    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                                        IDEAS TO IMPROVE COMPETTION IN THE
                                               MEDICARE PROGRAM
                       __________________________________________________________
                       __________________________________________________________

                                                 HEARING

                                                BEFORE THE

                                          SUBCOMMITTEE ON HEALTH

                                                  OF THE

                                        COMMITTEE ON WAYS AND MEANS

                                       U.S. HOUSE OF REPRESENTATIVES

                                      ONE HUNDRED FOURTEENTH CONGRESS

                                               FIRST SESSION
                                               ___________

                                              MAY 19, 2015
                                             ______________

                                            Serial 114-HL02
                                            ________________

                          Printed for the use of the Committee on Ways and Means

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                              U.S. GOVERNMENT PUBLISHING OFFICE

     21-366                           WASHINGTON : 2016
    ____________________________________________________________________
     For sale by the Superintendent of Documents, U.S. Government Publishing Office,
    Internet:bookstore.gpo.gov. Phone:toll free (866)512-1800;DC area (202)512-1800
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                              COMMITTEE ON WAYS AND MEANS

                            PAUL RYAN, Wisconsin, Chairman

      SAM JOHNSON, Texas                               SANDER M. LEVIN, Michigan,
      KEVIN BRADY, Texas                               CHARLES B. RANGEL, New York
      DEVIN NUNES, California                          JIM MCDERMOTT, Washington
      PATRICK J. TIBERI, Ohio                          JOHN LEWIS, Georgia
      DAVID G. REICHERT, Washington                    RICHARD E. NEAL, Massachusetts
      CHARLES W. BOUSTANY, JR., Louisiana              XAVIER BECERRA, California
      PETER J. ROSKAM, Illinois                        LLOYD DOGGETT, Texas
      TOM PRICE, Georgia                               MIKE THOMPSON, California
      VERN BUCHANAN, Florida                           JOHN B. LARSON, Connecticut
      ADRIAN SMITH, Nebraska                           EARL BLUMENAUER, Oregon
      LYNN JENKINS, Kansas                             RON KIND, Wisconsin
      ERIK PAULSEN, Minnesota                          BILL PASCRELL, JR., New Jersey
      KENNY MARCHANT, Texas                            JOSEPH CROWLEY, New York
      DIANE BLACK, Tennessee                           DANNY DAVIS, Illinois
      TOM REED, New York                               LINDA SANCHEZ, California
      TODD YOUNG, Indiana
      MIKE KELLY, Pennsylvania
      JIM RENACCI, Ohio
      PAT MEEHAN, Pennsylvania
      KRISTI NOEM, South Dakota
      GEORGE HOLDING, North Carolina
      JASON SMITH, Missouri
      ROBERT J. DOLD, Illinois

                                     JOYCE MYER, Staff Director

                     JANICE MAYS, Minority Chief Counsel and Staff Director

                                     _____________________

                                     SUBCOMMITTEE ON HEALTH

                                    KEVIN BRADY, Texas, Chairman

           SAM JOHNSON, Texas                               JIM MCDERMOTT, Washington
           DEVIN NUNES, California                          MIKE THOMPSON, California
           PETER J. ROSKAM, Illinois                        RON KIND, Wisconsin
           TOM PRICE, Georgia                               EARL BLUMENAUER, Oregon
           VERN BUCHANAN, Florida                           BILL PASCRELL, JR., New Jersey
           ADRIAN SMITH, Nebraska                           DANNY DAVIS, Illinois
           LYNN JENKINS, Kansas
           KENNY MARCHANT, Texas
           DIANE BLACK, Tennessee

                                                  C O N T E N T S

                                                  ________________
                                                                                                       Page
        Advisory of May 19, 2015 announcing the hearing .......................................           2

                                            WITNESSES

    Mr. Joe Antos, Wilson H. Taylor Scholar in Health Care and Retirement
    Policy, American Enterprise Institute.............................................................   10

    Joe Minissale, President, Methodist McKinney Hospital.............................................   19

    Robert Steedley, President, Barnes Healthcare Services, on behalf of
    American Association for Homecare.................................................................   26

    Rich Umbdenstock, President and CEO, American Hospital Association................................   39

                                      SUBMISSIONS FOR THE RECORD

    Dr. Anne S. Hast, statement.......................................................................  127
    Dr. Daryl List, statement.........................................................................  131
    Michael Torn, statement...........................................................................  133
    David Lippert, statement..........................................................................  137
    Jason Leymeister, statement.......................................................................  139
    Lafayette Surgical Specialty Hospital, letter.....................................................  140
    Medicare Rights, letter...........................................................................  146
    Dr. David L. Sappenfield, statement...............................................................  148
    Michael Russell, statement........................................................................  150
    Sharon P. Pearce, letter and addendum.............................................................  152
    American Medical, statement.......................................................................  162
    Dr. Frederick E. Liss, statement..................................................................  167
    Mark McDonald, statement..........................................................................  171
    K&S Consulting, statement.........................................................................  174
    Edward Kerens Jr., statement......................................................................  176
    Mark Kennedy, statement...........................................................................  178
    Robert Behar, statement...........................................................................  180
    John R. Graham, statement.........................................................................  184
    Blake Curd, statement.............................................................................  189
    Salina Surgical, statement........................................................................  199
    Heart Hospital, statement.........................................................................  204
    Richard Bruch, statement..........................................................................  211
    Edward Ray, letter................................................................................  214
    Sheree E. Barak, letter...........................................................................  215
    Harold Kernodle, Jr., letter......................................................................  216
    Karen F. May, letter..............................................................................  217
    Candy Johnston, letter............................................................................  218
    J. Mack Aldridge, letter..........................................................................  219
    Kim Lyon, letter..................................................................................  220

                      IMPROVING COMPETITION IN MEDICARE: REMOVING MORATORIA AND EXPANDING
                                                    ACCESS
                                              _______________

                                           Tuesday, May 19, 2015

                                                 House of Representatives,
                                                 Committee on Ways and Means,
                                                     Subcommittee on Health,

                                                              Washington, D.C.

    The subcommittee met, pursuant to call, at 9:59 a.m., in Room 1100,
    Longworth House Office Building, Hon. Kevin Brady [chairman of the
    subcommittee] presiding.

    [The advisory announcing the hearing follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Brady. Welcome to today's hearing on improving competition, within
    the important Medicare program. This is the first in a series of hearings
    this summer and fall on identifying solutions to saving Medicare for the
    long term. Today we are going to explore how much competition exists in
    Medicare, its impact, its benefits and savings for Medicare patients, as
    well as potential for improving Medicare access in choices through more
    competition.

    We are also going to hear about two ideas to make Medicare more responsive
    to seniors' needs, while also driving down costs and expanding access.
    Competition is a good thing, it drives down costs and increases access
    while improving quality. Most importantly it empowers consumers.
    Competition and the choices it offers is how we discover information on the
    prices and quality.

    It gives families the power to decide what they want to buy and how to
    stretch their dollars further. Competition is a critical component of
    virtually every sector in our economy save one, Medicare. While more often
    than not, Medicare stifles competition and choices through legislative
    action and agency enforcement. Medicare sets prices and sets the standards
    by which it determines quality. Rather than empowering consumers, Medicare
    program limits choices.

    This system is set up so that providers are more likely to fight rulemaking
    decisions handed down from government agencies than they are to compete
    with each other, to offer better services to Medicare patients. The
    Medicare fee-for-service program is a perfect example. This fiscal year,
    Medicare's projected to pay $375 billion for part A and part B services,
    that is doctor and hospital services. The vast majority of that spending
    the Centers for Medicare & Medicaid Services is directly responsible for
    setting, implementing and managing these payments. In other words, the
    massive bureaucracy picks winners and losers among countless health care
    providers. Competition and choice and the preferences of Medicare seniors
    play little role in the administration of all that spending. It shows the
    program unfortunately is going insolvent.

    By contrast, competition choices for seniors play a proven critical role in
    two successful programs, Medicare Advantage program, and Medicare part D,
    which provides prescription drugs. In these two extremely popular programs
    Medicare seniors are the ones in control, not the government. Plans compete
    fiercely for the health care businesses, offering services and benefits to
    fit the needs of Medicare patients, not Washington. If consumers are
    unhappy with their service, they can they can say no thanks and change
    their plan to one that meets their needs. It is that simple, and it works.

    Right now, seniors have accessed more than 3,600 Medicare Advantage plans
    tailored to meet their specific needs. Competition is robust, and not
    surprisingly, patient satisfaction is high. The same is true of the part D
    prescription drug program, which is one of the few government health
    programs to actually come in under budget projections, and whose average
    base monthly premiums are as low today at $33, as when the program began in
    2006 at $32.

    Preventive care prescription plans seniors have dozens of choices in each
    State and can pick a plan that works for them. Studies show this very fact
    has led to a decrease in their out-of-pocket costs which is great news for
    seniors. Competition has proven to work in Medicare Advantage and it works
    on the part D prescription drug program. So how can it work in the larger
    Medicare fee-for-service system?

    Today we will look at two proposals that do just that. The first is
    expanding seniors' access to local physician-owned hospitals. This is an
    issue Mr. Johnson of Texas has been working on for quite some time.
    Physician-owned hospitals are full service community hospitals that serve
    both rural and urban communities, they specialize and providing essential
    health services in areas that are considered underserved. But since 2005,
    these hospitals have been prevented from growing to meet the needs of their
    communities. As a consequence, there are just over 230 of these kinds of
    hospitals in operation around the country compared to 3,400 national acute
    care hospitals.

    The questions before us include should seniors continue to be blocked from
    access to these high-performing hospitals? What are the impacts pro and con
    of this discrimination against one model of acute care? And is the current
    ban based on quality of service, or desire to restrain competition? At this
    point, a decade into the temporary moratorium, it is the right time to have
    a thoughtful discussion on this issue.

    The second idea seeks to improve the way Medicare currently administers the
    durable medical equipment benefit, Dr. Tom Price of Georgia has spent a
    significant amount of time looking at this issue, as well as other members
    of this panel and the Ways and Means Committee. He has been working on a
    reform that would inject a more market-based approach to help address some
    of the more serious concerns Members of Congress from both parties have all
    heard about from our constituents.

    These two proposals have the potential for improving competition, end the
    benefits within Medicare. But ultimately, Congress needs to examine how we
    administer the Medicare program overall. The current program is critical,
    but unsustainable. It went from the program's own actuaries to nonpartisan
    scorekeepers like the Congressional Budget Office. Outside watchdog groups
    have worried about this, and warned us about this growing problem. Members
    of both Parties in Congress have a responsibility to save Medicare for the
    long term, improve and protect Medicare for today's seniors and for future
    generations.

    We recently took the first important step by solving the way Medicare pays
    its doctors. The second step, we must turn immediately exploring how we
    improve the way Medicare pays its other health care providers, from the
    testing and evaluation leading into the hospital, to inpatient and
    outpatient care, and post-acute care after leaving the hospital.

    The Health Subcommittee will continue to hold hearings on this topic over
    the course of this year. Developed reforms will put Medicare on a
    sustainable path.

    So to help us get started, I would like to welcome today's witnesses, Joe
    Antos, from the American Enterprise Institute; Joe Minissale, president of
    Methodist McKinney Hospital in Texas; Robert Steedley, president of Barnes
    Health Care Services in Georgia; and Richard Umbdenstock, president and CEO
    of the American Hospital Association.

