[Senate Hearing 115-832]
[From the U.S. Government Publishing Office]
S. Hrg. 115-832
HOW TO REDUCE HEALTH CARE COSTS:
UNDERSTANDING THE COST OF
HEALTH CARE IN AMERICA
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING HOW TO REDUCE HEALTH CARE COSTS, FOCUSING ON UNDERSTANDING
THE COST OF HEALTH CARE IN AMERICA
__________
JUNE 27, 2018
__________
Printed for the use of the Committee on Health, Education, Labor, and Pensions
Available via the World Wide Web: http://www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
30-643 PDF WASHINGTON : 2020
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
LAMAR ALEXANDER, Tennessee, Chairman
MICHAEL B. ENZI, Wyoming PATTY MURRAY, Washington
RICHARD BURR, North Carolina BERNARD SANDERS (I), Vermont
JOHNNY ISAKSON, Georgia ROBERT P. CASEY, JR., Pennsylvania
RAND PAUL, Kentucky MICHAEL F. BENNET, Colorado
SUSAN M. COLLINS, Maine TAMMY BALDWIN, Wisconsin
BILL CASSIDY, M.D., Louisiana CHRISTOPHER S. MURPHY, Connecticut
TODD YOUNG, Indiana ELIZABETH WARREN, Massachusetts
ORRIN G. HATCH, Utah TIM KAINE, Virginia
PAT ROBERTS, Kansas MAGGIE HASSAN, New Hampshire
LISA MURKOWSKI, Alaska TINA SMITH, Minnesota
TIM SCOTT, South Carolina DOUG JONES, Alabama
David P. Cleary, Republican Staff Director
Lindsey Ward Seidman, Republican Deputy Staff Director
Evan Schatz, Democratic Staff Director
John Righter, Democratic Deputy Staff Director
C O N T E N T S
----------
STATEMENTS
WEDNESDAY, JUNE 27, 2018
Page
Committee Members
Alexander, Hon. Lamar, Chairman, Committee on Health, Education,
Labor, and Pensions, Opening statement......................... 1
Murray, Hon. Patty, Ranking Member, a U.S. Senator from the State
of Washington, Opening statement............................... 3
Witnesses
Buntin, Melinda, M.D., Ph.D., Mike Curb Professor and Chair,
Department of Health Policy, Vanderbilt University School of
Medicine, Nashville, TN........................................ 6
Prepared statement........................................... 8
Summary statement............................................ 12
Jha, Ashish, M.D., M.P.H., Director, Harvard Global Health
Institute, K. T. LI Professor and Senior Associate Dean,
Harvard T. H. Chan School of Public Health, and Professor of
Medicine, Harvard Medical School, Cambridge, MA................ 13
Prepared statement........................................... 15
Summary statement............................................ 23
Brennan, Niall, M.P.P., President and Executive Director, Health
Care Cost Institute, Washington, DC............................ 24
Prepared statement........................................... 26
Summary statement............................................ 32
Hymann, David, M.D., J.D., Professor, Georgetown University Law
Center, Washington, DC......................................... 32
Prepared statement........................................... 34
Summary statement............................................ 37
HOW TO REDUCE HEALTH CARE COSTS:
UNDERSTANDING THE COST OF
HEALTH CARE IN AMERICA
----------
Wednesday, June 27, 2018
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m. in room
SD-430, Dirksen Senate Office Building, Hon. Lamar Alexander,
Chairman of the Committee, presiding.
Present: Senators Alexander [presiding], Enzi, Isakson,
Collins, Cassidy, Young, Murkowski, Scott, Murray, Casey,
Murphy, Kaine, Smith, and Jones.
OPENING STATEMENT OF SENATOR ALEXANDER
The Chairman. The Senate Committee on Health, Education,
Labor, and Pensions will please come to order.
Senator Murray and I will each have an opening statement,
and then I will introduce the witnesses. Then we will hear from
the witnesses, and the Senators will each have about 5 minutes
to ask questions.
For the last 7 years, Republicans and Democrats have been
locked in a debate about health insurance. Primarily, the
individual insurance market, which is important, but it is
where only 6 percent of insured Americans get their health
insurance.
But the hard truth is we will never get the cost of health
insurance down until we get the cost of health care down.
Today, we are beginning a series looking at how to reduce
health care costs, including examining administrative costs,
waste, how to improve transparency, private sector solutions,
and other important issues as they come up.
According to the World Bank, the United States produces 24
percent of all the world's wealth for just 5 percent of the
people who live here.
According to the Centers for Medicare and Medicaid
Services, in 2016, we spent 17.9 percent of our wealth, our
Gross Domestic Product, on health care. And CMS projects that
share will rise to nearly 20 percent by 2026.
The United States spends a significantly higher percentage
of our GDP on health care than other countries. However, I
expect several witnesses here today will say we should be
cautious about how we compare the United States' economy to
other countries around the world when we are discussing health
care costs.
According to the Assistant Secretary for Planning and
Evaluation at the Department of Health and Human Services,
which is the Health Data Office at HHS, we spent $2.2 trillion
on health care in 2006. That is projected to grow to $5.7
trillion in 2026. That is a 159 percent increase.
Warren Buffet has called the ballooning costs of health
care, quote, ``A hungry tapeworm on the American economy.''
What does this mean for families, and for businesses, and
for taxpayers?
According to the HHS Health Data Office, in 2016, American
families spent an average of $1,095 per person on their health
care, up from $705 a person in 2000, not including insurance
premiums.
Most people do not even know what they are paying because
medical bills are so confusing.
In 2016, according to HHS Health Data Office, private
businesses and employees paid for over half the $3.3 trillion
we spend on health care, which is money that is going to
increasing health care costs instead of paychecks and bank
accounts.
According to the Congressional Budget Office, American
taxpayers spend more on health care programs than anything
else, including our national defense and the National
Institutes of Health.
The first step to reducing health care costs is to better
understand the cost of health care in America and understand
why health care in America costs so much more than it costs in
other countries.
The most obvious fact about health care costs, other than
that they are too high, is that they are often indecipherable.
Any one of us who has received a hospital bill in the mail or
has tried to figure out their health insurance benefits has
wondered what it all means.
The complexity of the health care system, not only means it
is difficult to determine what is driving up the costs, but
this complexity itself is driving up the cost of health care.
Over the last 18 months, the HELP Committee has had
hearings on four different areas of health care spending:
One, the cost of prescriptions drugs; why is the cost paid
by patients rising and what can Congress do to help? We saw the
complexity of the health care system in the list price and
rebate process, which seems to benefit everyone but the
consumer.
Two, wellness programs; there is a consensus, and we heard
about it, that a healthy lifestyle helps people live longer and
better lives, and reduces health care costs.
Three, the 340B Drug Pricing Program; according to
researchers at New York University, Harvard, and the ``New
England Journal of Medicine,'' the 340B Drug Pricing Program
incentivizes consolidation in the health care industry, which
reduces competition and drives up costs.
