
have made some recommendations about how to address that 
problem.
    So let me stop there. And I would welcome the chance to 
talk in more detail about that.
    Mr. BLUMENAUER. Mr. Chairman, I think this is an area that 
is worthy of some consideration of the Committee. There may be 
adjustments that need to be made clearly in the payment system, 
but, by the same token, the definition that we started with was 
in a different era in terms of palliative care and what we 
know.
    And I am hopeful that there is a way that we can get a 
little deeper into this, maybe with the help of MedPAC or 
others, that both assures the integrity of the program but 
targets it in a way to maximize the benefit and minimize some 
gaming of the system.
    Chairman BRADY. Right.
    Mr. BLUMENAUER. Thank you very much.
    Chairman BRADY. Thank you, Mr. Blumenauer. My pleasure.
    Dr. Price.
    Mr. PRICE. Thank you, Mr. Chairman.
    Welcome, Mr. Hackbarth, back. We appreciate your testimony, 
and appreciate your report.
    I want to touch very briefly on the comment you made on 
fee-for-service, that we ought to be moving away to a different 
model. It is not in your testimony, however, is it, that fee-
for-service ought to be outlawed?
    Mr. HACKBARTH. Not outlawed, but we do think that we ought 
to be encouraging movement to new payment systems. And, you 
know, there is so much talk about how they can reduce cost.
    Mr. PRICE. Yeah.
    Mr. HACKBARTH. I really want to emphasize that we think 
that the new payment systems increase quality for Medicare 
beneficiaries.
    Mr. PRICE. But you wouldn't outlaw fee-for-service. You 
wouldn't recommend that.
    MedPAC looks at utilization, correct?
    Mr. HACKBARTH. Correct.
    Mr. PRICE. You look at overutilization, whether or not 
things are being--tests are being ordered too much, procedures 
are being done----
    Mr. HACKBARTH. Uh-huh.
    Mr. PRICE [continuing]. Too often. And you do that because 
increased utilization increases costs, right?
    Mr. HACKBARTH. Uh-huh.
    Mr. PRICE. Do you look at the practice of defensive 
medicine?
    Mr. HACKBARTH. We have in the past.
    Mr. PRICE. What kind of estimates do you have about how 
much that adds to costs?
    Mr. HACKBARTH. Well, we don't have an independent estimate 
of that. We have looked at the literature on that.
    My own view on that is that there may be too much emphasis 
on trying to calculate precisely what increment it adds to 
cost. Having worked with physicians as CEO of a very large 
group, I think that those estimates sort of understate the 
impact it has on medical practice.
    Mr. PRICE. There are some estimates that it may be as much 
as 1 out of every 3 or 4 healthcare dollars. Is that--which 
is----
    Mr. HACKBARTH. Well, again, we----
    Mr. PRICE [continuing]. Hundreds of billions of dollars.
    Mr. HACKBARTH. Yeah. We have not tried to calculate----
    Mr. PRICE. Wouldn't that be wise, to look at that?
    Mr. HACKBARTH. Well, it is a very difficult estimate to 
make, and I am not sure that we would be able to do it better 
than the various people that have tried to do that.
    Mr. PRICE. I think it would be wise for MedPAC to begin 
considering that. I think it is hundreds of billions of dollars 
of waste in our system. And when you talk about the kind of 
need for providing coverage for folks and the need for more 
resources, this is an area where I think we could make great 
progress.
    I want to shift to the treatment of patients, the incentive 
for treatment of patients in certain settings. And I am 
confused by why the same service for a patient in an outpatient 
setting, nonhospital outpatient setting, and that same service, 
that same exact procedure, that same exact service being 
provided in a hospital outpatient setting, why those payments 
are different.
    Your report last year, I believe, looked at the potential--
--
    Mr. HACKBARTH. Yes.
    Mr. PRICE [continuing]. For equalizing those payments.
    Mr. HACKBARTH. Yes.
    Mr. PRICE. And what was your conclusion or what were your 
thoughts about moving in that direction?
    Mr. HACKBARTH. So we have already made recommendations to 
move toward equalizing the payment for evaluation of management 
services. And we are in the process of looking at other 
services beyond that initial group where we ought to move 
toward equalizing the payments.