    And before I recognize the ranking member, Dr. McDermott, for the purposes
    of an opening statement, I ask unanimous consent that all members' written
    statements be included in the record. Without objection, so ordered.

    I now recognize Dr. McDermott for his opening statement.

    Mr. McDermott. Thank you, Mr. Chairman. We are here today to talk about the
    second part of health care reform, that is, control of cost. Access under
    the Affordable Care Act is rising clearly where people have access to
    health care supposedly. The question is about how do you get control of
    costs? And we are talking today about improving competition in Medicare.
    Now I can't help but wonder, having sat here for a number of years, what
    this hearing is really going to accomplish. If this hearing were about
    competition, we would look carefully about how to drive down prices and get
    a handle on health care costs. That would mean reducing wastes and
    overpayment to industries that are profiting at the expense of the American
    public. The more the American medical industrial complexes enter the
    government pocket, the more it becomes our issue here.

    Unfortunately, the proposals we will hear this morning won't control costs;
    instead, they are designed to appease the very interest that benefit from
    the waste in the system and contribute to higher health care spending. A
    hearing like this would make us ask ourselves, are we serious about
    controlling costs or would we rather just want to talk about it?

    We are going to discuss ways to revise Medicare's competitive bidding
    program for durable medical equipment. Specifically, we will hear a
    proposal that will put a halt to the existing program, reduce competition
    and ultimately increase cost for Medicare and beneficiaries. The real irony
    of this hearing is, because I remember when it was Republicans who were the
    champions of competitive bidding. I have been on this committee long enough
    to listen to all of this, and the problem of health care costs in devices
    has been there. It was a Republican Congress that first introduced the
    concept to Medicare as a demonstration project in the Balanced Budget
    Amendment Act of 1997. And it was a Republican Congress that expanded the
    program in 2003 as a part of the prescription drug legislation.

    Now despite some hiccups along the way, the programs it had remarkable
    success or at least measurable success. First round of competitive bidding
    saved over $580 million in 2 years, and HHS projects that over 10 years, we
    will save over $43 billion. Of course, we should continue to carefully
    oversee the implementation of competitive bidding, but proposals like the
    one that is before us today, to delay or undermine signals to the American
    people that Congress is more concerned about appeasing an industry than it
    is about controlling costs.

    We are also going to discuss the moratorium on new and expanded physician-
    owned hospitals. For many years, specialty hospitals enjoyed a loophole in
    the STOCK Act that allowed doctors to make referrals to hospitals in which
    they had an ownership interest. As long as the ownership interest was in
    the whole hospital rather than subdivision of it--you couldn't have just
    one department--physicians could make referrals that otherwise would have
    been illegal. The result was a rapid growth in physician-owned hospitals
    which skewed the market in troubling ways. Nonpartisan experts of MedPac,
    GAO, the Office of Inspector General, for years have expressed serious
    concerns that these hospitals increased utilization of services and drive
    up healthcare costs.

    Now, closing this loophole is a cost saving measure that has always had
    bipartisan support. We pass temporary moratoriums during the Republican-
    controlled Congresses, and we made it permanent as a part of the Affordable
    Care Act. This reform will save the American people $500 million according
    to the CBO. There is simply no good reason to reverse course and undue this
    progress. It will make the industry happy, but it will bring needless waste
    back into the healthcare system and ultimately harm the hardworking
    families of this country who are paying for this system.

    Getting serious about controlling costs is more important now than ever.
    The Affordable Care Act continues to expand access, more and more people
    cover, everybody is clapping their hands and popping the corks on champagne
    bottles about how many more people. When all is said and done, more than 30
    million additional people have been brought into the system. As this
    happens, the healthcare system is rapidly changing, medicine is
    transforming from a profession into a business. Market powers consolidating
    in fewer and fewer hands as hospitals merge and swallow up independent
    doctors' practices. This raises a number of questions about competition,
    cost, and patient care that we need to answer. Until we take a careful look
    at what this trend means, we are sending a message to the American people
    that appeasing wasteful industry actors is more important than controlling
    costs.

    I sent a letter to the chairman earlier about my concerns about
    consolidating hospitals and having less and less competition in various
    parts of the country, and I would ask unanimous consent to have that put
    into the record.

    Chairman Brady. Without objection, so ordered.

    [The information follows: The Honorable Jim McDermott Submission]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. McDermott. I yield back the balance of my time.

    Chairman Brady. Thank you. Mr. Antos, welcome today and you are recognized
    for the 5 minutes.

    STATEMENT OF JOE ANTOS, WILSON H. TAYLOR SCHOLAR IN HEALTH CARE AND
    RETIREMENT POLICY, AMERICAN ENTERPRISE INSTITUTE

    Mr. Antos. Thank you, Chairman Brady, and Ranking Member McDermott and
    members of the committee. Competition is central to obtaining good value
    for the dollars spent by beneficiaries and taxpayers in the Medicare
    program. Congress must avoid the temptation to smother competitive markets
    in Medicare through overregulation. Private plans must follow rules--
    private plans and private providers must follow rules designed to protect
    consumers and ensure access to all necessary health services covered by the
    program, but the regulation should not be drawn so narrowly that healthcare
    delivery innovations cannot be adopted, or once adopted, cannot be altered
    or dropped. The rules should neither prevent the entry of new competing
    firms nor protect firms already in the market from competition. A
    competitive Medicare program must welcome change, while ensuring that
    beneficiaries and taxpayers are well served.

    As the chairman said, the two leading examples of competitive markets in
    the Medicare program are Medicare Advantage and part D. Medicare Advantage
    is an increasingly popular alternative to fee-for-service Medicare. Even
    with payment reductions mandated by the Affordable Care Act, Medicare
    Advantage enrollment has grown from 11.9 million people in 2011 to 16.2
    million this year. More than 30 percent of Medicare beneficiaries are
    enrolled in Medicare Advantage plans. Clearly, for a growing number of
    beneficiaries, competitive Medicare Advantage plans are a better deal
    compared to fee-for-service Medicare combined with separate Medigap and
    prescription drug plans.

    Part D, as the chairman said, has also been a remarkable success, and its
    cost has fallen hundreds of billions of dollars below CBO estimates. I am
    going to focus my remarks on the Medicare Advantage, my written statement
    has more detail about both programs.

    There is growing evidence that Medicare Advantage--have I run out of time?
    The lights aren't lit.

    Chairman Brady. I think you are in good shape on time.

    Mr. Antos. Sorry, so evidence that Medicare Advantage plans provide higher
    value services, less cost to society than traditional fee-for-service.
    First of all, Medicare Advantage plans are more efficient in delivering
    care than fee-for-service. According to the Medicare Payment Advisory
    Commission, the average MA plan bid in 2014 was 98 percent of fee-for-
    service spending. In 2015, the average bid was 94 percent. That means that
    MA plans are willing to pay to deliver standard benefits, 6 percentage
    points cheaper than fee-for-service can on average over the country.

    HMO plans were, of course, more efficient, their bids averaged 90 percent
    for fee-for-service spending. Now why are they being paid more than that?
    Well, the answer is the payment formula, of course. The plans are paid
    their bid, unless they bid below the benchmark. The benchmark was set to
    ensure that essentially everyone would have access to Medicare Advantage
    plans, so it tends to be higher than fee-for-service. Benchmark this year
    is 107 percent of fee-for-service, so the amount that MA plans are paid
    based on their quality performance is about 102 percent of fee-for-service
    spending. That doesn't tell you anything about the efficiency of delivering
    health care, that says something about the peculiarities of the payment
    system.

    Second, MA plans have a spillover effect that lowers health care costs more
    generally. Turns out that studies have shown that for every 1 percent
    increase in Medicare Advantage enrollment in the market, there is a nine-
    tenths percent reduction in fee-for-service Medicare spending, and a
    general overall reduction in spending as well as on a per-person basis in
    the community.

    Third, MA plans provide higher quality care. Beneficiaries in Medicare
    HMOs, for example, are consistently more likely than those in traditional
    Medicare to receive appropriate risk cancer screening, diabetes care,
    cholesterol screening, and so on.

    And finally, the problem with favorable selection, which we have all been
    concerned about for many years, has largely been solved. This isn't just my
    opinion, this is Professor Joseph Newhouse at Harvard University and his
    colleagues pointed out the changes Congress made have improved the accuracy
    of payments in Medicare Advantage, and the lock-in procedure, the new
    method of risk adjustment, these are things that have largely eliminated
    favorable selection so that the payments to MA plans are not--aggregately
    reflect the costs to providing care to beneficiaries.

    Competing private plans are strong incentives to provide health care
    efficiently and effectively to tailor the coverage and services of the
    needs and demands of their customers. By necessity, private plans are more
    flexibility and responsive to changing market conditions and consumer
    demands than fee-for-service Medicare. Satisfying your customers is a
    matter of survival. Doing so efficiently is the difference between a
    successful health plan and one that has failed.

    [The prepared statement of Mr. Antos follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Brady. Thank you, Mr. Antos, very much. Mr. Minissale, you are
    recognized for 5 minutes. I know as a constituent of St. Johnson, our
    colleague here you have great representation here now.

    STATEMENT OF JOE MINISSALE, PRESIDENT, METHODIST MCKINNEY HOSPITAL

    Mr. Minissale. Chairman Brady, Ranking Member McDermott, members of the
    Ways and Means Health Subcommittee, thank you for having me here today to
    testify. I am the President of Methodist McKinney Hospital, which is in
    McKinney, Texas. Methodist McKinney Hospital opened in February of 2010
    just prior to the Accountable Care Act prohibition on physician ownership
    in hospitals.

    Our hospital is a partnership with Methodist Health System, Nueterra
    Healthcare and local physicians.

    Methodist Health System is a nonprofit health system that has for decades
    taken care of the underserved in Dallas, the indigent in the south part of
    the community. Over 51 percent of our profits go back to Methodist Health
    System to serve those in those communities. We accept almost all
    insurances, including Medicare, Medicaid, TRICARE, workers comp, most
    managed care plans, Medicare supplements. Our hospital employees are over
    119 full-time employees. We have over 230 members on our medical staff, and
    only 22 of those members on the medical staff are physician investors.

    We paid over $2.5 million in taxes last year, something that not for-profit
    hospitals do not share the burden in. Our services include inpatient care,
    internal medicine, emergency medicine, imaging, surgery, pain management,
    physical therapy, among many other things. We have a broad range of
    specialties that include pain management, gastroenterology, ENT, general
    surgery, medicine and more.

    We have an ER average waiting time of just 76 minutes compared to over 2
    hours at our competitors. The primary reason Methodist McKinney Hospital
    was developed was due to frustration with the local physicians over
    administration and health system management with the local hospitals. They
    wanted a hospital where patient care was always put first, not just the
    bottom line. So they decided to take matters into their own hands and build
    a hospital that was driven by the principles that physicians who spent
    their lives taking care of patients held dearly.

    Having spent my career managing hospitals, I know one of the keys to
    success in hospital administration is to have good alignment between the
    hospital and the physicians. In a physician-ownership model, I feel like we
    have that much more than I enjoyed when I worked in other ownership models.