Four, Electronic Health Records; the Federal Government has
spent over $38 billion incentivizing the adoption of Electronic
Health Records to help share data, improve care, and reduce
costs only to find that Electronic Health Records do not work
very well, add tremendous administrative burden to doctors, and
are expensive to maintain and update.
Now, the Committee is going to focus on ways to reduce
health care costs and before we come up with solutions, we want
to understand the drivers of health care spending.
Who is spending all this money on health care? What is the
money being spent on? When in a person's life do they spend
money on health care? Where does the money go?
According to the HHS Data Office, 31 percent of the $3.3
trillion we spent on health care in 2016 was for care in
hospitals. Twenty percent was spent on physician and clinical
services; 5 percent on nursing care and home health; and 10
percent for prescription drugs that we pick up at the pharmacy.
But according to witnesses at our drug pricing hearing, the
percent we spend on prescription drugs is closer to 17 percent
when we account for prescription drugs given in a setting such
as a hospital or a nursing facility.
The average American is shocked by the cost of health care.
They do not understand what they are being charged for, and why
it costs so much, and they want better answers. We hope to find
those answers.
That is what I heard from Todd, a Knoxville, Tennessee
father who recently took his son to an emergency room after a
bicycle accident. Todd paid the $150 co-pay, because the
emergency room was in network for his health insurance, and
they headed home.
Todd was surprised when he received a bill for $1,800
because even though the emergency room was ``in network,'' the
doctor who treated his son was not.
Todd wrote me trying to find out why it is so hard to
understand what health care really costs and said, ``If I am
expected to be a conscientious consumer of my own health care
needs, I need a little more help.''
Well, maybe we can provide a little more help for Todd,
individuals like him, employers, and other taxpayers as we take
the first step toward reducing health care costs by
understanding health care costs better.
Senator Murray.
OPENING STATEMENT OF SENATOR MURRAY
Senator Murray. Well, thank you, Mr. Chairman.
Before I begin, I do want to note that I am still very
deeply concerned about the Administration's cruel and chaotic
policies that have now caused thousands of children to be
separated from their parents with no apparent plan for
reunification.
We had a positive step yesterday with the injunction
ordering children to be quickly reunited with their parents.
But no matter how this plays out in the courts, we need answers
about how these kids are going to be cared for, when they are
going to be reunited with their families, what the future holds
for those in similar situations going forward, and more.
It is just unacceptable. It is inexcusable and we do not
have answers to those straightforward questions yet. So we are
going to keep asking the Administration, pushing them to give
us, and separated families, some clear answers.
Now, we are here today to discuss how to reduce health care
costs, which is something I hear constantly when I am home in
my state. I know other families across the country feel the
same way, so I am very interested today in what our witnesses
have to say about this issue. I want to thank all of you for
coming and joining us today.
There are far too many stories about patients caught off
guard by health care bills higher than they expected and
concerned that they will not be able to afford the care they
need. Patients like LeeAnn Tiede from my home State of
Washington.
After getting treatment for breast cancer, which she
checked to be sure her insurance would cover, she was surprised
to get a bill for nearly $800. Her hospital was in the network.
Her surgeon was in the network. The anesthesiologist was not.
So her insurance stuck her with most of the bill. And her story
is not unique.
Patients in Washington State, and across the country, have
also experienced this so-called ``balance billing'' after
learning providers were not in their insurance network. And her
story is only part of the problem.
People are not just concerned about the cost of a surprise
bill from providers who are out of network, they are concerned
about the skyrocketing price of drugs, and they are concerned
about the cost of rising insurance premiums. These are
challenges that impact families every single day, and they are
challenges President Trump promised time and again to address
on the campaign trail.
Unfortunately, it is difficult to imagine what else
President Trump could possibly be doing to make these
challenges worse. Since day one, he has not only failed to rein
in prescription drug prices, but has brought chaos,
uncertainty, and higher costs to health care in this country
across the board.
He tried again and again to jam the Trumpcare bill through
Congress, and when he could not do that, he chose to create
Trumpcare by sabotaging patients' care in every way he could,
including:
Doing just about everything possible to gut protections for
people with preexisting conditions;
Slashing investments in helping people get care and
shortening enrollment windows;
Making it easier for insurers to sell junk plans;
Championing tax cuts for massive corporations paid for by
policies that his own former Health Secretary said would raise
premiums, and more.
All of this sabotage has translated, according to
independent analysis, to higher costs for so many patients. And
this has not just impacted the health care marketplaces that
were created under the Affordable Care Act.
President Trump's efforts to undermine protections for
people with preexisting conditions could leave millions of
people, who are currently uninsured, without the ability to
afford the care they need.
He has sabotaged innovative efforts at lowering costs
across the health care system. Instead of supporting sensible
programs to bundle payments that encourage providers to keep
costs down and deliver the best results for patients, President
Trump delayed those programs and ultimately canceled some of
them.
He left an important laboratory for experimenting with new,
affordable, and high quality models for delivering care--the
Centers for Medicaid and Medicare Innovation--without a
director for a full year.
Undermining opportunities to discover new cost-lowering
innovations not only jeopardizes bipartisan reforms to contain
costs that we secured in 2015, but also perpetuates the premium
increases and financial burdens patients are now facing thanks
to the President's health care sabotage.
As I have said before, all of this is especially
frustrating because it did not have to be this way. I continue
to be deeply disappointed that the Republican leaders refuse to
support the bipartisan agreement that this Committee agreed on
months ago, which could have lowered premiums for this year,
and next, and helped stabilize markets.
As I have said, Mr. Chairman, I am still at the table if
and when Republicans are ready to resume those negotiations.
Now, as I said, there are a number of ideas that could help
bend the curve over the long term as we begin to explore in the
Affordable Care Act. I mentioned a few earlier, and I am
similarly very interested in how Accountable Care Organizations
can reduce costs by rewarding providers for good patient
outcomes, rather than racking up charges.
I am also proud that Washington State has helped lead the
way with innovative new programs like the Medicaid
Transformation Demonstration, which is designed to better
coordinate care and help keep patients healthy in the first
place. I am looking forward to discussing these and other
targeted approaches to lowering health costs.
But at the same time, I want to be clear. We cannot talk
about higher health care costs in our country without
acknowledging the elephant in the room, which is that President
Trump has dramatically increased them.
What is desperately needed in the near term is for
Republican leaders to set aside tired, partisan political
fights over health care. Allow us to work together on the kinds
of policies we were all able to agree on just months ago that
could have made a significant difference for families
nationwide.
Democrats have wanted to do this work for years. We got
close this past year. I am confident we can still succeed if we
work across the aisle and put patients and families first.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Murray.
We will now welcome our witnesses. Each witness will have
up to 5 minutes to give his or her testimony. I am pleased to
welcome them.
The first is Dr. Melinda Buntin. She is Professor and Chair
of the Department of Health Policy at Vanderbilt University
School of Medicine.
Prior to this, she served as Deputy Assistant Director for
Health at the Congressional Budget Office, where she was
responsible for managing and directing studies of health care
and health care financing issues in the Health Retirement and
Long Term Analysis Division.
