[Senate Hearing 113-508]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 113-508

                    STRENGTHENING MEDICARE FOR TODAY
                             AND THE FUTURE

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

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS


                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           FEBRUARY 27, 2013

                               __________

                            Serial No. 113-1

         Printed for the use of the Special Committee on Aging


         Available via the World Wide Web: http://www.fdsys.gov
         
                                      ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

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                       SPECIAL COMMITTEE ON AGING

                     BILL NELSON, Florida, Chairman

RON WYDEN, Oregon                    SUSAN M. COLLINS, Maine
ROBERT P. CASEY JR, Pennsylvania     BOB CORKER, Tennessee
CLAIRE McCASKILL, Missouri           ORRIN HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     MARK KIRK, Illinois
KIRSTEN E. GILLIBRAND, New York      DEAN HELLER, Nevada
JOE MANCHIN III, West Virginia       JEFF FLAKE, Arizona
RICHARD BLUMENTHAL, Connecticut      KELLY AYOTTE, New Hampshire
TAMMY BALDWIN, Wisconsin             TIM SCOTT, South Carolina
JOE DONNELLY Indiana                 TED CRUZ, Texas
ELIZABETH WARREN, Massachusetts
                              ----------                              
                  Kim Lipsky, Majority Staff Director
               Priscilla Hanley, Minority Staff Director
               
               
                                CONTENTS

                              ----------                              

                                                                   Page

Opening Statement of Senator Bill Nelson.........................     1
Statement of Ranking Member Susan M. Collins.....................     2
Statement of Senator Warren......................................     4
Statement of Senator Ayotte......................................     4
Statement of Senator Blumenthal..................................     5
Statement of Senator Flake.......................................     5
Statement of Senator Baldwin.....................................     5
Statement of Senator Whitehouse..................................     6
Statement of Senator Donnelly....................................     7

                           PANEL OF WITNESSES

Juliette Cubanski, Ph.D., Associate Director, Medicare Policy 
  Project, Henry J. Kaiser Family Foundation.....................     8
David Goodman, MD, Director, Dartmouth Institute for Health 
  Policy and Clinical Practice and Co-Principal Investigator, 
  Dartmouth Atlas of Health Care.................................    26
Kenneth Thorpe, Ph.D., Robert W. Woodruff Professor and Chair, 
  Department of Health Policy and Management, Rollins School of 
  Public Health, Emory University................................    44
David Blumenthal, MD, President, The Commonwealth Fund...........    71

                                APPENDIX
        Prepared Witness Statements and Questions for the Record

Juliette Cubanski, Ph.D., Associate Director, Medicare Policy 
  Project, Henry J. Kaiser Family Foundation.....................    11
    Questions submitted for Dr. Cubanski.........................   124
David Goodman, MD, Director, Dartmouth Institute for Health 
  Policy and Clinical Practice and Co-Principal Investigator, 
  Dartmouth Atlas of Health Care.................................    28
    Questions submitted for Dr. Goodman..........................   129
Kenneth Thorpe, Ph.D., Robert W. Woodruff Professor and Chair, 
  Department of Health Policy and Management, Rollins School of 
  Public Health, Emory University................................    46
    Questions submitted for Dr. Thorpe...........................   133
David Blumenthal, MD, President, The Commonwealth Fund...........    73
    Questions submitted for Dr. Blumenthal.......................   148

 
                  STRENGTHENING MEDICARE FOR TODAY

                             AND THE FUTURE

                              ----------                              


                      WEDNESDAY, FEBRUARY 27, 2013

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 3:02 p.m., in 
Room 106, Dirksen Senate Office Building, Hon. Bill Nelson, 
Chairman of the Committee, presiding.
    Present: Senators Nelson, Whitehouse, Blumenthal, Baldwin, 
Donnelly, Warren, Collins, Flake, and Ayotte.

       OPENING STATEMENT OF SENATOR BILL NELSON, CHAIRMAN

    The Chairman. Good afternoon. A long time ago, this 
committee was formed when our Nation was facing a crisis of our 
uninsured elderly. At that time, the panel played a key role in 
the expiration of health insurance coverage for older 
Americans. Ultimately, what happened in 1965 was the enactment 
of Medicare. This committee has an incredible legacy and it is 
certainly a privilege for Senator Collins and me to lead this 
committee at this particular time.
    Last week, during the recess, I went to an elderly research 
facility called the Institute of Aging at the University of 
Florida in Gainesville, and then I went on to the Claude Pepper 
Center in Tallahassee at Florida State University in 
preparation for this hearing and I listened to some of our 
State's foremost experts on matters involving the elderly.
    And so now we are literally at the point of facing another 
budget crisis, much of which focuses on the debate about the 
exploding health care cost, and therefore, by inference, the 
Medicare program, and it is front and center.
    Now, there is a bit of good news and that came from the 
Congressional Budget Office. Federal spending, in their 
recalculations, Federal spending on Medicare has actually been 
lower than what they predicted three years ago. Medicare 
spending in fiscal year 2012 grew by three percent to $551 
billion--that is according to CBO--and that represents the 
slowest growth since 2000. And while that is progress, we know 
that there are many financial challenges ahead. More of the 
baby boomers are retiring. Health care costs continue to rise. 
There is still a lack of efficiency in the use of the system. 
And Medicare could end up reaching a spending of $1 trillion by 
2023.
    So although we have seen some progress, we can do better, 
and that is what the two of us believe that this committee has 
a role to play in discussing the options that will strengthen 
Medicare, try to reduce the cost, and to improve upon the care 
that seniors receive without reducing benefits or shifting all 
of the cost to consumers.
    For example, care coordination has more to do than just 
saving in dollars. It means hours of time and a Medicare 
beneficiary's life. Reducing hospital readmissions will not 
only save the Medicare program billions, it will save 
beneficiaries from potential infection and further out-of-
pocket expense.
    And with that in mind, I look forward to hearing from the 
panel today on how we can better reimburse providers for 
prevention, engage consumers through price transparency, which 
is a hearing I just came from that Senator Rockefeller is 
having in the Commerce Committee, and in the various drugs, 
devices, and medical services, how we can better deliver that 
to our seniors, and, of course, to simplify administrative 
burdens.
    I am delighted that Senator Collins is a co-leader of this 
committee and I welcome the opportunity to lead this committee 
with you and would ask for your opening comments.

         OPENING STATEMENT OF SENATOR SUSAN M. COLLINS

    Senator Collins. Thank you very much, Mr. Chairman.
    Let me first say that I am absolutely delighted to be 
working with you. We have worked together in the past, but this 
will give us an opportunity for a whole new level of 
collaboration and cooperation and I look forward to your 
leadership of this committee and being your partner.
    Florida has the highest percentage of Americans age 65 or 
older, but it is actually the State of Maine that is the oldest 
State in the Nation if you measure by median age. A lot of 
people are surprised to learn that. But I think that the 
combination of those two facts makes it entirely appropriate 
that the two of us are leading this committee.
    I also want to welcome all of our committee members. There 
are a few of them who have joined us. I am sure others are on 
their way.
    Throughout its history, this committee has spurred Congress 
to action through hearings, investigations, and reports. I look 
forward to forging a strong partnership as we work together to 
shine a spotlight on issues of vital importance to older 
Americans, such as health care, retirement security, long-term 
care, elder fraud and abuse, and research on diseases like 
Alzheimer's and diabetes that take a devastating toll on 
Americans and their families as well as on the Federal budget.
    I would point out that it has been since the 1990s that a 
Mainer had a leadership role on this committee, but my 
predecessor and good friend, Senator Bill Cohen, served as the 
Ranking Member and as Chairman of this committee back in the 
1990s. So I look forward to following in his formidable 
footsteps.
    Mr. Chairman, as you pointed out, Medicare is a critically 
important program that provides essential health coverage for 
more than 50 million of our Nation's seniors and disabled 
citizens. It is, therefore, appropriate that our very first 
hearing in the 113th Congress will focus on ways to strengthen 
and sustain Medicare into the future.
    Medicare has made an invaluable contribution to the lives 
of more than 130 million older Americans and individuals with 
disabilities since its creation in 1965. As the Chairman has 
pointed out in his opening statement, prior to Medicare, more 
than half of all Americans over age 65 were uninsured and 
nearly a third lived in poverty. Today, virtually all seniors 
have access to health care coverage through Medicare, and the 
official poverty rate among seniors is less than nine percent. 
Medicare has provided both health and economic security to our 
Nation's seniors for almost 50 years, and by any measure, the 
program has been a great success.
    It is, however, time for our country to have a serious 
debate about how to secure the future of Medicare. This is 
particularly true in light of the most recent Medicare Trustees 
Report that projected that the Part A Trust Fund will be 
exhausted in just 11 years and unable to pay benefits in full 
or on time.
    Rapid increases in health care spending, coupled with the 
demographics associated with an aging baby boom population, 
pose serious challenges to Medicare in the 21st century. The 
number of people eligible for Medicare is projected to soar 
from a little more than 50 million today to nearly 90 million 
in 2040, and the retirement of the baby boom generation not 
only means millions of more Americans on Medicare, but also 
fewer workers paying into Medicare. This is the combination of 
the perfect storm. We, therefore, face a major challenge as we 
look for ways to slow Medicare spending growth while continuing 
to provide quality health care for an aging population.
    I am also mindful of the mounting deficits and towering 
National debt our country has accumulated and its impact on our 
seniors and, indeed, on all Americans, including future 
generations. Today, Medicare accounts for about 15 percent of 
total Federal spending, a percentage that is certain to 
increase. It is inevitable that the program will be part of the 
ongoing discussions over how to reduce Federal deficits and the 
National debt.
    The importance of Medicare and the magnitude of the fiscal 
challenges we face as a Nation underscore how important it is 
that we reach a bipartisan consensus on the way forward. I have 
opposed past efforts to restructure Medicare in ways that I 
believe could be harmful to the 50 million American seniors and 
disabled individuals who rely on the program. I believe, 
however, that there are changes that could be made without 
jeopardizing access to affordable quality health care for our 
Nation's seniors.
    The real key to getting Medicare costs under control is to 
get health care costs under control. Today, the United States 
spends 18 percent of its Gross Domestic Product on health care, 
more than any other industrialized nation, yet we lag behind 
many other nations on many measures of quality. In health care, 
quantity does not always equal quality, and clearly, there is 
more that we can do to reward value rather than volume, quality 
rather than quantity.
    So today's hearing will discuss some of the options for 
delivery system reforms that have the potential not just to 
slow the growth in health care spending, but also to improve 
health care quality.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Collins.
    While I am blessed to have 20/15 vision, I can hardly see 
you all down there----
    [Laughter.]
    And so on future hearings, I want to invite you not to 
spread out like this, regardless of seniority.
    But we need to take care of some business before I turn to 
you all for your statements.
    [Whereupon, at 3:15 p.m., the committee proceeded to 
Executive Session and reconvened at 3:16 p.m.]
    The Chairman. And so let me turn to Senator Warren for your 
statement, please.