    It does not make sense to us to pay dramatically different 
rates, as you know, for the same service simply based on what 
name is over the door. And right now, given the transitions 
that are under way in medical care organization, the program is 
at risk and Medicare beneficiaries are at risk for much higher 
costs even when they go to the same physician----
    Mr. PRICE. Exactly.
    Mr. HACKBARTH [continuing]. Just because of changes in 
ownership.
    Mr. PRICE. Have you looked at combining the fee schedules?
    Mr. HACKBARTH. Pardon me?
    Mr. PRICE. Have you looked at combining the fee schedules?
    Mr. HACKBARTH. Well, what we have done, consistent with our 
assignment from the Congress is we want to set the payment 
levels at the level of the efficient provider. So if the 
physician office is the efficient provider of a service, we 
think we ought to be paying at the physician office level.
    Now, there are some services where we think that the right 
level might be between the physician office level and the 
hospital outpatient department level. We are looking at some of 
those services right now.
    Mr. PRICE. What are your metrics for efficiency?
    Mr. HACKBARTH. So right now, in this particular example, if 
we can get an adequate supply of a particular service and 
physician office under the physician fee schedule, that is the 
efficient provider. Adequate supply at this rate. Why should we 
be paying more in a hospital outpatient department for the 
exact same service?
    Mr. PRICE. And how much do you think you could save by 
equalizing payment?
    Mr. HACKBARTH. Well, again, we looked initially at our 
recommendations on evaluation and management services. And 
maybe Mark can--yeah, so $900 million. About $200 million of 
that would accrue to the Medicare beneficiary from our past 
recommendation.
    Mr. PRICE. That is just for E&M.
    Mr. HACKBARTH. That is E&M alone. Now we are looking at 
additional groups of services beyond E&M that potentially would 
add to that number.
    Mr. PRICE. Great. Thank you.
    Thank you, Mr. Chairman.
    Chairman BRADY. Did I hear that right? Site-neutral 
reimbursement on office visit evaluation would be about $900 
million, and of course then obviously to the senior themselves?
    Mr. HACKBARTH. Yeah, $200 million to the beneficiaries, 
$900 million total.
    Chairman BRADY. Great. Thank you.
    Mr. Thompson.
    Mr. THOMPSON. Well, thank you, Mr. Chairman, and thank you 
for holding the hearing.
    Mr. Hackbarth, thank you for being here.
    I want to talk about access to primary care. And you cover 
this in your testimony. Is it as difficult for Medicare folks 
as it is for private insurers? Is it difficult for both? Or is 
it just a Medicare thing?
    Mr. HACKBARTH. No, this is a general problem beyond 
Medicare. It is Medicare and private.
    Mr. THOMPSON. Yesterday, I had a visit from a constituent 
who is a med student. And his concern was that when today's med 
students get out of school, they are carrying considerable 
debt. And I think this is a problem for all students, but for 
medical students it tends to be a little bit more. He told me 
that he didn't think there was anyone in his class, unless they 
were going through school as part of the military that would 
leave without at least $200,000 in debt.
    And his feeling was that high debt would, in turn, help 
those students determine what field of medicine they want to 
pursue and, because primary care is historically low 
reimbursement, it stands to reason that there is going to be a 
shortage of docs.
    Is it your belief and MedPAC's belief that the cost of 
medical school is a factor in this?
    Mr. HACKBARTH. It is a factor. It is not the only reason 
that people elect to go into specialty care, but it is a 
factor.
    Mr. THOMPSON. And, no, it is probably not; you are probably 
right. But I would assume that there are folks who want to go 
into primary care but, once they get over the sticker shock, 
that it pushes them over the edge into going into----
    Mr. HACKBARTH. Right.
    Mr. THOMPSON [continuing]. A type of medicine that maybe 
they didn't set out to go into. Maybe they wanted to be primary 
care docs, but once they come to the realization they are going 
to have a pretty hefty bill to pay, then that causes them to go 
into specialty?
    Mr. HACKBARTH. Yes.
    Mr. THOMPSON. Are there other professions, medical 
professions, nurse practitioners and things of that nature that 
because of the cost of care, they tend to go into areas with a 
higher reimbursement than in primary care?
    Mr. HACKBARTH. So you are asking whether we have evidence 
that nurse practitioners, for example, elect to engage in 
specialty care versus----
    Mr. THOMPSON. Correct.