    This culture has allowed us to endear ourselves to local physicians, nurses
    and other clinical caregivers because we care about the patient first and
    bottom line second. But we also care deeply about our employees and our
    community. We have won some good achievements and accolades to represent
    that. We received a 4 out of 5 star rating on CMS' Hospital Star Program.
    We are consistently above the 90th percentile on the HCAHPS, patient
    satisfaction surveys. We have been named a Dallas, Fort Worth, top 100
    employer in 2013, 2014. We have consistently been over 100 percent of
    baseline on the CMS value based purchasing program. And we receive the
    Joint Commission Gold Seal of Approval on Accreditation.

    Thanks to strong support from the community, our hospital has been getting
    close to capacity in some areas. That is a good problem and a bad. We are
    in a growing community, Collin County in McKinney, Texas, have been
    expanding rapidly by growing more than 70 percent since 2000.

    Patients can choose to go to a lot of good health care providers in our
    community, but many are choosing us. As a result, we are now at a
    crossroads where our board and our partners are going to have to decide, do
    we leave Medicare, Medicaid and TRICARE patients behind so we can grow the
    hospital and meet the growing demand and the growing community? Or do we
    just stop growing and stay where we are and just tell people we can't serve
    any more than we already are?

    Twenty-seven percent of our current patient base has those insurances. It
    is very discouraging to think that we could spend years trying to meet the
    exceptions, and I am not sure anybody can meet the exceptions in
    accountable care. Even if you can meet it, it is going to be hard to prove
    and you are going to have to jump through a lot of hoops, yet our
    competitors do not have to do that. We don't want to leave the seniors and
    the military families behind so I would ask you to repeal section 6001 of
    the Accountable Care Act so we don't have to make decisions to not have
    access to those seniors and military families. Thank you.

    [The prepared statement of Mr. Minissale follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Brady. Mr. Minissale, 5 minutes goes fast, but we have all your
    testimony for the record. So Mr. Steedley you are recognized for 5 minutes.

    STATEMENT OF ROBERT STEEDLEY, PRESIDENT, BARNES HEALTHCARE SERVICES, ON
    BEHALF OF THE AMERICAN ASSOCIATION FOR HOMECARE

    Mr. Steedley. Good morning. My name is Robert Steedley, and I am the
    president for Barnes Healthcare Services, a regional home care provider
    based in Georgia. I also serve as the voluntary chairman of the board of
    directors for the American Association of Homecare, which is the national
    trade association for home medical equipment, providers, manufacturers and
    other stakeholders in the home care community.

    I would like to thank Chairman Brady, Ranking Member McDermott and members
    of the House Ways and Means Subcommittee on Health for holding this hearing
    on improving competition and Medicare. I would also like to thank
    Congressman Tom Price and Congressman John Larson for introducing
    legislation that would create a state-of-the-art, market-driven auction
    system, an alternative to the competitive bid program.

    I am here today to talk about flaws in the current bids program, how those
    flaws impact noncompetitive bid areas and offer a better budget neutral
    solution. Both the association and I fully support healthy and fair
    competition. My testimony also comes from firsthand experience with the
    bidding program at Barnes Healthcare. Opening in 1909, Barnes Healthcare
    Services has 106 years of experience, employs more than 300 people across
    14 locations and serves 4 States. Experts in the past explain in great
    detail why CMS bidding program lacks transparency and restricts patient
    choice and access to the prescribed home medical equipment they need. I
    have also detailed these in my written testimony.

    Fortunately, Congress recently passed legislation to help fix one of those
    issues of the program, the lack of a binding bid. AA Homecare would like to
    thank Congressmen Tiberi and Larson for introducing legislation that
    require binding bids. I would also like to thank the Ways and Means
    Committee for its consideration and approval of this bill which was
    included in the file SGR bill.

    Requiring binding bids is a key provision in the Congressman Price and
    Congressman Larson's Market Pricing Program legislation, which is also
    known as MPP. The issues with the competitive bid program are not just
    limited to round 1 and 2. In October 2014, CMS also issued a final rule
    that applies the artificially low competitive bid raise to all non-bidding
    areas, including rural and underserved.

    The artificially low competitive bid rates are only part of the problem of
    this final rule. The application of payment rates to non-bid areas is
    flawed and will disrupt Medicare beneficiary access to the home medical
    equipment items that they need.

    In competitive bid areas, the suppliers try to make up for drastic cuts
    through increased volume. As a result of the CMS final rule, suppliers
    outside of those bid areas will receive the same drastic cuts without the
    exclusive contracts or increases in the volumes of business.

    There is a better budget neutral way to achieve market prices for home
    medical equipment known as the Market Pricing Program. I have included more
    detailed information in my written testimony, but following are a few
    components of MPP. MPP includes the same items that are currently in the
    CMS bidding program, and it is also nationwide. There are two categories
    bid per geographic area, eight additional categories in that same area,
    would have prices adjusted based on auctions conducted simultaneously in
    comparable geographic markets.

    Bid areas are smaller than the Metropolitan Statistical Areas, also known
    as MSAs and more homogeneous. Finding bids are required to ensure only
    serious bidders participate. The bid price is based on the clearing price
    rather than the median price of the winners. And finally, the same areas
    that are exempted from bidding under competitive bidding program from CMS
    will be exempted under MPP.

    As committee members can see from my written testimony, MPP is simply a
    much better auction system than the current CMS competitive bid system. MPP
    uses auction principles supported by economists and auction experts. It is
    more transparent and efficient in the current program and it will achieve
    the goal of Congress to have true market prices for home medical equipment
    in Medicare.

    AA Homecare was very thankful when Congressman Price and Larson introduced
    MPP, the Medicare DME Post Market Pricing Program Act in 113th Congress.
    This legislation has received strong bipartisan support with 180
    cosponsors. AA Homecare strongly supports this commonsense legislation and
    urges the subcommittee and Congress to do the same.

    I would like to thank the committee again for the opportunity to provide
    this testimony. AA Homecare and I look forward to working with the
    subcommittee to improve competition in Medicare while protecting patients'
    access to the needed home care equipment. Thank you.

    Chairman Brady. Thank you, Mr. Steedley. I was just told that our normal
    lighting system that gives you the yellow light and the one-minute warning
    to wrap up isn't working today, so I apologize for that. We will get that
    back on track soon.

    Mr. Umbdenstock, thank you for your leadership of AHA and you are
    recognized for 5 minutes.

    [The prepared statement of Mr. Steedley follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    STATEMENT OF RICH UMBDENSTOCK, PRESIDENT AND CEO, AMERICAN HOSPITAL
    ASSOCIATION

    Mr. Umbdenstock. Chairman Brady, Ranking Member McDermott, members of the
    subcommittee. On behalf of our nearly 5,000 member hospitals, health
    systems and other healthcare organizations I thank you for the opportunity
    to testify today. Community hospitals embrace fair competition where
    facilities compete over quality, price and patient satisfaction. However,
    we are strongly opposed to the practice of self-referral, which skews the
    marketplace in favor of physician owners who self-refer the healthiest and
    wealthiest patients to their own facilities. Therefore, the AHA urges
    Congress to current law preserving the ban on physician self-referral to
    new physician-owned hospitals and retaining the restrictions on the growth
    of existing physician-owned hospitals.

    Physician self-referral is contrary to competition. It allows physicians to
    steer the most profitable patients to facilities in which they have an
    ownership interest or potentially devastating the healthcare safety net in
    vulnerable communities.

    Changing the current law would not foster competition. Instead, it would
    only allow these physicians to increase their profits. Current law
    represents a compromise that protects the current physician ownership of
    hospital arrangements and allows these arrangements to grow where increased
    hospital capacity is needed. However, some have proposed weakened
    significantly Medicare's prohibition on physician self-referral to new
    physician-owned hospitals and loosened the restrictions on the growth of
    grandfathered hospitals.

    The AHA strongly opposes these changes, any changes that would expand the
    use of the whole hospital exception, beyond grandfathered hospitals or that
    allow grandfathered hospitals to expand or increase their capacity beyond
    what is allowed in current law for three primary reasons: First, physician-
    owned hospitals provide limited or no emergency services, relying instead
    on publicly funded 911 services when their patients need emergency care.
    HHS's Office of the Inspector General reported that, quote, ``two-thirds of
    physician owned specialty hospitals use 911 as part of their emergency
    response procedures.'' And, quote, ``most notably, 34 percent of specialty
    hospitals use 911 to obtain medical assistance to stabilize patients, a
    practice that may violate Medicare requirements.''

    Second, physician self-referral leads to greater utilization of services
    and higher costs, CPO, MedPac and independent researchers all have
    concluded that physicians self-referral leads to greater per capita
    utilization of services and higher costs to the Medicare program.

    Third, physician-owned hospitals tend to cherry-pick the most profitable
    patients and services, jeopardizing communities access to full service
    care. GAO, CMS and MedPac have all found that physician-owned hospital
    patients tend to be healthier than patients with the same diagnosis of
    general hospitals. Further, MedPac and GAO found that physician-owned
    hospitals treat substantially fewer Medicaid patients. This trend creates a
    destabilizing environment that leaves sicker and less affluent patients to
    community hospitals. These selection practices place full service hospitals
    at a competitive disadvantage because they depend on a balance of services
    and patients to support the broader needs of the community.

    The current payment system does not explicitly fund standby capacity for
    emergency trauma, burn services or the like, nor does it fully reimburse
    hospitals for the care provided to Medicaid and uninsured patients.
    Community hospitals rely on cross subsidies from better reimbursed
    services, the very services targeted by physician-owned hospitals to
    support these and other essential, but under-reimbursed health services.
    Resident loss to specialty hospitals can lead to staff cuts and reductions
    in subsidized services.

    In addition, many of the physicians profiting from limited service
    hospitals will not serve on-call in the community's emergency department,
    or participate in wider quality improvement projects that benefit the
    community. These facilities duplicate services, further exacerbating the
    shortages of physicians and allied health professionals in some
    communities.

    Furthermore, closing the whole hospital exception loophole in the Stark law
    reduced the Federal deficit by $500 million over 10 years, according to the
    CBO. Proposed changes to the current law would erase those savings and
    raise the deficit at a time when our Nation is trying to control increases
    in health care costs.

    True, our competition could be fostered by making commonsense changes to
    law to allow greater care coordination and new delivery models. The health
    care field is rapidly changing, moving toward new payment delivery models
    that emphasize value over volume. As part of that change, hospitals are
    actively exploring clinical integration, a move away from working in silos
    toward emphasizing teamwork to coordinate care.

    However, hospitals attempting to seize these opportunities to improve care
    and care coordination for Medicare beneficiaries and other patients face
    significant legal barriers. Chief among these are the outdated rules
    governing compensation relationships between hospitals, physicians and
    other caregivers. Portions of the anti-kickback statute, the Stark law and
    civil monetary penalty law.

    Congress recently acknowledged the need for change to the CMP law through
    the work of this committee in the recent SGR bill, which limited the scope
    of this prohibition so that a hospital is only subject to CMPs for making
    payments that will reduce or limit medically-necessary care. We advocated
    for this change and are pleased that Congress lifted this barrier.

    Chairman Brady. Mr. Umbdenstock, I apologize.

    Mr. Umbdenstock. No problem, sir. Thank you very much.

