[Senate Hearing 113-278]
[From the U.S. Government Publishing Office]



                             

                                                        S. Hrg. 113-278

                       REPEALING THE SGR AND THE
                     PATH FORWARD: A VIEW FROM CMS

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 10, 2013

                               __________



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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...............................     4

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:
    Opening statement............................................     1
    Prepared statement...........................................    27
Blum, Jonathan:
    Testimony....................................................     4
    Prepared statement...........................................    29
Hatch, Hon. Orrin G.:
    Opening statement............................................     3
    Prepared statement...........................................    44

                             Communication

American Medical Rehabilitation Providers Association............    47

                                 (iii)

 
       REPEALING THE SGR AND THE PATH FORWARD: A VIEW FROM CMS

                              ----------                              


                        WEDNESDAY, JULY 10, 2013

                                       U.S. Senate,
                                      Committee on Finance,
                                               Washington, DC.
    The hearing was convened, pursuant to notice, at 10:05 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max 
Baucus (chairman of the committee) presiding.
    Present: Senators Wyden, Stabenow, Nelson, Cardin, Brown, 
Bennet, Casey, Hatch, Grassley, Crapo, Roberts, Enzi, Thune, 
Isakson, and Toomey.
    Also present: Democratic Staff: Mac Campbell, General 
Counsel; David Schwartz, Chief Health Counsel; and Karen 
Fisher, Professional Staff Member. Republican Staff: Dan Todd, 
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.
    Benjamin Franklin once said, ``You may delay, but time will 
not, and lost time is never found again.'' Those words ring 
true today as we work to repeal the Sustainable Growth Rate, 
otherwise known as SGR. This is a formula used to pay doctors 
who treat Medicare patients. It is antiquated, inefficient, and 
flawed. Over the past decade, the SGR has called for Medicare 
payment cuts to physicians that are unsound.
    Next year, physicians face a 25-percent cut under the 
formula. This deep cut would mean many seniors could lose 
access to their doctors. I refuse to let that happen. In each 
of the last 10 years, Congress has prevented these cuts to 
physicians by passing a patch, but we have never addressed the 
root cause of the problem, the SGR itself. It is time to repeal 
this broken formula. We need to do it this year.
    The most recent 10-year estimate for repealing the SGR is 
about $139 billion. This is a lot of money, but last year's 
estimate for repeal was nearly twice that amount. So we must 
act. But we cannot just repeal the SGR; we need to change the 
entire fee-for-service system that Medicare uses to pay 
physicians.
    Fee-for-service promotes volume over value. That is 
certainly not a model of efficiency. We need to encourage 
physicians to coordinate patient care to save money and improve 
health outcomes. At the same time, we must remember that the 
payment system sets payments for other providers as well as 
physicians. This system pays nearly 850,000 clinicians, and 
300,000 of these clinicians are advanced practice nurses and 
physician assistants.
    The new SGR system must work for all of these health care 
providers. The Center for Medicare and Medicaid Innovation is 
testing new ways to compensate physicians and other providers 
who deliver high-quality, efficient care. The Affordable Care 
Act took a key step in controlling Medicare costs by creating 
Accountable Care Organizations.
    These groups of doctors and hospitals work together to 
provide quality care for Medicare patients. These multi-
specialty groups are helping us understand how to incentivize 
providers to provide value. These organizations share in the 
savings they achieve when they provide more efficient quality 
care.
    I am proud that the Billings Clinic in Montana became an 
Accountable Care Organization this past January. Teams of 
providers are working together to coordinate care for 
chronically ill patients. That is just one of their missions. 
They are also focused on improving access to primary care, with 
the goal of getting sick patients a doctor's appointment the 
same day.
    While new systems are being tested, we need to improve the 
current system. Doctors and nurses who see patients every day 
can give valuable ideas about what works and what does not. 
That is why, in May, Senator Hatch and I sent a letter to the 
health care provider community asking for their advice: what 
can we do to improve the system? What would make your practice 
better? We asked for specific, concrete ideas.
    The response was encouraging. We received 133 letters. 
Physicians told us that they are working to improve their 
quality of care, to improve communications with patients, and 
to work in teams. They are trying. They are developing new 
types of practices with a focus on outcomes and continuous 
care. They are using evidence-based guidelines to reduce 
unnecessary services. Physicians want to improve their 
performance and efficiency, and Medicare's payment policy needs 
to incentivize that improvement.
    I want to highlight the letter from the American College of 
Physicians. They gave us concrete examples, down to how 
Medicare could incentivize physicians to use guidelines to help 
them decide when to order tests and perform procedures. This 
would encourage doctors to provide the care seniors need and 
avoid unnecessary care that might cause harm. I am not saying 
we will accept all of their suggestions, but their comments 
help us see different angles of potential policies.
    We also have brought experts to the Finance Committee to 
hear their ideas about fixing the SGR. We held three 
roundtables and a hearing in May. It is now time to hear from 
CMS.
    In his 2014 budget proposal, the President agrees that we 
need to move to alternative payment models, and he recognizes 
this will take time. His budget proposal also advocates reforms 
to the current system. Today we will learn what CMS is doing to 
improve physician payments. We want to hear CMS's views on a 
new plan for Medicare physician policies.
    For, as Benjamin Franklin warned, ``You may delay, but time 
will not. . . .'' So let us get to work repealing this flawed 
system and developing a new one that works for providers and 
patients.
    Senator Hatch is not here this morning. Oh, he is? Yes, he 
is here. Boy, what timing. I am impressed. I am impressed.
    [The prepared statement of Chairman Baucus appears in the 
appendix.]
    The Chairman. Senator Hatch, it is all yours.

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

    Senator Hatch. Well, thank you, Mr. Chairman. Thank you for 
calling today's hearing. This is an important subject. As many 
of you know, over the past several years both Chairman Baucus 
and I have called for permanent repeal of SGR. Indeed, over the 
past year Medicare physician payment issues have received 
significant attention from this committee.
    Just last summer we convened several roundtable discussions 
with former CMS administrators, leading private sector health 
organizations, and leading physicians, to gain better insight 
into physician payment reform efforts and ideas to improve our 
payment system for physicians serving Medicare patients.
    This is our second hearing on physician payment issues this 
year. Moreover, the last 2 months the chairman and I have 
received more than 130 responses to the letter we sent to the 
health care community seeking input on improving the physician 
fee schedule and helping physicians transition to alternative 
payment methods as they develop.
    I want to thank the stakeholder community for their 
thoughtful responses. Rest assured, we will give them strong 
consideration as we work to find a long-term solution for 
paying our physicians. There is no doubt that we have all grown 
weary of the end-of-the-year scramble to stop the draconian 
payment cuts to physicians serving Medicare beneficiaries, but 
this year is different. We have a new, important consideration 
to encourage our action.
    According to CBO, the current cost to repeal the SGR has 
been substantially reduced. If the Congress does not act now, 
when will we ever find a path forward? We must seize this 
opportunity, and it is up to this committee to find the 
solution. We must act soon so we can finally put our physicians 
on a stable financial footing.
    I look forward to hearing from Mr. Blum this morning about 
how CMS has sought to improve the Medicare physician payment 
system and how the administration can work with us to find a 
bipartisan path forward. I want to thank you for being here. We 
appreciate your being here to testify.
    Thank you, once again, Mr. Chairman, for continuing this 
important discussion. I look forward to continuing to work with 
you as we look to provide a stable foundation for paying our 
physicians now and in the future. I believe we are making real 
progress, and I am hopeful we will produce a permanent solution 
this year. I think we have to.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator, very much. I appreciate 
that.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. I am pleased to welcome today's witness, who 
is Jonathan Blum, Acting Principal Deputy Administrator at the 
Centers for Medicare and Medicaid Services and Director of the 
Center for Medicare.
    Jon, it is great to have you back. You have provided 
invaluable service to this committee when you have worked with 
the committee in years past; I know you will today too for CMS. 
Thank you very much for your service and all that you do.
    As you know, our standard procedure is, your statement will 
be included in the record, and we ask you to speak for about 5, 
6 minutes. But take your time, and say what you want to say.