The second witness is Dr. Ashish Jha. He is the K. T. Li
Professor of Global Health at Harvard University, Senior
Associate Dean for Research, Translation, and Global Strategy
at Harvard T. H. Chan School of Public Health, and the Director
of the Harvard Global Health Initiative.
He is a general internist and also Professor of Medicine at
Harvard Medical School, a member of the Institute of Medicine
at the National Academies. We welcome you, sir.
Third, we will hear from Mr. Niall Brennan, President and
Executive Director of the Health Care Cost Institute. Prior to
that, he was Chief Data Officer at the Centers for Medicare and
Medicaid Services and he served on the Medicaid-Medicare
Payment Advisory Commission, MedPAC, and in the Congressional
Budget Office.
Last, we will hear from Dr. David Hyman. Dr. Hyman is a Law
Professor at Georgetown University School of Law. He focuses on
health care regulations, civil procedure, insurance, medical
malpractice, law and economics, professional responsibility,
and tax policy.
He is an Adjunct Scholar at the Kato Institute and he led
the first joint report on health care and competition between
the Department of Justice and the Federal Trade Commission
while Special Counsel at the FTC.
Welcome, again, to all of our witnesses.
Dr. Buntin, let us begin with you. If each of you could
summarize your remarks in about 5 minutes, we have a number of
Senators who then would like to have a conversation with you.
Dr. Buntin.
STATEMENT OF MELINDA BUNTIN, PH.D., MIKE CURB PROFESSOR AND
CHAIR, DEPARTMENT OF HEALTH POLICY, VANDERBILT UNIVERSITY
SCHOOL OF MEDICINE, NASHVILLE, TENNESSEE
Dr. Buntin. Good morning.
I would like to thank Chairman Alexander, Ranking Member
Murray, and the other Members of this Committee for giving me
the opportunity to speak about how we can address the high and
rising cost of health care in the United States.
My name is Melinda Buntin and I am a health economist and
the Mike Curb Professor of Health Policy at Vanderbilt School
of Medicine.
This testimony is derived, in part, from recent academic
work with colleagues at Vanderbilt, and from earlier work with
colleagues at the Congressional Budget Office, and RAND.
The amount that we spend on health care in the United
States is high; $3.3 trillion per year. That works out to more
than $10,000 for every man, woman, and child in this country.
As a result, health care accounts for a large fraction of our
total national output.
We currently devote almost 18 percent of our GDP to health
care, meaning almost $1 out every $5 spent in our economy is
spent on some form of health care.
Yet, despite this high overall level of spending, I would
urge Members of this Committee to focus on reducing the rate of
growth in per capita health care costs. Let me explain why.
The $3.3 trillion we are currently spending reflects the
incomes of the millions of people employed by the health care
industry and the revenue of thousands of hospitals, medical
offices, and pharmacies across the country. It is very hard to
reduce that level of spending despite the burden it places on
households.
Turning to overall spending growth, that reflects both
changes in the number and types of people covered--for example,
the increasing number of people over age 65 covered by
Medicare--and changes in the costs of their care.
If we put aside for the moment the separate issue of the
numbers of people covered, attention to per capita cost growth
isolates the cost of care and it underscores the types of
policy choices that drive changes in the trajectory of health
care costs.
One clear example of this can be found in the recent
history of the Medicare program. Overall, Medicare spending has
grown because large numbers of Baby Boomers are becoming
eligible for the program as they turn age 65.
But per capita cost growth in the Medicare program has been
low over the past decade, even after adjusting for the fact
that the average beneficiary is younger.
There are three main reasons for this.
First, policy choices have kept growth and Medicare
payments low. Examples of these policy choices include
physician payment rate changes under MACRA, and the hospital
productivity adjustments under the ACA.
Second, there have been changes in the rate of growth of
new health care technologies and in the use of health care
services. In particular, there has been a reduction on a per
capita basis in the use of care in expensive inpatient
settings.
I would note, though, that a countervailing trend, and one
that is expected to intensify, has been an increase in high
cost drug treatments and regimens.
Then third, the emphasis on value-based care has
contributed to providers' paying closer attention to their cost
structures and their investments. This can be expected to
influence cost growth in the future if providers believe that
public and private insurers are serious about paying for value.
What, then, are the policy options that Congress can and
might consider to ensure that we get the most from what we
spend on health care?
There are three areas that merit attention from
policymakers, in my view.
First, this Committee should be commended for its
investigations of innovative ways to make sure that drugs are
affordable and appropriately utilized. I know you have already
held many hearings on that subject.
Second, ongoing vigilance about price increases is
warranted. Medicare payment rates, for example, are important
in their own right and they are important because they are
often a starting point for negotiations between providers and
insurers. They also set the benchmarks for value-based payment
reforms.
In addition, given the rate of mergers and consolidations
in our health care industry, history and empirical research
have shown us that we should be concerned about future price
increases.
Third, continued focus on value-based payment methods like
the payment for episodes or bundles of care that Senator Murray
mentioned, instead of payment for individual services, will
encourage providers to seek out technologies that can improve
health and contain costs.
In sum, for all the health care costs in this country, and
the burden it places on our governments and families, we do
have one of the most advanced health care systems in the world,
albeit one that does not serve all of our citizens equally
well.
We have hospitals that employ thousands of people in
communities across the country and nearly every day brings
stories of medical breakthroughs. In other words, our costs are
also cures, jobs, and incomes.
Given this, and based on the data I have seen and the
research I have done, continuing to focus on stemming growth in
per capita costs through creating the right incentives for
health care suppliers and providers is the most promising way
to ensure that we get more value out of our health care
dollars.
Thank you very much.
[The prepared statement of Dr. Buntin follows:]
prepared statement of melinda j. b. buntin
I would like to thank Chairman Alexander and Ranking Member Murray
for giving me the opportunity to speak today about how we can address
the high costs of health care in the United States. My name is Melinda
Buntin, and I am the Mike Curb Professor of Health Policy in the
Department of Health Policy at the Vanderbilt University School of
Medicine. This testimony is derived in part from recent academic work
with colleagues at Vanderbilt and from earlier work done while I was at
the Congressional Budget Office and RAND.
Problem Statement
The amount that we spend on health care in the United States is
high--$3.3 trillion dollars per year. That works out to more than ten
thousand dollars for every man, woman, and child in the country. As a
result, health care accounts for a large fraction of our total national
output, or GDP. We currently devote 18 percent of our GDP to health
care--almost one dollar out of every five spent in our economy is spent
on some form of health care. Many households devote an even greater
share to health care. Consider, for example, the Milliman Medical
Index, which captures the average costs of a typical employer-sponsored
plan for a family of four. It was over $28,000 in 2017, which is
roughly equivalent to the wages of two full-time workers at the Federal
minimum wage. \1\ This level of expenditure is a major reason that the
wages of American workers have stagnated. It is also a reason why
employers have been slow to hire full-time workers as we have grown out
of the recession. \2\ This level of spending also puts a high burden on
our working population to support benefits for older, disabled, and
poor citizens who depend on Medicare and Medicaid.