    [The prepared statement of Mr. Umbdenstock follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Brady. Thank you very much. Mr. Antos, in Washington, we like to
    talk a lot of about cost control, Washington sort of setting prices and
    then determining whether it is the right amount, or if you deserve this.
    You talked about competition as a more patient-centered way to find savings
    and efficiency. Can you talk about briefly--I have questions for our
    witnesses--can you talk briefly about which one better serves seniors while
    creating savings?

    Mr. Antos. Well, thank you, Mr. Chairman. It certainly is the case that the
    fee-for-service incentives are to expand volume of services and to focus
    only on the part that you as the specific provider, whether it is a
    hospital or a physician or some other provider, but only your part of the
    patient's health care. So, in fact, I found that Mr. Umbdenstock's point
    about expanding services, I believe that that is endemic in the Medicare
    fee-for-service system. If you don't provide services, you don't get paid.

    So as far as a competitive program doing a better job of serving patients
    and giving patients what they want, which is not only a good financial
    deal, but also good patient outcomes, then you really have to go to private
    plans, that I think we see in much of Medicare Advantage where they look at
    the whole patient.

    Now short of that, fostering real competition, avoiding having CMS or
    Congress set prices, when, in fact, we don't know what the prices are, all
    we know is what the charges are. We need to introduce more competitive
    approaches in traditional Medicare, but ultimately, I think we are going to
    have to move to a more coordinated system, Medicare Advantage is not that
    way.

    Chairman Brady. Mr. Antos, thank you. I notice in the prescription drug
    program, the Democratic alternative to the Republican plan set a monthly
    premium of $35 for Medicare part D. Here we are 10 years later after, and
    through cost increases, prices all that, the average price is still below
    the cost control price that originally buy the alternative through
    competition.

    Mr. Antos. Well, that comes from several factors, perhaps the biggest
    factor is the competitive effect. The different drug plans know that if
    they are going to make money, they have to attract customers. If they are
    going to attract customers, they have to offer a good balance of access to
    drugs, including expensive drugs and low cost.

    The remarkable thing about this program really, is, as you say, we have
    seen premiums basically stay level for the last 10 years or so. That is
    partly due to the fact that we have seen a slowdown in the introduction of
    expensive new drugs. But importantly, part D plans have really encouraged
    Medicare beneficiaries to use generic alternatives that has been very
    effective.

    Chairman Brady. Thank you, Mr. Antos. Mr. Minissale, thank you for being
    here. We are told the problem with physician-owned hospitals is that they
    don't have an ER, that they self-refer so there is greater utilization
    among themselves at a higher cost, and that you cherry-pick the patients
    who come through your door. Can you talk a little bit about your
    experience? I think you served both in for-profit and nonprofit in our
    position on the House bill so you have seen the operations in all those
    models. Your thoughts?

    Mr. Minissale. Yes, sir. First, I want to mention in terms of cherry-
    picking, it should be pointed out that we serve TRICARE, we are a TRICARE
    provider, our facility, and one of two largest health systems in Dallas-
    Fort Worth area, is not a provider, and I guarantee you, we are not doing
    that because of the high TRICARE payment levels. So that would be one
    example of cherry-picking.

    We do have an ER, and we have advertised it since we have been open on an
    ongoing basis to try and get more people to come in and open those doors
    up.

    Also, as you mentioned in previous positions, I have been responsible for
    facilities in the southwest side of San Antonio where we had physician
    ownership, and it was a very large indigent population there, underserved,
    the same situation in Congressman Eddie Bernice Johnson's district in north
    Houston where we had physician ownership, in Port Arthur, in Odessa. These
    are full service hospitals with physician ownership that were--didn't have
    the opportunity to cherry-pick.

    Chairman Brady. You are 4 star rated?

    Mr. Minissale. Yes, sir. Yes, sir.

    Chairman Brady. That star rating takes into effect the complexity of the
    patients you are serving, correct? So if you are cherry-picking, in fact,
    you are punished in that star rating, correct?

    Mr. Minissale. Yes, sir. I would point out that many of the physicians that
    work at our hospital bring most of their patients to our facility.
    Obviously we are a 21-bed facility, so they can't bring 100 percent, but,
    yes, I think the--in our circumstance, the cherry-picking is greatly
    exaggerated.

    Chairman Brady. How many times have you called, your hospital called 911
    for emergency services.

    Mr. Minissale. Actually, we have a process for strokes, we have a code
    STEMI, which those are the situations where, like, there are certified
    stroke centers and certified heart centers where time is of the essence
    where we would need to get that patient transferred to the highest level of
    care possible. In fact, there are not a lot of stroke certified centers
    even among the larger hospitals in our area.

    Chairman Brady. So when you dial 911, it is to get the patient to the
    highest certified and qualified local provider?

    Mr. Minissale. Correct, correct. And that has been very rare, but that has
    happened a few times I would say probably three times in 5 years, maybe for
    us.

    Chairman Brady. Thank you. Mr. Umbdenstock, you raised points. We have
    heard as concerns, that these hospitals don't have functioning ERs, they
    self-refer to each other as physicians and they cherry-pick. Looking for
    common ground, in recognizing in the decades since this temporary
    moratorium was put in place, before profit and nonprofit hospitals have
    increased their beds easily more than double all the position on hospital
    beds in America. So you are allowed to grow to meet the needs of the
    community, which seems to me to make good sense.

    So the common ground here with physician-owned hospitals, I can guarantee
    you they are not all in the best parts of town, while I have noticed
    nonprofit and for-profit do grow to meet the needs of the community. So
    would a compromise be if physician-owned hospitals had a functioning ER,
    that they are shown to not self-refer in high utilization like CMS, and
    their stars rating proved that they are not cherry-picking, but meeting the
    needs of their community. Is that an area where this discrimination against
    one model could end and we could have competition among all the hospitals?
    Is this a common ground you would consider?

    Mr. Umbdenstock. Mr. Chairman, thanks for the question. Just a couple of
    points, first of all. As recently as the cab ride over here this morning, I
    double-checked the Web site for Methodist McKinney Hospital relative to the
    ER, and it says that our emergency department offers quick care for all of
    your bumps, sprains and minor injuries, 365 days, 7 days a week. That may
    be a very important urgent care function that is good for that community,
    but that doesn't sound like an emergency department to me.

    Chairman Brady. Mr. Minissale, since this was raised, so you only treat
    bumps, scrapes and bruises in your ER?

    Mr. Minissale. Absolutely not, sir. As I mentioned, we are not a stroke
    center, we are not a heart center.

    Mr. Umbdenstock. From their own Web site. From the Medicare cost reports in
    2012 and 2013, the percentage of Medicaid, talking to the question of
    patient and payment selection, in 2012, the Medicare cost report showed
    zero patient, Medicaid patient discharges and accrued to 0.4 percent in
    2013. So a very, very skewed payment system.

    So, that is the issue, sir. And that is what we are here to urge Congress
    to stay with, stay with a program that limits the growth of these hospitals
    where they are highly selective and picking off the most profitable
    services. You notice the services on which hospitals like this are focused.
    And I understand why. That is where the payment is.

    Chairman Brady. Well let me ask you this.

    Mr. Umbdenstock. Many hospitals don't have that opportunity.

    Chairman Brady. One, I respect your opinion. Thank you so much for being
    here. But the stars rating program takes into account the types of patients
    these hospitals treat. So are they incorrect in their assessment, or are
    they fairly accurate?

    Mr. Umbdenstock. No. Number 1, the stars rating program focuses on the
    HCAHPS scores, the experience of care or patient satisfaction as we
    commonly refer to it. If you have the opportunity to identify which
    patients are going to come to your hospital in advance, you can prepare
    those patients for that experience. A hospital, a general service community
    hospital, full service community hospital receive over 60 percent of their
    admissions through the ER; that is not a predictable source of who the
    patient is, number one.

    Number two, if you are not treating a full array of patients from all
    socioeconomic strata, you are not likely--you are likely to have a much
    higher satisfaction rate.

    Chairman Brady. Is that the criteria for adding new beds, is that hospitals
    of all models should only go to areas that have broad, certain percentage
    of Medicare, Medicaid patients, that that ought to be a criterion to
    supplied, to physician-owned hospitals, for example? Should that be--should
    this moratorium be applied to all hospitals equally to ensure that each
    facility meets a broad range of patients?

    Mr. Umbdenstock. The current criteria for an exception recognizes several
    factors, but one is that the particular hospital in question serves at
    least the average or greater proportion of Medicaid patients as other
    hospitals in its area, that is already there.

    Chairman Brady. I agree. Would that be a fair restriction on all hospital
    increases?

    Mr. Umbdenstock. Well, it is not a matter of whether or not it has to be a
    requirement. Every --

    Chairman Brady. But it is for a physician-owned hospital--I am just trying
    to find again common ground, because hospitals are serving both areas of
    town that don't have necessarily good culture of health care, and they can
    serve areas, perhaps, with higher private pay. They do that as systems,
    again, to try to make ends meet and try to meet their missions, either
    nonprofit or for profit. The question is, why shouldn't this model be able
    to do the same thing?

    Mr. Umbdenstock. I think you will find that if you look across the Nation's
    full-service community hospitals, on average, they have about 15 percent of
    their patients, plus or minus, that are Medicaid; about another 25 or more
    that are Medicare; probably about 10 percent prior to the ACA expansion and
    coverage--admittedly, that number is going down--but about 10 percent no
    pay. So those hospitals are already taking that type of mix of patients. I
    don't see a need to require it; they are already experiencing it.

    Chairman Brady. So you would be comfortable with a requirement for those
    types of services for new beds in all hospitals? Should we apply this gold
    community, broad community service to all hospital beds?

    Mr. Umbdenstock. I would like to go back to your context that you used to
    set up this point, sir, if I might. Which was that hospitals nationally
    have, I believe, you said opened more beds than the total number of beds in
    the 250 or so physician-owned specialty hospitals. Number one, that is a
    very small percentage of the National bed complement. Number two, that may
    be true that some hospitals have grown at that rate, but we have also seen
    hospital closures across the full-service hospital spectrum in many areas,
    including in Texas, sir, as I know you are very familiar with. So I don't
    think that that is a rampant problem of hospitals adding more beds.

    In fact, hospitals are trying to figure out how to skinny down their
    inpatient complement so that they can focus more and get more patients
    served in outpatient, and out into the community. So we are actually seeing
    the reverse phenomenon of the description. They are actually de-emphasizing
    inpatient care, particularly as they are more at risk.

    Chairman Brady. I recognize that. I hope you will come to Houston some time
    and see the growth of hospitals. We are thrilled, in my community and
    throughout the area, and it tells a little different story. So again,
    looking to find common ground, I know what the concerns are, and I think we
    need to have a discussion on this.

    Ranking Member McDermott, you are recognized.

    Mr. McDermott. Thank you, Mr. Chairman. It is an interesting discussion we
    are having here, this is not to pick on one hospital, but it is an example
    we have in front of us here today, McKinney Hospital. Why would a hospital
    want to be a specialty hospital? Why would they just want to do certain
    things? Mr. Umbdenstock, I mean you have 5,000 hospitals, so why would a
    hospital specialize in only doing orthopedics or only doing cardiac or
    whatever?

