[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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20402-0001



                          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.]


                            A P P E N D I X

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