    [Senate Hearing 113-106]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 113-106

                            DELIVERY SYSTEM REFORM:
                            PROGRESS REPORT FROM CMS
    =======================================================================

                                    HEARING

                                   before the

                              COMMITTEE ON FINANCE

                              UNITED STATES SENATE

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 28, 2013

                                   __________

                Printed for the use of the Committee on Finance

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                              COMMITTEE ON FINANCE

                         MAX BAUCUS, Montana, Chairman

    JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
    Virginia                             CHUCK GRASSLEY, Iowa
    RON WYDEN, Oregon                    MIKE CRAPO, Idaho
    CHARLES E. SCHUMER, New York         PAT ROBERTS, Kansas
    DEBBIE STABENOW, Michigan            MICHAEL B. ENZI, Wyoming
    MARIA CANTWELL, Washington           JOHN CORNYN, Texas
    BILL NELSON, Florida                 JOHN THUNE, South Dakota
    ROBERT MENENDEZ, New Jersey          RICHARD BURR, North Carolina
    THOMAS R. CARPER, Delaware           JOHNNY ISAKSON, Georgia
    BENJAMIN L. CARDIN, Maryland         ROB PORTMAN, Ohio
    SHERROD BROWN, Ohio                  PATRICK J. TOOMEY, Pennsylvania
    MICHAEL F. BENNET, Colorado
    ROBERT P. CASEY, Jr., Pennsylvania

                          Amber Cottle, Staff Director

                   Chris Campbell, Republican Staff Director

                                      (ii)

                                C O N T E N T S

                                   __________

                               OPENING STATEMENTS

                                                                       Page
    Baucus, Hon. Max, a U.S. Senator from Montana, chairman,
      Committee on Finance...........................................     1
    Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     3

                                    WITNESS

    Blum, Jonathan, Acting Principal Deputy Administrator and
      Director, Center for Medicare, Centers for Medicare and
      Medicaid Services, Baltimore, MD...............................     5

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Baucus, Hon. Max:
        Opening statement............................................     1
        Prepared statement...........................................    27
    Blum, Jonathan:
        Testimony....................................................     5
        Prepared statement with attachments..........................    30
    Hatch, Hon. Orrin G.:
        Opening statement............................................     3
        Prepared statement...........................................    50

                                 Communications

    National Association of Chain Drug Stores (NACDS)................    53
    National Association for Home Care and Hospice (NAHC)............    59
    National Transitions of Care Coalition (NTOCC)...................    61
    Premier healthcare alliance......................................    64
    Service Employees International Union (SEIU).....................    67

                                     (iii)

                            DELIVERY SYSTEM REFORM:

                            PROGRESS REPORT FROM CMS

                                  ----------

                          THURSDAY, FEBRUARY 28, 2013

                                           U.S. Senate,
                                          Committee on Finance,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:40
    a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max
    Baucus (chairman of the committee) presiding.
        Present: Senators Wyden, Stabenow, Cantwell, Nelson,
    Carper, Cardin, Brown, Bennet, Casey, Hatch, Grassley, Enzi,
    Thune, and Burr.
        Also present: Democratic Staff: Mac Campbell, General
    Counsel; David Schwartz, Chief Health Counsel; Tony Clapsis,
    Professional Staff Member; Karen Fisher, Professional Staff
    Member; and Matt Kazan, Professional Staff Member. Republican
    Staff: Chris Campbell, Staff Director; Stephanie Carlton,
    Health Policy Advisor; and Kristin Welsh, Health Policy
    Advisor.

       OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM
                MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

        The Chairman. The hearing will come to order.
        President Abraham Lincoln once said, ``The best way to
    predict your future is to create it.'' In 2009, we did not like
    the future we saw for a health care system based on a fee-for-
    service payment model.
        Doctors and hospitals were getting paid for the amount of
    care delivered instead of how well they delivered care to
    patients. So, with the Affordable Care Act, we created new and
    better ways to deliver health care, save taxpayers dollars, and
    improve patient care.
        Medicare and Medicaid, in partnership with the private
    sector, are now working to create the road map for the future
    of health care delivery, and we are here today to make sure
    they are on the right track. There is a clear slow-down in
    health care spending, but we need to do more and to do it
    faster to change the way Medicare and Medicaid pay for health
    care.
        At a hearing we held Tuesday on how to boost the country's
    economic outlook, we learned from leading economists Douglas
    Holtz-Eakin and Bob Greenstein that the number-one way to
    reduce health care spending is to end fee-for-service. Everyone
    agrees that fee-for-service drives volume, excesses, and waste.
        We know this way of paying for health care encourages the
    wrong things, and that is why health care reform changed
    incentives for providers. Medicare and Medicaid are testing
    different programs to determine which work best.
        In October, Medicare rolled out a program with a simple yet
    revolutionary premise: Medicare is going to pay hospitals to
    get the job done right the first time. Hospitals are penalized
    if patients are readmitted too soon after being discharged.
    Communities from Montana to Maryland are rising to the
    challenge. In Missoula, MT, the local Aging Services Agency is
    partnering with Medicare on care transitions.
        Under this program, patients at high risk for readmissions
    to one of the two local hospitals in Missoula will get extra
    help making the transition from the hospital back to the
    community. Today we will hear about new data showing a
    significant first step in bending the curve on Medicare
    hospital readmissions.
        The rate for Medicare patients returning to the hospital
    for treatment has fallen by more than a full percent over the
    past several months after being firmly stuck for years or
    decades. Medicare and Medicaid also implemented a new program
    in October that pays hospitals more for delivering better care
    and penalizes them financially for poor outcomes.
        For those outside of health care, this idea will not sound
    revolutionary. It makes sense that when you take a car to the
    repair shop to get the brakes fixed and they break the
    windshield, you should not have to pay for the broken
    windshield.
        Starting in October, hospitals can be penalized if you go
    in with a heart attack and the hospital is responsible for
    giving you a surgical infection. Hospitals can be rewarded for
    good customer service and patient care.
        That means doctors and nurses share information and tests,
    explain medications, and develop a plan of coordinated care for
    a patient leaving the hospital. We need to get more value out
    of each taxpayer dollar spent. We also need to help providers
    work better together and coordinate care.
        Medicare and Medicaid need to reimburse hospitals, doctors,
    and nursing homes to keep patients healthy. Accountable Care
    Organizations are starting to make this happen. Almost 300
    Accountable Care Organizations, including in Billings, MT, have
    teamed up to serve more than 4 million beneficiaries.
        In these organizations, doctors, hospitals, and other
    providers work together to give patients coordinated care. The
    providers make talking to each other a priority, and they work
    to ensure patients get the right care at the right time.
        Medicaid has also come to the table to provide new
    solutions to the cost challenges facing States. Medicaid
    beneficiaries in Minnesota will be among the first to
    participate in a new integrated care model that will link
    patient outcomes and experience to payments. Providers will be
    held accountable by sharing in the savings and losses for the
    total cost of care.
        My State of Montana started a program to lower diabetes and
    cardiovascular disease in its Medicaid population. The goal is
    to help participants lose weight and keep it off, which makes
    them healthier and reduces costs in the Medicaid program. We
    need Medicare and Medicaid to support these State efforts and
    offer flexibility to test innovative ideas.
        I look forward to examining the progress Medicare and
    Medicaid have made, learning what has worked, and finding out
    where we can do more. So let us listen to President Lincoln and
    realize that we are in charge of creating our future. Let us do
    more to lower costs and improve quality within Medicare and
    Medicaid and create the future of health care delivery.
        [The prepared statement of Chairman Baucus appears in the
    appendix.]
        The Chairman. Senator Hatch?