---------------------------------------------------------------------------
\1\ Note that this figure does not include the cost of
administration or insurer profits. http://www.milliman.com/
uploadedFiles/insight/Periodicals/mmi/2018-milliman-medical-index.pdf.
\2\ David I. Auerbach, Arthur L. Kellermann. ``A Decade of Health
Care Cost Growth Has Wiped Out Real Income Gains for an Average US
Family.'' Health Affairs, v. 30, no. 9, Sep. 2011, p. 1620-1636.
---------------------------------------------------------------------------
Yet despite these high spending levels, in this testimony I will
argue that it is not overall dollar amounts, or that proportion of GDP
per se, that is a problem. Instead, I will argue that it is per capita
cost growth that is the most important factor to watch. Per capita
growth gives the clearest indicator of the growing cost of care
delivery and the changes in our health care system. \3\ Trends in per
capita costs also underscore that policy choices we have made and can
make in the future do drive changes in health care delivery. In fact,
per capita cost growth in the Medicare program has been low over the
past decade and examining those trends provides some concrete examples
of how cost growth might be kept in check.
---------------------------------------------------------------------------
\3\ Per capita costs would ideally be adjusted for changes in the
age and health status distribution of the population in questions as
well. See https://www.healthaffairs.org/do/10.1377/
hblog20150728.049597/full/.
---------------------------------------------------------------------------
What drives what we spend on health care?
To think about how policy choices might affect the levels of and
growth in health care spending, it is important to understand the
components of health care costs and what drive them. These vary by
payer, whether that payer is Medicare, Medicaid, or private insurance.
First, there is the number of people covered. Overall Medicare and
Medicaid spending have grown rapidly over the past decade primarily
because of growth in the number of people covered. Medicare has grown
because of the aging of the baby boomer generation and the increases in
life expectancy for Americans at older ages. Medicaid rolls grew during
the recession, by design, and grew due to expansions in coverage under
the Affordable Care Act. Whether or not the current rules for Medicaid
eligibility are too lenient or too stringent is the subject of debate
but can be separated from debates about the costs of insurance. Private
insurance coverage levels vary with conditions in the labor market and
have been climbing slightly in recent years. \4\
---------------------------------------------------------------------------
\4\ https://www.cdc.gov/nchs/data/nhis/earlyrelease/
TrendHealthInsurance1968_2016.pdf.
---------------------------------------------------------------------------
Total spending is the number of people covered times the cost per
person of coverage. The cost per person for coverage is determined by
the numbers of health care products and services used and the prices
paid for those services--plus insurer costs for administration and
profit. Those in turn are determined by factors that economists group
into supply side and demand-side factors.
The numbers of products and services used are dependent on the
supply of those services and how accessible they are. We have millions
of people employed by the health care industry and thousands of
hospitals, medical offices, and pharmacies across the country. This
infrastructure of professionals and providers is built around a health
care financing system in which, by and large, providing more services
brings in more revenue. To counter incentives to deliver more services,
managed care plans put prior authorization requirements in place.
Increasingly, however, insurers are using payment methods and quality
measurement to encourage the delivery of high-value care and discourage
overutilization of low-value care.
On the demand side, there are also clearly interactions between the
prices of health care products and services, and how many products and
services people use. People with insurance are insulated from the full
prices of care but do face deductibles and cost-sharing requirements.
The approximately 10 percent of the population who are uninsured also
use health care services, financed largely through patient out-of-
pocket payments and Federal and state programs that support hospitals,
community health centers, and other providers. Overall, the uninsured
use fewer services than those with insurance, \5\ and when they do use
health care services some providers charge on a sliding scale and
sometimes pay higher prices because they pay the ``list price'' rather
than a price negotiated by an insurer. Changes in the prices faced by
patients, either because of what is charged or how generous their
insurance is, affect demand for insurance and for care. Demand-side
factors also include how healthy or sick people and populations are,
and how much they can afford to spend on health care.
---------------------------------------------------------------------------
\5\ Katherine Baicker, Ph.D., Sarah L. Taubman, Sc.D., Heidi L.
Allen, Ph.D., Mira Bernstein, Ph.D., Jonathan H. Gruber, Ph.D., Joseph
P. Newhouse, Ph.D., Eric C. Schneider, M.D., Bill J. Wright, Ph.D.,
Alan M. Zaslavsky, Ph.D., and Amy N. Finkelstein, Ph.D. for the Oregon
Health Study Group. ``The Oregon Experiment--Effects of Medicaid on
Clinical Outcomes.'' N Engl J Med 2013; 368:1713-1722.
---------------------------------------------------------------------------
Growth in health care spending is thus fueled by growth in numbers
of people served, numbers of products and services on offer, the prices
paid for those services, and how much demand there is for them. It is
also fueled by expectations about all of those factors, because those
expectations drive investments in facilities and in research and
development of new technologies. Indeed, health economists generally
attribute about half of growth in health care spending in the United
States to the growth of new technologies. \6\
---------------------------------------------------------------------------
\6\ Newhouse JP. An iconoclastic view of health cost containment.
Health Aff (Millwood). 1993; 12 Suppl:152-71.
---------------------------------------------------------------------------
It is also important to mention the commonly accepted figure that
about 30 percent of what we spend on health care is waste--or
expenditure that brings little or no benefit to patients. \7\ While
this is an enormous sum, there is little consensus on how to define
waste in practice and even less on how to substantially reduce it. What
seems more fruitful is to focus on the health care system features that
give rise to such a wasteful set of structures for delivering health
care.
---------------------------------------------------------------------------
\7\ Smith M, Saunders R, Stuckhardt L, McGinnis JM, eds. Committee
on the Learning Health Care System in America, Institute of Medicine.
Washington, DC: National Academies Press; 2012. ISBN: 9780309260732.
---------------------------------------------------------------------------
Accordingly, health economists, including my colleagues at the
Congressional Budget Office, often focus on ``excess cost growth''
rather than spending levels when talking about the sustainability of
health care spending. Excess cost growth is growth in per capita health
care costs above growth in per capita GDP. In other words, it is growth
in health care costs that outpaces the ability of our society to pay
for it. Arguably, as high as spending is, our society is paying for the
health care system we have now and recent projections of GDP growth for
next year are strong. Of concern is whether the lower rates of health
care cost growth in recent years can be sustained while the economy
grows overall.
Low Spending Growth in Medicare
As mentioned above, the recent decade of low per capita cost growth
in the Medicare program is an instructive example. From 2007 to 2015,
total Medicare expenditures increased 50 percent, but much of this
growth was due to the number of Medicare beneficiaries covered. Indeed,
on a per capita basis, Medicare spending has been lower than per-capita
GDP growth from 2010-2016. The figure below puts this in context:
Medicare per capita spending growth has been low both in relation to
prior decades and to national health spending overall.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The figure shows that average annual growth in Medicare per capita
spending was 1.4 percent between 2010 and 2016, down from 7.1 percent
between 2000 and 2010, due in part to reductions in payments to
providers and plans and to an influx of younger beneficiaries from the
baby boom generation aging on to Medicare (who have lower per capita
health care costs.) \8\ According to the 2018 Medicare Trustees Report,
Medicare per capita spending is projected to grow at an average annual
rate of 4.6 percent over the next 10 years. \9\ The trustees project
this level of growth due to their forecasts of increased use of
services, intensity of care, and rising health care prices--but those
factors are affected by policy choices. If choices are made that keep
Medicare per capita spending growth below the rate of GDP growth, that
will relieve spending pressure on the Federal Government and have
implications for private payers as well.