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

    Mr. Blum. Thank you. Chairman Baucus, Ranking Member Hatch, 
members of the Finance Committee, thank you for holding this 
hearing and giving CMS the chance to discuss its 
recommendations for how to reform Medicare's physician payment 
system.
    There are two issues for us to consider: (1) how to set a 
realistic baseline for physician payments, the so-called SGR 
issue; and 
(2) how to reform the payment system to continue its shift from 
paying for volume to paying for value.
    If Congress fails to act before January 1st, CMS will have 
no choice but to reduce physician payments by 25 percent. Over 
the past decade, Congress has stepped in to avoid these 
reductions, but often at the very last minute, creating 
tremendous confusion for physicians and their patients, not to 
mention wasted funds and time as we scramble to implement the 
cut and then to reverse it.
    CBO's latest estimates for a fully funded fix are at the 
lowest level in recent memory. This year can be the year that 
we put the annual SGR issue to rest. Indeed, the President's 
budget once again proposes a fully funded SGR fix. We agree 
with the growing consensus among the Congress and stakeholder 
groups that a fix to the baseline should be paired with reforms 
for how we pay physicians.
    Specifically, our budget recommends four core principles 
for any reform: (1) providing a period of payment stability 
where the update factor would be predictable for a multi-year 
period; (2) continuing the development of new payment models 
like ACOs and primary care medical homes where physician 
practices and groups are accountable for the total quality and 
total cost of the care; 
(3) over time, studying differential payment updates based on 
physicians' successful participation in these new models; and 
(4) continuing our pathway forward to make the underlying 
physician payment system more accurate, more focused on primary 
care and patient care coordination, and more focused on the 
total quality and value of the care.
    CMS's current work to implement the Affordable Care Act and 
other changes have laid the groundwork for these four 
principles articulated in the President's budget, and, while 
not always discussed, there has been tremendous work undertaken 
over the past 5 to 6 years that has made significant changes to 
our current physician payment system.
    Working together, we have changed the underlying physician 
payment system in five ways. First, we have shifted the payment 
system to increase payments for primary care services.
    Second, we have reduced our payments dramatically for high-
cost imaging services. These high payments not only waste 
valuable resources, but have also led to inappropriate 
utilization, which is costly and harmful to beneficiaries.
    Third, CMS has established new payment codes to reward 
care-
coordination activities. Last year, CMS built separate payment 
codes for transition management services to help beneficiaries 
navigate from the hospital setting to a post-acute care setting 
or back to their home. In this year's physician payment rule, 
we proposed to add new payment codes to pay for complex care 
management for those beneficiaries who have multiple chronic 
conditions.
    Fourth, over the last few years we have reviewed over 1,000 
payment codes that represent 40 percent of payments under the 
Physician Fee Schedule. Revaluing these codes will reduce 
Medicare costs as well as shift the value of our fee schedule 
to primary care services. Continuing in this direction, in this 
year's payment rule, CMS has proposed to pay for physician 
service no more than what is paid for the same service at a 
hospital setting. This represents a strong step towards 
reducing site-of-service payment differentials.
    Fifth, we have begun the process to phase in the value 
modifier. In 2015, the value modifier will apply to about 25 
percent of all physicians. Under our just proposed rule, the 
percentage will grow to 60 percent by 2016.
    The President's budget framework is also built upon the 
continued development of new payment models that move away from 
the open-ended fee-for-service system, and here we see much 
potential for the basis for future legislation with promising 
results beginning to emerge from CMS's work.
    For example, we are very pleased with the status of the ACO 
program. To date, the program is serving 10 percent of the 
total fee-for-service Medicare population. We expect to approve 
many more ACOs into the program for the January 1, 2014, start 
date. Despite press stories that some Pioneer ACOs may choose 
to shift their participation to the base Shared Savings 
Program, we expect that the pioneer track will demonstrate 
overall savings in its first year.
    We are also encouraged by our primary care medical home 
programs. Although it is still early to measure cost savings, 
it appears as though the programs have moved key quality 
metrics in parts of the country.
    In short, we are at a crossroads for long-term physician 
payment reform. The opportunity to permanently fix the SGR has 
never been better. Congress should not waste this opportunity. 
We have also demonstrated that we can make substantial changes 
to our current physician payment system and build new payment 
models to phase out the open-ended fee-for-service program. CMS 
stands ready to assist this committee with your work.
    The Chairman. Thank you, Mr. Blum.
    [The prepared statement of Mr. Blum appears in the 
appendix.]
    The Chairman. You mentioned in your statement payment 
stability. I assume that is sort of a short-term or a solid, 
stable transition into a more permanent system. Could you tell 
us more or give us more definition of what you mean by that?
    Mr. Blum. Well, we think there are two reasons we need 
payment stability. Number one is that the annual update factor 
of the threat of 24-, 25-percent reductions, I think, has 
created confusion within the physician community. But I think 
our first principle is to make sure that we set payments that 
are predictable, that physicians can plan for. So that is 
principle number one.
    But we also feel that we need more time to help physicians 
participate in new payment models. Our budget does not say 
precisely what that period should be, but what I would 
recommend is a period of 4 to 5 years where we can give 
stability, give time, but also create more opportunities for 
physicians to participate with a new payment model.
    The Chairman. So, if I heard you correctly, you are saying 
in about 4 to 5 years you think you will have worked through 
the payment models and come up with the ones you think make the 
most sense?
    Mr. Blum. We believe that a period of stability is 
important. That seems to us about 4 to 5 years. That will give 
CMS more time, physicians more time, to develop the 
capabilities. It is hard work to participate within an ACO-like 
model, but we feel that we need to set that period for 
stability, but also to continue the shift. So 4 to 5 years 
seems to us the correct balance.
    The Chairman. In addition to ACOs, you mentioned medical 
homes. What are the basic ways you are working to move from 
fee-for-service to quality, and how will they work?
    Mr. Blum. Well, we have different models that have been 
established, both by the law but also through our new 
demonstration authority through the Center for Innovation. 
Clearly we have placed tremendous emphasis on Accountable Care 
Organizations, and, to date, the results are promising.
    We expect to see overall savings in the pioneer track that 
was the first wave of the program, so we feel that the ACO 
program has promise for continued success. The ACO is not going 
to be able to serve all physicians, so that is why we have also 
created other models, like primary care medical homes, that are 
more tailored to a physician practice.
    We also have a program being put in place right now, the 
value modifier, that is going to apply to all physicians, where 
a portion of their payment will be tied to the overall quality, 
to the overall value, of their care.
    So I think it is important that we create multiple models 
that are tailored to different geographic circumstances. There 
is not going to be a one-size-fits-all model. That has been one 
of the key lessons for CMS in the past couple of years. But we 
do see promise, we do see much more opportunity for more 
physicians to participate.
    The Chairman. So, in the short term, what changes would you 
like to implement, or maybe you need new authority? This is 
this year. We are not going to implement this for a few more 
years. What do we do in the short term?
    Mr. Blum. Sure. One of the reasons why the CBO score has 
come down is because the agency is managing payments much more 
aggressively. I talked about the misvalued code initiative, 
where CMS now is actively reviewing payment codes that are 
misvalued, that seemed to be driving utilization.
    The Chairman. Misvalued why?
    Mr. Blum. Because they are just paid at too high of a 
level, which creates over-utilization, like high-cost imaging 
in the past. So it seems to us that any reform package needs to 
also continue to direct the agency to stay vigilant, to make 
sure that our underlying payment system that is the building 
block to ACOs and primary care, stays as accurate as possible. 
I think more direction from the Congress to encourage CMS to be 
vigilant, to be aggressive in taking on misvalued codes, would 
pair very well with the overall payment strategy.
    The Chairman. Is there a question of doctors having 
immediate access or timely access to their own quality data 