               OPENING STATEMENT OF HON. ORRIN G. HATCH,
                        A U.S. SENATOR FROM UTAH

        Senator Hatch. Well, thank you, Mr. Chairman. Thank you for
    convening this timely and much-needed hearing this morning.
        Now, last week Time magazine ran a thought-provoking
    article that was in fact the longest article in the
    publication's history. It was an exploration of the high costs
    of medical care in this country and what these costs mean for
    patients. It was a fascinating article, and it got me thinking.
        Over the last 5 years, we have spent a lot of time here in
    Congress talking about health care. Obamacare was signed into
    law nearly 3 years ago and was supposed to make health care
    more affordable for patients and consumers.
        Now, the so-called Affordable Care Act did a lot of things,
    but as far as I can tell it has done very little to address the
    biggest health-related concern that people have: the actual
    cost of care. I hope that at some point we can take a serious
    look at the drivers of health care costs in the U.S. I think it
    would be well worth the committee's time to do so.
        Today, however, we are here for a different reason. The
    Finance Committee held a hearing last year where we heard from
    providers and third-party payers in the private sector who have
    come together to do some interesting things to try to improve
    care while reducing costs.
        While I believe the private sector can and will make great
    strides in this area, we cannot forget that Medicare is the
    Nation's largest health care payer. That being the case, if we
    are serious about reducing costs, our efforts to encourage
    innovation must include Medicare. Now, I have been very clear
    about my opposition to Obamacare. My concerns about the adverse
    impact of this law on family premiums and our national health
    spending continue to grow with every passing day.
        However, the chairman and I agree that health care
    providers and payers of all shapes and sizes need to work
    together to provide patients with higher quality, better
    coordinated care. According to the Medicare Payment Advisory
    Commission's most recent report in 2010, individuals,
    government and businesses spent a total of $2.6 trillion on
    health care. Today, about 45 percent of all health care
    spending comes from government.
        In 2014, when the Medicaid expansions begin, that share
    will rise to 50 percent. The Congressional Budget Office
    projects that by 2021, just 8 years from now, spending on
    Medicare and Medicaid will grow to $1.6 trillion.
        By virtue of its sheer size, Medicare has an important
    influence on the overall health care delivery in our country.
    Clearly, with the right policies in place, Medicare can be a
    driver of change. Now, that being said, I also question whether
    the program can be as nimble as the private sector in making
    systemic improvements.
        Mr. Blum, I hope that you will be able to reassure us that
    it can be. As most health care providers will tell you, in
    addition to the rapid aging of our population, we have to
    contend with an increasing number of patients with chronic
    diseases, such as diabetes or heart disease. These patients are
    sicker and more expensive to treat. While providers are doing
    their best to manage these patients, oftentimes our health care
    system is not structured to allow care to be easily
    coordinated.
        Currently, we have a system of isolated silos. Patients
    receive care in a variety of settings: doctors' offices,
    hospitals, nursing homes, et cetera. It is not uncommon for a
    health care provider to have an incomplete picture of a
    patient's overall care.
        In addition, provider incentives created by potential
    malpractice liability, and patient incentives created by
    insurance choice mechanisms, are not well-aligned to put the
    proper focus on better results and lower costs.
        We can certainly continue to tinker around the edges of
    delivering care in new ways, but providers continue to tell me
    that fear of lawsuits drives the volume of services. Of course,
    our fee-for-service system provides little financial incentive
    to manage care properly. As a former medical defense lawyer, I
    have to say it was bad back then more than 37 years ago, and it
    is even worse today.
        When talking about delivery system reform, our goal should
    be to ensure that patients receive the right care in the right
    place at the right time. There is an appropriate role for both
    the private payers and the Federal Government to put pressure
    on providers to reduce costs and provide better care and better
    health outcomes.
        Now, I know that Rome was not built in a day and big
    changes will take time, but I think we have to move beyond
    simply reporting what providers are doing to holding them more
    accountable for health care outcomes.
        In my own home State of Utah, we are privileged to have
    some of the best, most efficient health care providers in the
    country. But not all providers are created equal. Much of our
    health care system is fragmented, and often the right hand does
    not know what the left hand is doing. Unfortunately, the
    patient is caught in the middle with very little coordinated
    care.
        Now, I am anxious to hear from you, Mr. Blum, about any
    real progress CMS has made in moving towards greater care
    coordination. We know that many errors and costs can be avoided
    when providers focus on care transitions. Lately there has been
    a lot of attention paid to the flourish of activity coming from
    the Center for Medicare and Medicaid Innovation, also known as
    CMMI.
        Like many of my colleagues, I remain concerned that CMMI
    has an enormous budget and very little accountability. I am
    hopeful that we will hold another hearing this spring that
    focuses exclusively on CMMI and the results of the $10 billion
    in taxpayer money that was given to them to advance the cause
    of higher quality, lower costs, and more efficient care.
        And so, Senator Baucus, thank you for convening this
    hearing today. I look forward to hearing from Mr. Blum. I am
    hopeful that he will have some good news to share with us on
    the progress CMS is making to help bend down the cost curve.
        The Chairman. Thank you, Senator.
        [The prepared statement of Senator Hatch appears in the
    appendix.]
        The Chairman. I might tell some of my colleagues and
    friends here that Mr. Blum is no stranger to the Finance
    Committee. He was on my staff for a while, and he was also the
    principal advisor down at the witness table on MMA not too long
    ago. It is hard to resist the temptation to explain what a
    bright person Mr. Blum is. I do not think I have met anybody
    brighter and smarter, certainly in health care, ever. This guy
    is good. So I am glad you are here, Jon.
        As an introduction, Jonathan Blum is the Acting Principal
    Deputy Administrator at the Centers for Medicare and Medicaid
    Services and Director for the Center for Medicare. It is great
    to have you back here, Jon. It is good to see you. You know the
    rules here. Your statement will be in the record, and speak for
    about 5 or 6 minutes.

          STATEMENT OF JONATHAN BLUM, ACTING PRINCIPAL DEPUTY
     ADMINISTRATOR AND DIRECTOR, CENTER FOR MEDICARE, CENTERS FOR
             MEDICARE AND MEDICAID SERVICES, BALTIMORE, MD