---------------------------------------------------------------------------
\8\ Juliette Cubanski and Tricia Neuman. The Facts on Medicare
Spending and Financing. KFF, June 2018.
\9\ 2018 Annual Report of the Boards of Trustees of the Federal
Hospital Insurance and Federal Supplementary Medicare Insurance Trust
Funds accessible at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/
TR2018.pdf.
---------------------------------------------------------------------------
The volume--or number--of health care services delivered to
Medicare beneficiaries has also been relatively flat. Indeed, according
to figures from MedPAC, the volume of inpatient hospital services has
declined: inpatient discharges per beneficiary declined almost 20
percent between 2006 and 2015. \10\ Some of that decline was due to a
shift from inpatient to outpatient care settings, but the decline still
represents a decline in the amount paid for such services. And, unlike
in prior periods of time, new inpatient technologies didn't replace
those moving to the outpatient sector. Indeed, when my colleagues and I
adjusted per capita Medicare costs for payment rate increases we found
that they have been relatively flat since 2007, indicating that use of
care per beneficiary has been similarly stable. These low rates of
growth in the use of health care services, and especially inpatient
services, have been found in the private sector as well. \11\
---------------------------------------------------------------------------
\10\ MedPAC 2017 Data Book. http://www.medpac.gov/docs/default-
source/data-book/jun17_databookentirereport_sec.pdf?sfvrsn=0.
\11\ HCCI 2016 Cost and Utilization Report accessible at https://
drive.google.com/file/d/1vi3S2pjThLFVwB7OtYwFmOiLVPTFl_wk/view.
---------------------------------------------------------------------------
In work I did while at the Congressional Budget and have since
updated, my colleagues and I also found that slow growth in Medicare
payment rates contributed to the slowdown in per capita cost growth.
\12\ We found that prices have increased more rapidly in private
insurance than in Medicare for inpatient, outpatient, and physician
services. The exception to this pattern has been drugs--both Medicare
Parts B and D have seen years of dramatic growth in spending and
spending per prescription--for example around the introduction of the
very expensive drugs for hepatitis C. The amount allocated to Medicare
Advantage (MA) has also increased, but that reflects the increased
enrollment in Medicare Advantage plans: prices paid to providers by MA
plans track Medicare prices because of a rule that allows MA insurers
to pay out-of-network providers at the Medicare rate. \13\
---------------------------------------------------------------------------
\12\ Michael Levine and Melinda Buntin. ``Why Has Growth in
Spending for Fee-for-Service Medicare Slowed?'' Congressional Budget
Office Working Paper. August 2013.
\13\ Jared Lane K. Maeda Ph.D., MPH, Lyle Nelson, Ph.D.. How Do
the Hospital Prices Paid by Medicare Advantage Plans and Commercial
Plans Compare With Medicare Fee-for-Service Prices? Inquiry. First
Published June 11, 2018.
---------------------------------------------------------------------------
What accounts for the slow growth in Medicare? While academics
debate the portion of the credit that should go to each factor and how
they should be grouped, there is general agreement that the following
factors collectively explain the slowdown in spending growth.
Changes to Medicare payment rates: Sequestration, the
slow growth in physician payments and the temporary freezing of
physician payment rates under MACRA, and the Medicare hospital
productivity adjustments have all contributed directly to lower
spending and slower spending growth. Prices paid by private
insurers have risen more.
Changes to Medicare's payment methods: The Congress
and CMS have both signaled a strong interest in moving toward
more risk-based and value-based payments for providers under
Medicare. While individual payment demonstration projects have
yielded only modest savings, if any, the orientation toward
value has driven changes in alignment and investment by
providers.
Changes on the consumer/demand side: Although cost-
sharing requirements have been very stable in Medicare,
Americans have become more exposed to health care costs overall
and new retirees may have had experience with high-deductible
plans that leads them to be more cautious users of health care
services. In addition, while the levels are still high and
growing, the rate at which Americans are developing chronic
diseases appears to have attenuated somewhat, which helps to
keep health cost growth down.
These lessons learned from Medicare's experience can inform policy
choices that might prolong the cost growth slowdown and be applied to
other sectors.
Addressing the Drivers of Health Spending
What then are policy options that the Congress can and should
consider to ensure that we get the most from what we spend on health
care--and that health spending does not crowd out more valuable goods
and services? There are three areas, looking forward, that merit
attention from policymakers.
1. Seek innovative ways to make sure that drugs are affordable
and appropriately utilized.
The Committee has had numerous hearings on the issues of drug
development and pricing and has heard ideas from experts in
these areas. As new specialty drugs are projected to be a major
driver of cost increases in the future, it is important to
ensure they are accessible to patients but targeted only to
those likely to benefit from them. Signals about future prices
and value standards will influence the drugs developed and the
prices at which they are brought to market. The utilization of
medicines for managing chronic diseases is also important and
could contribute to offsetting lower medical service costs.
\14\
---------------------------------------------------------------------------
\14\ Melinda Buntin and Tamara Hayford. Offsetting Effects of
Prescription Drug Use on Medicare's Spending for Medical Services. CBO
Report. November 2012.
---------------------------------------------------------------------------
2. Continue vigilance on payment rates.
Congress, with the help of MedPAC, has a rigorous system for
evaluating Medicare payment rate increases. MedPAC has begun to
focus on the costs of efficient providers--rather than the
average provider--in making recommendations about payment
rates. This is an important development, as payment rates
benchmarked to standards of efficiency should create incentives
to invest in cost-saving technologies and operational
procedures. It is also important as most private payments are
benchmarked to Medicare rates.
In addition, research has consistently shown that provider
consolidation in the health care industry raises prices.
Congress should monitor merger and consolidation trends in the
health care industry and support more research to better
understand how to mitigate those effects.
3. Continue to advance value-based payment methods including
episodes/bundles and more comprehensive risk-bearing models.
It is important that the Federal Government continue to pilot
new payment models and to expand the models found to save money
without compromising quality. This sends a strong signal to the
health care industry that it should invest in information
systems, care coordination initiatives, and a population health
orientation. The Federal Government should also support multi-
payer payment reforms because they are more likely to reduce
spending over the long term than reforms implemented by one
sector and it should continue to develop better methods of
measuring quality of care.