    Mr. Umbdenstock. Well, I assume there are several reasons, one of which
    might be that the focus of energy and resources, volume in order to improve
    technique and outcomes, but also, I would say that you have to recognize
    that the particular services that limited service hospitals focus on are
    the profitable services. I don't have a lot of competition for the non-
    profitable services inside full service hospitals.

    Mr. McDermott. What are the profitable services for hospitals?

    Mr. Umbdenstock. Well, certainly you see procedure oriented services, so
    surgeries, speaking broadly, other forms of procedures as opposed to
    medical services, certainly your own specialty of psychiatry would be at
    the other end of that spectrum.

    Mr. McDermott. So if a hospital had 83 percent of its patients in for
    surgery, somehow they would be skewing it in that direction so that is not
    the average in most hospitals across the country?

    Mr. Umbdenstock. That would not be reflective of the average complement,
    the average balance of services, that is correct.

    Mr. McDermott. So in some way, they selected who comes in by the services
    that they offer; is that correct? Is that how a specialty hospital works?

    Mr. Umbdenstock. With that kind of imbalance, one would have to assume.

    Mr. McDermott. And if you talked about the emergency room. Now I, like you,
    use the Internet and I think all modern people use the Internet, it says
    here that for Methodist McKinney, if you were experiencing any of these
    conditions, please call 911, immediately: Life threatening conditions,
    heart attack or stroke, open fractures, severe bleeding, signs of heart
    attack or chest pain, head injury or other major trauma, one-sided weakness
    or numbness, loss of consciousness, severe abdominal pain, uncontrolled
    pain or bleeding, poisoning, call the poison control center.

    Now, if an emergency room is not going to deal with those issues, can that
    be called full service--what it says is they do take care of our stitches
    and staples for cuts, gashes and wounds, X-rays, fractures and sprains,
    abdominal pain for maladies such as appendicitis, colitis, pancreatitis.
    And general illness treatment virus, flu and dehydration. So it is kind of
    a doc in the box, it sounds to me. They say they have a doctor on call. Is
    that how that sounds to you when you listen to that description?

    Mr. Umbdenstock. I would say, Mr. McDermott, that full service community
    hospitals run toward problems, trauma, emergencies, and want to be of
    immediate service to people. They have that type of condition; that is
    exactly the type of person we expect to see at our ER. That is our purpose
    and that is why we are there. Granted, we often have to then transfer the
    most acutely ill to the higher levels, full service hospitals or teaching
    centers. But yes, those are the kinds of things that we would expect to see
    and that we do see in full-service community hospital ERs.

    Mr. McDermott. Explain to me how the Stark law operates in a specialty
    hospital? The doctors own everything, they own the MRI, they own the CAT
    scan, they own all the machinery. They can refer every patient they want to
    their own CAT scan or their own MRI; is that correct?

    Mr. Umbdenstock. That is correct. They are free to do --

    Mr. McDermott. And that Stark law prevents you from doing that if you are
    in another hospital where you have an MRI that is away from it that you own
    or own a piece of, you can't refer your patients to that MRI; isn't that
    correct?

    Mr. Umbdenstock. That is right, it is called the whole hospital exception
    as was pointed out earlier. You have to own a share in the whole hospital.

    Mr. McDermott. You have to own the whole thing. That is really what we are
    trying to stop. And have successfully stopped and saved a half billion
    dollars.

    Mr. Umbdenstock. According to the CBO.

    Mr. McDermott. According to the CBO. By the way, I want to say, I know this
    may be your last appearance before this committee, you have been working as
    CEO for AHA for us for 8 years, and we thank you for your service in this
    tough job that you had and we appreciate your work.

    Mr. Umbdenstock. Thank you and thank you to the chairman as well for the
    sentiment.

    Chairman Brady. I appreciate it. Thank you very much. Mr. Minissale, we are
    1,200 miles from your ER, your and Mr. Johnson's witness. Do you want to
    address the claims you just heard about your ER.

    Mr. Minissale. Yes, sir. First of all, I would certainly appreciate any
    ideas or support from Representatives McDermott or Mr. Umbdenstock on how
    we could grow our ER business. As I have stated, we have not been very
    successful. We have advertised and advertised and advertised, and that is
    how a lot of those admissions do come into the larger hospitals. We have
    also seen a proliferation of free-standing ERs open up in our community,
    HCA opened two in the area, there are several others. So anything we could
    do to grow the ER and get more admissions, medical or otherwise would be
    great.

    Chairman Brady. Thank you. Mr. Johnson, recognized for 5 minutes.

    Mr. Johnson. Thank you, Mr. Chairman. Mr. Minissale, thank you so much for
    testifying today. I appreciate hearing all the great things Methodist
    McKinney is doing back home. I want to ask, given your unique experience,
    what do you believe the biggest difference is between physician-owned and
    other hospitals?

    Mr. Minissale. I think, really, the directive is when we are making
    decisions, there is kind of a hierarchy in physician-owned hospital where I
    am at is patient care is first; physician desire is second; employees are
    third; and profits fourth. In previous experiences where I worked for other
    company, we were usually driven by corporate health system goals and
    profits.

    Mr. Johnson. Thank you. Mr. Umbdenstock, thank you for your testimony
    today. I have a handful of questions so in the interest of time, I ask you
    to please keep your answers to a yes or no, if you would. First, are you
    aware that your testimony refers to the GAO, MedPac and HHS reports that
    are 8 to 10 years old, and only studied specialty hospitals, not all
    physician-owned hospitals. Is that a yes or no?

    Mr. Umbdenstock. This debate has been going on that long, and we try to
    reference all sources that we can find throughout the last.

    Mr. Johnson. Well, you didn't answer my question. So in your testimony, you
    argue that physician-owned hospitals cherry-pick patients, but did you know
    that after the GAO and MedPac reports were released, CMS changed how
    hospitals are reimbursed so a hospital is paid based on the severity of the
    specific patient, which means you can't cherry-pick. Is that true or false?

    Mr. Umbdenstock. You can't necessarily --

    Mr. Johnson. You can't do that either. Thank you. I would also like to --

    Mr. Umbdenstock.--from the way you refer patients, not in the way a
    particular patient is paid for, sir.

    Mr. Johnson. Okay. I would also like to refer you to the first quote on the
    screen from a Health Affairs study stating, ``Physician ownership is not a
    driving force in referring patients to specialty hospitals.'' I request
    that the full article be submitted for the record along with additional
    references.

    Chairman Brady. Without objection.

    [The information follows The Honorable Sam Johnson 1:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Johnson. Thank you.

    Now, let me ask you: Do you believe that physician-owned hospitals
    destabilize community hospitals? Yes or no.

    Mr. Umbdenstock. Yes.

    Mr. Johnson. Okay. I would like to now refer you to the second quote on the
    screen by the Federal Trade Commission on the importance of competition in
    Medicare.

    I would also like to highlight that the August 2006 MedPAC report your
    testimony cites stated that, ``Profit margins for community hospitals in
    markets with physician-owned hospitals were higher than those in markets
    without physician-owned hospitals.''

    Next question: Do you believe that physician-owned hospitals lead to
    greater utilization of service and higher costs? Yes or no.

    Mr. Umbdenstock. Yes.

    Mr. Johnson. Thank you.

    I would also like to submit for the record a list of cases with over $3
    billion in fines paid by non-physician-owned hospitals for the very things
    you claim physician-owned hospitals do. I think you have those, Mr.
    Chairman.

    [The information follows: The Honorable Sam Johnson 2]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Johnson. I would also like to submit for the record a statement by the
    Federal Trade Commission saying that physician-owned hospitals increase
    competition and reduce prices.

    [The information follows: The Honorable Sam Johnson 3]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Johnson. Lastly, I would like to submit for the record a study that
    shows physician-owned hospitals save Medicare almost $10 million over 10
    years.

    [The information follows: The Honorable Sam Johnson 4]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Johnson. Finally, your testimony argues physician-owned hospitals
    should not be allowed to expand because they offer limited or no emergency
    service.

    But isn't it true that Medicare does not require emergency departments, but
    actually only requires Medicare providers, including physician-owned
    hospitals, to comply with conditions of participation and the Emergency
    Medical Treatment and Active Labor Act? Yes or no. That is for you, Mr. --

    Mr. Umbdenstock. For me?

    Mr. Johnson. Yes.

    Mr. Umbdenstock. Yes. When 60 percent of your patients come through the ER,
    the ER is a very important part of a, quote, ``hospital.'' I would agree.

    Mr. Johnson. Mr. Chairman, thank you for holding this hearing. And I am not
    here today to criticize one Medicare provider over another, but, instead,
    to discuss the important role physician-owned hospitals play in promoting
    competition in Medicare.

    Instead of continuing the ObamaCare prohibition on these hospitals, which
    was included in the 2,000-plus-page law as a political favor to the
    American Hospital Association and others, we ought to allow patients access
    to the high-quality and lower cost care provided by physician-owned
    hospitals.

    In America, we let competition pick winners and losers, not the government.

    I will yield back the balance of my time.

    Chairman Brady. Thank you.

    Mr. Thompson, you are recognized.

    Mr. Thompson. Thank you, Mr. Chairman.

    Thank you to all the witnesses for being here.

    Mr. Chairman, I would like to ask unanimous consent to enter a letter into
    the record from the U.S. Chamber of Commerce, who wrote stating that
    defending America's free enterprise system--they are in opposition to the
    self-referral to physician-owned hospitals.

    Chairman Brady. Without objection.

    [The information follows: The Honorable Mike Thompson Submission]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Thompson. Thank you.

    Mr. Minissale, I would like to follow up on the questions that both the
    chairman and the ranking member had asked you and give you an opportunity
    to respond. They were referencing the type of services that your particular
    hospital does or doesn't provide.

    And the CMS data that I am looking at tells us that about 70 percent of
    physician-owned hospitals--fewer than 5 percent of their admissions are
    Medicaid patients and a little over 20 percent admitted no Medicaid
    patients at all.

    And your hospital--and, specifically, I think that is what they were asking
    you about--in 2013 had 24 percent Medicare discharges and 0 percent
    Medicaid discharges.

    Can you kind of explain why these hospitals, in general, and yours, in
    specific--and they are often located in proximity to full-service
    hospitals--aren't treating Medicaid patients. And isn't there a need to do
    this in these underserved areas?

    Mr. Minissale. I assume you are not--I am not sure about the State of your
    citing, but I assume you are not referring to the hospitals in North
    Houston, Odessa, San Antonio, that had physician ownership that I have
    managed in my career.

    Mr. Thompson. No. I am talking about the hospital where you are now,
    Methodist McKinney. You had 24 percent Medicare discharges and 0 percent
    Medicaid discharges.

    Mr. Minissale. Yes, sir. That is geography. In my experience, the Medicaid
    population tends to go to the closest facility due to transportation
    challenges, and we happen to have built the hospital in an area where there
    is not an indigent population.

    Mr. Thompson. So it is all geography as it pertains to your hospital?

    Mr. Minissale. I cannot say it is all. We are a Medicaid provider. There is
    now a McKinney bus service that could bring them there, and we are happy to
    take care of them.

    So other than advertise, have our doors open, let the bus come over, I
    don't know how you make patients come to your facility.

    Mr. Thompson. Thank you.