        Mr. Blum. Chairman Baucus, Ranking Member Hatch, committee
    members, thank you for the opportunity to discuss our progress
    to strengthen the Medicare program and transform the delivery
    of care. In the 3 years since passage of the Affordable Care
    Act, I am pleased to report on our progress.
        We have put in place many new programs and policies
    following the goals of the health reform law. For the first
    time, we can say we are paying for value, not simply the volume
    of care. Quality is improving, and costs are growing more
    slowly. Simply put, Medicare's cost curve has been bent
    downward.
        Over the last 3 years, CMS has put in place new payment
    mechanisms to reward hospitals for the overall quality of care.
    CMS has finalized regulations to define what it means to
    provide accountable care, the so-called ACO regulations. We
    have transformed our physician payment system to shift its
    emphasis towards primary care services and care coordination.
        We have established a new Center for Innovation, which is
    currently testing more than 35 new programs and is working with
    over 50,000 health care providers and over 3,700 hospitals. We
    have shifted the business model for private plans competing in
    Medicare. Before the Affordable Care Act, plans competed on low
    premiums and extra benefits. Today, they compete on low
    premiums, extra benefits, and the quality of care they provide
    their members.
        CMS has transformed our framework to respond to fraud and
    abuse, to stop fraud before it happens rather than chasing down
    providers for payments after they occur. CMS has overhauled the
    payment model for durable medical supplies and home health
    care, dramatically lowering spending without compromising
    quality of care.
        Over the next several months, CMS will focus on several new
    areas. We are working with hundreds of hospitals and health
    care providers to test how to bundle fee-for-service payment
    together in new ways to figure out the best way to pay for a
    total episode of care.
        We will continue to work to implement the value modifier
    policy to continue to shift our physician payment system to
    reward top-performing physicians and providers. We will
    continue to partner with States to test ways to best provide
    and coordinate care, including to vulnerable populations such
    as the dual-eligibles.
        Given our work to date, we can now provide this committee
    data that begins to demonstrate that the strategies put in
    place over the past several years are working. There are four
    data points that I believe should give us great optimism. As
    Senator Baucus said, we have more than 250 ACOs operating
    within the traditional fee-for-service Medicare program,
    serving more than 4 million Medicare beneficiaries. This tells
    us that providers and physicians are stepping forward to
    participate in new payment and delivery models.
        Data point number two: after more than 5 years of holding
    steady, the rates for all-cause hospital readmissions are
    starting to trend downward.
        Point number three: 37 percent of Medicare beneficiaries
    who have chosen a private Medicare plan are in a 4-star/5-star
    plan, 5-star being the highest quality. This is up from 16
    percent 4 years ago. Quality of care is improving.
        Data point number four is the most exciting: the rate of
    growth in per capita Medicare spending--per capita Medicare
    spending--has been at historic low rates for 3 years in a row.
    This is tremendously exciting from our perspective.
        To be sure, we have more work to do, but the work to date
    and the data that we are seeing should give us great hope that
    we can bring Medicare to a sustainable financial footing and to
    improve the quality of care.
        I will be happy to answer your questions.
        The Chairman. Thank you, Mr. Blum.
        [The prepared statement of Mr. Blum appears in the
    appendix.]
        The Chairman. My first question is about the degree to
    which you are coordinating all this with the private sector. It
    is one thing for Medicare and CMS to put together an
    Accountable Care Organization, but clearly, if this is going to
    work, you have to be talking with, working with, coordinating
    with, the private sector too to get some of the same agreed-
    upon incentives for results.
        If you could just describe a little bit how successful that
    has been, the degree to which you are working with the private
    sector, with companies and insurance companies, et cetera, and
    the progress you are making.
        Mr. Blum. Sure. There are a couple of ways to answer your
    question, Senator. The first is that we study very carefully
    best practices and talk to private payers, talk to State
    Medicaid programs, to really understand what they are trying to
    implement so we can repeat or build off of best practices.
    There are some very exciting programs within private payers to
    foster medical homes, for example. So we try very hard to
    understand how the private sector is creating new financial
    incentives.
        We also try to craft our regulations in a way that is open
    and transparent so private payers can copy--not copy, but to
    try to build off of--the CMS Medicare experience. For example,
    we hear from large private health plans that they are also
    working to establish ACOs for their contracted physicians,
    built off the ACO regulations that CMS has finalized.
        Finally, several of our new innovation models that are
    being tested really have an all-payer component to them--the
    Pioneer model, for example. In order to get the Pioneer
    contract for the ACO pilot, the Pioneers had to demonstrate
    that they also had risk-based contracts with private payers to
    demonstrate that they were not just working with the Medicare
    program, but working within the entire health care system.
        We have another pilot that is through the Innovation Center
    to test how to build primary care medical homes. That too has
    an all-payer concept where the providers who get the contract
    from CMS have to demonstrate that they are also working with
    private payers to ensure that we are all aligning and pointing
    in the same direction.
        We hear from others that they are building off the value-
    based purchasing strategies, so we are always trying to learn
    from best practices, trying to incent all payers to point in
    the same direction, but also to craft regulations that can
    serve as models for private payers.
        The Chairman. You have a lot of demonstrations going and
    set up. When are we going to see results? You have
    demonstrations, I think, aligned with CMMI. Senator Hatch
    referred to it. You mentioned the 250 ACOs. There are a lot of
    other demonstrations going on. When are we going to see some
    results?
        Mr. Blum. Well, I think one result that we are seeing,
    which I believe is due to a combination of different factors,
    is the reduction in all-cause hospital readmissions. When you
    think about being 1 percentage point lower than the previous 5
    years, that translates roughly to 20,000 fewer readmissions per
    month. I believe that it is due to the payment policies, the
    new innovation models that are being created. So there are some
    results.
        The challenge now is how to assign cause and effect. Many
    of these models were started in the last 1 to 2 years. We
    expect that to fully see results, it will take 2 to 3 years.
    There are up-front costs for providers to build a model to
    create their data systems.
        I think we need to be cautious in looking at 1st-year
    results, but we are very much committed to sharing the data
    that we see. My boss, Secretary Sebelius, is very anxious to
    see results as well. Any model that is scalable, that can be
    scaled, has to go through the rigorous review of the Chief
    Actuary, but we are very much committed to share our learnings.
        But I think one positive learning is that providers are
    very eager to step up. We are overwhelmed by interest. I think
    there is some skepticism----
        The Chairman. Do you have a system of interim results?
        Mr. Blum. We set up very carefully, and we build every
    model with the assumption that it can be scaled. The law
    requires that any model for the Innovation Center, in order to
    be scaled, has to pass that rigorous review by the Chief
    Actuary.
        So our team develops the data capabilities, the monitoring
    systems, really with the end point hopefully being that these
    models can be brought to scale, but they have to first pass
    that rigorous review.
        The Chairman. Yes. But does it make sense for you to share
    with us, at the appropriate time, the interim results too?
    Because we want to keep informed and, frankly, just keep your
    feet to the fire.
        Mr. Blum. Absolutely. We are happy to work with you and
    your staff to figure out a way to best share results, to share
    data. That is our commitment to this committee.
        The Chairman. All right. Well, I would like to work out
    some system where that happens----
        Mr. Blum. Absolutely.
        The Chairman [continuing]. Where the results and the data
    are shared. Thank you.
        Senator Hatch?
        Senator Hatch. Thank you, Mr. Chairman.
        We are grateful for the work that you do, Mr. Blum. As
    described in your testimony, each payment reform initiative has
    different incentives or penalties attached to it. Are those
    proving to be strong enough to actually change provider
    behavior?
        Mr. Blum. I think so. Clearly we have to continue to study
    the trends that we are seeing, but the trends that we are
    seeing are moving in the right direction. I think one of the
    exciting trends that we are seeing is hospitals that
    traditionally operated within silos are now establishing ties
    to the community, to post-acute care providers, to physician
    networks.
        I think one of the most exciting transformations that we
    are seeing is what you described: the goal of better
    integrating the silos of care that we have within the
    traditional fee-for-service program. So we need to continue to
    evaluate whether or not we have strong incentives, but I
    believe the trends we are seeing are due to the combination of
    payment policies, but also the continuous push by the Congress
    and by CMS to better integrate care.
        Senator Hatch. Are there delivery system reform initiatives
    under way in which CMS has not waived Stark or anti-kickback
    rules? If so, what are those initiatives, and why are the rules
    not waived?
        Mr. Blum. I would have to double-check for you, Senator,
    which demonstrations have waived Stark and anti-kickback and
    which have not. With the ACO program, we really worked hard
    with the oversight agencies, the Federal Trade Commission,