On the consumer demand side, I am less optimistic about
opportunities to contain cost growth without doing harm. While work I
conducted with colleagues at RAND suggests that high-deductible health
plans can reduce health care spending, the effects are attenuated by
accounts like HSAs. We also found evidence that consumers cut back on
investments in preventive care when faced with high deductibles (even
when preventive care is exempt from deductibles and cost-sharing.) \15\
Subsequent work has confirmed these findings, and found that price
transparency tools did not improve the care choices of high-deductible
plan enrollees. \16\ Given this, and the high levels of health care
expense already borne by Americans, efforts focused on the suppliers of
health care are more likely to attenuate cost growth without adversely
affecting health outcomes.
---------------------------------------------------------------------------
\15\ Melinda B. Buntin, Ph.D.; Amelia M. Haviland, Ph.D.; Roland
McDevitt, Ph.D.; and Neeraj Sood, Ph.D.. ``Healthcare Spending and
Preventive Care in High-Deductible and Consumer-Directed Health
Plans.'' Am J Manag Care. 2011;17(3):222-230.
\16\ Brot-Goldberg, Zarek, Amitabh Chandra, Benjamin R. Handel,
Jonathan T. Kolstad, 2017. ``What does a Deductible Do? The Impact of
Cost-Sharing on Health Care Prices, Quantities, and Spending
Dynamics*,'' The Quarterly Journal of Economics, vol 132(3), pages
1261-1318.
---------------------------------------------------------------------------
For all of the concern about health care costs, we do have one of
the most advanced health care systems in the world, albeit one that
does not serve all citizens equally well. We have gleaming hospitals
that employ thousands of people in communities across the country, and
nearly every day brings stories of medical breakthroughs like
immunotherapy. In other words, our costs are also cures, jobs, and
incomes--and thus stemming their growth is not without challenges and
costs of its own.
______
[summary statement of melinda j. b. buntin, ph.d.]
The amount that we spend on health care in the United States is
high--$3.3 trillion dollars per year. That works out to more than ten
thousand dollars for every man, woman, and child in the country. Yet
despite these high spending levels, per capita cost growth that is the
most important factor to watch. Per capita growth gives the clearest
indicator of the growing cost of care delivery and the changes in our
health care system. Trends in per capita costs also underscore that
policy choices we have made and can make in the future do drive changes
in health care delivery.
In fact, per capita cost growth in the Medicare program has been
low over the past decade and examining those trends provides some
concrete examples of how cost growth might be kept in check.
Specifically, policies that have kept growth in Medicare payment rates
low and an emphasis on value-based care have contributed to slow cost
growth on a per capita basis.
What then are policy options that the Congress can and should
consider to ensure that we get the most from what we spend on health
care--and that health spending does not crowd out more valuable goods
and services? There are three areas, looking forward, that merit
attention from policymakers.
1. Innovative ways to make sure that drugs are affordable and
appropriately utilized.
2. Continued vigilance on payment rates.
3. Continued focus on value-based payment methods including
episodes/bundles and more comprehensive risk-bearing models.
For all of the concern about health care costs, we do have one of
the most advanced health care systems in the world, albeit one that
does not serve all citizens equally well. We have gleaming hospitals
that employ thousands of people in communities across the country, and
nearly every day brings stories of medical breakthroughs like
immunotherapy. In other words, our costs are also cures, jobs, and
incomes--and thus stemming their growth is not without challenges and
costs of its own. Focusing on stemming growth in per capita costs
through creating the right incentives for health care suppliers and
providers is the best way to ensure we get maximal value out of our
health care dollars.
______
The Chairman. Thank you, Dr. Buntin.
Dr. Jha, welcome.
STATEMENT OF ASHISH JHA, M.D., M.P.H., DIRECTOR, HARVARD GLOBAL
HEALTH INSTITUTE, K. T. LI PROFESSOR AND SENIOR ASSOCIATE DEAN,
HARVARD T. H. CHAN SCHOOL OF PUBLIC HEALTH, AND PROFESSOR OF
MEDICINE, HARVARD MEDICAL SCHOOL, CAMBRIDGE, MASSACHUSETTS
Dr. Jha. Good morning, Chairman Alexander, Ranking Member
Murray, and Senators.
Thank you for having me here. It is a privilege to be here.
I want to talk about something that Senator Alexander
brought up, which is, we spend about twice as much on health
care as other high income countries do. And while we have known
that for quite a while, I believe that the critics of our
health care system have gotten the diagnosis wrong of why it is
that we spend so much more than other countries.
One of the things I learned early in medical school is if
you get the diagnosis wrong, it is really hard to come up with
the right treatment.
Let us talk about what the diagnosis, I believe, has been
and what I think the truth is based on data that we have
gathered that has emerged more recently, and think about what
that means for improving the efficiency of our health care
system.
The popular belief has been that the reason we spend so
much more on health care than other countries is that we just
use too much health care. Maybe it is American culture. Maybe
it is defensive medicine. Whatever the explanation, the belief
has been that Americans just use a lot more health care.
Well, it turns out when you look at the data, when you
compare us to citizens of other advance nations like Germany,
and France, and Canada, and Switzerland, when you compare us to
those countries, it turns out, Americans see the doctor a
little less often than people in those countries do. We spend
fewer days in the hospital than those countries do. When it
comes to tests and procedures, we do more of some and less of
others.
When you look at the big picture on the issue of
utilization, how much health care do we actually use, the way I
think about it is we are above average on some things, we are
below average on other things, and on average, we are pretty
average. We are not using that much more health care than what
citizens of other countries are using.
If we are not using more health care, why is it, as Senator
Alexander said, why is it we are spending twice as much?
There are two reasons. One, is administrative complexity.
We spend a lot more money on administrative costs than other
countries. Now, this is not a public or private issue. Even
countries like the Netherlands and Switzerland, which have a
primarily private insurance scheme, spend a lot less than we
do.
It is possible to get administrative efficiencies in public
systems and in private systems.
But the big 800 pound gorilla in the room around health
care spending, and what differentiates us from other countries
is, price. Every time we use health care in America, we pay a
lot more than any other country in the world.
We have spent, as a country, quite a bit of time, and this
Committee has led so much of the work, thinking about drug
prices and appropriately so. But yes, we pay a lot more for
drugs. We also pay a lot more for MRI's. We pay more when we
have an appendectomy. We pay more when we have cardiac surgery.
Every single thing that happens in health care in America,
we pay twice, three times more than what other countries are
paying. And that is a problem that we have not addressed
wholly.
Let us think about how we might address those issues, and I
have three suggestions. The first two are, I think, intricately
linked.
One is price transparency. Now, we talk about price
transparency, both Senator Murray and Senator Alexander brought
that up.
The bottom line is right now, you can be in the health care
market any place, pick Nashville, Seattle, you can get your MRI
in one place. You cross the street to another, and you might
end up paying twice as much. But nobody knows because the
prices are not clear to people. One step in improving the
efficiency of our system is to make prices much more
transparent.
But I think what you will hear from all of us is that alone
is not going to do very much. There are a couple of reasons.
One is that it is very hard for consumers to engage and get
the true price that they will pay. Generic prices are not
useful. What is useful is, ``How much am I going to pay?''
The second thing that is really critical in all of this is
competition because the bottom line is imagine a place where
somebody is selling slices of pizza for $10. You can make that
price transparent, but if you do not have an alternative to go
somewhere else for a cheaper slice of pizza, price transparency
is not going to do you much.