         OPENING STATEMENT OF SENATOR ELIZABETH WARREN

    Senator Warren. Thank you very much, Mr. Chairman, and 
thank you, Ranking Member Collins. As the newest member, I am 
delighted to be here and hope to learn from you and eager to 
work under your leadership.
    I think we all agree that we need to find the way to cut 
the rate of increase in health care costs, and there are two 
very different visions for how to do that. We hear a lot of 
talk about the best way to do that is to cut Medicare benefits 
so that fewer people receive assistance. But the way I see 
that, people will still get sick, however you design Medicare 
benefits. People will still have heart attacks. They will still 
have strokes. They will still have diabetes. And they will 
still need care. And many of them will still go for care, only 
they will go to emergency rooms and be unfunded patients. We 
will find other ways to give care that is more expensive and 
less expensive and I just think that is the wrong approach to 
think about.
    The alternative is that we describe this problem, I think, 
very much as Senator Collins does, and I am very much in 
agreement with her. The problem we have, I would describe much 
less as a Medicare problem and much more as a problem of health 
care overall and that our goal has to be how to deliver better 
outcomes at lower costs. And I believe that a big part of that 
means funding the research to figure out how to do that. 
Sometimes it is about funding health care research directly, 
how we get better treatment of diabetes, how we get better 
treatment of strokes that helps bring down costs and at the 
same time increases the quality of life of our patients.
    I think this is the approach that we should be using. I 
hope this is part of what we will be talking about here. And I 
look forward to learning from our panelists today, and again, 
thank you for your leadership on this, Senator Collins and 
Senator Nelson.
    The Chairman. Senator Ayotte.

           OPENING STATEMENT OF SENATOR KELLY AYOTTE

    Senator Ayotte. I want to thank the Chairman and the 
Ranking Member. I look forward to being part of this committee, 
as well.
    I also want to welcome all the panelists, particularly Dr. 
Goodman, and I appreciate the excellent work being done at the 
Dartmouth Atlas program. I had the chance to visit Dartmouth in 
2011 and hear about the important work that you are doing there 
and so I am very honored that you are here talking about that 
work before this important committee today, so thank you.
    The Chairman. Senator Blumenthal.

        OPENING STATEMENT OF SENATOR RICHARD BLUMENTHAL

    Senator Blumenthal. Thank you, Mr. Chairman. Thank you for 
having this hearing on this very, very important topic. Thank 
you to all of our witnesses for being here today.
    I have to disclose in the interests of full disclosure, Mr. 
Chairman, that David Blumenthal is my brother. I always knew he 
was a Nationally recognized expert, I just did not know in 
what.
    [Laughter.]
    And I am going to spare him the withering, relentless 
cross-examination that I spent last night preparing.
    [Laughter.]
    But I want to say how strongly I agree with you and Senator 
Collins, Senator Warren, that this kind of inquiry provides a 
profoundly significant and historic opportunity, not only to 
examine improving the Medicare program, but really the entire 
health care delivery system for our country, which is 
desperately in need of reform and re-engineering and, in fact, 
can produce better outcomes by making them less expensive, in 
other words, reducing the kinds of readmission that Dr. Goodman 
so aptly describes, following some of the examples that are set 
forth in Dr. Blumenthal's testimony from elsewhere in the 
country, and supporting the efforts of the Center for Medicare 
and Medicaid Innovation, which right now is undertaking 
initiatives that offer great promise for reaching our common 
goal, which is better outcomes at less cost. The two are not 
only compatible, they are mutually supportive.
    So I want to thank, also, particularly Senator Whitehouse, 
who has spoken about this issue, as I have, for some time. And 
my hope is that health care reductions in cost will be re-
engineered around the system and can be measured and scored so 
that we can include them in deficit reduction, because they are 
real means of reducing the deficit. They ought to be counted 
and scored. And Senator Whitehouse and I have been talking 
about this issue for some time.
    Thank you all for being here today. This testimony is 
profoundly important and valuable to us.
    The Chairman. Senator Flake.

            OPENING STATEMENT OF SENATOR JEFF FLAKE

    Senator Flake. I am just glad to be here. Thanks. I look 
forward to the witnesses.
    The Chairman. Senator Baldwin.

           OPENING STATEMENT OF SENATOR TAMMY BALDWIN

    Senator Baldwin. Thank you, Mr. Chairman and Ranking Member 
Collins.
    I am really excited to join this committee and I wanted to 
start out by recognizing the person I have succeeded to the 
Senate and the person you have succeeded to the Chair of the 
Aging Committee, Herb Kohl, who chaired this committee for six 
years and spent his entire career in the United States Senate 
as an incredible champion for Wisconsin's seniors and, in fact, 
all seniors in America. So I was thrilled to find out that I 
could become a member of the Aging Committee.
    And I am delighted with the topic of this first hearing. 
Aging issues and Medicare, in particular, are also important to 
me, near and dear to my heart, especially because I was raised 
by my grandparents, my maternal grandparents, and got a chance 
as a much younger person than most to become more familiar with 
the issues that affect people as they age and the Medicare 
program, in particular. My grandmother was 56 when I was born, 
so it was in my teens and early 20s that I had my first 
exposure to Medicare.
    My grandparents were my heroes for what they did for me. No 
matter what happened, they were there for me as I was growing 
up. So when my grandmother became older and more frail, it was 
my deep honor to be able to return the favor and make sure that 
she received quality health care. Medicare was there for her. 
And, I would say, because Medicare was there for her and I 
could depend on the fact that she was getting affordable, 
quality, competent care, in a way, as her caregiver, Medicare 
was also there for me. I did not have to worry that a medical 
emergency would exhaust all of her resources or all of mine. 
And Medicare allowed me to remain as a caregiver, also focused 
on building a new career as an attorney at first and public 
servant after that.
    Medicare has served my family and millions of others very 
well for decades, and it is why hearings like this are so 
important. I am delighted to have this panel of witnesses here 
today to help us talk about how we can make sure that Medicare 
remains strong for decades and generations to come and I 
appreciate the fact that you are taking the time with us.
    Thank you, Mr. Chairman.
    The Chairman. Senator Whitehouse.

        OPENING STATEMENT OF SENATOR SHELDON WHITEHOUSE

    Senator Whitehouse. Thank you, Chairman Nelson.
    I am delighted that for the first hearing of the Aging 
Committee under your chairmanship, we are focusing on this 
issue. I think that for all the public attention that is being 
devoted to the sequester and the row that we are having over 
the sequester here in Washington, the most important hearing 
going on is this one, because our health care expense is an 
enormous fiscal, even National security, problem for our 
country.
    And I think our Ranking Member, Senator Collins, said it 
exactly right when she said the way to address Medicare costs 
is to address health care costs and we have such an 
opportunity, whether you look at the 18 percent of GDP we burn 
compared to the least efficient of our international 
industrialized competitors only using 12 percent of their GDP 
to actually provide better health care results for the 
population, or whether you look at very well established and 
well regarded organizations like the President's Council on 
Economic Advisors, the Institutes of Medicine, the New England 
Health Care Institute, the Lewin Group, former Bush Treasury 
Secretary O'Neill, who put the savings out of our health care 
system between $700 billion and $1 trillion a year, all by 
making the system work better for patients and provide better 
outcomes.
    This is not a zero sum game in which you have to take 
something away in order to make the system more efficient. This 
is one of those happy win-wins where better care produces lower 
costs.
    And so I think you are in exactly the right spot, and I 
think the more this incredibly valuable and relied on essential 
Medicare program is pushed into the spotlight of benefit 
reductions, or out of the gunsight, I should say, of benefit 
reductions, the more we have to remind everybody that that is 
the wrong way to go about the business of solving this problem.
    I will close by reminiscing about the former CEO of Kaiser 
Health, George Halvorson. Kaiser is a pretty darn big health 
care operator in this country and CEO Halvorson was no fool. I 
can remember him at one point saying to a group--he was 
introducing me to a group that I was about to speak to, and he 
said, ``This business of going after health care savings with 
cuts and rationing is the wrong way to go at the health care 
problem.'' He said, ``It is so wrong, it is criminal.'' He went 
on to say, ``It is an inept way of thinking about our health 
care problem.'' But those ideas keep popping up, even if they 
are so wrong as to be nearly criminal, even though they are 
inept.
    And you could not have, I do not think, much of a better 
panel to point us out the right path and to show us that not 
only is this the right path in principle, but that out in the 
real world, in virtually every single one of our States, CEOs 
who run health care companies are actually doing this and 
actually showing the improved outcomes and the savings. This is 
not hypothetical any longer. It is actually starting to result 
in real savings and real improvements.
    So I am very grateful to you, Mr. Chairman, that you have 
chosen this as your opening salvo and I look forward to being a 
loyal ally to you and to your Ranking Member as you continue to 
press this issue forward.
    The Chairman. And soon, Senator Collins and I are 
anticipating that we will have a hearing on some of the scams 
that are being perpetrated against seniors. So that is coming 
down the line very soon.
    Senator Donnelly.

           OPENING STATEMENT OF SENATOR JOE DONNELLY

    Senator Donnelly. Thank you, Mr. Chairman. I want to thank 
you and Ranking Member Collins for the opportunity to be on 
this committee.
    This work is critically important. It is to preserve the 
health and dignity of our seniors, to enable them to get 
quality medical care while still meeting the financial 
challenges that our Nation faces. So we will continue to work 
to get it right. We will work to change the financial 
trajectory for our country and also still deliver extraordinary 
medical care for our seniors.
    It is an honor to be here. Thank you.
    The Chairman. Thank you, Senators, and thank you to our 
panel.
    First, we are going to hear from Dr. Juliette Cubanski from 
the Kaiser Family Foundation, and we want her to put our 
conversation in the context of the Medicare senior. Dr. 
Cubanski is the Associate Director for the Program on Medicare 
Policy with the Foundation here in Washington. She focuses on 
Medicare options among seniors and has been heavily involved in 
the Foundation's efforts to monitor the implementation of 
Medicare provisions in the health care reform bill and also 
assessing the implications of that bill.
    Let me just introduce each of you and then we will go down 
the line so we know all that are on this very renowned panel.
    Next, we will have Dr. Ken Thorpe, the Chair of the 
Department of Health Policy and Management at Emory. Dr. Thorpe 
is a renowned expert on the measurement of cost savings through 
care coordination and disease management, maximizing both the 
cost and the quality value of an intervention. Dr. Thorpe also 
leads the Partnership to Fight Chronic Disease, working with a 
coalition of patients, providers, and organizations to reform 
care to patients affected by multiple serious maladies.
    Dr. David Goodman is a Professor of Pediatrics and of 
Health Policy, Director of the Center for Health Policy 
Research, and a Co-Principal Investigator of the Dartmouth 
Atlas of Health Care. Many of you have seen Dr. Goodman's 
report on unnecessary hospital readmissions. Dr. Goodman will 
be presenting his latest reports and the lessons to be learned 
from the study.
    And Dr. David Blumenthal, the much younger brother of the 
Senator----
    [Laughter.]
    A nationally renowned health care delivery system reform 
expert and President of The Commonwealth Fund. Dr. Blumenthal 
will explain The Commonwealth Fund's newest proposals aimed at 
stabilizing American health care spending while producing lower 
cost and better value, not just Medicare. This proposal has the 
potential to save, Senator Collins, $2 trillion over ten years.
    So I will introduce you, but in the reverse order, with you 
after Dr. Cubanski.
    Dr. Cubanski.