    Department of Justice, to review ways to relax those
    requirements, but at the same time still uphold the oversight
    principles that we have.
        We have come into the framework temporarily that is going
    to continue to go through review that, if providers can
    demonstrate clinical integration, that working together in new
    ways really improves the clinical model, then we are
    comfortable relaxing some of those requirements. We have in the
    ACO regulations a time-
    limited period.
        We will continue to monitor whether we are seeing any
    behaviors that are troubling, but I think the goal really is,
    not just to look at the payment but the entire oversight
    framework, to ensure that we can best integrate care for true
    clinical improvement. But I would have to get back to you, to
    your question.
        Senator Hatch. All right. We would appreciate it, if you
    would.
        The Patient Protection and Affordable Care Act cut $306
    billion out of the Medicare Advantage program to create a new
    entitlement. Now, this is especially concerning, since
    currently more than one in four seniors, including a
    significant number of low-income and minority beneficiaries,
    have come to rely on the better benefits, enhanced care
    coordination, and higher quality coverage offered through the
    Medicare Advantage program.
        According to external estimates, the combined effect of the
    sequester, PPACA's cuts, and higher taxes and other harmful new
    policies, will result in at least an 8-percent cut to the
    Medicare Advantage program for calendar year 2014.
        Now, I understand that some of the rates and policies
    announced on February 15th in the advanced notice are governed
    by the statute, but CMS does have considerable discretion over
    many of the policies that have been announced.
        Towards that end, I want to clarify where you have
    discretionary authority regarding the rate notice. As we both
    know, CMS has historically chosen to develop MA rates based on
    the assumption that Congress will not patch the scheduled
    physician payment cuts, and therefore payment rates to MA plans
    are artificially low.
        Do you believe that the statute prevents CMS from assuming
    more realistic payment rates, especially given the fact that
    Congress has fixed the SGR for the last 11 years? If you could
    answer that in a simple ``yes'' or ``no,'' I would appreciate
    it.
        Mr. Blum. There are many elements to your question, and I
    will try my best to answer all elements to your question.
        Senator Hatch. All right.
        Mr. Blum. We have been tremendously pleased to see the
    dramatic growth in Medicare beneficiaries choosing private
    plans since passage of the Affordable Care Act. Beneficiaries
    who are in private plans are at an all-time high, nearly one-
    third. At the same time, premiums have come down dramatically,
    10 percent in 2012.
        Our goal is to do two things at the same time: to ensure
    that beneficiaries continue to have strong choices to plans,
    but at the same time make sure that our payments are accurate.
    Our rate notice that is proposed has proposed some changes to
    our payment methodology.
        One of the reasons why the rates are proposed to be lower
    is the fact that overall Medicare spending is lower, so it is a
    very good new story for the overall Medicare program. We have
    also taken our discretion to propose changes to the risk
    adjustment model that we use for plans, and that is an area
    where CMS does have discretion.
        It is CMS's long-term practice not to assume the costs for
    the SGR fix that always happens after the rates are finalized
    to our rate notice. We have received comments for us to take a
    second look. But I think the best way for us to stabilize the
    MA program is for a long-term fix to the SGR.
        Senator Hatch. My time is up, but I have another question
    on this on the arbitrary price controls known as total
    beneficiary cost thresholds. I will submit that in writing, but
    I hope you will answer that for us as well.
        Mr. Blum. Sure. Of course. Thank you, Senator.
        Senator Hatch. Thank you.
        The Chairman. Thank you, Senator. Thank you, Mr. Blum. The
    last question the Senator asked is an important one. We are
    going to have to find a solution here.
        Mr. Blum. All right. I understand.
        The Chairman. Senator Wyden?
        Senator Wyden. Thank you, Mr. Chairman. Welcome, Mr. Blum.
    I have long known of your good work.
        Let me ask you about your response to the fact that
    Medicare reimbursement varies dramatically across the country.
    A number of us--I see my colleagues Senator Cantwell, Senator
    Grassley, a number of us--on a bipartisan basis have focused on
    the fact that our States really get clobbered by the Federal
    Government for doing a good job. We essentially get penalized
    for giving good quality and holding costs down.
        Now we are starting a very good model, one we like: the
    question of a shared savings approach to incentize quality. Our
    concern is, what are you going to be able to do to address the
    fact that low-cost States like ours are going to be
    disadvantaged at the get-go because we start off with this
    lower reimbursement rate?
        Mr. Blum. I agree with you, Senator, that fee-for-service
    payments and quality vary dramatically across the country. We
    have some parts of the country that operate at very high
    quality levels at low cost. I think our overall goal, and I
    believe this is the goal of the Affordable Care Act, is to
    develop policies that promote more parts of the country--
    hopefully all parts of the country--to operate the highest
    quality level at the lowest cost, total cost of care.
        But you also see tremendous variation, not just between
    regions of the country but within regions, so you can have the
    lowest cost part of the country and have dramatically----
        Senator Wyden. Your approach then to make sure we do not
    get penalized is to say that somehow we will just use our
    region as a measuring rod because----
        Mr. Blum. No.
        Senator Wyden. Go ahead.
        Mr. Blum. Sorry. I am sorry to cut you off.
        Senator Wyden. Yes. We just want to know how we are not
    disadvantaged at the outset.
        Mr. Blum. I believe that the best payment strategy for the
    traditional fee-for-service program is for us to create
    incentives at the hospital level, at the physician practice
    level, to reward high-
    quality care and lowest-cost care. That is why I believe that
    our value-based purchasing program for hospitals is so
    important, because over time it will reward hospitals not just
    for better quality of care, but lower total cost of care.
        The value modifier physician proposal that we are working
    to implement is also vitally important to the strategy, but I
    think the overall goal should be to create the incentive
    structure, not at the regional level, but at the provider
    level, the physician practice level, because even in low-cost
    regions there is still tremendous variation within that region.
        Senator Wyden. I certainly support the goal and where you
    are trying to go. I am just not sure we are going to get there
    very fast unless we root out what is a baked-in discrimination
    against a lot of parts of the country that have given good
    quality and have been penalized for it. So, we will be
    following up with you on that.
        I want to ask you one other question about chronic care,
    which, as you know, is where most of the Medicare dollar goes.
    It is 70 percent of the Medicare dollar: heart, stroke, cancer,
    diabetes. It just continues to escalate, if you look where
    Medicare was in 1965 when it began and today. Senator Hatch
    noted it in terms of that article in Time magazine. That is
    where the Medicare dollar goes.
        So I looked at the two models in Medicaid and Medicare,
    with respect to chronic care. It looks like you all are working
    on a very effective model with respect to Medicaid and the role
    of the States. The health home specifically targets coordinated
    care for those who have these chronic conditions. It does not
    seem to me that Medicare is doing that.
        In fact, the Medicare program has a different name, as you
    know, but it looks like it is mostly about realigning payments
    for doctors and primary care. It does not put the same focus,
    particularly given the growth of Medicare, as it relates to
    chronic care.
        I want to shore that up. What else can be done, in your
    view, consistent with the statute or other ideas, to give us a
    chance to target in on where most of the Medicare money goes?
    We deal with that 70 percent, and you are a long way from
    dealing with the demographic tsunami and our big challenges.
        Mr. Blum. Those are great questions, Senator. The first
    wave to our work with the Innovation Center was really around
    building the accountable care model and strong primary care
    medical homes within Medicare. That was phase 1 to our work
    with the Center for Innovation.
        But we are hearing from physician specialty societies, for
    example oncologists, that want to shift to a different model,
    that want to be accountable for the total quality, total cost
    of care. The same is true for cardiology.
        So I believe that phase 2 of our work within the Innovation
    Center will be to really build upon the shared savings models
    that we have within the ACO context, but then to start to
    channel the energy that we are hearing from physician specialty
    societies to build payment models specific to chronic
    conditions--oncology, cardiology issues--and that I think is
    the promise for the next wave for the Innovation Center.
        Senator Wyden. I know my time is up.
        Senator Hatch. Senator Grassley?
        Senator Grassley. Yes.
        Senator Hatch. Thank you, Senator.
        Senator Grassley. Say, you know, Mr. Blum, it is always
    good to see a former Finance staffer triumphantly come to one
    of those chairs you are in.
        Mr. Blum. It was always easier to sit behind you than to
    sit in front of you. [Laughter.]
        Senator Grassley. Well, good. I think, like a lot of my
    colleagues, I have grown to have serious concerns about
    Medicare's fee-for-service payment system. Referring to your
    testimony, you outline all the ways that Medicare is trying to
    improve care coordination. I appreciate the steps that you are
    making, and you are going to continue forward on that.
        I want to focus on the system that you are stepping away
    from. So is there any defense--with emphasis upon any--for
    Medicare or fee-for-service where a provider is paid based on
    the quantity of service provided without any regard for the
    outcome or quality of care provided, or any responsibility to
    coordinate care with other providers?