You need competition. You need alternatives. When we look
at the health care industry, what we find is across the board,
it is far more consolidate. There is far less competition than
there is in almost any other industry in America. And that is a
problem.
Mergers and acquisitions have continued unabated. The
agencies that are supposed to protect us from monopoly power,
the Federal Trade Commission, the DOJ, have been understaffed.
You can see it in the fact that they review a very small
proportion of the mergers, and they block almost none of them.
The signal to the marketplace is clear: mergers,
acquisitions, get more market power, get higher prices. The
Federal Government is not going to stop you. That, I think, has
been a major issue in keeping prices high and keeping our
health care spending high.
Finally, I believe there is a lot we can do on
administrative simplification. The bottom line is that there is
a series of ideas for things that will not hurt innovation,
will not hurt quality that we can do while ensuring that there
is uniform credentialing across insurance products. It is how
insurance companies file their claims.
There is a bunch of stuff that is in the kind of back
office that can make a big difference and can save us tens, if
not hundreds of billions of dollars over time. So openness and
transparency, competition, simplification.
One thing you learn from doing international work is that
there is no one solution. Every country arrives at its own
solution. I think those three principles are part of a uniquely
American solution to improving the efficiency of our health
care system.
Thank you.
[The prepared statement of Dr. Jha follows:]
prepared statement of dr. ashish k. jha
Chairman Alexander, Ranking Member Murray, Members of the
Committee, I'd like to thank you for the opportunity to testify today
on ``How to Reduce Health Care Costs: Understanding the Cost of Health
Care in America.'' I'm honored to speak about this issue, which may be
the most important social policy challenge facing our Nation.
While our political leaders often disagree on many economic and
social issues, there is unique bipartisan agreement that U.S. health
care spending is too high, and fails to deliver value for money. This
represents not only a major policy challenge, but also an opportunity.
And while the cost of inaction is being felt in communities across our
great nation, the dividends, if we get smarter about managing health
care spending, will also be felt by every single American.
THE PROBLEM
Today, U.S. health care spending accounts for approximately 18
percent of gross domestic product (GDP). In addition, spending on
health care has outpaced overall economic growth in the U.S. for more
than 5 decades.
Figure 1: U.S. Health Care Spending as percent of GDP
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Kaiser Family Foundation
This leads to a number of important challenges that currently face
the country. First and foremost, the cost of health care to American
families has significantly outpaced wage growth. From 2001 to 2016, the
cost of health insurance for a family of four grew from $8,414 to
$25,826 \1\ --approximately a 200 percent increase, compared to an
approximate 40 percent growth in median household income over the same
time period. \2\
---------------------------------------------------------------------------
\1\ Milliman Medical Index, 2001-2016.
\2\ U.S. Census Bureau, ``Income and Poverty in the United
States.'' Note: this is unadjusted for inflation.
---------------------------------------------------------------------------
Second, expenditure on health care represents a growing burden for
government at all levels. Indeed, many people describe the U.S. Federal
Government as a large health insurance company with the world's
greatest military. \3\ Everything else the Federal Government does can
feel like a rounding error.
---------------------------------------------------------------------------
\3\ This is often attributed to Peter Fisher, former
undersecretary of the treasury in 2002. See http://
economistsview.typepad.com/economistsview/2013/01/who-first-said-the-
us-is-an-insurance-company-with-an-army.html.
---------------------------------------------------------------------------
States and local governments across the Nation are struggling with
the growing costs of health care for their employees and retirees, and
states are spending more and more of their budget on Medicaid. All put
together, government agencies are spending so much on health care that
it leaves very little money for other priorities, such as roads and
bridges, public health, policing, and education, to name just a few.
The Federal Government, of course, isn't immune here either. The
Medicare program accounts for a growing share of taxpayer dollars.
While some of this growth is due to more seniors aging into the
program, per beneficiary costs are still expected to grow faster than
the overall economy over the next 10 years. \4\
---------------------------------------------------------------------------
\4\ Table V.D1 in ``2018 Annual Report of the Boards of Trustees
of the Federal Hospital Insurance and Federal Supplementary Medical
Insurance Trust Funds.'' https://www.cms.gov/Research-Statistics-Data-
and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/
TR2018.pdf.
---------------------------------------------------------------------------
Third, this is not just a public sector issue; 85 percent of the
American workforce is employed by the private sector. High health care
costs limit businesses' flexibility in structuring compensation for
their employees, making it difficult to remain competitive in an
increasingly global marketplace. This is why the legendary investor,
Warren Buffet, calls health care spending in our country a tapeworm
that sucks the nutrients out of American business. Even two decades
ago, Ford Motor Company reported that they spent more on health care
than they did on steel. \5\ This is typical of many companies that are
labor intensive, where the high costs of health care makes hiring
people expensive, putting pressure on companies to automate further,
with often devastating effects on communities that are reliant on those
jobs.
---------------------------------------------------------------------------
\5\ Hirsch S. ``GM Plant a Sign of Decline.'' The Baltimore Sun.
May 9, 2005. http://www.baltimoresun.com/business/bal-te.bz.gm09may09-
story.html.
---------------------------------------------------------------------------
Over the years, there have been numerous policy efforts that have
tried to address the growth in health care spending. However, as this
hearing highlights, we have not made adequate progress. And I believe
that the ACA, despite good intentions, had little impact either in a
positive or negative direction on the underlying drivers of health care
spending. \6\ And it's time to get serious about tackling health care
spending.
---------------------------------------------------------------------------
\6\ Weiner J, Marks C, and Pauly M. ``Effects of the ACA on Health
Care Cost Containment.'' Leonard Davis Institute of Health Economics.
March 2, 2017. https://ldi.upenn.edu/brief/effects-aca-health-care-
cost-containment.
---------------------------------------------------------------------------
International Context
Is health care spending really too high? I hope my comments above
lay out clearly how our health care spending is having negative impact
on individuals, businesses, and government. But it's also worth
comparing ourselves to other advanced economies, such as Switzerland,
UK, and Germany, because examining their systems can help us better
understand what drives our high health care costs.
To be clear, I do not believe that any country that I have examined
has the perfect health care system. Nor do I believe that we can
wholesale adopt another nation's health care system and overnight make
our system function better.
But, careful examination of other high income countries' health
systems can help us better identify why we spend so much on health care
and what we might do to create a uniquely American solution to tackling
health care costs.
First, let's cover some basics. There is no doubt about it, we
spend a lot more on health care than anyone else. Here is our spending
compared to those of other, select high income countries. Indeed,
viewed alongside our peer nations, our problem looks even worse.
Figure 2: Health Spending as percent of GDP in OECD Countries
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Papanicolas I, Woskie LR, Jha AK. Health Care Spending in
the United States and Other High-Income Countries. JAMA.
2018;319(10):1024-1039.