  STATEMENT OF JULIETTE CUBANSKI, PH.D., ASSOCIATE DIRECTOR, 
   MEDICARE POLICY PROJECT, HENRY J. KAISER FAMILY FOUNDATION

    Ms. Cubanski. Thank you. Good afternoon, Chairman Nelson, 
Ranking Member Collins, and distinguished members of the 
committee. I am Juliette Cubanski, Associate Director of the 
Program on Medicare Policy at the Henry J. Kaiser Family 
Foundation. I appreciate the opportunity to be with you here 
today to discuss Medicare and the Foundation's recent polling 
on proposed Medicare program changes.
    Medicare was established in 1965 to provide health 
insurance to people ages 65 and older and was expanded in 1972 
to cover younger people with permanent disabilities. Medicare 
provides the same set of benefits to everyone who is covered, 
regardless of their income or medical history. Today, Medicare 
covers one in six Americans, or 50 million people.
    The vast majority of seniors say Medicare is working well 
for them, and various surveys indicate that beneficiaries 
generally have reliable access to physicians, hospitals, and 
other providers.
    People with Medicare tend to have significant health needs 
and modest financial resources. Four in ten beneficiaries have 
three or more chronic conditions, and half of beneficiaries 
have annual incomes less than $22,500, which is about 200 
percent of poverty for a single person.
    Benefits covered by Medicare include hospitalizations, 
physician visits, preventive services, post-acute care, and 
prescription drugs. Under the traditional Medicare program, 
benefits are divided into three parts, A, B, and D. Part A 
benefits include hospital and skilled nursing facility stays, 
home health care, and hospice care. Part B benefits include 
physician visits, outpatient services, lab work, and preventive 
services. Part D is a voluntary prescription drug benefit 
delivered either through stand-alone prescription drug plans to 
supplement traditional Medicare or through Medicare Advantage 
plans.
    Medicare Advantage, or Part C, is an alternative to 
traditional Medicare where beneficiaries can enroll in a 
private health plan for all Medicare covered benefits most 
often including prescription drugs. Today, more than a quarter 
of all beneficiaries are enrolled in Medicare Advantage plans.
    Most Medicare beneficiaries report using one or more 
Medicare covered services each year. In 2009, 77 percent of 
people with Medicare had at least one physician visit, and 
nearly one in five was admitted to a hospital. While most 
beneficiaries use some medical care in any given year, a 
majority of Medicare spending is concentrated among a small 
share of beneficiaries with significant medical needs.
    While Medicare helps pay for many important medical 
benefits, it does not cover all the costs of care. Medicare 
coverage requires premiums, deductibles, and cost sharing. For 
example, beneficiaries are subject to a deductible of nearly 
$1,200 this year when they are hospitalized, and most 
beneficiaries pay a monthly premium for Part B services of 
about $105 this year, while those with higher incomes pay a 
higher monthly premium. Medicare Advantage and Part D plans 
also have premiums and cost sharing for this coverage and these 
costs vary widely across plans.
    And unlike most private health insurance policies, Medicare 
does not limit beneficiaries' annual out-of-pocket spending. 
And Medicare does not cover some services that the Medicare 
population is likely to need, most notably long-term services 
and supports and dental and vision services.
    Most beneficiaries have some form of additional insurance 
to help pay their medical expenses, such as retiree health 
benefits, Medigap policies, or Medicaid for those with low 
incomes. Nevertheless, many beneficiaries face considerable and 
growing out-of-pocket costs to meet their medical and long-term 
care needs.
    Looking to the future, Medicare is expected to face 
financing challenges due to rising health care costs and an 
aging population, and as you are all well aware, Medicare also 
is playing a major role in discussions about reducing the 
Federal budget deficit. Yet, the Foundation's recent polling 
shows that a majority of the public believes that deficit 
reduction can occur without major reductions in Medicare 
spending.
    When asked about specific proposals to reduce Medicare 
spending, a majority of Americans support requiring drug 
companies to give Medicare a better deal on medications for 
low-income beneficiaries and requiring high-income seniors to 
pay higher Medicare premiums. Other proposals, however, are 
opposed by a majority of the public, including requiring all 
seniors to pay higher Medicare premiums, increasing the 
Medicare payroll tax, reducing Medicare payments to hospitals 
and other providers, and raising the age of Medicare 
eligibility.
    While Medicare faces long-term financial challenges, it is 
important to remember that Medicare is a vital source of 
economic and health security for 50 million people today and 
millions more in the future. Moving forward, it will be 
important to assess the implications of proposed changes to the 
Medicare program for current and future beneficiaries, 
including effects on costs, quality, and access.
    Again, thank you for this opportunity to testify and I look 
forward to your questions.
    [The prepared statement of Ms. Cubanski follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Dr. Cubanski.
    We are going to go right down the line and then I am going 
to defer asking questions so that you all can get your 
questions in, and then I will just do clean-up toward the end.
    Dr. Goodman.

STATEMENT OF DAVID GOODMAN, M.D., DIRECTOR, DARTMOUTH INSTITUTE 
   FOR HEALTH POLICY AND CLINICAL PRACTICE AND CO-PRINCIPAL 
          INVESTIGATOR, DARTMOUTH ATLAS OF HEALTH CARE

    Dr. Goodman. Thank you, Mr. Chairman, for the invitation to 
testify about hospital readmissions.
    Readmissions are a case study of what is right and what is 
wrong in health care improvement efforts. At Dartmouth, we have 
studied variation in the care of Medicare beneficiaries and 
unnecessary readmissions stand out as a $15 billion a year 
problem. Readmissions, however, should not be viewed as a 
discrete problem in quality, but connected to larger structural 
deficits in care delivery and financing.
    No Medicare patient should have to be readmitted to the 
hospital because of poor quality of care during the initial 
hospitalization, inadequate discharge planning, or lack of care 
coordination with community providers. What is often ignored in 
the focus on improving coordination in the care of patients 
after they leave the hospital is that patients often experience 
similar problems in fragmented care before they are initially 
admitted.
    Interest in readmissions has been longstanding, but has 
increased recently because rates are now publicly reported, and 
many sections of the ACA are concerned with reducing 
rehospitalization. The ACA also mandates penalties, as much as 
one percent of a total hospital's base operating DRG payments.
    Through funding from the Robert Wood Johnson Foundation, 
the Dartmouth Atlas released a report this month, the Revolving 
Door Report on U.S. Hospital Readmissions. For common causes of 
medical hospitalization, such as congestive heart failure, 
almost one in five Medicare patients is rehospitalized in 30 
days. Despite the high rates of readmissions Nationally, there 
is marked variation across hospitals. Patient factors explain 
only about ten percent of these differences.
    While some hospitals have high rates, there are many with 
relatively low rates. For example, while the National rate for 
30-day readmissions for medical discharges was 15.9 percent in 
2010, the NCH Health System in Naples, Florida, had a rate of 
14.2 percent and the three largest hospitals in Maine had rates 
below the National average, including only 13.9 percent of 
patients readmitted at Maine General in Augusta. And New 
Hampshire did very well, as well.
    Overall readmission rates were virtually unchanged, 
however, from 2004 to 2010, although some hospitals again 
demonstrated notable reductions.
    Our failure to address high rates of rehospitalizations 
Nationally is rooted in improvement efforts that are too 
narrowly focused and are unconnected with the larger problems 
in Medicare. Efforts to reduce unnecessary rehospitalizations 
are concentrated on care improvements around the time of 
discharge, again with little attention to the care of the 
patients before the first hospitalization or after the 30th 
day.
    The chances that patients are readmitted to the hospital in 
a given location are closely linked to the chances that they 
are initially hospitalized. We have known for almost 40 years 
that hospitalization rates vary markedly across areas, even 
after controlling for patient differences. This dramatic 
variation in the care of patients is strongly affected by long-
embedded practice styles coupled with financial incentives to 
fill hospital beds.
    What can we do about it? First is to pay for good care, not 
more care. Incentives to improve community-based care that keep 
patients healthy and out of the hospital whenever possible need 
to replace fee-for-service payments that reward higher volumes 
of care. The specific penalty for excessive readmissions 
ignores the pervasive incentives in the Medicare program for 
the initial hospitalization. Accountable Care Organizations and 
other forms of shared savings and population-based payments are 
promising innovations in the way that we pay and organize 
health care. The incentives in these models encourage 
integrated delivery systems that tie together the fragmented 
set of providers found in many communities. These and other new 
payment models need to be coupled with an expanded set of 
indicators that guide providers and patients in their search 
for quality.
    Second is this issue of indicators. Readmission rate is an 
indicator, but the focus on 30-day readmission rate is useful 
only when accompanied by a full set of indicators that track 
the actual experiences of Medicare patients, particularly those 
with chronic illness. At present, ACOs are monitored on 33 
quality metrics, or will be monitored on 33 quality metrics, 
but this is a list that everyone agrees needs to evolve as 
there is better understanding of the short list, of the most 
important measures. These need to be in the direction of 
patient reported outcomes, like health status, not just 
readmission rates. If we do not continue to expand the breadth 
and depth of quality indicators, but not the number, we will 
not recognize the most important opportunities to improve care 
and save needless expenditures. The coupling of robust health 
care measures with broad population-based payment models will 
help ensure that the quality of care every day is as good as 
the care 30 days after hospital discharge.
    [The prepared statement of Dr. Goodman follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Dr. Goodman.
    Of course, all of your prepared remarks will be inserted as 
a part of the record, and thank you for your verbal remarks.
    Dr. Thorpe.

   STATEMENT OF KENNETH E. THORPE, PH.D., ROBERT W. WOODRUFF 
     PROFESSOR AND CHAIR, DEPARTMENT OF HEALTH POLICY AND 
 MANAGEMENT, ROLLINS SCHOOL OF PUBLIC HEALTH, EMORY UNIVERSITY

    Mr. Thorpe. Thank you, Senator Nelson, Ranking Member 
Collins, for inviting me here today. I want to focus on some 
solutions to Medicare that will make it sustainable over the 
long term and reduce costs in the system, not simply just 
cutting provider payments and shifting costs around the system.
    To do this, though, I think you have to start out by having 
a clear understanding of where the dollars are spent and what 
is driving the growth in spending. Let me give you a couple of 
facts.
    In Medicare today, 95 percent of the spending is linked to 
chronically ill patients.
    Second, over half the Medicare population is currently 
being managed for five or more chronic conditions. It accounts 
for nearly 80 percent of the costs. Most of the increase in 
Medicare spending is due to rising rates of largely preventable 
chronic health care conditions.
    And finally, about 27 percent of Medicare patients are 
diabetics, and about half of them are pre-diabetic.
    So if you just think about those statistics in terms of the 
growth, in terms of incidence, where all the money is in terms 
of chronic disease, that really should be the focus of our 
discussion.
    Medicare currently provides a personalized health risk 
assessment to identify at-risk patients, but it does not cover 
any solutions to actually allow people to act on those. So if 
you are an overweight pre-diabetic adult or seriously obese, 
the only treatment option you really have is bariatric surgery. 
It does not cover intensive lifestyle programs. It does not 
cover these new class of FDA-approved weight loss drugs, and so 
on.
    In addition, while Medicare started this year to move down 
the path a little bit to allow physicians a code for 
transitional care, it does not provide comprehensive care 
coordination at all, and my concern about this path is that it 
may continue to promote silo-based and not team-based care.
    So in the remaining part of my testimony, I want to outline 
a three-part reform to Medicare that I think will reduce costs 
and improve quality.
    Point one. We need to continue to transition away from fee-
for-service Medicare, fee-for-service payments. It is a system 
that promotes volume. It runs counter to the incentives that we 
need to do care coordination. We need to initially start to 
accelerate the transition towards using bundled payments that 
really combine and integrate incentives for caring for 
patients, both in-hospital and post-acute.
    Two, we need to make evidence-based programs like the 
Diabetes Prevention Program a part of the Medicare program. 
This is a program that we now have a decade of randomized 
control trial data that shows that we can have a dramatic 
reduction in the incidence of diabetes and other chronic 
conditions in the program if it was a covered benefit. For 
seniors that are at risk for diabetes, this program reduced the 
incidence of diabetes by 71 percent. If it was included, it 
would save Medicare money and improve health care outcomes.
    Third, we need to add care coordination into Medicare, 
original Medicare, now. I think we need to pivot away from a 
pilot mentality and move much more into an implementation 
mentality of best practices we already know that work, and let 
me give you some examples.
    One is to focus on team-based care, the provision of care 
at home by nurses, nurse practitioners, social workers, 
behavioral health workers, pharmacists, to work in close 
collaboration with physician practices to manage and engage 
these patients that have multiple conditions. What functions do 
they perform? Well, you would have a nurse care coordinator 
that is basically the quarterback of the team to work with that 
patient and the family.
    You would do comprehensive medication management. We need 
to broaden our current Part D program to include more patients. 
The current program is limited to very high-cost Part D 
patient. Only ten percent of people in Part D participate in 
this. We need to focus on the total cost, high total cost 
patients, and broaden what we do in terms of managing very 
complicated medications. That will save money. We have good 
data on that.
    Transitional care. This is best done by nurses, nurse 
practitioners, community health workers. We have good 
established models of how that could work and how that does 
work. We can cut readmission rates by 25 to 50 percent with 
similar reductions in hospital costs.
    We need to build health coaching and literacy into these 
teams so that when patients leave the physician's office, they 
understand the care plan. They understand how to navigate and 
negotiate the system.
    And we need to include measures of quality that are similar 
to the rest of the program in order to keep these health care 
teams accountable.
    There are some fast ways I think we could do this. I would 
be happy to discuss that in the Q&A. But I think that in terms 
of the existing contracting authority that Medicare has, they 
could contract with health plans, home health agencies, 
population health managers, to provide team-based care that 
performs the functions that I just outlined in a very short 
period of time. Several States are already doing this as part 
of what they are doing in health care reform and they are 
expanding use of health teams very quickly. So I think our 
States and the private sector have already shown us the way.
    We always need to do targeted pilots. I guess, in closing, 
I am just saying that it is time, I think, to pivot and 
implement program-wide things that we already know that work 
from experience in the private sector and from what we have 
seen in the published research data.
    Thank you.
        [The prepared statement of Mr. Thorpe follows:]
        