        Mr. Blum. I believe that we should work--and Congress has
    given us this charge--so that every fee-for-service payment
    system that CMS maintains is tied to quality: quality of care
    outcomes and the total cost of care.
        We are further along within the hospital payment system,
    and that payment system is increasingly tied to the outcomes
    and the total cost of care, not just the care that is provided
    within those four walls of the hospital. Over time, CMS is
    authorized and charged to transform all these payment systems
    to achieve the same goals. We have to make sure that we have
    the right measures; we have to make sure that we do not create
    perverse incentives.
        But I agree with you, Senator, that we need to work
    together, and CMS is committed to do this with this committee
    to make sure that all of our payment systems begin to adopt the
    same principles that Congress has authorized for the hospital
    payment system.
        Senator Grassley. Yes. So there is not any defense of
    Medicare fee-for-service anymore. We are working away from it,
    so there is no defense for it. Thank you very much.
        In reference to the chart here, since you mentioned
    coordination between Medicare and Medicaid, I would like to
    bring up something with you that I discussed with Melanie Bella
    when she came to testify recently. The chart shows the most
    expensive Medicare beneficiaries.
        These are the people with multiple chronic conditions and
    functional impairments: 57 percent are eligible for Medicare
    only; 43 percent are dually eligible. The current duals
    demonstration appears to be focused on giving States greater
    control over acute care for these most expensive beneficiaries.
        [The chart appears in the appendix on p. 47.]
        Senator Grassley. Some rhetorical questions, then I am
    going
    to ask you for your comment. Why are we splitting up these two
    groups? These are two groups of similarly situated individuals.
    They all have need for improved, better coordinated care. They
    have multiple conditions that are expensive. Why do we tell
    some people, you have income, so you get Medicare; you do not
    have enough income, so you get solely Medicaid?
        Why is it a good idea to give States control over low-
    income beneficiaries? Why should low-income beneficiaries get
    one of any 50 different models to coordinate their care, and
    people with income get Medicare? So, I would like to know what
    you think, because I am very concerned about splitting these
    individuals. The splitting of these individuals makes no sense.
        Mr. Blum. Well, as the person who oversees the Medicare
    program within CMS, I believe that the models that we are
    testing to better integrate dual-eligibles do not take away any
    rights or benefits that dual-eligible beneficiaries are
    entitled to in the Medicare program. In fact, the models that
    Melanie Bella is leading to set up will strengthen Medicare,
    will have more oversight, will have more control. I think most
    dual-eligible beneficiaries are in the fee-for-service Medicare
    program that you described. The care is uncoordinated.
        Beneficiaries balance between different care settings, and
    we want to make sure that we are using the best of the Medicare
    program, the best of the Medicaid program. So, in my view, I do
    not believe that the dual-eligible demonstrations are ceding
    that control to States, but rather they are building a very
    powerful Federal/State partnership to take the best of the
    programs, to have even better benefits, more coordinated care
    for these beneficiaries.
        But I think, really, the goal should be to make sure that
    these beneficiaries have better care, more coordinated care,
    and to reduce the duplication that you described during your
    first question.
        Senator Grassley. Thank you, Mr. Blum.
        Thank you, Mr. Chairman.
        Senator Hatch. Well, thank you.
        Senator Stabenow?
        Senator Stabenow. Thank you very much. Welcome, Mr. Blum.
    It is good to have you before the committee.
        I just want to start by reiterating what I think is
    important news of what you have been saying today. We all know
    that we have many challenges around health care costs. That has
    been our focus as we have looked at how we put in place health
    care reform that works for people with quality, but also brings
    down costs, and how we actually reduce costs and not just shift
    them around, which is what the health care system has done when
    somebody cannot see a doctor and they go to the emergency room.
    It costs a lot more money. How do we make sure we are actually
    not just shifting costs around?
        But, if I understood you right, you were saying right now
    we have 250 Accountable Care Organizations so far. The rate of
    hospital readmissions is going down, quality is going up, rate
    of cost growth per capita is going down. The Medicare Advantage
    program has seen a 10-percent premium reduction as well as, I
    have seen, a 28-percent increase in enrollment, something like
    that. So we know that part of that is bringing down the
    overpayments in Medicare Advantage, which is significant
    savings under Medicare.
        I wonder if you could speak a little bit more to
    Accountable Care Organizations. We have a number of things
    happening in Michigan that are actually very exciting in terms
    of the possibilities.
        The Detroit Medical Center has been working with a group
    called At Home Support to help the sickest patients get
    advanced support at home and prevent hospital readmissions so
    that if you have, as an example, an 87-year-old patient with
    stage 4 heart disease who wakes up in the middle of the night
    and they would normally, if they have concerns, go to the
    hospital emergency room, be in the hospital, come out, go to a
    skilled nursing facility, and so on, all of which costs tens of
    thousands of dollars and certainly is not the way they would
    like to spend their time, under this, the same woman would get
    at-home services, be able to call the nurse in the middle of
    the night, be able to get help and possibly be able to stay at
    home rather than go through everything at the hospital.
        Could you talk a little bit more about the ACOs and how you
    see them expanding in the importance of really making sure
    those kinds of things are successful?
        Mr. Blum. Sure. But we have been very surprised and pleased
    with the response that CMS received to the ACO program. The
    program has 250 ACOs, and we expect that number to continue to
    grow. The program was authorized by Congress to have an annual
    process to allow more organizations. What is really exciting
    about the ACO program is they are being started by physician
    practices in large part, so it is not necessarily just
    hospitals that are developing ACOs, but physicians are
    beginning to step forward.
        We created different tracks. The Pioneer model, for the
    most advanced organizations, is really to show us what is
    possible, to build more advanced accountable care models, but
    also to teach others who are coming into the game for the first
    time.
        But to your point, Senator, the ACO model really is about
    making sure that care is paid for in non-face-to-face settings,
    that physicians have greater resources to coordinate care, to
    manage care, to build the infrastructure of nurse
    practitioners, nurses, other health care professionals, to
    watch patients navigate through the health care system.
        But I think the ACO model really is one of our most
    promising models to transform fee-for-service, to give the
    incentives for the care coordination, and to reward providers
    for the non-face-to-face time that happens to best manage
    patients through the health care delivery system.
        Senator Stabenow. We have more to do, but it is certainly
    optimistic right now as we get started in this. I wonder if you
    might also speak to another type of demonstration project, the
    Strong Start initiative, which is focused on pre-term births,
    basically premature births, that put both moms and babies at
    risk. This is included in maternity care home demonstrations.
    In fact, a number of us are working on legislation we are re-
    introducing today called the Quality Care for Moms and Babies
    Act to increase quality standards as well.
        But we have three of those projects in Michigan. One is run
    by Meridian Health Plan and Legions Hospital, and it is focused
    on being able to reduce premature births, which are costing the
    country about $26 billion a year, not to mention what is
    happening to children. I wonder if you might talk a little bit
    more about the progress in those kinds of areas and what we are
    learning from preliminary results there.
        Mr. Blum. Sure. Well, I think, Senator, the goals of the
    project really are to reduce the number of pre-term births.
    That is potentially harmful, both for mothers and for children.
        We have just begun this demonstration. We are watching the
    results very carefully. We will be sure to bring information.
    But really the premise behind the demonstration is to take
    evidence-based protocols and to disseminate those to care
    providers to create the message that pre-term birth is
    potentially harmful in many cases. But we will pledge to share
    results as soon as we receive them, but we are very excited
    about this project.
        The Chairman. Senator Thune?
        Senator Stabenow. Thank you.
        The Chairman. Thank you.
        Senator Thune. Thank you, Mr. Chairman.
        I wanted to get in one question quickly about delivery of
    health care in rural areas, and that has to do with the 2009
    CMS ruling, or policy, I guess I should say, regarding direct
    physician supervision of outpatient therapeutic services.
        Hospitals, physicians, and rural health care organizations
    recognize this change as a burdensome and unnecessary policy
    change, but CMS characterized the change as a ``restatement and
    clarification'' of existing policy in play since 2001.
        In its attempt at clarification, CMS retroactively
    interpreted the policy to require that a physician privileged
    by the hospital provide supervision and be physically present
    in the same outpatient department at all times when outpatient
    therapeutic services are furnished, when historically that has
    not been the practice.
        I am concerned that CMS's ``clarification'' is instead a
    significant change in Medicare policy that would place
    considerable burden on hospitals, especially on facilities in
    rural areas. I am also concerned that the panel convened to
    advise on this issue is not sufficiently considering the input
    from rural critical access hospitals. My question is, will you
    agree to return to the pre-2009 interpretation of this policy?