that helps them improve their own performance?
    Mr. Blum. We think it is vitally important that we provide 
that information back to physicians. Right now, through the 
value modifier concept and the physician feedback reporting, we 
are working to phase in that feedback, which currently covers 
about an 8-month time period from the time when a physician 
submits data, to the time the agency collects data and then 
submits it back to physicians. Clearly we have more work to do 
to make it more real-time, but, based on our analysis, we are 
working as well as any other private sector system that we are 
aware of. We are going to work harder to kind of speed that 
timetable up.
    The Chairman. My time is about out here. Could you give me 
just a rough sense and say, in 5 years, what percent of 
physicians' and physician assistants' reimbursements will be 
quality-based as opposed to fee-for-service, and, in 10 years, 
what will those numbers be?
    Mr. Blum. That is a hard question, but I think Congress 
should establish that goal going forward. Right now in our 
physician payment system, a small portion is tied to quality, 
somewhere around 2 to 4 percent. I think having a schedule set 
going forward would be another important step for Congress to 
establish.
    The Chairman. What additional authority would you like?
    Mr. Blum. The budget neutrality requirement that we have in 
the statute constrains our ability sometimes to be truly 
forceful in reducing over-valued services. I think one 
opportunity we have is to think carefully, but also to think 
about waiving that budget neutrality requirement so we can 
drive total costs down to a lower level.
    The Chairman. Thank you very much.
    Senator Hatch?
    Senator Hatch. Mr. Blum, many of the ongoing payment reform 
efforts that are being conducted by CMS require increased 
quality reporting from physicians. Over the past several years, 
CMS has implemented and expanded the Physician Quality 
Reporting System, or the PQRS. However, physician participation 
remains below 50 percent, as I understand it.
    Some have suggested that the measures included in PQRS are 
not meaningful to clinical practice, that the system is too 
heavily weighted to process measures. Many have said the system 
needs to be re-tooled to focus on outcomes and outcomes 
measurement.
    Do you agree with these critiques of the PQRS, and, if so, 
how can CMS move to a more outcomes-based reporting system?
    Mr. Blum. I think there are a couple of considerations 
built into your question that are all very important. First is, 
that we agree that we need to increase participation in 
physician reporting of quality metrics. With the value modifier 
policy going into effect, physicians will face more and more 
financial penalties for failure to report.
    So we think, over time in the next couple of years, that 
that 50 percent will grow as physicians become aware that, if 
they do not report, do not participate, their payment levels 
will be decreased by the program according to current law. So, 
while we are still below 50 percent, that percentage has grown 
in the last couple of years, and we expect it to grow.
    In regards to the number of quality measures, this is 
really a balance that we are trying to strike. We want to make 
sure that quality metrics are simple and they are meaningful 
and they can be comparable, but at the same time we want to 
make them relevant to a physician practice.
    One dynamic is that, when you reduce the number of measures 
and focus on a core quality set, you make those measures less 
relevant to certain specialties. So we are trying to find the 
right balance between simplicity and reporting that still makes 
those measures relevant to individual physician practices.
    Senator Hatch. Now, many experts have highlighted the 
importance of improved communications between payers and 
providers of care. A major hurdle to physician payment reform 
is physician engagement. How often does CMS share quality and 
resource data with practicing physicians, and, two, what has 
CMS done to improve its engagement with physician providers?
    Mr. Blum. Well, one of the requirements that we are working 
to implement that was led by the Finance Committee in a 
bipartisan way, is to direct the agency to provide feedback 
reports back to physicians. We have started that process. We 
have piloted in four States. That is now being phased in for 
all physicians.
    But over time, in the next several years, all physicians 
will be given feedback reports based upon the relative quality, 
relative resource use compared to their peers, by law, by 
policy, by the agency. We are making that feedback confidential 
to physicians, but we are providing, and will provide to all 
physicians over the next several years, the feedback on their 
relative quality, relative performance, to encourage better 
engagement.
    Senator Hatch. Many of your efforts have been focused on 
primary care physicians. While there is little disagreement 
that we need a greater focus on primary care in our health 
system, most of our spending on Medicare occurs in specialty 
medicine. Currently, many of the payment reform efforts have 
been aimed at expanding primary care, but little attention has 
been paid to developing new models of payment for specialty 
physicians.
    What are some of the challenges you face as you evaluate 
opportunities within the various specialties, and how does CMS 
plan to advance payment reform for specialty physician 
practices?
    Mr. Blum. It is true, and we are concerned with this 
dynamic, that models like ACOs and primary care, by definition 
are designed to capture more primary care physicians than 
physician specialists. So we believe that it is vitally 
important for us to move, in the next phase, to build payment 
models that are more tailored and more responsive to physician 
specialties.
    One of the things that we have done through the Innovation 
Center this year is to solicit from physician specialties ideas 
for new payment models through a grant process that must lead 
to a potential for new payment models.
    We want these models to be led by physician specialties, 
but we have created a brand-new opportunity through our 
Innovation Center to build, working with societies, those new 
payment models that are much more tailored towards oncologists, 
for example, or other physician specialties.
    Senator Hatch. Mr. Chairman, my time is up.
    The Chairman. Thank you, Senator, very much.
    Senator Wyden?
    Senator Wyden. Thank you very much, Mr. Chairman.
    Mr. Blum, a big part of the Affordable Care Act was based 
on the concept of shared savings. I think you all felt strongly 
about it, as we did. There is bipartisan interest in this. In 
order to tap the full potential for the concept of shared 
savings, providers have to know how they are doing.
    They have to know, in effect, from their patients and the 
data, how things are going. The providers are telling us they 
cannot get their claims in real time. They cannot get that 
information. Now, Senator Grassley and I have introduced, and I 
think you are aware, legislation to open up the Medicare 
database.
    I think that in order to tap the potential of shared 
savings, this is another reason to support this bipartisan 
legislative approach. What is your reaction to that? Because I 
think that, if we do not open up the Medicare database right 
now, it is going to be hard to empower consumers at a time when 
they clearly want to make choices about cost-effective health 
care, and my sense is it is going to be hard to tap the full 
potential of shared savings. What do you all want to do about 
that? If you decide today you want to announce support for the 
bipartisan bill, that would be fine too. [Laughter.]
    Mr. Blum. I am not sure I can say that today, but what I 
can say is, that we agree that when providers can see their 
full claims information, that is powerful. Our feedback from 
the participants in the ACO model, the bundled payment model, 
is that, for the first time, these opportunities have allowed 
them to see the complete picture of how their patients receive 
care, and to design interventions. So we are fully supportive 
and fully share the goal that more information, more data, is 
necessary for these payment models to succeed. They have to be 
balanced with----
    Senator Wyden. The providers, Mr. Blum, are saying they 
cannot get it now in a timely way.
    Mr. Blum. Sure.
    Senator Wyden. That is the reason I am asking. So what are 
you going to do about that?
    Mr. Blum. Well, I think a couple of things. For 
organizations that come into our ACO program that sign 
confidential data use agreements, they can see complete claims 
information. So working with our models, that creates----
    Senator Wyden. Within what time period? After they sign 
those agreements, when can they see the data?
    Mr. Blum. I believe they receive the data in two different 
ways. They can receive raw claims versus summary information. 
One of the other learnings that we have taken from the ACO 
models is that it is very difficult for providers themselves to 
handle the claims. It takes computer power, it takes 
infrastructure. So any effort, I believe, to provide that data 
back must be meaningful, must be easy to understand.
    The ACOs that we work with had a lot of challenges taking 
on that kind of degree of zeroes and ones in our data.
    So I think any effort to expand access needs to take into 
account that that data is raw, but it has to be turned to data 
that----
    Senator Wyden. Will you get back to us in writing on the 
time period when providers can expect to get access to data----