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Dr. Thorpe.
    You know, a lot of what you all have said is the goal of 
the Affordable Care Act, and so now the question is making it 
happen.
    Dr. Blumenthal.

      STATEMENT OF DAVID BLUMENTHAL, M.D., PRESIDENT, THE 
                       COMMONWEALTH FUND

    Dr. Blumenthal. Mr. Chairman, Senator Collins, members of 
the committee, thank you for having me here today.
    I think it is fair to say that the future is upon us. We 
have been warned for decades about the consequences of 
relentlessly rising health care costs and now those 
consequences are coming home to roost. The result is that we 
face very, very difficult choices.
    To echo Senator Whitehouse's remarks, quoting George 
Halvorson, George Halvorson also talks about having the choice 
now between rationing and re-engineering our health care 
system. Rationing involves taking things away, reducing 
benefits, reducing eligibility, increasing the payments from 
our senior citizens and others, and reducing payments to 
providers, all of which will result in a reduction in the 
quality of benefits and the quality of care ultimately provided 
to the elderly and violate in some way the contract that was 
made with them in 1965.
    Re-engineering involves fundamental changes to our health 
care system to make it work better, bending the cost curve down 
and the quality curve up simultaneously. It requires changes to 
the entire health care system because you cannot ask a doctor 
to treat a 64-year-old differently from a 65-year-old. And, as 
a matter of fact, in many of your States, there are great 
examples of that kind of re-engineering going on right now, 
showing the way for innovative, positive health care change.
    The Commission on a High Performance Health System, which I 
chaired and was sponsored by The Commonwealth Fund, put 
together a comprehensive synergistic set of programs, many of 
which have been mentioned by other members of this panel or by 
you in your comments. They involve three pillars, three basic 
reforms. First of all, changing payment to providers to promote 
value and quality and release innovation in our health care 
system at the grassroots.
    Secondly, activating consumers by rewarding them with 
giving them better information and rewarding them for making 
good choices for themselves and for the health care system by 
choosing high-performing providers.
    And thirdly, reforms in the health care market that would 
reduce administrative waste, change our broken malpractice 
system, and set National targets for total health care spending 
that would not rise faster than GDP.
    The savings for this combination of programs, as estimated 
by the Actuarial Research Corporation, would indeed be $2 
trillion over ten years, with $761 billion of those dollars 
accruing to the Medicare program.
    Some specific examples of reforms contained in this 
package. One involves repealing the SGR, freezing current rates 
of payment at 2013 levels, but providing extra payments for 
physicians who are members of and deliver care in patient-
centered medical homes, Accountable Care Organizations, high-
cost control teams of the type that Professor Thorpe has 
suggested, and also better payments and higher payments for 
patient-centered medical homes, Accountable Care Organizations, 
and those high-cost teams.
    Secondly, for consumers, providing them much better 
information about the quality and cost of care that they face 
and rewarding them for making good health care choices by 
reducing their copayments for proven, effective care provided 
in high-value settings. And also giving them the tools that 
they need, in general, to make better choices.
    And thirdly, market reforms that would involve reducing 
administrative costs, which are a huge burden on a health care 
system, as I mentioned, changing malpractice, and setting 
health care cost targets by region that are consistent with our 
National health care cost aspirations.
    We have the knowledge and the means to improve health care, 
not just to ration it, and history will judge us harshly if we 
go the route of hollowing out our key Federal programs and our 
National health care programs without taking advantage of these 
enormous opportunities to make care more efficient and higher 
in quality.
    Thank you, Mr. Chairman.
    [The prepared statement of Dr. Blumenthal follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Dr. Blumenthal.
    Senator Collins.
    Senator Collins. Thank you very much, Mr. Chairman. I have 
to say that I cannot think of another Chairman who would be so 
gracious as to allow other members of the committee to question 
first, so you get high marks from all of us for your 
graciousness.
    I want to start my questions with Dr. Thorpe because I am 
the Chair and the founder of the Senate Diabetes Caucus, and I 
am well aware of the fact that, I think the figure is, that we 
spend more than one out of every four Medicare dollars treating 
people who have diabetes. I am an original cosponsor of the 
Medicare Diabetes Prevention Act that we will be reintroducing 
shortly that would require Medicare to provide coverage for 
community-based intervention that is offered through hospitals 
such as the YMCA to help pre-diabetic adults avoid becoming 
full-fledged, having full-fledged diabetes.
    Now, there are some private health care plans like United 
Health that cover these kinds of services, but Medicare does 
not, and yet we know that research has proven that these kinds 
of lifestyle programs can reduce a pre-diabetic patient's risk 
of getting diabetes by 58 percent overall and 71 percent in 
adults over age 60. In the process, we would literally save 
billions of dollars in addition to improving the quality of 
life.
    Why do you think it is so difficult to get changes in the 
Medicare program that seem to me to be no-brainers in terms of 
improving quality and saving literally billions of dollars?
    Mr. Thorpe. Senator, thank you for that question, and 
certainly, thanks for your leadership in the Diabetes Caucus.
    I think you hit the nail on the head. Unless we tackle this 
issue of the rising rates of things we can prevent, these 
chronic diseases like diabetes, high blood pressure, bad 
cholesterol, all of which are related, we will not really be 
able to ever get at this issue of slowing the growth in 
spending. So if you think about these proposals I put on the 
table, we have to think about how does it affect the patients 
in the Medicare program and what can we do to clinically 
intervene.
    We can make an enormous difference in improving health care 
outcomes of seniors and save Medicare money. I think, 
conservatively, even low participation rates, you would save 
over the next decade $7 billion by having the Diabetes 
Prevention Program included as a part of the Medicare benefit. 
If you think about it, we have a ``Welcome to Medicare'' 
physical. We tell you you are at risk. We give you a 
personalized care plan. And then we send you home. But we do 
not have anything that is covered that would actually allow a 
physician to refer a patient to something that would make a 
difference.
    This program would make an enormous difference, and you are 
right, the private sector has seen the value in it. Some Blue 
Cross plans, United Health Group are including it in 
partnership with the YMCAs and other community-based 
organizations to run it. So that was my second recommendation, 
is that we should just include this as a covered benefit. It 
would make an enormous difference in slowing the incidence and 
prevalence of diabetes in the program, which has doubled in the 
last 20 years. We could have made a difference had we had this 
program built into Medicare a decade ago.
    Senator Collins. I also think this is another example of 
the flaws in the reimbursement system that you alluded to. If 
an individual with diabetes has these terrible consequences of 
diabetes that is not well controlled and, for example, needs to 
have a leg amputated, Medicare is going to pay for that. But 
Medicare will not pay for a nurse practitioner to call that 
individual three times a week and check on what the blood sugar 
levels are, whether they are following their nutritional plan, 
whether they are exercising.
    It seems to me we are not paying for the right things, 
which is not to say that we should not pay for the person who 
gets in trouble. But if we change the fee-for-service program 
so that there was more of an emphasis on helping to monitor a 
person with chronic disease between appointments, do you 
believe that that, too, would realize savings?
    Mr. Thorpe. Oh, without question. Again, if you look at 
where the growth in the spending is in the program, in 1987, 
half of the spending was linked to patients with five or more 
chronic conditions. Today, it is almost 80 percent. That is 
where all of the growth is happening. And we do not provide any 
type of prevention or care coordination at all for those 
patients.
    So if we did have a system that focused much more 
proactively on preventing disease, engaging patients with 
multiple chronic health care conditions, rather than a reactive 
system that just pays after the fact, that is where we could 
make an enormous difference in quality.
    So I think that we should just build both this prevention 
initiative, and we know enough about care coordination with 
respect to what works. We have decades of randomized trials and 
experience from Medicare Advantage programs that are really 
best practice and what goes on in the private sector about how 
to construct really clinically effective care coordination. We 
could just do that and build that into the original Medicare 
and have that as a focus over the next couple of years.
    Senator Collins. Thank you.
    To Dr. Goodman, before I yield to my colleagues, I want to 
particularly welcome you here. I have been fascinated by the 
work that the Dartmouth Medical Atlas has done over the years. 
I am very familiar with it because one of your colleagues, or 
former colleagues, Jack Wennberg, did a project in the State of 
Maine with Dr. Bob Keller and the Maine Medical Assessment 
Foundation where they identified outliers among physicians who 
were performing hysterectomies, and by going to the outlier 
with data, they were able to change his practice patterns. And 
it just showed to me how a peer review system backed by good 
data could make a real difference.
    And as you discussed in your opening statement, Maine has 
very good quality care at a low cost. In fact, my physicians 
and hospitals are constantly complaining about the low costs 
because they do not get rewarded for that high-quality medical 
care in many cases.
    I am also very interested in your study on readmissions. As 
part of the Affordable Care Act, Senator Jeanne Shaheen, who 
was very familiar with your work, as well, and I joined 
together to put in some of the readmissions language with the 
penalties and try to have a transitional care manager, usually 
a nurse, a home health visit for the first 30 days.
    But you made a really interesting point and that is the 
problem is not just the fragmentation of care after 
hospitalization. It is the fragmentation of care before 
hospitalization, as well.
    In the State of Maine, increasingly, physician practices 
and home health agencies are being purchased by our hospitals 
or are joining our hospitals, and I am interested in your 
assessment of whether that is going to help to reduce the 
fragmentation of care or do you see that as a less desirable 
development?
    Dr. Goodman. Well, thank you for your comments, and let me 
say that when I was preparing this testimony, I had a chat with 
Jack Wennberg, whose office is a couple doors down from mine, 
and once again, he reminded me of what he learned, what we all 
learned from the work that was done in Maine, truly a 
fascinating story. It is also a story about examining the 
experience of the total population, because, as you know, he 
was not focused exclusively on the Medicare population.
    And what started up in Maine was systematic collection of 
data, of all-payer data, and now has the finest system in the 
country of all-payer data that includes commercial data, 
Medicaid data, and, of course, Medicare data is available, as 
well, that has allowed everybody from the business community to 
the providers and patients to see what is actually going on in 
health care systems.
    What you are referring to is, I think, the grand partly 
hidden experiment that is occurring in health care, which is an 
aggregation of providers occurring both between--of hospitals 
aggregating, but also, of course, of physicians joining with 
hospitals and forming de facto, although not in all dimensions, 
integrated delivery systems. And the question is, will that, in 
fact, drive quality? Does it have the potential of reducing 
competition or increasing provider power, which then strengthen 
the hands of the providers in the negotiations, particularly in 
commercial markets, less so in Medicare, of course.
    And we do not know the answer to that, but we do know that 
both in that sort of organic growth as well as the more 
systematic fostered integration that will occur under 
Accountable Care Organizations, that the public protection, if 
you will, is through robust publicly reported measures that are 
relevant to patients, so not just process measures about what 
percentage of patients had Hemoglobin A1c level, but functional 
health status measures, patient satisfaction measures, so that 
it is very clear the experience and the outcomes of patients 
across these delivery systems.
    That is our--it is the information for the providers that 
helps guide their improvement. It is the check on what is a 
natural behavior of organizations, which is to strengthen 
themselves first and foremost, to be robust. And so I think 