        Mr. Blum. Well, in 2009, you are correct, CMS made some,
    what we call policy clarifications, but I believe the critical
    access hospital community may have interpreted them as
    fundamental changes. We heard a lot of concerns; we heard a lot
    of complaints.
        In 2010, I traveled through North Dakota--not South Dakota,
    but North Dakota--to meet firsthand with critical access
    providers, and we heard tremendous concern regarding the
    challenges that our clarification would provide critical access
    hospitals. We decided to back down, to slow down, to create
    this physician-hospital provider review panel to help us
    understand which services do not require direct physician
    supervision. That is the framework that we are moving.
        My understanding is that it is working better from the
    critical hospital's perspective, but we would love to hear your
    views of how we can improve that. But I believe that we are
    working to address the concerns that we heard during 2009, and
    seeing the hospital care first-hand was very helpful for me to
    understand how to work together with the hospital community to
    solve this issue.
        Senator Thune. I am glad you went out and got some of that
    perspective, and we would be happy to provide the feedback that
    we get from providers in our part of the country, because it is
    a really important issue in terms of delivery of health care.
        Mr. Blum. Absolutely.
        Senator Thune. Your testimony outlines a long list of
    initiatives that CMS is implementing with the goal of improving
    health outcomes and lowering costs. The question is, if these
    proposals are going to sufficiently lower health care costs for
    taxpayers and patients, why is the Independent Payment Advisory
    Board necessary?
        Mr. Blum. Well, the independent board is outside of CMS, is
    my understanding, so I cannot speak to it directly. What I can
    say is, from the person operating the Medicare program, it is
    tremendously helpful to have pressure from Congress, from
    outside boards, to keep spending low.
        We work in CMS to ensure that we are building policies to
    keep spending low, to ensure quality is improving at the same
    time. But having that system of checks is tremendously helpful
    to ensure that we are pushing out all of our payment systems in
    a way to maximize quality but to reduce total cost of care.
        Senator Thune. But it does not sound like it is all that
    necessary for you to accomplish the initiatives and the things
    that you are trying to accomplish here. Those are things that
    CMS is doing on its own.
        Mr. Blum. What I would say, Senator, is this focus needs to
    continue. The pressure needs to stay on. There are multiple
    ways to receive that pressure, but having that pressure is the
    best way, in my judgment, to continue the focus that has been
    there for the past several years.
        Senator Thune. The last question has to do with electronic
    health records and the rate at which CMS is implementing the
    stage 1. In the last 6 months, I think stage 1 has been
    implemented. They published a final rule for stage 2 and are
    already seeking feedback on stage 3. There are still a lot of
    reports out there that question the effectiveness of EHR
    adoption.
        My question is, do you believe that CMS is conducting
    appropriate data review before accelerating into stage 2 and
    stage 3 to ensure that that program is on an appropriate path
    towards interoperability between unaffiliated health systems or
    providers?
        Mr. Blum. I think there are a couple of ways to answer your
    question, Senator. We are pleased with the rates of adoption of
    hospitals and physician practices to respond to these new
    incentives. One of the things that we hear from entities that
    are participating within our new delivery models like ACOs is
    that the model would not be possible but for a strong
    electronic medical record.
        So I believe that we have to evaluate the impact to the EHR
    program, not just the program itself, but the total changes
    that we were seeing within the health care delivery system. So,
    hospital readmissions coming down, that is a sign to me that
    health care silos now are talking to each other better to
    reduce the lack of care coordination.
        We are committed to overseeing the program. We are happy to
    work with you and your staff to understand how we can best
    oversee. We are also concerned about some of the reports that
    EHRs may lead to inappropriate spending or services. We take
    that concern very seriously. But we are committed to ensuring
    this program continues to expand, while also preserving the
    integrity of the programs.
        The Chairman. Thank you.
        Senator Thune. Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Cantwell?
        Senator Cantwell. Thank you, Mr. Chairman. Again, thank you
    for having this hearing and many of the hearings that you are
    having on this subject of the implementation of the Affordable
    Care Act. I think it is of the utmost importance, given the
    size and scale of its impact to our economy, that the agency is
    held accountable during this process.
        I certainly appreciate the reminder that Mr. Blum used to
    be a member of the staff here, so maybe he could become an
    extraordinary emissary to the agency as it relates to its
    communications, because I can think of many things that many
    members here have shown a level of frustration about on the
    implementation of the Affordable Care Act.
        I wanted to follow on with my colleagues, Senators Wyden
    and Grassley, about the value index for physician payment. You
    talked about what has happened with hospitals. The physician
    payment, I think Mr. Elmendorf said it was probably one of the
    most cost-
    saving provisions of the bill. I want to get an update on the
    progress.
        I actually have three questions for you, so hopefully I can
    get through all that in 5 minutes. But talk about the progress
    of that value index as it relates to physicians and why we do
    not just put out a global rate: if you fall below that, you are
    rewarded, and, if you fall above that, you are penalized. And
    some progress on the rebalancing from nursing home care to
    community-based care--do you see that as a big cost saver?
        So, if you could start with those two.
        Mr. Blum. Sure. Thank you for the questions. I believe that
    the value modified physician payment change that was authorized
    in the Affordable Care Act has the potential to be one of the
    most significant changes to the fee-for-service Medicare
    program. It is also one of the hardest--probably the hardest--
    policy that we are working to implement, from a couple of
    different perspectives.
        The challenge is, Medicare beneficiaries who have many
    chronic conditions see many physicians. They can see 12, 15
    different physicians in the course of a year. How you can
    assign the accountability for the patient's total care is very
    challenging when they are seeing multiple primary care
    physicians, multiple specialists. So we have chosen to phase in
    the value modifier by first starting with large physician
    groups that have over 100 professionals, because we have the
    greatest confidence that we can assign value and quality to
    that large practice.
        We are very much committed to the policy. We are committed
    to the schedule that was outlined by the Congress, but this is
    the hardest policy, and we are going to need all the advice we
    can get from this committee and the physician community. But we
    have started the process that will take effect in 2015, and you
    will see more rulemaking for policy this year to continue the
    phase-in.
        Senator Cantwell. I think it starts in 2013 and is not
    fully implemented until 2017, or something of that nature. So I
    think we have lots of time, so it is good to hear that you
    think it is one of the biggest cost savings.
        I wanted to ask you about the basic health plan. One of the
    issues here is saving dollars within the Medicare budget,
    because Medicare is going to take everything that we have, just
    because of the aging population and living longer, so we want
    to get it right. But in the Affordable Care Act we have two
    provisions of the basic health plan, which are annual costs and
    premiums a lot lower than what we would face on the exchange,
    and then the population, if we could see that chart for a
    second. Put it over here.
        [The chart appears in the appendix on p. 48.]
        Senator Cantwell. This particular population is a very
    narrow population on the exchange, but somehow the agency seems
    to be very anxious, instead of implementing the law in 2014 as
    called for by the Affordable Care Act, it seems to be anxious
    that somehow giving this population just above the Medicaid
    rate a more affordable benefit plan as outlined in the first
    chart is somehow against the interests of the overall Act. If
    you could shed any light on that, I would certainly appreciate
    it.
        Mr. Blum. I have a couple of ways to respond, Senator. I
    have not personally worked on this issue, so I cannot speak to
    the
    decision-making behind it. I do understand that Marilyn
    Tavenner has promised to provide you a schedule of how we plan
    to implement this provision, but we are happy to work with you
    and to help best answer those questions.
        Senator Cantwell. Well, Ms. Tavenner definitely will not
    have my support. I am not interested in how she is going to
    implement the Act. I am interested in the commitment of the
    administration to live up to the way the Affordable Care Act
    says the provisions should be implemented.
        Right now I cannot get anybody at CMS to own up to the fact
    that States, under the law, could receive 95 percent of the tax
    credits to provide cheaper care, as the first chart showed, to
    the beneficiaries instead of making them out-of-pocket
    expenses.
        So I am not interested in having the schedule of what date
    it is going to get implemented, I am interested in the agency
    making sure that it does not thwart a more cost-effective
    solution to somehow save the exchange when that is really a
    false issue, in my viewpoint. So, thank you so much.
        Mr. Blum. I understand.
        The Chairman. Thank you, Senator.
        Senator Cardin?
        Senator Cardin. Thank you, Mr. Chairman.
        Mr. Blum, thank you for being here, and thank you for what
    you do. It is impressive that you have a 3-year record of
    bringing per capita costs down. Delivery system reform is
    clearly the best hope we have of continuing that trend, so this
    hearing is particularly important.
        I want to talk about a recent decision that was made in
    regard to the Affordable Care Act's pediatric dental benefits,