    Mr. HACKBARTH [continuing]. Primary care? I don't know the 
answer to that.
    Mr. THOMPSON. Is that something that you look at or should 
look at?
    Mr. HACKBARTH. We have not looked at that in the past. You 
know, we can try to do that. I don't know what issues might be 
raised in doing that analysis.
    Mr. THOMPSON. It might be worth looking at, because 
especially now with the distribution of labor and what nurse 
practitioners and physician's assistants and the likes are 
doing, I am assuming it would have some impact on primary care.
    Mr. HACKBARTH. Yeah. And I would say that I believe that 
nurse practitioners and physician assistants are a necessary 
part of dealing with our primary care issues. I think we have 
not taken full advantage of the capabilities of non-physician 
practitioners, and, frankly, I think we are going to have to.
    Mr. THOMPSON. I agree with you.
    Mr. HACKBARTH. Even if we decided today to increase the 
number of primary care physicians trained, it takes a long time 
for that pipeline to produce physicians.
    Mr. THOMPSON. Well, given the fact that these reimbursement 
rates are affecting the delivery of health care, particularly 
as it applies to primary care, the Commission's proposal on the 
SGR freezes the existing reimbursement rates.
    How do you square that with what you just told me?
    Mr. HACKBARTH. Yeah. So the proposal that you are referring 
to is our October 2011 letter to this Committee and others. The 
context for that letter was, at that point, SGR repeal cost 
$300 billion over 10 years. And since we knew that the cost of 
repeal was the single biggest reason why SGR had not been 
repealed, we felt obliged to come up with a package to cover 
that $300 billion cost.
    The only way that we felt we could get there was to take 
$200 billion from hospitals and other participants in the 
system and about $100 billion worth of the cost out of the 
physician fee schedule. That necessitated cuts in the 
conversion factor for specialty physicians and a freeze on 
primary care.
    Now that the cost of repeal is much larger, you know, you 
would have a different set of options for how to structure 
that, thankfully. And, potentially, you could elect to have 
some increases for primary care if you so desired.
    Mr. THOMPSON. Well, I think it is important that we get 
something back, Mr. Chairman, on that. Because if, in fact, 
part of any proposal would be to freeze primary care, when we 
all acknowledge that the lack of primary care is one of the 
reasons that the healthcare costs, you know, are where they are 
and that this is one way to lower or bend that cost curve and 
provide a more sensible delivery of medicine, I would think 
that we wouldn't want to miss that point.
    Mr. HACKBARTH. Right. So, you know, there are two ways to 
look at this. One is, you know, how much it costs to go to 
medical school and the like. And, in that context, a freeze 
obviously is not helpful to future primary care physicians.
    The other way to look at it is the relative fees paid to 
primary care versus specialty care. And our proposal in October 
2011 said, if you are constrained on the number of dollars you 
have, maximize that gap by cutting specialty fees while holding 
primary care constant. If you have more money available, 
though, it would obviously be desirable to increase primary 
care.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Chairman BRADY. Thanks, Mr. Thompson.
    Mr. Smith.
    Mr. SMITH. Thank you, Mr. Chairman.
    And thank you, Mr. Hackbarth, for sharing your perspective 
and insight on some very important issues today.
    It is my understanding, and I think this topic was touched 
on briefly, but there are various factors that are perhaps 
leading to more and more provider consolidation. Could you 
elaborate more on that and perhaps share what you see as the 
impact to insurance premiums as a result?
    Mr. HACKBARTH. Yeah. Well, I would say there are basically 
two. One, there is consolidation that is aimed at developing 
new organizations that are better able to effectively care for 
Medicare patients and other patients. So they are integrating 
in a way that they collaborate to better coordinate and 
integrate care. That is the good type.
    Then there is the other type that is basically aimed at 
maximizing market power. And so there have been a lot of what 
antitrust lawyers would refer to as horizontal mergers where, 
you know, hospitals are joining together. They are not 
integrating with physicians, they are just building hospital 
systems that have more leverage vis-a-vis insurance companies. 
That is more problematic.
    Now, the tricky part is that some of the good type of 
integration also leads to market power that can lead to higher 
prices for private parties.