that there is increasing attention to taking a close 
reexamination about what are the most important measures of 
health care, and this will allow, I think, good public 
monitoring on what occurs in places like Maine as well as Los 
Angeles, as well as Boston.
    Senator Collins. Thank you.
    Let me just close by saying that my uncle, Doug Collins, 
was one of the first Directors of the Maine Dartmouth Family 
Residency Program in the State of Maine. He has since passed 
on. But it was a wonderful collaboration and still is.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Collins.
    It is Senator Warren.
    Senator Warren. Thank you very much, Mr. Chairman, and I 
want to join Ranking Member Collins in saying it is very 
gracious and very generous of you to permit others to take on 
the questioning first, and to say I feel much safer asking my 
questions knowing you will be in the clean-up position there at 
the end for what we leave out.
    But I wanted to ask a question around the great public 
debate that is going on about entitlement reform. We keep 
hearing the warning that we must make substantial changes to 
Medicare or face bankruptcy of the Medicare system, and yet I 
am reminded that in 2010, we passed substantial Medicare 
reform. We did not give it that name, but we passed the 
Affordable Care Act and it resulted in powerful changes, both 
in how we deliver medical care, how we bill for medical care, 
and indeed research on medical care.
    And we note now that in 2012, that the increase in medical 
spending for Medicare is now the slowest it has been in 15 
years, that the Congressional Budget Office has revised its 
estimates, as the Chairman noted earlier, in just two years has 
revised its estimates for spending over the next ten years, 
saying it is going to be about 15 percent less than originally 
estimated, and that that is a savings well in excess of $100 
billion. So we are in a system that is substantially changing.
    So I want to frame my question this way. I invite you to 
talk about how the Affordable Care Act changes the delivery of 
health care, any part of it, to reduce costs and what paths, 
what opportunities it shows us for making changes in costs in 
the future. And I know that you have really addressed that, Dr. 
Goodman, in part, when you talk about your hospital readmission 
study. You did it specifically. Dr. Blumenthal, I think you 
were hitting at it a little bit indirectly, so maybe if I just 
start with you on that question.
    Dr. Blumenthal. Thank you, Senator Warren. You are 
absolutely right. The Affordable Care Act was really two pieces 
of legislation, one that extended coverage to many uninsured 
Americans, another that attempted to initiate very important 
reforms in the delivery of health care.
    It is true that we are seeing slowdowns in the overall cost 
of care, the rate of increase in the overall cost of care and 
in Medicare. I think it is a little premature to declare 
victory.
    Senator Warren. Fair enough.
    Dr. Blumenthal. We have seen repeated cycles of rapid 
increase and then slow down in health care costs over the last 
20 to 30 years and they often coincide with insurance cycles 
rather than fundamental change in health care. Nevertheless, 
the Affordable Care Act does provide fundamental new tools. One 
of them is--among them are the penalties for readmission, the 
penalties for hospital-acquired infections that are above 
average, pay for value programs, and programs that have been 
initiated through the Center for Medicare and Medicaid 
Innovation, which includes the pioneer ACO program, a version 
of the Affordable Care Act, and so on.
    What I think we need most at this point is to bring all 
those different threads together in a comprehensive and 
synergistic program of health care reform. The Secretary has 
new authority to do that, but each of these initiatives is 
currently being implemented in a very particular way on its own 
basis, and without bringing them together in a comprehensive 
approach, and that is really what our Commonwealth Commission 
was about, taking these authorities, taking these ideas and 
saying, let us put them together in a comprehensive package. 
Let us cost them out and let us see what we can get if we 
really push them to their full advantage.
    Senator Warren. And because I take this suggestion very 
seriously, just make sure I am following all the way through. 
This is something that is within the capacity of our current 
structure. It is just an opportunity we have not yet seized, is 
that right? It does not require new legislation, for example?
    Dr. Blumenthal. I think it would require some changes in 
legislation. The kinds of reforms that we are proposing would 
require some changes in the legislation. Just as an example, 
changing the SGR formula, which is now quite toxic, and the 
fee-for-service approach to Medicare payment, though it is 
moving toward pay for value, it is doing it in a very kind of 
staccato, short, incremental way. We cannot afford to wait 
until all these different programs have been allowed to 
continue to prove themselves. They need to be knit together and 
pushed home to prevent us from rationing away critical 
benefits.
    Senator Warren. Thank you. I am going to be mindful of my 
time, because I am now out of time, but I will put this in the 
questions for the record to everyone and ask for more details 
on that one, as well. Thank you very much, and thank you all 
for being here.
    Mr. Chairman.
    The Chairman. Do you need some more time? Go ahead.
    Senator Warren. If--thank you. If the other three panelists 
would be willing to spend a little time on that question, I 
would be delighted.
    The Chairman. Well, in case Senator Baldwin has to go 
someplace----
    Senator Warren. But I do not----
    The Chairman [continuing]. Let us go on with you, and then 
depending on Senator Whitehouse, if you can hold on----
    Senator Warren. You bet.
    The Chairman. Thank you. Go ahead.
    Senator Baldwin. Fabulous, another round. And I do have to 
run, so I very much appreciate that.
    I made my opening comments somewhat personal about my own 
experience, being raised by my grandparents. As I hear the 
larger dialogue, I never want to forget the impact that some of 
these reforms have, not only on the immediate Medicare 
beneficiary and the quality improvements that we will have in 
our health care system, but the way it affects family members 
and caregivers. And I think in particular of the reform that is 
bundling.
    A loved one in my family--not my grandmother--was 
hospitalized in another State--not Wisconsin, not a State 
represented at this dias right now--and in helping coordinate 
or understanding care needed, I talked with three specialists, 
a hospitalist, and a primary care physician not associated with 
the hospital of the hospitalization. I think of what difference 
that reform would make to our bottom line money-wise, this 
loved one's care, but also most Medicare beneficiaries have a 
support structure outside and it affects their lives, too.
    I want to thank our witnesses for highlighting the many 
promising Federal, State, and private delivery reforms that are 
underway, and I really appreciate getting a chance to follow up 
on Senator Warren's questions about the Affordable Care Act. I 
know some incredible things are happening in my State around 
delivery reform, around Accountable Care Organizations, around 
data sharing, in particular quality and pricing transparency. 
But those promising developments are not evenly available 
throughout the State, and so the comments you have made about 
how do we ramp up the things that we know are working and have 
them fairly and abundantly available across the United States 
is such a key question and I really appreciate your bringing it 
up.
    To that end, I want to ask Dr. Blumenthal, the Commonwealth 
Commission, one of the proposals that caught my eye was the 
creation of a new Medicare Essential plan with more 
comprehensive benefits as well as provider and enrollee 
incentives to achieve better care, better health, at lower 
cost. I am curious to know how many of these reforms that could 
drive, and in particular, what benefits should such a benefit 
package have that are not currently available in Medicare?
    Dr. Blumenthal. Thank you for that question, Senator 
Baldwin. The Commission did propose that a new Essential health 
benefit, Essential Health Plan, be available to Medicare 
beneficiaries. You know, in 1965, when Medicare was enacted, it 
was modeled and meant to be equivalent to the employer-based 
insurance of the day, which was actually an Aetna plan. And in 
those days, Aetna had a hospital plan and a physician plan and 
they were different and you could buy them differently.
    Well, employer-based insurance has changed a lot. We now, 
like you in the Federal Employees Health Benefit Program, you 
buy one plan and it gives you the full range of benefits that 
you get. In Medicare, you have to buy A and then B and then D 
unless you are part of a Medicare Advantage plan. In other 
words, Medicare has become diverged markedly from the employer-
based form of insurance that it was supposed to emulate and it 
has become much more complicated, and though still efficient 
administratively, it is extremely hard for some of our elderly 
folks to navigate because of its complexity.
    We are advocating that you bring all those together into a 
plan that resembles an employer-based plan, where you make one 
purchasing decision, not necessarily Medicare Advantage but in 
the traditional health care system, and that you get A, B, and 
D. You get physician services, hospital services, and drug 
services together. The benefits would be comparable to what the 
current Medicare benefits are.
    One thing that we would do is have a single coinsurance 
rate and a single deductible for all three of those, so you 
would not have a separate hospital deductible, a separate 
physician deductible, a separate drug deductible, which are 
incredibly confusing.
    And the other thing that this plan would do is provide 
generous enough insurance so that Medigap plans would no longer 
be required. And that would save an enormous amount of money in 
administrative expenses, because Medigap plans have very, very 
high administrative expenses.
    So the other thing that we envision for this is that it 
would have what is called a value-based insurance design, and 
what that means is it would encourage beneficiaries to make 
choices that are good for their health. It would do things like 
not have deductibles and coinsurance for diabetes drugs, for 
anti-hypertensives, for lipid-lowering drugs, for things that 
we know reduce disease burden and ultimately reduce costs. So 
that--and it would also reward, by the way, choosing high-
performing health plans.
    So in that combination of things, we do not really think it 
would be more expensive. We think it would be less expensive 
and a lot simpler and a much better choice than the current 
fee-for-service option.
    Senator Baldwin. Thank you.
    The Chairman. Senator Ayotte.
    Senator Ayotte. Thank you, Mr. Chairman.
    I appreciate all the witnesses who are here today.
    You know, when I look at the issue with respect to 
Medicare, the challenges that we face with it, the Ranking 
Member mentioned, Senator Collins, in her opening statement, 
the fact that the Trustees have said that it will go bankrupt 
in terms of--in 2024. And one number that has always struck me 
is that your average family pays in roughly $114,000 through 
payroll taxes and then, on average, takes out about $355,000 in 
benefits. So just looking at the sheer numbers of the 
challenges that we face, we certainly need to do things 
differently if we are going to sustain these programs for 
people like my grandparents, that I am blessed to still have 
and around.
    So some of the ideas that have been out there, and I know, 
Dr. Cubanski, that you had talked about them and I know there 
was lots of polling done on it, but ideas where we have looked 
at perhaps means testing further Medicare for those who are 
more fortunate later on in life so that they could afford even 
greater percentages of what they would pay for their health 
care to make sure that it truly remains a vibrant safety net as 
we think about the financial challenges I just laid out.
    So I just wanted to get your thoughts on proposals that 
have been out there and what your thoughts are on them, on the 
eligibility end, meaning it is not so much an eligibility thing 
if we are going to means test but allow people who have been 
more fortunate, for example, in life--probably--hopefully me, 
later in life--to pay more or to perhaps even, if you get to a 
certain income level, not be provided--receiving your health 
insurance through some other means.
    Ms. Cubanski. Thank you, Senator Ayotte, for your question. 
Yes, as you noted, we did do some polling on the question and 
this was one of the areas where there was majority support for 
requiring higher-income seniors to pay more. Of course, seniors 
already do--and other Medicare beneficiaries already do pay 
more if they have higher incomes. So if you are making, as an 
individual, more than $85,000 a year or a married couple more 
than $170,000 a year, you pay a higher monthly Part B premium. 
And if you are enrolled in a Part D plan, you also pay a higher 
Part D premium. About five percent of the Medicare population 
today are paying those higher premiums.
    One concern, of course, is that, as I noted in my 
testimony, half of the Medicare population has incomes of about 
200 percent of the Federal poverty level and five percent of 
Medicare beneficiaries have incomes above around $95,000 a 
year. So in order to really achieve significant savings from 
increasing means testing in the Medicare program, you have to 
go relatively far down the income scale in order to get larger 