    which has me concerned. We are at the 6-year anniversary of the
    death of Deamonte Driver, a 12-year-old who died in my State
    because timely dental care was not available. We have made a
    lot of progress in the last 6 years through the Children's
    Health Insurance Program Reauthorization Act and the ACA, and I
    really applaud the efforts that have been made.
        It is my understanding that you are now allowing for a
    separate out-of-pocket limit for coverage through stand-alone
    dental plans. I am concerned that you are implementing
    discriminatory policies similar to those that were put in place
    decades ago for mental health services--policies that say this
    is 2nd-class health care rather than part of the essential
    benefit package, which was our intent in the Affordable Care
    Act.
        Can you share with me what leadership has done at CMS to
    make sure that there is reasonable coordination of benefits so
    that our intent of providing pediatric dental care will in fact
    be a reality, particularly where the Federal Government is
    establishing exchanges?
        Mr. Blum. Well, I think one of the lessons that we learned
    within the Medicare program is that, when the care is siloed or
    our benefits are not fully integrated, that can often lead to
    worse total health care consequences.
        I can pledge to get back to you with direct answers to your
    questions, but I do agree with your general principle that,
    when benefit design is broken up and care is not coordinated,
    it can often lead to bad quality of care. So, I will be happy
    to get back to provide direct answers to you.
        Senator Cardin. I appreciate that. The Federal Government
    will be playing a key role in many States by setting up the
    insurance exchanges, so I think there is a real opportunity for
    you, as the exchanges are set up, to show leadership, and I
    look forward to you getting back to me.
        Let me ask you a question about minority health. The
    Affordable Care Act put a high priority on health equity by
    establishing several HHS Offices for Minority Health to deal
    with racial and ethnic disparities. We have made some progress
    in closing the gaps. In looking at cancer death rates released
    yesterday by the American Cancer Society, generally there has
    been progress made, but with regard to colon cancer and breast
    cancer, two diseases for which screening and treatment are
    critical to proper care, the disparities are growing.
        What is CMS's commitment to dealing with minority health
    issues to reduce such disparities?
        Mr. Blum. The commitment is tremendous. I believe the
    Affordable Care Act, which is now established, requires CMS to
    set up a separate office to focus on minority health to make
    sure our programs are coordinated and responding to the
    challenges.
        One of the things that we have done, particularly with the
    flu vaccine, is, now that we have the capability within CMS to
    track claims, pinpoint zip codes, pinpoint geographic areas so
    we can target resources, I think the best strategies we can
    employ to ensure that screenings are taken advantage of is to
    use this technology to build community programs.
        We are working much closer with public health
    organizations, really to help all beneficiaries, and
    particularly to focus on the pockets of the country where we
    see screening use lower than the national average. But we are
    happy to continue to hear ideas, but I agree with your
    statement.
        Senator Cardin. If you would keep my office informed as to
    the resources being devoted to these efforts and the progress
    that is being made, we would very much appreciate it. There are
    seven offices in key Health and Human Services agencies that
    are positioned to help close the gaps in quality and access,
    and we believe it is essential to coordinate, track, and
    measure the efforts that are being made. So, if you would keep
    us informed, I would deeply appreciate that.
        One last question on the Medicare outpatient rehabilitation
    therapy caps. As the author of legislation since 1998 to repeal
    this misguided policy, I believe we all hope to get a permanent
    policy on the therapy caps so we do not have to deal with it
    every year. In the wisdom of Congress, we imposed a new
    requirement in 2011 for manual medical review of higher-cost
    cases. I am not so sure how wise that was, and I am concerned
    that we are creating yet another bureaucratic hurdle for
    patients and providers. I am told that there is inconsistency
    in how the various Part B fiscal intermediaries are handling
    the new process, leading to confusion across the Nation.
    Beneficiaries and the therapists who treat them need
    predictability, and they deserve a sound policy that reimburses
    based on the patients' need, rather than on arbitrary limits.
        Can you share with us, either now or later, how you plan to
    implement the new policy in a way that will not lead to
    additional problems for providers?
        Mr. Blum. Sure. I think whenever we have policies that
    suspend in 12 months and have to be reauthorized, that creates
    challenges for providers and creates challenges for
    beneficiaries. I think the principle should be that
    beneficiaries should know what their benefit levels are and
    that providers should see predictable payment.
        I think one of the ways to address the therapy cap long-
    term is to ensure that we pay appropriately for therapy
    services. This is an area where we see abuse, particularly in
    certain parts of the country. We have tried to improve the
    payment policies by paying for services provided together at
    the same time.
        So I think a combination of smarter payment policies
    targeting the bad actors--not all therapists provide fraudulent
    care--but I think a combination of better payment policy, and
    disciplined fraud and abuse approaches, will hopefully relax
    the need for Congress to continue to have to reauthorize this
    policy.
        Senator Cardin. Thank you.
        Senator Carper. Thank you.
        Senator Casey?
        Senator Casey. Thank you so much. We are grateful for your
    testimony and your presence here, and obviously your public
    service and the ways that our office has engaged with yours. I
    am grateful for that. This is very difficult to tackle, these
    issues that relate to delivering better care at a lower cost.
    But it seems like you are beginning to unlock that door, so to
    speak.
        I want to ask you, based on what you know already--and I
    know in some ways it is still in the early stages, but you are
    already seeing some good results--is there anything that you
    have learned, or at least begun to ascertain, about the
    delivery system results in Medicare that you might be able to
    apply to Medicaid?
        Mr. Blum. Well, I think one of the lessons that I have
    taken is that, when providers see complete data on their
    beneficiaries, it opens up many new opportunities for better
    care coordination. I think one of the major benefits that the
    ACO participants have now is the ability not just to see their
    own claims information, but Part A, Part B, and prescription
    drug claims information. That can yield clues about lack of
    care coordination or beneficiaries falling through the cracks.
    So I think just having that information and helping providers
    create the management structures to see data, to understand it,
    to respond to data, is tremendously powerful.
        For the providers that are participating within the new
    bundled payment initiative--the hospital, combining with
    physicians and post-acute--they are telling us that they had no
    idea that their patients were going to 10 different skilled
    nursing facilities, and that certain skilled nursing facilities
    had higher readmission rates than others. Just seeing that
    data, I think, is the most powerful, or one of the most
    powerful, changes that is occurring.
        Senator Casey. I want to ask you as well, because your
    testimony had a lot of analysis and summary of the way you are
    doing this, and it is very helpful to us as we learn more about
    it, but I was looking in particular on two pages of your
    testimony, I guess page 4 and page 8.
        There are two things that struck me about the whole
    challenge of reducing hospital readmissions, which everyone
    knows is a health issue because people are sicker. When they
    have a readmission, that means by definition they are in some
    kind of jeopardy, but it also is a huge cost implication for
    all of us.
        But on page 4, the last paragraph, you said, ``The
    Affordable Care Act established the hospital readmission
    program.'' Then later in the paragraph you say, ``We measure
    the readmission rates for three very common, very expensive
    conditions for Medicare beneficiaries: heart attack, heart
    failure, and pneumonia.''
        Then later on page 8, you talk about the National
    Partnership for Patients aiming to save 60,000 lives, which
    just leaps off the page, I think for anyone, and you do that by
    ``averting millions of preventable hospital-acquired
    conditions.''
        I wanted to get your sense of how that is going, how
    successful you are being at reducing the hospital readmissions.
    It is self-
    evident that it is both a better health outcome for a patient
    or their family as well as a huge cost saver.
        Mr. Blum. One of the things we have set as one of our
    primary measures for assessing how successful we are within CMS
    with the payment reform strategies is the rate of hospital
    readmissions. We track, month to month, the rate of all-cause
    Medicare readmissions. In the last 12 months or so, we have
    started to see a consistent downward trend in that number.
        I think there are many policies that are being deployed--
    penalties, technical assistance through our Partnership for
    Patients--but I think one of the most powerful statements that
    happened is that Congress acted and said that quality of care
    is now being assessed through readmission rates, which has
    transformed the business model for health care delivery
    systems. I used to hear, personally, providers say it was
    impossible to reduce those, that there are too many community
    factors at play or the health care systems were not built to do
    this.
        But now I hear that it is possible, that they are seeing
    results in our data. We still see tremendous variation across
    the country in hospital readmission rates. The current rate is
    roughly 17.8 percent, but there are some parts of the country
    that are much lower than 17.8 percent.
        So we know it is possible to drive this average down
    further, but I think the most fundamental change that happened
    was that the Congress acted and said that we are going to
    assess quality of care in part through these readmission rates.