    Mr. Blum. Yes.
    Senator Wyden [continuing]. Because I asked it a couple of 
times, and you did not answer that question. So get back to us 
this week on the time period when providers can get that data, 
because they have to have it for shared savings.
    Mr. Blum. Sure. So one thing to consider for your 
legislation is that we are dependent upon providers to submit 
the data to CMS, so, under current law, I believe they have up 
to 12 months to submit a claim from the time that it is 
provided. So that is one challenge to timely data, so we need 
to work through that provision before we can provide that real-
time information back.
    Senator Wyden. We will be glad to work with you on it. But 
again, if we are going to make an integral part of the 
Affordable Care Act--something I support, I know you support--
work, and that is a shared savings concept, we have to have a 
timeline when providers can get their data, because, without 
that data, they cannot really compare it and tap the potential 
of the concept I know you are for.
    One last question with respect to the Innovation Center. In 
effect, CBO has essentially said that savings, any ideas that 
we now come up with, are already accounted for. Essentially, 
that is built into the Act for the Innovation Center.
    I just want to make sure that CMS is clear that it is not 
going to get credit for every idea under the sun with respect 
to holding down costs and innovation, that congressional 
legislation and other proposals can also be scored and they 
will not be held up just because there is an interpretation 
from CMS that every single idea under the sun is going to be 
due to the Innovation Center. Can you tell me that this 
morning?
    Mr. Blum. We are eager for ideas, and we will be happy to 
work with you and your office to identify new ideas. I cannot 
speak to CBO's scoring conventions, but what I can say is, we 
want to find every opportunity to reduce the costs of care 
while improving the quality of care.
    Senator Wyden. My time is up. I just do not want all of the 
members of the Finance Committee, Democrats and Republicans, to 
in effect get boxed in, and, when they have good ideas, 
everybody says, oh, we cannot pass that legislation because 
savings all come from the Innovation Center. So we would like 
to follow that up with you as well.
    Mr. Blum. Great. Very good. Thank you, Senator.
    Senator Wyden. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator, very much.
    Senator Grassley is not here. Senator Stabenow?
    Senator Stabenow. Thank you very much, Mr. Chairman.
    Welcome, Mr. Blum. It is nice to see you. I want to talk 
more about the proposed rule that you have as it relates to 
care coordination, which is so important, your primary care and 
complex chronic care management proposal for separate payment 
for complex chronic care management services in 2015, and 
specifically around the issue of Alzheimer's disease.
    This is something that affects, now, one out of nine 
seniors in some way, at a huge cost for all of us, as well as 
for families, and so on. When we look at the fact that there 
are 5 million people living with Alzheimer's disease, and about 
half of them have never gotten a formal diagnosis, and only 19 
percent of people over 65 who have dementia have gotten any 
kind of a diagnosis recorded in their medical records, somehow 
we have to focus on this.
    Earlier this year the advisory council created under the 
national plan to address Alzheimer's disease, as you know, 
recommended that Congress and CMS re-design Medicare coverage 
and reimbursement to encourage appropriate diagnosis of 
Alzheimer's disease and to provide the coordinated care 
planning that is necessary.
    I have introduced a bill based on that with Senator Collins 
and Senators Brown, Menendez, Nelson, and others, called The 
Hope for Alzheimer's Act, that would do just that, namely, 
improve early detection of Alzheimer's disease, help families 
from the moment 
of diagnosis, help families, patients, and caregivers be better 
equipped with knowledge of treatment options, support options, 
and so on.
    So the bill would streamline the services by combining the 
existing Medicare benefits for diagnosis and care planning into 
a single package of services and include a comprehensive 
clinical diagnosis evaluation for Alzheimer's disease and care 
planning services.
    So, given all that you are doing to streamline payments and 
emphasize care coordination, I guess my question is, how does 
Alzheimer's fit into that? Are you looking at Alzheimer's 
disease and care planning to enhance the effort, and are you 
considering Alzheimer's as one of the conditions under your 
complex chronic care coordination services?
    Mr. Blum. Sure. We agree that early detection, early 
diagnosis for Alzheimer's, and all chronic conditions, is key 
to reducing overall spending but, more importantly, to 
improving the quality of life for the patients whom we serve. 
We agree with the growing consensus that a lot of the care that 
happens, provided by a physician, by their practice, happens in 
non-face-to-face settings, so we need to create more discrete 
payment opportunities for that care that happens in the non-
face-to-face setting, which led us to propose this new complex 
care management fee, really built on the medical home concept, 
where we really incent active patient engagement with their 
physicians and pay for the care that happens in the non-face-
to-face setting.
    We have also added to our new wellness visit that dementia 
screening needs to be an important part of that. I have had a 
chance to read your legislation, and I want to understand it 
better, but I think we agree in concept, and hopefully the 
changes that we have made through our own authorities are 
consistent and supportive to your overall policy goals.
    Senator Stabenow. Well, I look forward to working with you. 
It seems to me the direction you are going in is exactly what 
we are talking about, and there is a huge need, as you know, in 
the area of Alzheimer's disease, for supporting patients and 
caregivers. It seems to me, from reading the proposed rule, 
that this would be part of that, so I want to work with you on 
that.
    Let me talk a little bit more about ACOs. I guess my time 
is just about up, but let me just ask, when we talk about the 
fact that there are $500 billion in reductions projected for 
Medicare spending over the next 3 years, we know that is not 
all ACOs, it is a lot of things.
    But I would just indicate as my time runs out, rather than 
asking a question, that I think we have a lot of opportunities, 
certainly in Michigan, with what we have seen with ACOs and the 
Pioneer ACOs. I think there is a lot of opportunity to reduce 
costs in a way that increases quality, and I look forward to 
working with you on this.
    Mr. Blum. Great.
    Senator Stabenow. Thank you, Mr. Chairman.
    Senator Hatch [presiding]. Thank you, Senator.
    Senator Cardin?
    Senator Cardin. Thank you very much, Mr. Chairman.
    Mr. Blum, welcome back to our committee. It is always nice 
to have you here.
    I agree that we have two issues we have to deal with. One 
is the elimination of the SGR, but then, also, what do we 
replace it with? I would just urge more urgency in finding what 
we can replace it with. As Chairman Baucus pointed out, we have 
a more friendly estimate that we can work with this year that 
may not be available in the future.
    Second, we need savings in Medicare, and the physician 
reimbursement structure offers great promise of savings in the 
system. So I would just urge us all to have a greater sense 
that we need to try to get this resolved sooner rather than 
later so that we can, once and for all, get rid of the fear 
that physicians have that we will hit a deadline and these cuts 
will become real and the beneficiaries could be denied access 
to care, and replace it with a plan consistent with delivery 
system reforms and quality issues that we have talked about, 
that we have enacted in the Affordable Care Act.
    I want to talk about one issue that is particularly 
important to Maryland dealing with the durable medical 
equipment and the competitive bid second round that took effect 
on July 1st. The information I have is that there were 68 
contracts awarded in Maryland involving 47 different companies 
that are not licensed to provide services in Maryland. That is 
a direct violation of the law that requires companies, to win 
bids, before they can submit a bid, to be licensed by the 
State. That was not true in Maryland.
    We have written to you. Senator Mikulski and I have written 
to you of our concern here. We know there was a similar problem 
in Tennessee. You took some action, but not complete action, on 
Tennessee. Can you just give me an update on where we are? This 
is, again, an urgent issue.
    We have companies that did not win bids that are in danger 
of going out of service, providing not only concern about 
access to care for the Medicare population but also the 
Medicaid population. Are you planning to re-bid? What are you 
planning to do? It has been a couple of weeks since we have 
written to you on the subject.
    Mr. Blum. Well, thank you for your letter and thank you for 
the attention. We believe that competitive bidding is vitally 
important to the Medicare program. We have expanded the program 
from nine areas of the country to 100 areas of the country. We 
have maintained the principle that we will track down and work 
through any issue that is brought to our attention.
    We have heard about various State licensure issues, and I 
have directed our team to chase them all down. We have isolated 