    Mr. SMITH. And I can appreciate a lot of things about how 
differently health care is delivered across the country, 
certainly, representing a very rural area. And I think there is 
still some consolidation out there, too, for various reasons. 
So I appreciate that.
    Now, shifting gears a bit, in terms of reimbursement, I 
notice that the Commission has recommended steps that Medicare 
can take to make sure that it is paying accurately for each 
individual physician service. And without getting into the 
details too much here, why would you say it is important that 
the determinations are accurate? And what are the implications, 
perhaps, for getting them wrong?
    Mr. HACKBARTH. Yeah. Well, there are two types. One we just 
discussed a minute ago. If the prices are wrong, it can 
influence the physician pipeline for the future. So if we 
consistently underpay for primary care, in the long run we will 
have too few primary care physicians. And we fear that is 
happening.
    The other type of problem is that if you overpay for 
certain services, you are likely to get more of them. And an 
example of that, we believe, would be around imaging services, 
where we think Medicare has paid too much. We have encouraged a 
lot of investment in imaging equipment to take advantage of 
that mispricing. And once the equipment is in place, the 
profitability goes up dramatically. And you want to use that 
equipment more, more, more because the marginal cost of using 
it is low.
    So you can have two types of ill effects. One is on supply 
of physicians, and one is on the type of services rendered.
    Mr. SMITH. And so could you elaborate on how we shift to a 
system that more accurately reflects the actual costs and how 
we may not have a Federal policy that tends to put things out 
of balance?
    Mr. HACKBARTH. Yeah. So the physician fee schedule, as it 
is constructed, is focused on what are the costs involved in 
providing a particular service. There are 7,000 different 
services under the fee schedule, and relative values are 
established for each of these services. And the goal is to 
accurately measure the inputs and costs that go into producing 
those services.
    We think there are errors in those measurements, and not 
small occasional errors but pretty broad errors in those 
measurements. So we have made a series of recommendations both 
to the Congress and to the Secretary about correcting those 
errors.
    The other less discussed challenge in the physician 
schedule is that it focuses only on measuring the input costs. 
In the market for all other goods and services in the country, 
prices not only reflect the input costs, they reflect the value 
of the product, and they also move to reflect imbalances in 
supply and demand. The construct of the Medicare physician fee 
schedule pays no attention to the value of the service to the 
patients nor to imbalance in supply and demand.
    The latter is why we have recommended and Congress has 
enacted a primary care bonus. It is a way of dealing with that 
value and supply part of the equation that the fee schedule 
ignores.
    Mr. SMITH. Okay. Thank you.
    And thank you. I yield back.
    Chairman BRADY. Thank you.
    Mr. Gerlach.
    Mr. GERLACH. Thank you, Mr. Chairman.
    Mr. Hackbarth, thank you very much for testifying today.
    I want to focus on the home health agency issue, if I can.
    Mr. HACKBARTH. Uh-huh.
    Mr. GERLACH. First, I want to offer you a constituent case 
that we experienced a few years ago and get your reaction to 
that. And then, also, I want to focus on a couple of your 
recommendations from a few years ago in this area.
    On the constituent matter, we had a constituent that came 
to us after having 3 days of home health care, and the home 
health agency billed $1,500 for that care. It was submitted to 
the Medicare program, and the reimbursement back to the 
provider was actually double that, $3,000. So the reimbursement 
was actually double what was billed by the home health agency, 
and the explanation from CMS was that, well, we base our 
reimbursements on a 30-day episode of care; based on the nature 
of the care over 3 days and a 30-day episode, that was what the 
reimbursement amount is.
    Is that a particular issue you are aware of, that we would 
pay, reimburse a provider double what was actually billed? And, 
if so, what would be your recommendation on how best to deal 
with that situation?
    Mr. HACKBARTH. Yeah. Actually, Mr. Gerlach, we exchanged 
some correspondence on this, I think, when it first came up a 
couple years ago.
    So in the home health area and many of the other Medicare 
payment systems, we pay on a per-episode basis, and do so 
recognizing that some episodes will cost less, some will cost 
more, but those differences will tend to average out.
    The reason for paying on an episode basis is that it 
creates an incentive for effective management of the services. 