percentages of Medicare beneficiaries paying higher premiums 
and higher costs, and that really does, I think, call into 
question the ability of those individuals to afford to pay 
higher premiums and higher cost sharing amounts than they are 
currently paying.
    Senator Ayotte. But assuming that we were able to make 
those changes at an income level that would still allow people, 
obviously, thinking about it--I do not think that any one 
change is going to get us to a point where, when you look in 
the gaps we have, to get where we need to be. And so I think we 
need to look at a variety of options and, obviously, take 
reasonable ways in which we implement those options to take 
into account people's ability to pay on these things. So I 
appreciate your thoughts on it.
    And I wanted to also ask Dr. Goodman, the work that is 
being done at the Atlas program, you have clearly said that 
some hospitals--and I remember when I went to see the work 
being done by Dartmouth on the Atlas work that you are doing 
there, you showed me a map, or the people at Dartmouth showed 
me a map, and one thing that really struck me was the fact that 
there was such a geographical difference in terms of this 
readmission rate, but also there was a difference in 
reimbursement rate, as I recall, too, and that the difference 
in reimbursement rate did not necessarily equate to a better 
outcome in terms of the readmission rate.
    And so looking at this challenge, what--taking account, I 
believe, the ten percent you said which would account for the 
condition, the health condition of the patient, what is the 
other 90 percent, and as this panel tries to tackle the 
challenges to make sure that this important program is there 
for future generations, what would you recommend to us the best 
steps to take?
    Dr. Goodman. Well, thank you, Senator Ayotte, for asking 
the hardest question, because I think that this--and I think 
you have touched upon what are some of the difficult facts that 
are out there, which is that although we would like to think 
about improving the Medicare program and quality and in terms 
of the efficiency in a way that involves no pain to anybody, 
the fact is, is that this is a process that is going to involve 
tremendous change, including differences in the way providers 
behave and differences in the way that we invest our National 
wealth. And that has on the ground implications for health care 
labor markets, for capital investments, and so forth.
    You know, the revelation in terms of variation in Medicare 
spending per capita, even when doing the most stringent sort of 
risk adjustment for differences in population, is a reflection 
of differences in practice style and differences in the way 
that communities and health systems have, over very long 
periods of time, invisibly built their system. And sometimes--
all the sort of successes in health care are attributed to 
design and the ills are always attributed to accident, and with 
geographic variation, much of this is by accident, that there 
are places that, for one reason or another, have a legacy, for 
example, a very high number of hospital beds per capita, very 
high supply of specialist physicians per capita, and in the 
fee-for-service environment, and in a culture of health care of 
which I am part of as a physician, where we are very much 
trained to be active and believing that more aggressive or 
specialist or procedurally oriented care is better, this is 
sort of the perfect storm for providing care that sometimes is 
very helpful but sometimes is of marginal benefit.
    And so that variation in spending--the reason why more 
spending on the Medicare program in aggregate per beneficiary 
is not necessarily related to better outcomes or better quality 
is because of this large domain of marginal care that is 
delivered.
    Now, how do you attack that problem? You could mandate 
particular structures of health care systems. That would then 
restrain the capacity to deliver care, which is not 
particularly beneficial to populations. I mean, we know that 
you could reduce readmission rates by having lower bed supply 
in certain regions. That is, in fact, what has happened. It is 
one of the reasons why certain parts of the country do so well 
on some of these metrics by accident. They grew a modest supply 
of beds. The health system evolved invisibly to care for 
patients in ways that they only needed to use that sort of bed 
supply.
    I think that a more sort of reasonable approach is to align 
these incentives so that the incentives to providing good care 
are the incentives that lead to institutional health, 
organizational health. Organizations--health systems who have 
this ill-advised capacity now are really caught in a bind in 
what is a rapidly changing system of financing. So imagine 
places that have, in a well-intentioned way, have over-built 
their inpatient capacity and that gets filled up with 
admissions and readmissions. Not that they are putting patients 
in inappropriately, but it is just a practice style that 
evolves, and there are always many patients that, you know, on 
a given day could go in or out. In some places, they get cared 
for in the community. In other places, they come in.
    These are----
    The Chairman. We need to wrap up, Dr. Goodman.
    Dr. Goodman. Very, very quickly. So these are the places 
that will, I think, benefit the most from these population-
based shared savings plans like Accountable Care Organizations, 
where they have something to gain from reinvesting into 
community-based care, where there are no longer the incentives 
for more patients with DRG payments. Thank you.
    Senator Ayotte. Thank you, Doctor.
    The Chairman. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman.
    I think we have all noticed that there is a huge overlay 
between our budget discussions and our health care cost 
discussions. Everybody from Paul Ryan to Barack Obama says that 
if you really look at the budget problem and the deficit 
problem, it is a health care problem.
    And yet when we try to connect those dots, we have a hard 
time for, I think, the very practical reason that so few of the 
delivery system reform savings are scorable by CBO, which 
actually makes logical sense because a lot of these reforms are 
going to require innovation, they are going to require finding 
a sweet spot with incentives that direct doctors to the best 
treatment and patients to the best self-care, and we are going 
to have to kind of work our way to finding that. It is sort of, 
to me, a little bit like the early days of aviation, as people 
worked out the bugs, even though principles were clear, to the 
kind of fast, safe aircraft travel that we have now.
    So I would like your thoughts first on how close we are 
getting to be able to put some meaningful scoring metrics 
behind delivery system reform.
    Two, whether you think it would be helpful if the 
administration would quit talking vaguely about bending health 
care cost curves and actually put down a hard target with a 
date and a number for delivery system reform savings that 
people could then argue about and maybe discount if they felt 
it was improbable, but at least it was out there instead of 
just mush, basically, right now--a lot of hard working people, 
but no specific target.
    And third, are there ways to take advantage, particularly 
Dr. Goodman, of that broad array of performance levels that 
States exhibit, as shown by the Dartmouth Atlas project, to 
posit into the out years, that certain States that exhibit very 
poor quality and very high cost are not going to be able to 
continue on that path, that there will be a time when, if you 
are more than a certain percent of an outlier away from the 
mean, we are just not going to fund that any longer. You are 
going to have to come into what other States have demonstrated 
they can do, because they are doing it.
    So there is an array of options for either improving the 
scorability of this stuff, or developing it to the point where 
it is more scorable, or having the administration be more 
responsible about setting a hard, fixed target, or actually 
starting to carve out outliers for poor performance and high 
cost in a way that could generate a score, and I would like to 
have your comment on that. And it is a long question in a short 
period of time, so I would really like to ask you to actually 
think about that as a question for the record and so I can get 
an answer from each of you. This is a very talented panel, and 
I have left you a minute and 40 seconds for the four of you to 
share that complicated answer. Typical Whitehouse, says the 
Chairman.
    [Laughter.]
    Since I mentioned you specifically, Dr. Goodman, why do you 
not take a quick bite at it and then we will let the others 
answer it as a question for the record.
    Dr. Goodman. And I will be brief, which is that I honestly 
think that the only hope of changing the ship is to change the 
financial incentives. And the push-back of providers is going 
to be so great from potential dislocation that would occur in 
fixed targets, so we leave targets with expectation that those 
savings will occur, that there has to be financing systems that 
it is very much in the organization's interest to improve care 
and improve efficiency.
    And there are different models on this. They share many 
common features. I think the Accountable Care Organization is 
one of the more global models that has been articulated. It is 
in the ACA. We certainly know that that will evolve further. 
But get the incentives right. Behavior will follow. As long as 
there is good information, transparent information about 
performance for consumers and providers alike, we will do very 
well.
    Senator Whitehouse. Well, I eagerly look forward to answers 
from the other witnesses. This has real repercussions for us 
because even though cutting benefits and rationing care are the 
inept way of looking at health care, and even though they are 
so wrong it is almost criminal, according to George Halvorson, 
to go back to my original quotes, they are scorable. They are 
scorable. And if we come to a real crunch on this, that is 
going to give them an advantage. They will be wrong. They will 
be inept. But they will be scorable.
    And so it is really important that we work on trying to 
find ways to press the delivery system reform savings into some 
mechanism that allows us to treat them in our budget 
discussions. And I would look forward to your thoughts for that 
very reason. Thank you.
    Dr. Blumenthal. Senator Whitehouse, just a brief comment. I 
did not emphasize it sufficiently, but the Commission did 
recommend that we set a National target for rates of increase 
in health care costs at GDP and that policies be adjusted to 
achieve that growth rate. So it was a part of our package of 
recommendations.
    Also, as Senator Warren knows, my home State of 
Massachusetts has set such a target for the State as a whole 
and it is going to be very interesting to see how that plays 
out.
    Senator Whitehouse. It will be. Thank you.
    The Chairman. Senator Warren.
    Senator Warren. Thank you very much, Mr. Chairman.
    I just wanted to give an opportunity to Dr. Cubanski, Dr. 
Goodman, and Dr. Thorpe, if they wanted to comment on the 
question I had earlier about how the Affordable Care Act 
changes have reduced costs and show paths for future savings 
that we should note, and I just wanted to give you a chance to 
do that on the record here.
    Dr. Cubanski.
    Ms. Cubanski. Thank you, Senator Warren. I would echo Dr. 
Blumenthal's remark that it is still a bit of a mystery about 
why cost growth has slowed. But, of course, it is a promising 
early indicator, since in the past three years now, we have 
seen Medicare cost growth at a really historically slow rate.
    I would suggest that one of the important provisions in the 
Affordable Care Act is the creation of the Center for Medicare 
and Medicaid Innovation, which has authority to test, 
implement, and expand some of these delivery system reform 
ideas that we may have seen in the private sector, but have not 
really seen in Medicare and certainly not in the traditional 
Medicare program. I think that is where, since, you know, 75 
percent of the Medicare population is currently in the 
traditional Medicare system today, that is really where we 
have, I think, a lot of opportunity to achieve a lot more 
savings moving forward.
    And I know that the Center for Medicare and Medicaid 
Innovation is rolling out very quickly a lot of these ideas, 
the Accountable Care Organizations, bundled payments, medical 
home. So it is really testing a lot of ideas, and those that do 
show promise for reducing costs and either increasing quality 
or not reducing quality can be expanded. The HHS Secretary has 
the authority to do that without needing to go back to Congress 
for legislative authority. So I think that is a positive step.
    Senator Warren. Thank you. Very valuable. Thank you.
    Dr. Goodman.
    Dr. Goodman. Just, again, very quickly, I mean, I think it 
has been a remarkable revolution in that we have gone from 
being the country that did the very best job of measuring and 
studying health care of any country in the world to now a 
country that is engaged in tremendous innovation. And the 
question, of course, is the sum total of that innovation, 
particularly if it is separate pieces of innovation, will they 
knit together to actually, aside from improving quality in 
parts, will it improve quality as a whole and efficiency as a 
whole, particularly if capacity is fixed and health care 
systems have this legacy of what they have been doing for 50 
years.
    And on this point, we do not know. We do not know, for 
example, whether the Accountable Care Organizations will 
deliver on their hope and promise. I certainly hope they do. It 
is unknown. It is still very worrisome. I am not comforted, 