two parts of the country where we had some issues--Tennessee 
you mentioned, but also the State of Maryland. We heard that 68 
sites potentially did not have State licensures. That has now 
been brought down to 47 agencies. I am confident that the 
majority of those 47 will meet State licensure requirements. We 
are still working through the complete list, but I think right 
now my analysis is that the majority have complied with State 
requirements.
    Senator Cardin. Was there not a requirement that they be 
licensed before they could make a bid?
    Mr. Blum. We are still working through that issue, but my 
understanding is that the majority have fulfilled their 
obligations. We are going to stand by the principle that every 
operating supplier must have followed State licensure 
requirements at the time they bid, but also today. CMS took 
action in Tennessee. We want to make sure that any action that 
we take is considered and carefully addressed. I pledge to work 
through this issue as fast as we possibly can.
    One of the issues that we discovered in the State of 
Maryland was that they were not following, not necessarily 
enforcing, their own State licensure requirements. CMS will 
make sure they are enforced, but, of the 47 that have been 
identified, I am confident that the majority will meet State 
licensure requirements.
    Senator Cardin. Let me just make a comment in my few 
remaining seconds. Our concern is access and that there be 
access to both the Medicare and Medicaid population. There has 
been an arrangement between CMS and the States on State 
licensures. I do not quite understand your reply challenging 
the independence of the State to determine licensure issues.
    It sounds, by your reply, that it looks like CMS may be 
taking over licensure responsibilities, which I do not think 
you really want to do. I think the law was pretty clear that 
they had to be licensed before the bids were submitted. And now 
disadvantaged companies that no longer are contract companies 
may go out of business. That does not seem fair to me.
    Senator Mikulski and I will be following up with you, and 
we would expect that you will keep us informed on this issue.
    Mr. Blum. Absolutely. Our principle is the same as yours.
    Senator Hatch. Senator Roberts?
    Senator Roberts. Thank you, Mr. Chairman.
    Mr. Blum, I want to start out by thanking you and your 
staff for your help in providing technical assistance on 
legislation I have proposed related to the long-term acute care 
hospitals. It is called LTAC. I know you are familiar with 
that. We believe we are making headway on a score with CBO, and 
I think that is in part attributed to your efforts, and I want 
to thank you.
    We are hopeful that after this round of comments, we will 
receive the feedback that we have addressed outstanding 
concerns from CMS. I think there are a few outstanding issues. 
I wanted to make sure that you and the committee knew that this 
continues to be a top priority for me and others on the 
committee, so thank you for that effort.
    Last night I was involved in one of these tele-town hall 
meetings that members of the Senate conduct, where you are 
talking to quite a few folks. You are lucky if you get, what, 
30, 32 questions in in the hour that you have. But I got 
several questions like this.
    There was a very nice lady from Wichita--and I get the same 
question when I am home a lot--who asked me why she cannot find 
a doctor and why the doctor of her choice will no longer accept 
her Medicare. That is true in Dodge City, Abilene, Salina, 
Topeka, Kansas City, Wichita, all over our State, and I think 
is pretty much true throughout rural and small-town America.
    I have heard that a growing number of doctors in Kansas are 
no longer accepting Medicare patients due to the uncertainty 
and the instability in the system, as you yourself have pointed 
out. I know this is a real challenge for us.
    The situation right now, I think, is getting pretty dire, 
more especially in the rural health care delivery system. I do 
not know what percent of our doctors in Kansas--I am not sure 
we will know, but there is an estimate now that 30 percent are 
not accepting Medicare patients.
    Then we have a lot of doctors who are joining up to be 
salaried employees with various hospital groups as opposed to 
operating in the fee-for-service environment. The reason for 
it, as we try to delve into that or dig down into the reason as 
to why they are doing that, is because they are just, quite 
frankly, damned tired of putting up with all the regulations 
around quality control.
    Lord knows, nobody wants to be opposed to quality control, 
but they just cannot keep up with the regulations with regards 
to the small practice that they had. Now they have become 
salaried. Well, now we are back to HMOs, and now we are back to 
managed care. We went through that, and that was not a very 
pleasant experience.
    Then figure out how many doctors are over 50 years old and 
how many doctors are planning on retiring in the next couple of 
years with the uncertainty with the Affordable Care Act and 
actions of CMS trying to achieve the answers that the Act says 
that you must do, unless you delay it----
    At any rate then, you have about, what, 15, 20 percent of 
fee-for-service people out there? Like Senator Cardin pointed 
out, we have a big access challenge on our hands, and I am most 
interested to know if you can address whether CMS is giving the 
rural health care delivery system the attention it needs. I 
know you are trying to achieve balance. I know you are trying 
to achieve quality control. I know you are trying to achieve 
savings.
    As a matter of fact, I think the administration does not 
recommend a specific way to pay for the SGR repeal, but instead 
adjusts the baseline to reflect a permanent fix. So we are 
adjusting the baseline and we are achieving savings, but we do 
not have a fix. It worries me that we are going to get down to 
a situation where people have to drive 50, 75, 100, 150 miles 
to get to a doctor.
    That has been our problem, that has been our challenge for 
a long time. It is true in Montana, it is true in Utah, 
Wyoming, Kansas, and I can just go around the room here in 
regards to the committee. Now I will quit talking and ask you 
to say that you are certainly looking out for the rural health 
care delivery system.
    Mr. Blum. Absolutely. I think the core principle that I 
would say needs to be part of any legislation is not so much 
the CBO score, but whether patient care is better and whether 
patients get better access to health care services than they do 
today. And whether it is the ACA, whether it is our payment 
rules, whether it is the quality framework that has been put in 
place in a bipartisan way, we want to make sure that health 
care costs are lower through better coordination, better 
engagement. That is as true in rural areas as it is in urban 
areas.
    We work very hard to make sure that our new payment models 
are responsive to the challenges of rural America. We work very 
hard to make sure that we are allowing all professionals to 
practice at the full scope of their State license. We have more 
work to do working with States, working with others, but I 
think the absolute core principle needs to be that, in any 
payment reform or SGR reform, we have to be able to say that 
patients have better access to their physicians than they do 
today in all parts of the country.
    Senator Roberts. Well, I thank you for your response. I 
would simply reflect the desire of, I think, virtually every 
Senator who has made comments here, for you to provide the 
specific policy options, how this is going to work, to us as 
soon as you can. Thank you.
    The Chairman. Thank you, Senator.
    Senator Brown, I think you are next.
    Senator Brown. Yes. Thank you, Mr. Chairman.
    Thank you for joining us, Mr. Blum. I appreciate it. I have 
been following House efforts to, for want of a better term, 
repeal and replace SGR. The House Energy and Commerce Committee 
majority staff released legislation maybe a couple of months 
ago that would replace the Sustainable Growth Rate with three 
phases: (1) a period of stable payments; (2) payments based on 
quality; and 
(3) payments based on efficiency.
    It seems to me that, in a couple of big ways, we are 
already on the path toward paying for quality and efficiency. 
One is the Physician Quality Reporting System predating the 
Affordable Care Act. Second is, CMS is implementing the value-
based modifider from the ACA, which will be phased in starting 
in 2015, to provide differential payments to physicians based 
on quality and cost of care.
    Would you sort of comment generally on their efforts, 
contrast them to what we are doing. In answering a couple of 
questions in the midst of that, are they kind of reinventing 
the wheel? Is it more costly and time-consuming to sort of 
deconstruct and rebuild? Just if you would kind of outline that 
for us, your observations.
    Mr. Blum. I will make a couple of points. Number one, I 
think it is a tremendous achievement that all three authorizing 
committees are working towards a solution to the SGR. There is 
a growing consensus that the change needs to be paired with 
different payment models to phase out of the open-ended fee-
for-service program. I think one question and one concern that 
should be brought forward is, there has been tremendous work 
over the last 10 years, led in a bipartisan way from this 
committee and others, to build the quality structure that we 
have: PQRS, pay for reporting, the value modifier.
    I think any effort that goes forward should build upon the 