You eliminate the incentive to do more home health visits by 
paying on an episode basis. So that is----
    Mr. GERLACH. So, in this instance, paying double what was 
billed incentivizes who to do what? Wouldn't it incentivize 
providing more care because you are going to get reimbursed 
more than what your actual, in essence, retail billing would be 
for that service?
    Mr. HACKBARTH. So in some cases the episode payment will be 
higher than the costs incurred, but in other cases it will be 
less than the costs incurred. And, as I say, the idea is----
    Mr. GERLACH. Over a spectrum of service, you are saying?
    Mr. HACKBARTH. Yeah, over all of the patients that a home 
health agency cares for. Some they will make money, some they 
will lose some money, and it will tend to average out. And the 
reason for using that approach is to create incentives to not 
provide more visits than are necessary.
    Now, a problem that we have in the home health----
    Mr. GERLACH. Wouldn't it make more sense, though, if a home 
health agency bills for, say, the $1,500, that the formula for 
reimbursement ought to be the lesser of what that episode of 
care was under the current formula or what is billed, whichever 
is less? Wouldn't that make more sense?
    Mr. HACKBARTH. Well, I suspect that over time what you 
would have is that all of the people who have fewer visits in 
the episode would start to gravitate up, saying, well, we want 
to maximize the payment, and so we will just increase the 
number of visits until we get to the limit.
    Mr. GERLACH. Okay.
    Mr. HACKBARTH. And so that is why Medicare avoids that.
    But there is a very important issue in home health, and 
that is that the payments are way too high, on average.
    Mr. GERLACH. Yeah, and that is where I was going. Back in 
March 2011, it was recommended that the Secretary should 
implement new authorities to suspend payment in the enrollment 
of new providers if they indicate significant fraud. What has 
been the progress from your recommendation 2 years ago that you 
can see from your position at MedPAC? What progress has been 
made at CMS to address that particular problem?
    Mr. HACKBARTH. Well, I can't provide a quantitative answer 
to that, but there has been a fairly intense focus on fraud in 
home health in particular areas of the country, like south 
Florida.
    Mr. GERLACH. Yeah. Yeah.
    Mr. HACKBARTH. And I think there is probably more that 
needs to be done there, but it is increasingly the focus of 
attention at HHS.
    Mr. GERLACH. Uh-huh. Okay.
    And then real quickly, you also recommended 2 years ago a 
per-episode co-pay for home health episodes that aren't 
preceded by hospitalization or post-acute-care use. What is 
that rationale for that recommendation?
    And, in particular, for low-income beneficiaries--and I 
visited a number of those types of homes in the last few 
years--I can't foresee some of these individuals being able to 
provide any co-pay for the services they are getting in their 
home. What is the rationale for your recommendation? And what 
do you think the impact would be if a co-pay was established, 
particularly for low-income individuals?
    Mr. HACKBARTH. So, under our proposal, the duly eligible 
Medicare beneficiaries would not be subject to the co-pay. So 
if we used that as the definition of low-income, they would be 
protected.
    We think having a co-pay for all services is important in a 
fee-for-service insurance program like Medicare. That is one of 
the only tools that is available to manage costs.
    With regard to home health in particular, as you noted, our 
recommendation focuses on what we refer to as admissions from 
the community. So these are not patients coming out of a 
hospital or a skilled nursing facility; these are patients who 
are just admitted from the community. There are not clear 
clinical guidelines about when that community-initiated home 
health service is necessary and appropriate. It is a gray area, 
kind of like some medical services.
    And, in fact, in the last hearing, Mr. McDermott and I had 
an exchange about this. You know, you don't worry about the 
patient initiating demand when the service is something that is 
painful or risky. Nobody wants to undergo that. But home health 
is different. There is no risk involved. There is no 
inconvenience involved. In fact, it often lightens the burden 
on family members and friends, so it is very attractive in that 
regard. And if it is a free service, you know, why not use it?
    Mr. GERLACH. Uh-huh.
    Mr. HACKBARTH. And so what we have recommended is quite a 
modest co-pay, like $150 per admission. For the average home 
health episode, that works out to about $8 a visit, which we 
think is an appropriate sort of check for people to say, is 
this really something that I need?
    Mr. GERLACH. Uh-huh. Okay. Very good. Thank you, Mr. 
Hackbarth.
    I yield back.