either, by the recent slowdown in the growth of expenditures. 
We saw that before, in the 1980s. That was one of the effects 
of the Clinton health care reform plan that was not passed. We 
actually saw a slowing down of health care expenditures for a 
period of time and then a rapid acceleration. So we are not out 
of the woods yet and it may, indeed, require more Congressional 
action to pull us along.
    Senator Warren. Thank you.
    Dr. Thorpe.
    Mr. Thorpe. Well, I certainly think the Act moved us in the 
right direction. It brings in, really, sort of limited, and in 
some cases pilots on payment reforms that I think are moving in 
the right direction. It provided funding for prevention in 
public health, moving us in the right direction. It has an 
Innovation Center, which is testing and trying out a variety of 
new models.
    I think that my suggestion was to really take a two-part 
strategy, because I am just concerned with the remaining, I do 
not know if it is mentality or focus, that somehow, we are a 
pilot project away from a miracle. We are not. I mean, we need 
to act on what we know already that works, and we have an 
enormous amount of experience with randomized trials in the 
Medicare population that shows the components of care 
coordination that are effective. Medicaid programs are doing 
this. The private sector is doing this, as well. We can scale 
and replicate best practice, things that we already know that 
work, and we just need to implement them.
    So we need to do a two-part strategy. We need to implement 
what we know that works and do it program-wide, but do it in a 
way that we are getting feedback and constantly improving it, 
as Senator Whitehouse talked about. That feedback loop is 
critical and we need to learn from our experiences. And we need 
to continue to do targeted pilots in areas where we need 
selected new information.
    But I think we need to make that transition. We do not have 
a decade to wait to find out what is coming out of these pilot 
projects. As Senator Whitehouse mentioned, unless we give the 
Congress more tools to generate cost savings, we are going to 
be in a persistent state of getting savings in Medicare and 
Medicaid over the next decade, of cutting benefits, cutting 
provider payments, cutting payments to health plans, shifting 
costs to States and to seniors, none of which solve anything 
with respect to the long-term cost of the program. They are 
simply a budget exercise.
    So I think until we switch this mentality of having the 
budget drive health policy to one where we have health policy 
driving the budget outcomes, that is the transition we need to 
make.
    Senator Warren. Thank you, and thank you very much, Mr. 
Chairman. I appreciate it. This is an extraordinary panel and I 
am delighted to have the chance to get you all on the record on 
this. Thank you.
    The Chairman. Okay. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    I just wanted to make one final comment on my part, and 
that is when I look at the slowdown in the rate of health care 
spending, I, like at least one of our panelists said, am not 
comforted by that fact at all. I think it is largely due to the 
recession, to the downturn in the economy and people delaying 
getting health care, people not being able to afford health 
care, people losing their health insurance. And I think the 
other factor are the cuts to providers, the reduced 
reimbursements that we have seen, the cuts in home health care.
    So I do not think we have seen a transformation. I see it 
very differently from my colleague from Massachusetts. I do not 
think this is a result of some transformation. I think this is 
a result of the recession and the result of cuts to providers.
    And one of my concerns is that if we keep cutting 
providers' reimbursements under the same system and do not 
reform the delivery of health care, we eventually are going to 
affect access and that concerns me greatly.
    So since I am dealing with two Ph.D.s and two M.D.s, I am 
not going to ask for a response to my comments on whether they 
agree with that analysis or not. But I just wanted to say that 
for the record and again to thank all of our witnesses for 
truly excellent commentary today.
    The Chairman. Well, we can do better. At least it is going 
in the right direction with CBO's reestimate is $400 billion 
less over the next decade of estimated spending in Medicare. 
Now, it seems to me that we can do better. Clearly, the 
Accountable Care Organizations are one area, but they are just 
being implemented.
    I had great hope for the co-ops, which is the acronym for 
the Community Oriented Insurance Company. It was going to serve 
consumers. And yet at the 11th hour on December the 31st, that 
was given away in the negotiations because of misinformation 
that was occurring. I asked HHS and the Finance Committee. I 
said, why did you give it away? They said, we did not. I said, 
well, I have talked to people in the room, including the 
Finance Committee staff, and said that to the question, are 
there any co-op applications in the pipeline, after 24 States 
had already been granted applications, they said, no, when, in 
fact, there were a bunch of additional States in the pipeline. 
Now we have got to go back and try to get it back. So we can do 
better.
    Now, one of the things that I know Senator Rockefeller has 
great hopes for is this Independent Advisory Board. But it, of 
course, has been characterized in the political cauldron as a 
rationing board. Does anybody have any comments about that?
    Ms. Cubanski. Sure, I will take a stab at this one. Senator 
Nelson, as you know, the Independent Payment Advisory Board has 
been subject to a great deal of controversy, and, in fact, none 
of the members have been nominated or appointed. But I think 
perhaps a bit of good news in the fact that CBO's Medicare 
spending projections are quite low over the coming decade, they 
have suggested that, in fact, the Independent Payment Advisory 
Board, if it is convened, would not actually be charged with 
making any recommendations because they would not--the spending 
would not exceed the targets that were spelled out in the 
Affordable Care Act.
    I think, obviously, the verdict is still out on the 
establishment of the IPAB, but we are not likely to see it in 
action, at least over the coming decade, assuming CBO's 
projections hold true.
    The Chairman. Well, this Friday, we are going to face 
another challenge, and although Medicare benefits are protected 
in the sequestration, Medicare providers, health plans, and 
drug plans will be reduced by two percent. So what is going to 
be the impact of this across-the-board reduction?
    Mr. Thorpe. I will take a cut at this. Certainly, if you 
look at, again, just this continued focus on cutting provider 
payments, I think to Senator Collins' point, is it over time 
just does have an erosive and corrosive effect on not only the 
payment rates, obviously, but in terms of access--potentially, 
access to care.
    And in particular, if you look in the Medicare Advantage 
program, if the sequestration does come into place, since the 
Affordable Care Act has been put into place, again, between now 
and 2014, you would have about a cumulative reduction in 
payments of around ten percent. And given the way the program 
is structured, for better or for worse, that ten percent does 
come out of potentially efforts to do innovation and 
coordinating care, but it also comes out of the additional 
benefits that those plans are providing.
    So, again, I just think that, and getting back to the IPAB 
discussion, I think until we get to these issues of structural 
reforms in the program, and I understand that they take time 
and they are long-term, but we have got to make them. We are 
not going to get this program under control until we do 
something about the growth in the incidence of chronic disease. 
We are not going to get the program under control until we do a 
better job of managing and gauging chronically ill patients, 
those patients that have five or more conditions that account 
for 80 percent of the spending. Those are the two challenges. 
Until we really take those problems head on, we are not, over 
the long term, really going to get control over spending in the 
program.
    The Chairman. And several of you have mentioned diabetes as 
an example, creating overweight conditions which, as you get 
older, is going to be so much more of a diminution of 
somebody's good health.
    Now, Senator Collins and I are also interested in Medicare 
fraud. Do you have any comments about sequestration on our 
ability to go after fraud? And we are only scratching the 
surface now. Do you have any suggestions of how we can do a 
better job of it? And I say this as someone who has to own up 
to it, because there is a lot of it in Miami. Comments?
    Dr. Blumenthal. Senator, I am not an expert on Medicare 
fraud. I do know that the new legislation, the Affordable Care 
Act, provided the Secretary with substantial new authorities 
and tools to take on Medicare fraud using pre-screening, 
looking at a predisposition to be involved with fraud rather 
than just a kind of catching after to the fact.
    To the extent that sequestration reduces the resources that 
are available for that activity, it will be certainly 
counterproductive. It will reduce trust in the program. It will 
increase the cost of the program. And it will be penny wise and 
pound foolish.
    The Chairman. And I am told that for every dollar that we 
spend in going after it, fraud, that we realize back a $7 
return for a dollar spent. And so I am concerned about that. 
And that is dollars that otherwise would not go into the system 
or dollars that would not be utilized to reduce the deficit. 
And we are going to highlight that in this committee.
    One of the things we have not talked about is Medicare 
Advantage. Now, one of the thrusts of the health care bill was 
to lean out the excesses into Medicare Advantage. You will 
recall in 2003, in what was called the prescription drug bill, 
that also set up Medicare Advantage and that set up a 14 
percent bonus per senior citizen over and above Medicare fee-
for-service. That was going to drive Medicare into bankruptcy 
even quicker. So we had to lean that out in the health care 
bill. And we are just seeing the results of that, what is 
anticipated, coming this year, and some of the insurance 
companies being cut back on that bonus.
    But there was an incentive put in it that the higher 
quality rating you had with stars as an insurance company, 
which is what offers Medicare Advantage, you were going to be 
able to, in fact, have more reimbursement for your per 
beneficiary reimbursement.
    Any comments from you all about Medicare Advantage and its 
implementation as we are trying to lean it out?
    Dr. Goodman. Just the--I mean, the difficulty that Medicare 
Advantage is, first, based upon average fee-for-service 
payments of a particular area perpetuates what is already 
irrational and unfair spending and transfer of funds, actually, 
from one group of citizens to the other for no demonstrable 
benefit. So it--and that is the larger problem. I mean, the 
larger problem is the tremendous geographic variation in per 
capita spending, which Medicare Advantage was never really 
designed to provide the incentives to try to encourage the less 
efficient places to become more efficient. So I think there is 
unfinished business there besides reducing the 14 percent.
    The Chairman. Dr. Blumenthal.
    Dr. Blumenthal. There are a couple of points that the 
Commission made and that I would like to emphasize. One is that 
Medicare Advantage--the new quality ratings that Medicare 
Advantage has put in place, this star rating which enables the 
high-quality plans to get rewarded extra, is a terrific idea. 
It is a little too generous. So you can get extra payments for 
being a two- or three-star plan. The Commission felt that there 
should be a sharper gradation, with more rewards for the four- 
and five-star and fewer rewards for the programs that are kind 
of average. So that was point number one.
    Point number two is once you understand which of those 
programs really is delivering high value, that has good cost 
profiles and good value profiles, quality profiles, we should 
provide beneficiaries a reward for enrolling in those to 
encourage them to be at the high end of value, and that could 
involve payments that are modest but influential.
    So I think those are the two points that I would make about 
the Medicare Advantage program.
    The Chairman. And this is where I give credit to HHS, that 
I think they have implemented it in a way that it is now set to 
achieve the savings that it needs, and by comparing the quality 
rating of Medicare Advantage plans, allow seniors to vote with 
their feet by going to the higher-rated plans, which presumably 
then, with less reimbursement because they do not get a bonus 
if they are not quality higher rated, is going to have them to 
either change and get higher quality or else fall by the 
wayside. And, theoretically, the seniors go to the better-rated 
plans and there is an incentive for the insurance company to 
have that better-rated plan. I commend HHS, that I think they 
are doing it right, whereas you know I ding them when I think 
they are doing it wrong.
    You know, another thing that we have not talked about is in 
the health bill, we provided for annual wellness exams for 
seniors, and lo and behold, in this first year and a half of 
experience, they are not taking much advantage of it. Why is 
that?
    Mr. Thorpe. I think it is a combination of probably two 
things. One is lack of knowledge about the benefit is a piece 
of it. It is an additional visit, perhaps, to your physician. 
It is not integrated in any type of comprehensive approach to 
dealing with wellness that would include an action--not only 