    In my home State of California, we have hundreds of community hospitals and
    there is no shortage of competition, competition that is operating on a
    level playing field. I have got some concerns about the self-referral
    model.

    And in my full-service hospitals at home, they compete on the quality of
    their service, the geography, and their reputation, not on whether or not
    physician owners will win, you know, financial gain as a result of this.
    And I worry about changing this law and what it would do to destabilize the
    continuity of care that we have in my area and others.

    Mr. Umbdenstock, I don't have any of these hospitals in my community right
    now, and from the testimony that I have heard so far today, I don't think I
    want any.

    But if the law were weakened and they could come in, what do you think the
    impact would be on my constituents and the other constituents in other
    areas that don't have this type of unfair competition?

    Mr. Umbdenstock. Well, I think it is the three things that I mentioned. One
    is that the patient mix and service mix that will shift in your community
    could very well jeopardize the ability of full-service community hospitals
    to continue to provide a full array of services. There is certainly the
    question of increased utilization and, therefore, increased costs. And
    there is competition for employees who are already in short supply, as we
    all know. So I think that we have got serious concerns about that.

    And there is an exception process. So if a hospital feels that it needs to
    grow and it is in a growing area and there is a high inpatient census on
    utilization and they do take high proportion Medicaid patients, CMS has
    already approved one. I only know of two applications. They have approved
    one and one is pending. So there is a mechanism to handle that.

    Mr. Thompson. What about the current law that requires physician-owned
    hospitals to report annually to CMS about the ownership and all the
    particulars? It is my understanding that that hasn't been done. And aren't
    we putting the proverbial cart before the horse with trying to do this
    legislation without first having all the data necessary to be able to
    assess what is actually going on?

    Mr. Umbdenstock. I do know from what is up on the CMS Web site that they
    say that they have had a very low rate of response to their reporting
    requirements, so much so that they have yet again extended the submission
    deadline.

    So, apparently, they are having trouble identifying those ownership and
    other indicators that they require. So one would think that that would be
    important information to have. Yes.

    Mr. Thompson. Okay. Thank you.

    Yield back.

    Chairman Brady. Thank you.

    Mr. Smith, you are recognized.

    Mr. Smith. Thank you, Mr. Chairman.

    And thank you to all our witnesses here today. I appreciate the insight
    that each and every one of you bring to the table here.

    Certainly, as a representative of part of rural America, I can appreciate
    the challenges facing health care, facing the financing of health care. I
    have been here long enough to observe a lot of the arguments for and
    against various components of public policy as it relates to health care.
    And certainly, as a consumer from time to time of health care and as a
    patient, I think it is important that we observe what is going on.

    Now, I get very concerned when there is an agenda of prohibitions and
    mandates. That could be inside ObamaCare or even beyond that, but I get
    very concerned. I know I have been working on an issue with critical-access
    hospitals in my district with a 96-hour precertification requirement that I
    think is burdensome, it is unnecessary, yet it is part of the long list of
    prohibitions and mandates that exist in health care.

    And I would hope that we could have flexibility in our health care. I know
    that living in a community where we have, I think, a very vibrant community
    regional hospital, along with a Federally qualified health center and even
    some options for patients that would involve walk-in urgent care--I see the
    flexibilities that allow those to be used by patients. That is a good
    thing.

    It is hard to say, perhaps--I mean, I don't know the exact financing
    mechanism of every patient, but I was just wondering if anyone could speak
    to the fact of prohibitions and mandates leading to actual cost savings. If
    any of our witnesses would like to answer that.

    Mr. Umbdenstock. Yes, Congressman. I would be happy to.

    Number one, this is an arrangement that has been arrived at over a
    discussion and a series of compromises over a dozen or more years. So this
    is an ongoing conversation in this industry.

    Mr. Smith. But it is the result of a compromise, the prohibition?

    Mr. Umbdenstock. Where we are today is the result of starting with new
    entries and limits on growth for the grandfather-in hospitals. Yes. This
    has been an ongoing conversation since at least 2003, that I am aware of,
    probably longer, number one.

    Number two, the CBO has scored that this particular provision in the
    Affordable Care Act saved $500 million over 10 years. So, yes, it is a,
    quote, saver at the moment, and changing it would, obviously, in the CBO's
    opinion, unleash additional spending that would have to be paid for in some
    way under the Medicare program.

    Mr. Smith. You said at least at the moment. So long term do you think that
    we need the current prohibitions and mandates that are currently in place?

    Mr. Umbdenstock. Yes. And I think that we could ask CBO to score it again.
    But I don't see any reason why for the next 10-year segment they would come
    out with a substantially different answer.

    Mr. Smith. Okay. Anyone else wishing to respond?

    Mr. Minissale. Yes, sir. You mentioned cost and the prohibition. One thing
    that we have seen is our competitors employing physicians. Five of our
    original physician investors' practices have been bought out since we
    opened and many, many more in the community.

    In my understanding, there is data showing--I believe it is in California--
    from CMS that that actually increases cost. It doesn't decrease cost.

    Our competitors are spending a lot of money on paid medical directorships
    to the high-paid procedurals. We don't pay medical directorships. We don't
    employ physicians.

    I believe those things are part of the reason the data shows costs are
    going up. We would tend to focus on competition and quality that would
    lower costs and provide better care in the end.

    Mr. Smith. Okay. Thank you.

    Anyone else wishing to comment?

    Thank you, Mr. Chairman. I yield back.

    Chairman Brady. Thank you.

    Mr. Davis, you are recognized for 5 minutes.

    Mr. Davis. Thank you very much, Mr. Chairman.

    You know, for many, many years we have had a great deal of conversation
    relative to how do we improve quality and contain cost at the same time. If
    we are still experiencing 60 percent hospital admissions through emergency
    rooms, does that say that our system needs to do anything in order to try
    and get to this real notion of cost savings?

    Mr. Umbdenstock. Yes, Congressman. Thanks for that question.

    It does, indeed. And that is why the American Hospital Association and our
    5,000 members are very much interested in new payment and new delivery
    system models.

    It would indicate, as you say, that people are dropping into the healthcare
    system on an as-needed or ad hoc basis, not with any sort of long-term
    relationship to the system and certainly not a relationship that emphasizes
    early intervention, prevention, wellness, community-based services, and so
    on.

    We believe that that is the right way to organize the system. We are trying
    to do that by coming together with other entities up and down the continuum
    of care.

    As I mentioned in my oral statement and in our written testimony, there are
    significant legal barriers to doing that. But, ideally, that is what we
    would do. We would put the incentives for wellness and less utilization and
    align them between patients and providers.

    Mr. Davis. Dr. Antos, can I ask you: Isn't it true that current law does
    not necessarily restrict or does not prevent increases in certain types of
    hospitals if they are needed in areas?

    Mr. Antos. That is right, Congressman. There are exceptions that are
    limited. I assume we are talking about specialty hospitals now or
    physician-owned hospitals. There are some exceptions.

    However, effectively, the provision under the Affordable Care Act
    effectively eliminates any chance that physician-owned hospitals can expand
    or that new ones can be created. The exceptions are very, very rare.

    Mr. Davis. Is it not also true that, in many areas, many States, that
    locally determined decisions are made through health facilities, planning
    boards, and other entities that will allow or not allow a hospital to build
    or a new service to come in or a new service to start?

    Mr. Antos. That is right. Certificate of need is the phrase. I live in
    Maryland, and Maryland has the certificate-of-need law.

    I have to say my observation of the State of Maryland is that it is a
    difficult process and it is not at all clear that, in the end, you end up
    with decisions that would have been made in the market, decisions that
    would have been made by consumers as far as where they would choose to go
    for services.

    Mr. Davis. Mr. Umbdenstock, let me ask you--current law requires physician-
    owned hospitals to report annually to CMS on their status and to provide a
    detailed description of the identity of each owner or investor in the
    hospital and the nature and extent of all ownership and investment
    interest.

    But the CMS Web site still does not include this information and CMS says
    that they are concerned about the accuracy of the data they have received.

    So the agency has once again extended the deadline for submission. Of
    course, this means that the public has no data on how many of these
    hospitals actually exist or who the ownership actually might be.

    Do you think we ought to have that information before making further
    decisions about the issue?

    Mr. Umbdenstock. Yes, sir. Yes, Congressman. I do. Absolutely. Again, full-
    service hospitals are under very rigorous reporting and disclosure
    requirements to the government about such issues. And I think it is
    disappointing that a particular segment hasn't been able to come up with
    that information, at least, again, as I reference the cms.gov Web site.

    So they are obviously concerned. And, yes, I would think that that is
    important information to have before any significant changes are proposed.

    Mr. Davis. Thank you very much.

    I see that my time is about to expire. Thank you, Mr. Chairman. I yield
    back.

    Chairman Brady. Thank you.

    Mr. Marchant, you are recognized.

    Mr. Marchant. Thank you, Mr. Chairman.

    I represent a district around the DFW airport. We are very blessed in that
    we have several major hospitals that would be represented by your
    organization, but we also have an explosive growth in very highly
    technical, customer-oriented, private physician-owned hospitals.

    And in my particular district, there is a great demand for that hospital.
    They are responsive. They seem to be a little more agile in filling market
    niches. They seem to be more responsive, in whole, to parts of my
    community.

    Mr. Umbdenstock, where one of your hospitals is a partner with one of these
    physician-owned hospitals, what is the AHA's approach to that? How do those
    partners deal with this situation where they, in fact, are providing the
    capital and many times the loan and everything to start this other
    hospital, which is the case in my area?

    Mr. Umbdenstock. Yes, Congressman. Thank you.

    First of all, I would point out that some of our member hospitals are in
    such partnerships, as is the case present here today. The Methodist Health
    System is an AHA member and a fine member and a fine organization. We are
    very pleased that they have maintained being an AHA member and participate
    in our broader discussions and debates.

    When we formulated our position on this, it was through a very
    participative process of hospital members with specialty hospitals and
    those without. And, frankly, on this point, some of my members have agreed
    to disagree.

    So the situation is the same, whether it is a freestanding or partnered
    entity, and our position is the same. It has not been an easy position for
    us to take. We respect all of our members, but it is one that the vast
    majority of our members support.

    Mr. Marchant. But that would explain why the major hospitals in my district
    perhaps are not coming to me and saying that, ``We are for this
    moratorium,'' where, in fact, many of them are telling me --

    Mr. Umbdenstock. I haven't looked at it by congressional district, but more
    broadly on SMSA basis and so on where they have very different views. Some,
    as we saw during the debate of this particular provision, are very much
    opposed to it. Others had made investments and were supportive of it.

    But I can tell you, sir, that the vast majority of our members are
    supportive of current law and not in favor of relaxing it. Not an easy
    position for us, but one that the members broadly support very strongly.

    Mr. Marchant. Are you familiar with this group of hospitals across the
    Nation that, during the formulation of the Affordable Health Care Act, they
    started facilities, they had hospital wings or additions in various stages
    of construction and, when the Affordable Health Care Act was put in place,
    the Commissioner decided that, on a certain day, if those beds were not
    certified and accepted, that those beds would never be basically accepted
    for Medicare or Medicaid use?

    Mr. Umbdenstock. The act was enacted in March of 2010, and people had the
    ability through the end of December of 2010 to bring these online and get a
    Medicare provider number. So, in the law, there was a 9-month delay. In
    reality, there was a longer delay because this provision was always on the
    table and being debated.