    Chairman BRADY. Thank you, Mr. Gerlach.
    We are not going to do a second round, but I would like to 
recognize the Ranking Member for a comment and question and 
then Dr. Price for the final question.
    Mr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    I just want to take a second to enter into the record, or 
ask unanimous consent to enter into the record, an article from 
The Washington Post by Sarah Kliff dated today. And it is 
called, ``Want to debate Medicare costs? You need to see this 
chart first.''
    It shows that hospital readmissions in Medicare are 
dropping, and it shows that the percent of GDP in the future, 
if you use what has gone on in the last few years, is going to 
stay level rather than continue to rise to 0.7.
    I think you are familiar with these numbers.
    Mr. HACKBARTH. Yes.
    Mr. MCDERMOTT. And I think Members of the Committee ought 
to be aware of this particular article that shows that the ACA 
is already having an effect before these things go into impact, 
or before they went into impact last year.
    Mr. HACKBARTH. Uh-huh.
    Chairman BRADY. Without objection.
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    Chairman BRADY. Dr. Price.
    Mr. PRICE. Thanks, Mr. Chairman. I appreciate the 
indulgence, and just a few quick questions.
    This whole issue of post-acute care and the venue for care 
and the differential treatment, I think you mentioned that it 
ought to be a clinical organization that ought to be making the 
decision about the venue of treatment for a patient. You 
wouldn't consider MedPAC a clinical organization?
    Mr. HACKBARTH. No, no. I am referring to a provider.
    Mr. PRICE. Great. I just wanted to make that clear.
    And I want to visit home health for just a second, because 
a lot of issues are about overpayment in home health and the 
like. Isn't it true, though, that if you look at the number of 
counties in this country and where the real challenges are, it 
is like 25 counties out of 3,000 or something like that?
    Mr. HACKBARTH. Yeah. So the patterns of home health use 
vary dramatically. In fact, the variation in home health is 
much greater than the variation----
    Mr. PRICE. Yes.
    Mr. HACKBARTH [continuing]. In almost any other service.
    Mr. PRICE. Shouldn't we be looking at those targeted 
counties?
    Mr. HACKBARTH. We should look at those areas in particular. 
But across the whole country, we are still overpaying for home 
health services.
    Mr. PRICE. And let me just touch on that, if I may, very 
briefly. The margins that you have talked about--and I think 
that your margin analysis comes from methodology of the HCFA 
era, really, right?
    Mr. HACKBARTH. No. This is our own methodology.
    Mr. PRICE. But what margins--refresh my memory on the 
margins that you believe--the proper margins that they are 
making?
    Mr. HACKBARTH. For home health, we are projecting for 2013 
around 11, 12, 13 percent.
    Mr. PRICE. Are you familiar with an Avalere study, 
analysis, 2013 study, that uses financial reports that are 
filed with the SEC that put the margin--and take into account 
significantly greater information than I think your 
methodology--that puts the margin at around 2.5 to 3.5 percent?
    Mr. HACKBARTH. I am not familiar with that report. Keep in 
mind, the information that we are using is the information 
supplied on cost reports by home health agencies.
    Mr. PRICE. Great.
    Well, maybe we can follow up on that, Mr. Chairman, and see 
if we can't get more accurate data. Because this is a real 
concern. Because if we lower, if we allow the lowering of 
reimbursement for home health, then we may significantly 
adversely incentivize movement of those individuals into 
actually higher-cost venues. And I think that is probably the 
last place we want to go.
    Mr. HACKBARTH. Yeah. Well, I would agree that we don't want 
to do that. And I would be happy to follow up in detail with 
you on this. We don't think that there is a risk of that by 
lowering the home health base rate.
    Mr. PRICE. Thank you.
    Chairman BRADY. Thank you, Dr. Price.
    Thank you for this hearing. There is a lot in this report 
to digest. I know there will be followup questions from the 
Members. We have 14 days to submit questions, and I am sure 
there will be a number of them, including related to what are 
driving some of the lower costs, including the economy, the 
shift into Medicaid by a number of patients, issues like that. 
And I would ask if questions are submitted by the Members that 
you respond promptly, as you have in the past.
    With that, this Subcommittee is adjourned.
    [Whereupon, at 10:50 a.m., the Subcommittee was adjourned.]
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