        Senator Casey. Well, thanks so much. I appreciate it.
        Senator Carper. Mr. Blum, how are you doing?
        Mr. Blum. Yes. It is good to see you again.
        Senator Carper. Very nice to see you. Thanks so much for
    coming to Delaware and for the time that you spent with us at
    Christiana Care.
        I think it was Senator Hatch who raised the issue of SGR
    and trying to fix the SGR problem. I just want you to share
    with us, if you will, a thought or two. We hear so much from
    health care providers that, without a permanent solution for
    SGR, doctors and hospitals are not going to be able to fully
    participate in reforming our health care system.
        I have heard it often, and I believe them, so we have a
    responsibility here to try to figure this out. I just want to
    ask you, wearing your old hat when you sat behind these guys
    over here and your hat today, what kind of payment policies do
    you think might be good candidates for replacing the existing
    payment system?
        Mr. Blum. Well, I agree, Senator, that the annual crisis
    that is created when we face the physician payment cut creates
    tremendous havoc for the physician community, for our
    beneficiaries, and for health plan payment systems that are
    tied to the physician payment system. It is a tremendous
    challenge to manage the programs through this continuously
    looming cut.
        I think there are two ways to break down the SGR issue. The
    first issue is that we have an artificial baseline built into
    current law that continuously assumes a 25- or 28-percent cut,
    so, in my analysis, there is no way around that baseline
    correction that needs to be made to the total Medicare program
    that only Congress can authorize.
        At the same time, the second issue is that we need to
    figure out continuous ways to improve how we pay for physician
    payments, to incent greater care coordination, and to incent
    chronic disease management to pay for those services that
    happen outside of the face-to-face interaction. We are testing
    a variety of models. We will continue to expand the focus to
    figure out how to incent this care model that I believe we all
    want to see, but that will not substitute for the baseline
    issue that Congress has to authorize.
        Senator Carper. All right. Thank you.
        One of the major drivers, as you know, of health care in
    this country, of health care costs, is obesity. Another one is
    improving medication adherence. We were hearing very large
    numbers on both of those in terms of what they are costing us
    in health care.
        Could you just give us an idea of what CMS is doing, (1) to
    combat obesity? How can we help you do a better job? Also, any
    comments you would care to make on improving medication
    adherence and how we can help you do a better job.
        Mr. Blum. One of the things that Congress did through the
    Affordable Care Act was add many new preventive benefit
    services to the traditional fee-for-service program. The annual
    wellness visit, I think, is one of the greatest opportunities
    that we have to continue to tie beneficiaries more to their
    primary source for primary care. The ACO program really is the
    same notion. So a continued emphasis on primary care and
    wellness, I think is our best strategy to address obesity.
        We are also seeing very promising results in our Part D
    program as we create voluntary incentives to better manage
    poly-pharmacy medication management. And we are starting to see
    some signs that better management of prescription drugs leads
    to overall lower costs and hospital spending or other
    traditional medical spending channels. So I think more emphasis
    on better managing and coordinating prescription drugs is one
    of our best strategies to reduce total cost of care.
        Senator Carper. All right. Thank you.
        The last question. Delaware is one of 10 States that has, I
    think, fewer than 10 percent of our Medicare population that
    participates in Medicare Advantage. I think in our State we
    really do not have any good choices, I think most people would
    say. That is true in some other States as well.
        What should we be doing to expand Medicare Advantage in a
    cost-efficient way that ensures that seniors in all 50 States
    have a meaningful choice between high-quality Medicare
    Advantage plans and traditional Medicare?
        Mr. Blum. Well, I think sometimes the challenges to expand
    managed care--and I cannot speak for Delaware, but sometimes
    the challenge is not payment policy, but it is due to provider
    contracting. Health plans cannot establish sufficient networks
    because one dominant health care system might not want to
    contract with the health plan.
        So I do not believe simply paying plans more will
    necessarily lead to better choices or higher quality choices.
    Really, sometimes you have to figure out what is happening at
    the provider contract level to understand why health plans
    cannot come into the program in a strong way.
        But I think that underscores what our strategy has been, to
    make sure that the traditional fee-for-service program is as
    strong as possible and to create ACOs that really bring the
    best of managed care to the traditional fee-for-service
    program, but also to make sure that our managed care program is
    as strong as possible to incent plans to go to quality.
        So that has been our strategy: to make sure both programs
    are as strong as possible so, even if beneficiaries do not
    choose managed care or do not have all the choices that other
    parts of the country have, they can still receive the same care
    coordination and good managed care principles that high-quality
    managed care plans can provide.
        Senator Carper. Thanks so much.
        The Chairman. Thank you very much.
        Senator Nelson?
        Senator Nelson. Well, Florida is the opposite of Delaware,
    because upwards of 40 to 50 percent of Florida is on Medicare
    Advantage. So let us talk about that. Now, the insurance
    companies are screaming bloody murder, but should they not have
    known that the whole idea of the changes in Medicare Advantage
    was to cut out that 14-percent bump that they had over and
    above Medicare fee-for-service as a result of the 2003
    prescription drug bill?
        Mr. Blum. Before the Affordable Care Act, we estimated that
    the plan average subsidies were about 14-percent greater than
    fee-for-service on average. We estimate, today in 2013, that
    difference now is 4 percent and will be phased down even
    further. Many told us, and I think told this committee----
        Senator Nelson. Is that 4 percent given the reductions that
    you have just announced or that you are planning to announce?
        Mr. Blum. That is current rates.
        Senator Nelson. Oh, it is?
        Mr. Blum. So the 2014 reduction is still proposed, but
    today, on average, we are paying 4 percent. So the reduction
    has been taken from 13 percent down to 4 percent. At the same
    time, we have seen double-digit growth in the MA plans. We have
    seen double-digit decreases in the premiums.
        Quality is improving, and that is a great sign that we can
    reduce the payment rate to incent quality and to continue to
    see growth in the program. We have proposed rates for 2014 that
    I believe you are hearing about. There are many reasons for
    that reduction, but again, we have proposed rates, we are
    listening to comments, but our goals are to ensure the program
    remains strong, quality continues to improve, and beneficiaries
    continue to have strong choices.
        Senator Nelson. All right. Here is the question then: for
    the senior citizens, the premiums have come down, the
    popularity is going up, and therefore the enrollment among
    seniors is up because it is more popular. We are now reducing
    what I call the subsidy to insurance companies over and above
    what Medicare fee-for-service is, which was part of the reforms
    in the health care bill that we implemented to try to save
    Medicare.
        In part, we were going to do that with a quality rating
    system called the Stars. So the theory is, the higher quality
    you have, the more stars you have for your plan. Seniors are
    going to be able to vote with their feet because they will
    choose the better-quality plan. That will weed out the poor
    plans.
        What in fact is happening?
        Mr. Blum. Well, we are seeing, due to the incentive
    structures that have been created, many more beneficiaries
    choosing to be in 4-star, 5-star plans. This is happening for
    two reasons. One is that plans have made the business decision
    that they will do better if their star rating goes up. For
    plans that are at 4 stars, 5 stars, irrespective of payment
    changes over time, they will have a great financial model in
    the program.
        Senator Nelson. So they get more people signing up in their
    plan the better quality they are, plus they get a financial
    incentive from Medicare.
        Mr. Blum. Correct.
        Senator Nelson. Then why are the insurance companies
    screaming bloody murder, that you are squeezing out that excess
    that they used to have?
        Mr. Blum. Well, some plans have not yet made the
    transformation to 4-star, 5-star, and we want to help those
    plans continue to make that transformation. Our demonstration
    will continue in 2014, but I think those plans that are below 4
    stars are facing, given our proposal--again proposed--the
    greatest payment challenge. But I believe that plans that have
    made the transformation to provide 4-star, 5-star care will
    have a strong business model within the Medicare program.
        Senator Nelson. So your goal, to summarize, would be that
    you want to have all plans 4 and 5 stars, and that, if
    insurance companies get to that quality level, they will be
    making money, the senior citizen will be very happy, and the
    overall cost to the taxpayer is lower. Is that the goal?
        Mr. Blum. That is precisely the goal. Our goal is for every
    Medicare beneficiary who chooses the MA program to have the
    opportunity to seek out a 4- or 5-star plan.
        Senator Nelson. Thank you, Mr. Chairman.
        The Chairman. Thank you, Senator.
        Senator Casey?
        Senator Casey. I had my round. I am good.
        The Chairman. Good.
        Senator Casey. Thank you, Mr. Chairman.
        The Chairman. Thanks, everyone. Thanks, Mr. Blum. Clearly
    you are making progress. Clearly we have a lot more progress
    ahead of us, but thank you very much.
        Mr. Blum. Thank you, Senator.
        The Chairman. And if you could get back to us soon about
    interim information, that would be helpful.
        Mr. Blum. Absolutely.
        The Chairman. Thank you very much.
        [Whereupon, at 12 p.m., the hearing was concluded.]

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