    I was having conversations with my own members, again, some of whom were
    making these investments in these organizations, who wanted to know what
    that date would be. So people were on notice because of the conversation
    for much longer than 9 months. That date was in the law. Yes.

    Mr. Marchant. But the fact is that several hospitals were caught in this
    period of time and now have beds that they fully intended to use for
    Medicare and Medicaid patients, but because of the prohibition, because
    they were excluded, cannot use them for that purpose.

    Is it the position of your organization that these hospitals never be
    recognized and never be allowed to use those beds for Medicare and Medicaid
    patients?

    Mr. Umbdenstock. That was the provision of the act. We are supportive of
    that provision. And, again, it was several years in the making. So there
    was a lot of lead time in that respect. We were counseling our own members
    that it was a very high-risk proposition.

    Given the support for this measure, it would be a very high-risk
    proposition to keep going. Some members actually got their hospitals opened
    in that period of time. Others found themselves not able to do so before
    the well-publicized deadline.

    Mr. Marchant. Thank you.

    Mr. Umbdenstock. Thank you, sir.

    Chairman Brady. Mrs. Black, you are recognized.

    Mrs. Black. Thank you, Mr. Chairman.

    I want to thank all of the panelists for being here today. Very interesting
    conversation on three very important issues.

    Mr. Antos, I want to turn to you particularly about the Medicare Advantage
    plans. Many critics have suggested that the Medicare Advantage plans were
    overpaid and they don't provide a service that is more valuable than the
    fee-for-service. We have seen enrollment in Medicare Advantage plans all
    the way across the country, and I know in my district it more than tripled
    over the past decade.

    And I know that what I hear from folks that are in the plan and the survey
    showed that seniors are more satisfied with their Medicare Advantage than
    they are with their fee-for-service program. All this has occurred while
    the Medicare Advantage has been cut dramatically.

    We see that continuing, and in some cases where they said they were going
    to cut it dramatically, we have seen a little bit of a reduction in that so
    they weren't cut quite as dramatically as what was talked about.

    Do you agree that this competition--that Medicare Advantage is overpaid for
    their services it provides? Do you agree with what is being said, that they
    are overpaid?

    Mr. Antos. No. I don't agree. I mean, the fact is that Medicare Advantage
    plans do provide good value not just for the people who enroll in them,
    but, also, for the taxpayer.

    You know, one of the interesting facts about this is that people say that
    it is the younger Medicare beneficiaries, the ones who are turning 65, who
    are the new enrollees in Medicare Advantage. Actually, that is not true.

    It turns out that most people, when they turn 65, sign on to traditional
    Medicare and, after a few years, they often find out that that isn't the
    plan they want to be in. It is not a health plan as they know it because
    they have spent 30 years in more organized healthcare delivery systems.

    So in terms of value, I mean, there is very little question here. The fact
    that the bids--the amount that they bid is below the cost to fee-for-
    service across the country says that Medicare Advantage plans are able to
    provide full Medicare benefits at a lower cost than fee-for-service. The
    fact that they get paid more gets plowed back into additional benefits for
    beneficiaries.

    Mrs. Black. And I am also interested--I heard you at another event talk
    about this very subject matter. And, in addition to that, one of the things
    that you did talk about is the research that you have done that suggests
    that the effects of the competition have actually seen the Medicare
    Advantage programs have that spillover effect on the fee-for-service in
    both lowering the costs and the increasing of the quality.

    Can you talk just briefly about what you have done as far as the research
    there and how that has affected the fee-for-service in lowering those costs
    and increasing quality.

    Mr. Antos. So, you know, an important point, too, for all of us to remember
    is that seniors are, in fact, the biggest customers of the healthcare
    system. And so, if the treatment for the senior population becomes more
    efficient and more effective, that is going to spill over on everything
    else that the health sector does.

    In essence, what is happening is that Medicare Advantage plans are
    introducing better systems of coordinating care. They are especially
    focusing on the people with serious chronic diseases, the people who are
    the most expensive in the system. And when you have a sufficiently large
    volume of patients who are in those organized systems, well, it turns out
    the physicians also operate in the fee-for-service sector as well.

    They don't change their practices just because the paycheck, which is going
    to go to some business office, comes from someplace else.

    Mrs. Black. And, Mr. Antos, if I may--because I only have a couple of
    seconds left--I think this really makes the point of what we have been
    talking about, that when we look at the Affordable Care Act, we talk about
    repealing and replacing with something that is more market-based and
    something that is more patient-centered.

    And I think this is such a great model, when we look at the research that
    has been done, to say, when you do that, when something is more market-
    based and more patient-centered, we see a lowering of cost, at the same
    time an increasing of quality.

    And so I am just really very interested to see more research done in this
    area that can show that, if you do that, the fee-for-service will actually
    follow because there is going to be competition on the other side to make
    sure the costs come down, but the quality is there.

    Thank you so much, Mr. Chairman, for having this hearing today.

    Chairman Brady. Thank you, Mrs. Black.

    Mr. Kind, you are recognized.

    Mr. Kind. Thank you, Mr. Chairman. Thank you for having this hearing today.

    I thank the panelists for your testimony.

    Mr. Chairman, the reason I was late getting to the hearing this morning was
    I had a few interesting meetings on the current long-term care system and
    market that we have in the country.

    And I think this is another area ripe for oversight and some additional
    hearings so that we come to grip before the Medicare program absolutely
    implodes due to where we are going with long-term care in this country.

    But, Mr. Umbdenstock, let me start with you. And staying on the self-
    referral physician-owned hospital track, you cite in your testimony, both
    written and oral here today, that there are numerous studies from CBO, from
    MedPAC, from other independent researchers, citing that, with self-
    referrals at least, they are seeing data that is showing that they have an
    increase in utilization in both services and, therefore, costs in the
    Medicare system.

    My question is: If there are ways for us to accelerate reform within the
    payment area so that we are getting the value of quality outcomes as
    opposed to fee-for-service, whether that would help address the over-
    utilization that you cited and that apparently exists based on these
    numerous studies out there?

    Mr. Umbdenstock. Thank you, Congressman.

    Yes. Overall, the AHA is very supportive of the various payment
    demonstrations and experiments that are going on at the moment to try to
    figure out a better approach to financial incentives that will drive a
    better organized and more coordinated delivery system so that we can move
    toward that system.

    Unfortunately, right now nobody has come up with an agreed-upon approach to
    do that. So we find ourselves with experiments and demonstrations and
    accountable care organizations and primary care medical homes and so on,
    all very important learning experiences. And, hopefully, based on that
    experience, we will come to more of a consensus on how to move off to the
    next payment system.

    Mr. Kind. You know, I have enjoyed working with many of your members and
    those in Wisconsin, in particular, that have been moving to a more
    integrated coordinated patient center and been real drivers in value in the
    healthcare system and that.

    But they share frustrations I have had for some time. They say, ``Well, how
    can we accelerate this? How can we move from fee-for-service to a more
    value of quality and align the financial incentives done the right way?''

    You mentioned the Accountable Care Organizations. Secretary Burwell just
    announced an expansion of the pioneer ACL program, which I think is
    helpful, the medical home models, maybe some bundling in that.

    But are we just still in this era of experimentation and trying to find out
    what works and what doesn't or are there some payment reforms that really
    do show some promise that maybe we ought to be stepping on the gas pedal a
    little bit harder on?

    Mr. Umbdenstock. Well, certainly, again, as you mentioned from your home
    State, very much one of an integrated delivery system, large groups
    connected to hospitals, connected to payment systems.

    Just tomorrow I am going to meet with members from across the country who
    are in very similar models to that. We estimate that about 20 percent of
    our members at the moment--maybe high teens getting to 20--have a health
    plan or have some sort of relationship to a health plan where they are
    starting to integrate payment and delivery.

    So the more we see of that, the more we see coordinated, integrated systems
    of care emerging. And so we are supportive of that. The only problem is
    that that is not right for every market yet. It is very difficult to do on
    small population bases, for example. Very difficult to do if the payment
    isn't right in socioeconomically disadvantaged urban areas.

    And so it is a concept that we are all very interested in and moving
    toward, I believe, but it is all a matter of markets and timing.

    Mr. Kind. What are you seeing in the area of uncompensated care numbers
    right now? Obviously, there is some improvement in some States. But I hail
    from a State that has rejected the Medicaid expansion funds and has left us
    with a huge shortfall in that regard. But, overall, what have you been
    seeing?

    Mr. Umbdenstock. It is much more favorable, as you might expect, in States
    that have chosen to expand Medicaid. Nationally, we believe that
    uncompensated care has dropped--or charity care has dropped about $7.5
    billion with the additional coverage, and about two-thirds of that, maybe
    about five in round numbers, is from Medicaid.

    So we definitely continue to urge all States to take advantage of that
    option. And it works for the States. It works for communities and employers
    who have a backstop if people should lose insurance. And it is working and
    helping providers as well.

    Mr. Kind. Finally--I know I am running out of time--but I would like to
    follow up with you in regards to one of your recommendations for
    improvement, the standardizing the merger and review process between the
    two Fed antitrust agencies. I think that is a huge area that is going to
    require more scrutiny by all parties involved. So I would like to follow up
    with you in the future with that.

    Mr. Umbdenstock. We would be happy to. Big issue. Thank you, sir.

    Mr. Kind. Thank you, Mr. Chairman.

    Chairman Brady. Thank you.

    Ms. Jenkins, you are recognized.

    Ms. Jenkins. Thank you, Mr. Chairman.

    Like many Americans, I am concerned about the future of the Medicare
    program. The current trajectory of Medicare shows a trust shortfall in
    2031, only 16 years from now. This impacts not just future beneficiaries,
    but many current beneficiaries as well.

    Access to quality care is in jeopardy, and that is why this hearing really
    is so timely. Improvement of competition in Medicare has the potential to
    lead to lower prices, higher quality, and a more sustainable future for the
    program.

    One area of Medicare that has already demonstrated these results is the
    Medicare Advantage program. And the latest numbers show that over 62,000
    Kansans enrolled in a Medicare Advantage plan last year. These private
    plans compete against each other to offer beneficiaries increased coverage
    options.

    Particularly in rural areas, a Rural Policy Research Institute study shows
    that 216,000 more rural beneficiaries chose a Medicare Advantage plan
    between 2013 and 2014. This is despite the cuts to Medicare Advantage in
    the President's healthcare law and despite the shrinking rural population
    in America.

    So, Dr. Antos, Representative Black already touched on a few of my
    questions. So maybe I will just pick up there. How do you explain this
    apparent discrepancy between the President's cuts to Medicare Advantage and
    the increased popularity of the program?

    Mr. Antos. Well, I think it is a tribute to the poor performance of the
    fee-for-service program in Medicare. As I mentioned, part of the issue is
    that, once you get to know Medicare, you realize that it isn't the program
    you thought it was going to be. And I think this explains to a very large
    extent why there has been such an expansion of enrollment among the younger
    Medicare beneficiaries.

    Now, it is the case that Medicare Advantage plans are much better organized
    as businesses than the various unconnected fee-for-service providers. And
    so one of the criticisms that is sometimes made is that, well, they are
    over-billing. But they are not over-billing.