current work that we have rather than restart/refresh. We have 
built tremendous infrastructure, the physician community has 
built tremendous infrastructure to participate.
    While there is a reason for celebration that all three 
authorizing committees seem poised to want to fix the SGR on a 
permanent basis, we have to be mindful that we send consistent 
signals to the physician community, not to restart/refresh, but 
to build upon the important work that really has led, in a 
bipartisan way, toward quality reporting, pay for value, and we 
should not step back where we should step forward.
    Senator Brown. Can you say with some certainty that PQRS 
and the beginnings of the Affordable Care Act are some of the 
reasons, either or both of those, that SGR costs into the 
future are less than they were projected to be some time ago?
    Mr. Blum. Well, I do not believe that the lower CBO score 
is a statistical fluke. It really is the result of a lot of 
hard work and a combination of driving more value in our 
payment system, focusing on care coordination, care quality. 
Over the last 3 years, Medicare costs have grown at almost zero 
percent due to a combination of many things: focusing on value, 
focusing on quality, focusing on payment accuracy. The reason 
why the CBO score is so low is because of all this hard work.
    We have to continue that, we have to build upon that, to 
ensure that we send consistent signals that we do not intend to 
replace work that has been done over the past 5 to 10 years. 
But I believe that the reason why Medicare costs have come down 
is due to a multitude of factors, including the focus on value, 
the focus on care coordination, the focus on quality, and the 
focus on payment accuracy.
    Senator Brown. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Enzi?
    Senator Enzi. Thank you, Mr. Chairman.
    Thank you, Mr. Blum, for being here. Your testimony was 
some of the more difficult testimony that I have ever waded 
through. I am not sure that I understand, even after your 
explanation. It sounds to me like you are kind of shifting the 
blame to the committees that are supposed to work on it without 
you providing a solution for the three committees to be working 
on.
    Your testimony says that you support a long-term plan to 
reform the physician payment system in a fiscally responsible 
way. However, the administration elected not to fix the SGR 
when we were doing the Affordable Care Act. The President 
promised a docs fix in the State of the Union speech while we 
were considering his reform package. Of course, he promised 
tort reform too. Neither showed up in the bill, yet the AMA 
stood behind him when he signed the bill.
    There is not any mention in your testimony of how we can 
pay for the cost of replacing the SGR, which I think costs 
about $140 billion over the next 10 years. So what specific 
proposals would the administration support to pay for an SGR 
replacement, and have those proposals been scored by the CBO?
    Mr. Blum. The President has put forward in his last five 
budget submissions for the Congress, a range of savings 
proposals to reduce costs in the Medicare program. That has 
been a consistent theme in the President's budgets. This year, 
the President put forward Medicare savings proposals that were 
scored by our actuaries, about $370 billion, that more than 
paid for the cost of an SGR fix. We have proposed ways to 
reduce costs for our Medicare Part D program, for post-acute 
care services, for other services that we believe to be over-
valued.
    The President also said that he is open to working with 
Congress to consider any idea to reduce Medicare spending that 
does not compromise access to quality care. So we believe that 
we have led on this. The reason, in part, that the SGR score is 
so low is due to a very, very strong focus on cost reduction, 
which is why it is so important that we think about things like 
competitive bidding for durable medical supplies, that we 
consider payment reforms to laboratory services, which CMS 
chose to take on this year.
    We believe that we have done a lot to reduce overall 
spending, but the President consistently has put forward, in 
his last five budget submissions, controversial, but very 
appropriate, ways to reduce Medicare spending that this year 
more than offset the costs to an SGR fix.
    Senator Enzi. I have to join Senator Cardin in his comments 
about the bidding process and allowing people to bid who have 
not gotten licensed yet. And they are doing bids for the whole 
United States without subcontracting, in rural areas 
particularly, and it is affecting Wyoming pretty dramatically. 
They come to the licensed provider on the bid process and tell 
them what price they can have for the service that they are 
providing, not even knowing anything about the territory that 
they have to serve.
    But it appears to me that we are just kind of kicking the 
can down the road. There have been a number of bipartisan 
commissions and proposals, including Simpson-Bowles, Domenici-
Rivlin, Coburn-Lieberman, that proposed making changes to 
Medicare Part A and Part B as part of a permanent solution, and 
those changes simplify the basic structure of Parts A and B, 
they reduce the costs for many seniors, they protect low-income 
seniors from catastrophic medical costs, and they better align 
Medicare premiums with the senior's ability to pay. Such 
changes could be included as a permanent solution. Would the 
administration support those bipartisan reforms to the Medicare 
benefit as a part of the SGR solution?
    Mr. Blum. As part of the President's budget proposal this 
year, we have put forward ways to reform Medicare cost-sharing, 
for example, by adding cost-sharing for home health services 
for certain beneficiaries who qualify for home health services. 
We have proposed reforms to secondary cost-sharing, changes to 
Medigap.
    Senator Enzi. You are not answering my question about those 
bipartisan suggestions. You are going into some other things 
that you already covered in the first question.
    Mr. Blum. We agree with the growing consensus that Congress 
and we should work together to reform Medicare's cost-sharing 
structure. We have some proposals that were put forward to 
achieve that goal in our budget, and we are happy to continue 
that work together.
    Senator Enzi. Once again, the administration is saying, if 
you have any ideas, give them to us. I have had thousands of 
them thrown away, and it is a little bit discouraging. I think 
these were some good suggestions. I think they have been thrown 
away. I think you said you have been through 1,000 of the 
payment codes, and that is 40 percent. I thought there were 
90,000 payment codes.
    My time has expired.
    The Chairman. Thank you, Senator.
    Senator Grassley?
    Senator Grassley. Thank you.
    I obviously missed your testimony, because I was in a 
Judiciary nomination hearing, so I have a statement, but it 
ends with a question for you. So obviously, with this important 
issue before us, I thank you for being here to help us get an 
answer to it.
    The last time you were here, I asked if there was any 
defense for Medicare fee-for-service, where the provider is 
paid based on quantity of service provided without any regard 
to the outcome of quality of care provided or any 
responsibility to coordinate that care with other providers, 
and I think the answer that you gave was ``no.'' I believe that 
I even told you rather abruptly that your answer was ``no.''
    I believe that any number of problems we face in Medicare 
begin with our payment system. Medicare pays based on the 
quantity of care provided. The payer and the provider are not 
at risk for quality of services provided. Why are we struggling 
with reimbursement for imaging? Because we focus on the amount 
and the cost of services provided rather than the quality and 
the appropriateness of what is needed.
    Why are we struggling with reimbursement for durable 
medical equipment? Because we are trying to transition DME 
payments to a more competitive system that is perceived to have 
a greater interest in reducing the number of providers rather 
than improving the quality and appropriateness of the service 
provided.
    Why don't we champion a payment system that penalizes 
hospitals for readmissions? Because the current payer has not 
figured out how to isolate and correct the problems that lead 
to readmissions with providers outside the hospital. Why are 
Medicare beneficiaries often caught in the cycle of acute 
episodes at the end of post-acute treatment, which really is 
just the pre-acute period before their next acute episode? 
Because the payer has never had the proper incentive to stop 
that cycle.
    We all know that the integration of services is critical 
for people with chronic conditions. Medicare is a system that 
desperately needs more transparency. Senator Wyden and I have 
drafted a bill to make Medicare data more available, though it 
is remarkable that we would even need that bill. There is no 
legitimate opposition. I believe that fee-for-service is 
fundamentally flawed.
    Now let me be clear: there are certain episodes of limited 
care where a specific payment for a specific service will 
always make sense, but I continue to believe that our system 
needs to be in transition towards a payment system that entails 
greater risk for both the providers and the payers. The payer 
and the provider must care about the outcome because of 
financial risk, not just some as-yet-to-be-designed low-bar 
quality metric.
    When we talk about SGR reform, I realize that we cannot 
snap our fingers and make it happen next year or the next year, 