action plan, but something that you can have to act on.
    So I would rather see these things more bundled 
comprehensively, combined with the care coordination component, 
work with nurse practitioners that could really manage people 
in terms of wellness benefits and prevention more coherently 
and more comprehensively. It is just a very fragmented 
approach, I think, to dealing with prevention, where we are 
focusing on identifying at-risk patients with separate types of 
benefits and separate types of visits, but not really doing it 
in an integrated, coherent way that actually has physicians 
working with nurses, nurse educators, dieticians, and others to 
help them execute a personalized care plan.
    The Chairman. Well, presumably, if you are an insured, a 
beneficiary, and in one of the Medicare Advantage plans, that 
the insurance company is going to insist that you do it for the 
obvious reasons. But if you are Medicare fee-for-service, what 
is the mechanism to achieve what you just said?
    Mr. Thorpe. Well, again, that is the problem, is that I 
think if you look at what goes on in having a care coordination 
nurse that is working with you to say that, did you get the 
care plan? Did you get the physical? Where is the care plan? 
Let us work on executing it. Somebody that, if you think about 
it, for a typical Medicare patient may be seeing a physician 
three or four times a year and they have multiple chronic 
conditions, well, what happens the other 361 days a year? They 
either have to rely on a friend, family member, and so on.
    That is the real challenge, is how can you continue to 
engage and work with people when they are not in the provider's 
office to actually stay healthy, keep on track with your care 
plan, and that is the missing part of original Medicare. It 
does not have those components. And I was suggesting that we 
could build those components in, I think somewhat seamlessly, 
based on a whole host of experience we have with best practice 
MA plans, but also what different types of integrated group 
practices do to really do team-based care. We need to do this 
as a team.
    The Chairman. So what was planned in the private sector 
ACOs, more implementing in Medicare fee-for-service.
    Mr. Thorpe. Yes, and I think ACOs are certainly a good 
model of that as long as they have this care coordination 
component built into it. I mean, if we are just stringing 
organizationally providers together and they are not changing 
their practice patterns, that does not bring us very far. We 
really have to change the way that we do prevention and care 
coordination as part of an ACO, but I think it is a step in the 
right direction.
    But everybody is not going to be in an ACO. There is going 
to be a whole bunch of people who live in parts of the country 
that will never be enrolled in an ACO. So, again, I just think 
that we need to get on the business of making these structural 
changes in the program that really attack where the spending 
growth is and where the money is and where the real challenges 
are in terms of providing quality health care.
    Dr. Blumenthal. Senator, if I could tell a story that I 
think illustrates how we might get to where we need to be on 
prevention----
    The Chairman. And also tell us why we need more primary 
care physicians.
    Dr. Blumenthal. Well, as a primary care physician in 
practice for 35 years, I am all for more primary care 
physicians.
    I visited a practice outside of London not too long ago and 
I was taken to see it because I was told they had a great 
electronic health record, and that was my concern at the time. 
But what I discovered was that they had 100 percent compliance 
among their population with a series of 50 or 60 quality 
metrics, most of which included all the preventive measures 
that we think are valuable.
    And the way they did that is that they had three things. 
First of all, they got paid more as a practice if they achieved 
those targets.
    Secondly, they had an electronic health record which made 
readily apparent those--when people were not meeting their 
preventive goals, when the patients were not.
    And third, they had a system. The system was a health care 
worker, an employee of the practice, whose job it was on every 
patient's birthday to go through, to look at their electronic 
health record and see if they had realized their preventive 
goals, and if not, to contact the patient and have them come 
in. And they would do anything that was required to get that 
patient there. They would send a car for them, a taxi. They 
would send someone to the home, whatever was required. And the 
reason was they had the knowledge and they had the incentive.
    I do not think this is very complicated. We do not have the 
knowledge because we do not have good health care records in 
most practices, and we do not have the incentives because 
people are paid to see patients, not to prevent illness.
    The Chairman. Thus, the reason for the Accountable Care 
Organization, so that you follow the patient and you are 
following up on them. Of course, that is what an insurance 
ought to do in a Medicare Advantage plan, follow up, pester 
them, make them take their medicine, et cetera.
    Dr. Blumenthal. Well, I think the insurance plan has 
limited influence. I think you have to get the patient's 
personal physician, because those are the people who influence 
the behavior of their patients.
    The Chairman. And that was a reason of why the 
reimbursement in Medicare for primary care physicians and 
outside of Medicare was raised. Is that working?
    Dr. Blumenthal. I think it is way too soon to tell, and I 
also do not think that the increases will be sufficient unless 
we find a way to make the lifestyle more rewarding and get past 
this sort of gerbil-like, hamster-like process that now 
dominates primary care, the volume and fee-for-service process. 
So there is a lot to do in changing primary care. The patient-
centered medical home is an aspiration in that direction. We 
need to think about how this accountable care process and the 
primary care infrastructure will come together, which is still 
something we need to explore.
    The Chairman. Dr. Cubanski, in your Foundation's research 
on the prescription drug benefit, you found that seniors are 
overwhelmed when they are picking a drug plan. I looked at one 
of them and I was overwhelmed. And what you found in your 
report was that they pay $300, on average, more than they need 
to pay for their coverage. Can you share more with us?
    Ms. Cubanski. Sure. So as you may know, we have been 
tracking the Part D program since its inception in 2006, 
looking at the number of plans that participate in the 
marketplace, the plans that beneficiaries are enrolled in, and 
the costs of those plans. And research that we and others have 
done has shown that beneficiaries do not necessarily make the 
best choice in terms of picking plans that offer them the best 
value for the prescription drugs that they are taking.
    A lot of people choose plans because their friends told 
them to sign up for a particular plan or because they are 
familiar with the name of the insurance company and it is a 
name that they trust, and so they will enroll in that plan and 
pay a higher premium than they need to in order to get the 
medications that they are taking.
    So this is, I think, an ongoing concern with the Part D 
program, although we have seen the number of plans in Part D 
fall from the high levels in the early years of the program as 
CMS has imposed increasing restrictions and some regulations 
that have helped, I think, weed out a lot of the duplicative 
offerings in the Part D marketplace. But I think it still is a 
concern that beneficiaries do not necessarily have the tools 
that they need to make good choices.
    There is, as you probably know, the Medicare Compare 
website that lets people type in all the drugs that they are 
taking and the pharmacy that they go to and will actually give 
them the list of the plans that offer the drugs that they are 
taking and will give them the lowest total annual cost. But I 
think people just still make decisions not necessarily based on 
cost, but they have other reasons that might not be factored 
in, such as, as I mentioned earlier, recommendations from 
family or friends or where they can still go to their local 
neighborhood pharmacy.
    So I think it is an ongoing concern and it is not entirely 
clear how we can steer beneficiaries to better choices. You 
cannot necessarily force them into the lowest-cost plan, but I 
think perhaps we can do better providing them with more 
information about those low-cost options in their area.
    The Chairman. By 2020, when all of the prescription drug 
costs for Medicare Part D are covered, what is the incentive to 
hold down the cost?
    Ms. Cubanski. Well, I think plans still bear responsibility 
for the cost of the drugs that their enrollees are taking, and 
I think there is more that can be done to encourage 
beneficiaries to take lower-cost drugs, to switch from more 
expensive brand name drugs to generic drugs, because 
beneficiaries face out-of-pocket costs. It is the case that 
when the coverage gap is closed by 2020, beneficiaries will 
still have to pay 25 percent, on average, of the cost of their 
medication. So there is still expense involved for 
beneficiaries, even after the coverage gap is closed.
    So I think there is incentive both for the plans to make 
sure that people who are enrolled are not over-utilizing really 
expensive medications and they can do some of that through the 
design of the formularies, but also from a beneficiary's 
perspective, if there are opportunities for them to take less 
expensive medications, including generics or cheaper brand name 
medications than the really expensive ones, the incentive will 
still be there, I think, in the financial structure and the 
cost sharing associated with benefit designs.
    The Chairman. Should those who get their drugs in Medicaid, 
and, therefore, get their drugs from the government at a 
discount, but when they turn 65, under the law, get their drugs 
through Medicare where there is no discount, should there be a 
discount? That is called dual eligibles.
    Ms. Cubanski. Right. I cannot answer the question of 
whether there should be a discount, but you are right to point 
out the disparity that now exists. Prior to 2006, when the dual 
eligibles received their drug coverage through the Medicaid 
program and they were transitioned automatically to Medicare 
Part D coverage when Part D began in 2006, the rebate that was 
provided through the Medicaid program is not through Medicare. 
The HHS Office of Inspector General has suggested that Part D 
plans are not achieving the same low level of discounts as the 
Medicaid programs and so CBO has indicated that there is 
significant potential for savings, I think, of $137 billion 
over ten years, if the Medicaid rebate was extended to dual 
eligibles in Part D plans.
    The Chairman. Okay.
    Senator Collins.
    Senator Collins. I do not have anything.
    The Chairman. Senator Warren.
    Senator Warren. Thank you.
    The Chairman. Does any of the staff have any questions?
    A final question. You all have been very patient. Time 
Magazine just did the cover story on how all the costs are run 
up in hospitals. Is there any rhyme or reason to the way costs 
are set in hospitals, and then the disparity on who gets billed 
and what the final payments are? Does anybody want to comment 
on this rather convoluted system?
    Dr. Goodman.
    Dr. Goodman. It is--you characterized it well. It is a 
convoluted system. Price is opaque to those who bear risk, the 
cost of the care, the patients themselves, their families. You 
know, whether the pricing is rational or not, I think what 
would be a tremendous help is if transparency were mandated. I 
mean, it is reasonable. It is the most basic expectation that a 
patient entering care should easily know what the price will be 
of their care if they ask. There should be no threshold for 
getting that information. It is incomprehensible. Eighteen 
percent of GDP, the services, the prices invisible to the 
consumer. How does that work? It does not work. It is 
remediable by making prices transparent. It needs to be a 
requirement that price be transparent.
    The Chairman. Dr. Blumenthal.
    Dr. Blumenthal. Senator, the world of health care is an 
``Alice in Wonderland'' world, and things that seem obvious and 
intuitive and right in health care can sometimes be more 
complicated. And by every common sense standard, it makes sense 
in health care to have price transparency, certainly to inform 
the consumer, as a respect for the consumer, and all that.
    But there is some pretty good research that shows that 
people do funny things when they know the price of health care. 
If there is no good quality data that they understand that is 
paired with the pricing data, a substantial minority of 
individuals will choose a high-cost provider because they think 
it is equivalent to quality.
    So I do not think we should assume without good study and 
without working on comparative and linked quality metrics that 
people will make good choices just because we give them the 
information. And this is not my work. It is work that has been 
published and well studied in randomized trials. It is just a 
funny world.
    The Chairman. Well, all of you have been terrific. We will 
leave the record open for a week for Senators to ask additional 
questions in writing. Thank you.
    Senator Collins, anything else?
    Senator Collins. I just want to join you in thanking this 
excellent panel and also to reiterate how much I am looking 
forward to our partnership on this committee. Thank you.
    The Chairman. Thank you.
    The meeting is adjourned.
    [Whereupon, at 5:12 p.m., the committee was adjourned.]

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