    They are, in fact, properly coding the maladies and the conditions of their
    customers. And they are not only properly coding that, but they are also
    fully incentivized to find ways to provide kind of 360-degree care rather
    than narrow focuses on hospital services or physician services or what have
    you.

    Ms. Jenkins. Okay. Great.

    Given the increased popularity of the Medicare Advantage particularly in
    rural America, what would you suggest that Congress do to spur this trend
    along?

    Mr. Antos. Well, certainly one of the things that really should be done is
    even the sort of situation when people enter the Medicare program. When you
    turn 65, the default is fee-for-service Medicare. That is one of the
    reasons why you have so many people who then change after a couple years,
    change the default.

    Another big, big factor that I think really gets at the rural issue is to
    change the basis of the bidding. Right now fee-for-service Medicare is
    treated as if it was a national program. Of course, it is not really a
    national program. It is different in every region. It is different in every
    locality. And, yet, there is a national standard, there is a national
    benchmark, and so on.

    What really ought to happen is that we have full, fair bidding and, in
    rural areas, where cost conditions are vastly different than in urban
    areas, that the bids from Medicare Advantage plans are measured against the
    actual cost of Medicare providing services in those areas.

    Ms. Jenkins. Okay. Thank you.

    I yield back.

    Chairman Brady. Thank you.

    Dr. Price, you are recognized.

    Mr. Price. Thank you, Mr. Chairman.

    And I thank the panel. And I apologize for being late. And I am sorry if I
    repeat myself here.

    I do want to focus in on the whole issue of competition in a particular
    area to start with, and that is the area of durable medical equipment.

    You know, just because something says it is competitive doesn't necessarily
    mean it is competitive. And so it is important that you drill down and look
    at actually how programs run.

    I would suggest, many of us would suggest, that the competitive bidding
    system for DME is neither competitive nor is it real bidding. And we have
    put forward a bipartisan solution to that that we call market purchase
    pricing that we think is superior.

    But, Mr. Steedley, I want to have you reflect a little bit on the
    competitive bidding system in DME. What are your experiences? For those of
    us who were in health care--I was a physician for over 20 years taking care
    of patients--we oftentimes see a different example or different experience
    than what is relayed here in Washington.

    So you and your peers who are trying to care for folks out there in the
    real world, what has competitive bidding meant to you all?

    Mr. Steedley. Thank you, Mr. Price.

    You know, Barnes Healthcare Services had the opportunity in round 2 to bid
    in Atlanta. And, surprisingly, we actually won the bid; yet, we declined
    that bid because the bid came in lower than our bid. And that is an
    important piece to hear here. 50 percent of winning bidders in competitive
    bidding actually bid less than the median price that is accepted.

    It is about a standard of care--there are certain costs that are built into
    taking care of patients at home. And, specifically, if we just talk--if I
    narrow into the wheelchair example I just used, there is measuring these
    patients at home, there is working with the physical therapists, there is
    working with those physicians. It is making sure that these patients are in
    chairs that are appropriate.

    And it is important to differentiate, to your point. I am not talking about
    just a broken hip or a sore knee that is going to need 2 or 3 weeks,
    sometimes, or 6 weeks of healing. Some of these patients are terminally
    ill. Some of these have ALS, muscular dystrophy, quadriplegic, and these
    folks require specialization with their chairs.

    And so, for us, when we are looking at our cost structure and the necessity
    to take care of these patients, the things that they are going to need, the
    current system for us doesn't bring in enough revenue, quite frankly, to
    take care of these patients in the way that they deserve.

    Mr. Price. So what I hear you saying is that there are patients out there
    that need services, require services. And the system that is being touted
    here in this town by so many at CMS as being an improvement, it is, in
    fact, harming individuals' access to care. Is that an accurate statement?

    Mr. Steedley. And, specifically, I can tell you we take calls from
    patients, quite frankly, for winners in those areas where they have called
    because they can't get their wheelchairs repaired timely.

    Some of these patients now, and I can supply a couple of these names for
    you later if you are interested, have decubitus sores, where they were put
    in inappropriate chairs with the wrong support structure for them.

    What is going on is at this point, because the payment system is down so
    much, that providers are trying to find equipment that is under the cost.
    And that is not always appropriate for these patients.

    Mr. Price. See, Mr. Chairman, this is the challenge that we have. It is
    that you have got folks who are winning supposed bids out here, but they
    don't have the expertise or the ability to carry out the care for those
    patients in that geographic area.

    And I want to commend you, Mr. Steedley, for what you are doing. We are
    going to continue our work on the market pricing program. As I say, it was
    bipartisan last year. Last Congress, we had 180 cosponsors, 49 Democrats.

    There is also a push to expand the payment rates for competitive bidding
    into noncompetitive bidding areas right now, and I know that that is a
    concern.

    In fact, we had a letter that was signed by tens of individuals of the
    House that I ask unanimous consent to insert into the record to have OIG
    investigate exactly what the consequence of this would be.

    [The information follows: The Honorable Tom Price Submission]

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    Mr. Price. And the reason that that is important is that CMS uses claims
    data to determine whether or not folks get the kind of coverage or care
    that they need.

    And, in fact, that is an inaccurate determiner of whether or not that
    patient is actually receiving the right care. So I am hopeful that the OIG
    will give us a report that actually reflects the sincere problems that are
    out there on the ground.

    Thank you, Mr. Chairman. I yield back.

    Chairman Brady. Dr. Price, thank you for bringing this idea forward.

    Mr. Renacci.

    Mr. Renacci. Thank you, Mr. Chairman.

    I want to thank the witnesses. It is always interesting to come to these
    hearings and hear some of the concerns and issues. I, too, want to follow
    up with what Dr. Price talked about.

    I am actually a member who had a DME company and went through competitive
    bidding before I came to Congress. I can tell you it was an interesting
    process because, as I thought I was doing a good job, I lost the
    competitive bid to another party.

    I lost the bid to another party who then turned around and tried to sell me
    the bid back. And I know some of that cannot occur anymore with--
    hopefully--Mr. Tiberi's bill, which requires securing a security bond.

    And with competitive bidding, again, the name sounds right, and I heard one
    of my colleagues talk about it being a Republican issue. Hey, Republicans
    and Democrats, it doesn't matter whether it is a Republican idea or a
    Democrat idea. It is a bad idea if it is not working.

    And what I saw in competitive bidding, it was driving good companies out
    and, at the same time, it was not giving clients the adequate equipment
    that was needed.

    And that is, Mr. Steedley, one of the things I know that you said. It is
    interesting. There was a company in Ohio that actually came to me. They had
    won a bid for a certain number of canes at a certain price.

    And it was also ruining their reputation because, although they provided
    the certain number of canes at the certain price, it appeared that people,
    because there weren't enough other competitive companies out there, were
    continuing to come to them. And they didn't want to provide any more canes
    at the price because it was not in their best interest.

    Are you seeing some of those same instances in the business model that you
    are currently running?

    Mr. Steedley. Yes, sir. And, to your point, the binding bid legislation is
    actually not going to go into effect for several more years. So that
    remains a little problematic.

    To your point, there is a company in Orlando, Florida, that come to visit
    specifically--and I met with these folks. So I am talking from my personal
    experience here.

    They won every single bid in round 2, all 90 MSAs in every product category
    in those bids. And to what you said a few minutes ago, their intention was
    to just resell those bids to desperate providers. It is still going on.

    Mr. Renacci. Well, see, I wasn't even aware of that. And that is an issue.
    I mean, I had to live with it, and it became a process where other
    companies were making money and actually driving the cost down, causing
    providers to have to sell their product at less than actually a price they
    could afford to pay.

    Do you see that also in the current situation where pricing mechanisms are
    far below cost of actually providing the service?

    Mr. Steedley. Yes, sir. That continues. You know, if you look at even from
    the Association perspective, we are seeing a contraction now in the
    industry. Some of those folks are being bought by larger companies.

    Just from a financial standpoint--and I think we are all businesspeople in
    the room--I can tell you those businesses are being bought sometimes for
    pennies on the dollar.

    But, unfortunately, there are other providers that are going out of
    business because they did not win the bid. And, at some point, because they
    lost all that business in that area, they are gone and then the other
    providers that are left don't have enough left to sustain themselves
    anymore. So they are now going out of business.

    What we are seeing, in essence--and competitive bidding is not the right
    word for this. What you are really seeing is a decimation of this industry.
    The lowest cost providers out there, the home care communities, are being
    taken apart slowly at this point.

    And we talked a little about transparency. I said that in my opening
    statement earlier. We don't have good data from CMS that shows the
    correlation from the decrease in the part B spin here and what that
    translates into on the part A side.

    I have spoken to patients that are telling me, because they can't get
    service, they are going to the emergency room or they are being admitted at
    some point for other problems subsequent to poor equipment or no equipment
    at all.

    Mr. Renacci. I know you touched on this a little bit. But this practice
    does have--for me, it has some concerns about patients and the actual care
    they are getting.

    I know that, when I operated in multiple cities in rural and urban areas
    prior to coming to Congress--health care, nursing home facilities--and I
    can tell you that it is always more costly and many times in those rural
    settings.

    Just briefly, what are you seeing with patients? You touched on that, but I
    want to make sure we hit home on that. What is happening to those patients
    that aren't getting the proper equipment?

    Mr. Steedley. You know, I can tell you--and I just saw this the week before
    last, I believe--what you are seeing is, people say, ``Well, there is no
    problem with these patients, no access issues. At some point, what is going
    on is some of these folks that would ordinarily have got a different piece
    of equipment now are getting equipment that is no longer the best for them.

    For instance, the case I am referring to, the lady was an elderly lady that
    was walking around very ambulatory, COPD or CHF, whatever her issues were,
    but was carrying one of those great big, heavy e-tanks around with her. And
    when I talked to her about that, she has a closet full of them because the
    provider that won would not give her a smaller, lighter weight portable
    tank because the cost of that system was more expensive.

    Mr. Renacci. Thank you very much.

    Mr. Chairman, I yield back.

    Chairman Brady. Thank you.

    I would like to thank today's witnesses for their testimony today.

    We are going to continue this discussion about competition within hospitals
    and community hospitals and physician-owned hospitals, as well as looking
    at are there better ways to create savings from a durable medical equipment
    bidding as well as high-quality service to seniors.

    And before I finish, I can see Mr. McDermott is anxious to submit a
    document for the record.

    Mr. McDermott.

    Mr. McDermott. Thank you, Mr. Chairman.

    For the record, I would like to submit a letter from Medicare Rights, which
    basically is in support of the competitive bidding process and ask
    unanimous consent.

    Chairman Brady. Without objection.

    [The information follows: The Honorable Jim McDermott Submission 2]

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    Chairman Brady. Going forward, in continuing the discussions we had today,
    we will also be looking at issues of physician shortages, of disparities in
    rural health care within Medicare, as well as looking at improved programs
    on inpatient, outpatient and other hospital payment systems. So we will be
    encouraging input from both these witnesses as well as those in the
    audience today.

    As a reminder, any member wishing to submit a question for the record will
    have 14 days to do so. If any members submit questions after the hearing, I
    would ask that the witnesses respond in writing in a timely manner.

    With that, the committee is adjourned.

    [Whereupon, at 11:51 a.m., the subcommittee was adjourned.]

    [Submissions for the record follow:]

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