but if we are to pass anything this year, it has to point in 
the direction of where we need to be a few years down the road.
    I want to support SGR reform. We have wasted too much time 
and energy and money on this issue over the last dozen years, 
but I also need to see progress toward a better system. So my 
question, Mr. Blum, is this: what is CMS doing to increase the 
use of risk for providers and payers in helping design a 
sustainable Medicare for the future?
    Mr. Blum. I think that is a great question, and I think we 
agree that we need to create multiple pathways to encourage 
more provider systems to enter into the transition from open-
ended fee-for-service to alternative payments. We purposely 
designed the ACO program, which now has more than 250 
organizations, some in your home State, to put us on the 
pathway to that transition.
    One of our learnings is, there are different degrees of 
preparedness across the country to transition to financial 
risk. So, one important principle is to create multiple 
opportunities, but to create predictable transition points to 
that transition.
    Depending on the geographic area, depending on the degree 
of competition in a given geographic market, that answer might 
be different for different parts of the country. But, like our 
ACO program that was purposely set up to have multiple pathways 
and predictable transition periods, that is one step the agency 
has taken to assist the transition that we are all trying to 
achieve.
    Senator Grassley. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator, very much.
    Senator Isakson, you are next.
    Senator Isakson. Thank you, Mr. Chairman.
    I think you answered the chairman earlier about this period 
of stable payment. You said it would be about a 4- to 5-year 
period of time?
    Mr. Blum. Correct.
    Senator Isakson. Has the administration or have you 
recommended what the payment mechanism during that period of 
stability would be?
    Mr. Blum. I think what our principle would be is that we 
would set an update factor that would be predictable, that 
would be set in statute. During that time table, that time 
period, two things would happen. Number one, the CMS, working 
with the Congress, would continue to develop new payment 
models, continue our pathway on ACOs, but also continue our 
work to make the fee schedule more accurate, more focused on 
care coordination, more focused on primary care.
    But then, once that transition period had been completed, 
or that period of stability had been completed, we believe that 
it would be appropriate for Congress to consider differential 
payment rates or updates depending on physicians' successful 
participation in those new payment models to increasingly 
reward physicians who have made the transition to that value-
based concept rather than the open-ended fee-for-service, as 
Senator Grassley talked about.
     So we think it is important to create that period of 
stability so we can continue our work to do those two things 
together: build the alternative payment systems, but fix the 
underlying building blocks that are the basis for those new 
payment models.
    Senator Isakson. So the 4- to 5-year period of transition 
or stability would be basically an extension of SGR with an 
inflation factor added to it for each year, so you know 
predictably over that 5 years what reimbursement would be. Is 
that----
    Mr. Blum. Well, I think the goal would be to have something 
that is sustainable, that is consistent with the overall CBO 
score. But the vitally important point is that physicians have 
predictability for a period of time to help them transition to 
this new system. We do not think it is helpful to have a 
continuing threat of 24- to 25-percent payment reduction to 
encourage more physicians to adapt to this new transition.
    Senator Isakson. When you cited high-cost imaging as one of 
the codes that you had reviewed and actually lowered the cost 
of to Medicare, I assume it was by reducing reimbursement. Is 
that correct?
    Mr. Blum. Correct.
    Senator Isakson. And you did that evaluation based on the 
cost of actually delivering the imaging, I presume?
    Mr. Blum. It is based upon a time-based notion that is 
built into the statutory framework, but in principle, yes.
    Senator Isakson. And so would it be fair to say that all 
codes are evaluated or reevaluated based on the actual cost of 
delivering the service which the code designates?
    Mr. Blum. By statute, we have to use a relative time-based 
approach, and so it is based upon the relative time and effort 
and work requirements to deliver a particular service. But what 
we know, for example, with high-cost imaging is, in the past, 
it was paid very well, and the use of it was high.
    Through acts of Congress and also through our own 
authorities, we have brought those payments down. We have not 
seen any degredations of access to care to our beneficiaries, 
but we do think it is appropriate for us to work together to 
continue that process.
    Senator Isakson. It begs the question, though, when you 
make that statement--and I respect the statement completely--
that why physicians are dropping out of Medicare is because 
their reimbursement rates are so low they cannot stay in 
business, and it portends that maybe some of the coding and the 
evaluations that are done actually do not reflect the cost of a 
physician delivering the service for which the fee is 
reimbursed.
    Mr. Blum. We understand that, in some pockets of the 
country, we are seeing physicians leave the fee-for-service 
Medicare program, but overall, across the country, 
participation has remained steady. It is something for us to 
watch very carefully.
    Obviously, if the 25-percent cut were to go into effect, we 
would have a much different situation, but to date, for the key 
access measures that we look at, we have not seen significant 
changes across the country. But there are some pockets that we 
are concerned about.
    Senator Isakson. Well, I very much want to fix the SGR, and 
I think the 4- to 5-year period of time probably is a realistic 
evaluation time. I commend you on referring to coordinated 
care. Senator Wyden and I worked extensively on some 
legislation we are preparing for CMS and for Medicare that 
focuses on reimbursement for coordination of care for seniors 
on Medicare.
    About 72 percent, I am told, of seniors on Medicare have 
two or more chronic conditions for which they are receiving 
services that are reimbursed, most times from different 
providers, without a coordination of the care, which oftentimes 
leads to complications and higher costs.
    So I think if you can focus on a way to encourage the 
coordination of care for seniors who have multiple chronic 
conditions, you will probably have a lower cost and a higher 
quality in terms of the delivery of those services to those 
patients.
    Mr. Blum. We agree.
    Senator Isakson. Good. Thank you, sir. Thank you for your 
appearance.
    The Chairman. Thank you, Senator.
    Senator Casey?
    Senator Casey. Thanks, Mr. Chairman.
    Mr. Blum, thanks for being here again. We appreciate your 
public service. At your last appearance here you provided 
testimony, and I am not quoting you directly, but when you 
spoke to the issue of reducing both readmissions and hospital-
acquired infections, you said that we could save as many as 
65,000 lives, a fairly substantial assertion. I know you have 
worked very hard in furtherance of that goal.
    I wanted to ask you in particular, and I am noting that, in 
your testimony at the end of page 4, on to page 5, after 
talking about this issue you say, ``CMS has created a new 
procedure code to recognize the additional resources involved 
with community physicians coordinating a patient's care in the 
30 days following discharge.''
    Then you go on, on page 5, to say, ``The new procedure code 
establishes a separate payment for care management services 
that account for patient communication and medical decision-
making, as well as face-to-face visits post-discharge for 
qualifying beneficiaries.''
    I know that is not the only effort you are undertaking, but 
can you address the other efforts you are doing or are 
undertaking to empower physicians and others to reduce hospital 
readmissions and also hospital-acquired conditions?
    Mr. Blum. Sure. Senator, we continue to see declines in 
all-cause hospital readmissions, and, in the data that I cited 
back in February, that trend continues to point in the right 
direction. So it is giving us promise that the strategies are 
working. And whether it is in our hospital payment systems and 
our physician payment systems or other payment systems, we are 
trying to accomplish what Congress really set out to do, to 
accomplish a couple of things.
    Number one is to make sure that all parts of the health 
care system have the incentive to talk to each other, to make 
sure that professionals focus on the care, not just what 
happens in those four walls but after the patient leaves those 
four walls, like hospital readmission penalties and the value-
based purchasing system.
    The other principle is that we want to make sure that 
physicians receive greater payment to provide that complex care 
management that happens to patients between physician office 
visits. While this is an area that the agency in the past has 
been hesitant to move on due to budgetary concerns, we are 
comfortable moving forward now if the system is designed 
correctly, if we have assurances that those physician practices 
have the capability to provide that complex care management, 
and that patients who have complex conditions receive those 
services.
    So we think it is a vitally important step to create 
greater incentive, greater payments, for that complex 
management. We know that there are parts of the country that do 
this very well, and we want to make sure that we build the 
payment policies that reinforce them and continue to drive that 
readmission all-cause rate downward, as it is going right now.
    Senator Casey. Are there any impediments that you see to 
making greater progress on reducing readmissions in the 
hospital-
acquired infections? Impediments meaning, within the law or 
otherwise in terms of kind of the real-world implementation of 
these reforms.
    Mr. Blum. I think we need to create more infrastructure. As 
Senator Wyden and Senator Grassley discussed, we need more 
opportunities to share information in a way that is meaningful 
but also protects patient confidentiality.
    One of the things that we really learned working with 
providers is that, when they can see the complete picture, when 
they can see how many different skilled nursing facilities, for 
example, that their patients go to and the relative outcomes 
from those different skilled nursing facilities, it changes 
behavior. So I think one area that we can continue to work 
together on is how we share that information, share that data, 
in a way that is meaningful but also protects patient 
confidentiality.
    Senator Casey. I wanted to raise one quick question at the 
end of my time here. We know the SGR has a tremendous impact on 
physicians and likely an impact on physician recruitment. 
Maybe, because I am running out of time, if you could--we will 
send you a question--the main question I had was about the 
impact of the SGR on physicians, and also physical therapists. 
I am out of time, but maybe you could answer that one in 
writing. Thank you very much.
    The Chairman. Thank you, Senator.
    Senator Toomey?
    Senator Toomey. Thank you, Mr. Chairman. Thank you, Mr. 
Blum, for being with us today. I want to kind of step back for 
a minute, if we could. We have talked a little bit around the 
edges about some of the manifestations of the problems that 
arise from the payment schedules that we developed.
    Senator Isakson mentioned doctors who were refusing to 
participate in Medicare in some cases. We know there is over-
utilization of certain services. You mentioned in your 
testimony at some length and talked about the aggressive 
efforts that you have taken, and continue to take, to evaluate 
misvalued payment codes.
    I understand all that. I guess my question is, to what 
extent do you believe that we are guaranteed to get these 
payment codes wrong probably all the time because we have a 
committee that decides what a price should be for something?
    I mean, I am reminded of just how complicated this process 
is, coming up with 7,000 different Relative Value Units which 
assign a number for a work component, then a number for a 
practice expense, then a different number for liability 
insurance, all of which are then adjusted by the Geographic 
Practice Cost Index, right? You have this incredibly 
complicated formula by which we try to establish a price.
    Doesn't everything we ever learned in economics tell us 
that committees cannot figure out prices? Markets tell us what 
prices ought to be. So I guess my question is, do you agree 
that there might be a better way to go about this in a very 
fundamental way, which would be to find a way to use price 
discovery in a competitive setting to determine what we ought 
to pay, rather than having, admittedly, very smart people 
spending an awful lot of time doing calculations?
    I mean, I just do not think that the smartest people in the 
world can figure out what my car is worth by a formula, but it 
is really easy to figure it out when you go to try to sell it. 
Is this not one of the fundamental problems we have in trying 
to establish fee schedules?
    Mr. Blum. I agree with you that the challenge with fee 
schedules is that, when they are set in one given year but then 
kind of updated over time, they do not always reflect the 
changes in market dynamics, changes in efficiencies, how that 
service is delivered.
    So we always have to be vigilant to review those fee 
schedules and readjust them to make sure they reflect market 
realities. I know it is controversial, but that is why we felt 
it was so important to move forward with durable medical 
equipment competitive bidding, because the fee schedules were 
set back in the 1980s and really have not been updated for that 
market reality.
    The same is true for laboratory services, so we have some 
thoughts, in our proposed rule that came out this week, to 
change that fee schedule based upon a dynamic. So there are 
areas where we can use those competitive principles, those 
market reality principles. We have to operate within the law, 
obviously, but we agree with you that there are more 
opportunities for you to use those principles.
    Senator Toomey. On the hospital side, of course, we have 
four different models of bundled payments. Do you think that 
using a bundled payment approach--of course, you could choose 
to have a committee decide what the bundled payment should be--
might lend itself somewhat more readily to introduce market 
pricing for services?
    Mr. Blum. I think the bundled payment model is still a 
demonstration and is still in its early phases, so we will 
hopefully learn tremendous information. One of the principles 
that we have followed with the four models is, the hospitals 
can come forward to choose their services and to offer a 
discount on the current total payments. So we are hopeful that 
these pilots will lead to better coordinated payment policy, 
but they are still an experiment.
    Senator Toomey. And then, just very quickly, the last 
question, you mentioned that you do believe, if I understood 
you correctly, that CMS could do more to use market-based price 
signals to establish payments? Are there any specific reforms 
that we ought to look at on the physician side in particular?
    Mr. Blum. That is a question I will have to think through 
and get back to you on, but I do believe that we can learn from 
the experiences of the Part D system, the durable medical 
supplies, to achieve more competitive principles for our 
payment system.
    Senator Toomey. Thank you.
    Thanks, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Mr. Blum, what about rural providers? Some communities are 
lucky to have a doctor. Maybe they have a physician's 
assistant. They are quite a ways from a clinic, a hospital, and 
so forth. So how do we implement quality in a rural setting?
    Mr. Blum. I think we all agree with the principle that 
beneficiaries should have the same access of care, the same 
quality of care, no matter where they live, in a large urban 
area or in a frontier area. It is probably true that many of 
the payment models that we have developed and that are being 
recommended by stakeholders work better in urban communities 
than rural communities, because you need a population that you 
can manage and that you can measure.
    So it might be that the framework that the Congress has 
created, the value modifier, which pays individual physicians 
based upon their relative quality, relative cost, could be the 
foundation to ensure that we have continued access to physician 
services in a rural area, but still have the incentive for 
better quality of care and better total cost management.
    So I think there is some infrastructure that has been 
created that can both achieve the goal of preserving access, 
but also create payment structures that are responsive in a 
rural area.
    The Chairman. What are some examples of that?
    Mr. Blum. Well, right now, the value modifier for all 
physicians that is being phased in over time will provide every 
physician who participates in the Medicare program their 
relative quality and their relative resources so they can see 
how their patients compare to patients in similar areas of the 
country and to care being provided by their peers. The 
physicians can start to get feedback on the relative quality 
and relative total cost of care.
    This is at its very early stages. We are still phasing it 
in to large physician practices, but it could be the 
infrastructure that this committee continues to build upon for 
its long-term strategy.
    The Chairman. So, when you mentioned 4 to 5 years' 
transition earlier, that would include rural providers, that 
is, more importantly, rural beneficiaries?
    Mr. Blum. Sure. Absolutely. I think we always have the 
visual on it to make sure that access is preserved but that we 
are setting equal standards for quality of care throughout the 
country.
    The Chairman. Well, thank you very much, Mr. Blum, for your 
hard work. I think you can tell there is a subtext to this 
committee. Everyone, I think, on this committee believes we 
should move in this direction, and I think you will find the 
enthusiasm here to move even more quickly and aggressively.
    You have our support. I want to work with you. Let us know 
what else you need and how we can help, because, clearly, at 
least in my judgment, beneficiaries, our seniors, will be 
served with successful efforts in this direction. It will also 
help bring some of the costs down in Medicare. I would just 
urge you to go ahead. Thank you very much for your work. Do not 
forget rural America.
    Mr. Blum. I will not. I will not. Thank you.
    The Chairman. Thank you very much.
    The hearing is adjourned.
    [Whereupon, at 11:28 a.m., the hearing was concluded.]
                            A P P E N D I X

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