At nearly 18 percent of GDP, the U.S. outspends its OECD
counterparts by a large margin. On a per-capita basis, the U.S. spends
nearly twice the average comparable OECD country. Switzerland is a very
expensive high income country and is the second biggest spender on
health care (after the U.S.). If the U.S. spent, on a per capita basis,
what Switzerland spends we would save $974 billion per year. That's
nearly a trillion dollars every year, more than if our spending level
matched Switzerland.
While U.S. health care spending is clearly very high, a reasonable
question might be whether we are getting good value for the money. Here
too, the story is not great (though it's also not all bleak). We have
among the lowest life expectancies of any advanced nation. We have
exceptionally high rates of maternal and infant mortality. \7\ On so
many population level outcomes, we lag behind. Our health care system
has not focused on managing those issues.
---------------------------------------------------------------------------
\7\ Papanicolas I, Woskie LR, Jha AK. Health Care Spending in the
United States and Other High-Income Countries. JAMA. 2018;319(10):1024-
1039.
---------------------------------------------------------------------------
The story here is not without hope. On some key outcomes, the U.S.
is a true global leader. While we have more heart attacks, per
population, than most other advanced countries--when Americans do have
heart attacks, they are more likely to survive than people who have
heart attacks in other industrialized countries. The same is true for
stroke. We have superb acute care--and we deploy the latest technology
in ways that have a tremendous impact on people's lives.
Another area where we are leaders is in innovation. Our funding
model--and our high prices (see more on this below) is the innovation
engine of the world. We create more new tests and therapies--whether
they are drugs, devices, or innovative procedures--than any other
country in the world. And others around the world, of course, benefit
from those innovations.
Finally, I believe that we have some of the best-trained doctors
and nurses in the world. Our health care professionals are second to
none in their knowledge, professionalism, and dedication to caring for
our people.
These are all strengths that should be preserved. But even taking
these strengths into account, I believe that the takeaway here is
simple: our health care system fails to deliver for the needs of the
American people--and given how much we spend, we need to do better.
But how? Today, I will address some common beliefs about why our
health care system is so expensive and share with you what the evidence
and data tell us.
MYTHS & REALITIES
There is no shortage of theories for why health care spending is so
much higher in the U.S. than in other advanced nations. Let's address
some of the most common explanations.
Myth 1: Social Spending
Some critics of the U.S. health care system have argued that our
high health care spending is driven by under-investments in beneficial
social spending. It is true that, on average, the U.S. spends less \8\
on social services--pensions and social programs like food stamps--than
many other advanced nations. The theory here is simple: under-
investment in social services leads to a sicker population that uses
more health care and that drives high health care spending. On the face
of it, the story seems reasonable--one might imagine that there is a
tradeoff between social spending and health care spending.
---------------------------------------------------------------------------
\8\ Bradley EH, Elkins BR, Herrin J, et al Health and social
services expenditures: associations with health outcomes BMJ Qual Saf.
2011;20:826-831.
---------------------------------------------------------------------------
However, beyond the theory, careful examination of the data
suggests otherwise.
Figure 3: Social Spending and Health Expenditures as and of GDP in
OECD
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: 2014, OECD Social Expenditure Database
This figure makes several points clear.
First--the U.S. doesn't actually spend that much less than other
OECD countries on social expenditures (16.3 percent versus a mean of
17.8 percent for 28 OECD countries, excluding Mexico and Poland due to
missing data).
Second, there appears to be a positive relationship between social
and health care spending. Indeed, the data does not support the idea of
a tradeoff between social spending and health care spending (i.e. that
somehow, if countries spend more on social spending, it will lead to
lower health care spending).
Finally if the story I outline above--that lack of social spending
is leading to more sick people who use more health care, we should see
much higher rates of health care utilization. Yet, as I lay out below,
that's not what we see.
It is worth making one point clear. I do believe that targeted,
well-administered social spending, such as social security for the
elderly and aid to families, can be of enormous value in improving
health care outcomes. The data suggest it won't somehow save us enough
money in health care to pay for itself.
Myth 2: Utilization
A second, common explanation for our high health care spending is
the argument that we have much higher rates of utilization than other
high income countries. These critics argue that whether it is for
cultural reasons (i.e. Americans are quick to go to the doctor) or
defensive medicine (our malpractice system drives doctors to admit
people to the hospital unnecessarily, for instance), Americans are
using a lot more health care than people in other high income
countries. Unfortunately for these critics, the data say otherwise.
Americans in fact have:
Fewer doctor visits than our international peers
(U.S.: 4 per capita; OECD Mean: 6.6 per capita)
Fewer hip replacements (U.S.: 204 per 100,000; OECD
Mean: 207 per 100,000)
Fewer hospital discharges (U.S.: 125 per 1,000; OECD
Mean: 149 per 1,000)
Much shorter hospital stays (U.S.: 5.5 days; OECD
Mean: 7.6 days)
We do perform slightly more hysterectomies (U.S.: 266
per 100,000 females; OECD Mean: 225 per 100,000 females)
Comparable number of knee replacements (U.S.: 226 per
100,000; OECD Mean: 263 per 100,000)
Many more MRI scans (U.S.: 118 per 1,000; OECD Mean:
82 per 100,000)
On many measures of health care utilization, we are below average.
On many other measures of health care utilization, we are above
average. And that leads, in my opinion, to only one reasonable
conclusion: when it comes to health care utilization, on average, the
U.S. is about average.
Neither culture nor a deficit of social spending seems to be
driving Americans to the doctor's office significantly more often than
their peers.
Myth 3: Over-Specialization
A final myth concerns the mix of specialists and primary care
physicians practicing in the U.S. We all know that a visit with a
specialist is generally much more expensive than a visit with a primary
care doctor. Could overuse of specialist services account for U.S.
health care costs?
As with overuse more generally, this hypothesis also seems to be at
odds with the data.
When it comes to the total number of physicians in the country, the
U.S. actually has fewer doctors, per capita, than the OECD average (2.6
per 1,000 people in the U.S. versus 3.3 per 1,000 people in the OECD).
But don't we lack primary care physicians and have too many
specialists? I do believe that in many communities, we lack enough
primary care physicians. But seen as a Nation, our mix of primary care
and specialists is about average across high income countries.
We estimate, relying on data from the Kaiser Family Foundation and
surveys from the American Medical Association, that about 57 percent of
physicians in the U.S. are specialists. That's just about average
across a group of other high income countries where we were able to get
comparable data. The story is similar when it comes to nurses, with the
U.S. just below the OECD average (11.1 per 1,000 vs 11.8 per 1,000).
Once again, for such an expensive system, our number and mix of
doctors and nurses looks remarkably similar to those in other
countries.
REALITIES
What actually does explain the difference in cost? The answers are
in many ways less complicated than these explanations suggest.
Reality 1: Administrative Complexity
The first major contributor to health care costs is administrative
spending and complexity. The U.S. has a highly fragmented system of
insurers, with around half of spending coming from private sources and
the rest from public sources. With 880 insurers, American health care
billing requires physicians' offices, hospitals, and other providers to
maintain myriad different forms and manage different sets of benefits
with varying risks of claim denial.
Some research has put all of the time and effort and resources that
go into running our health care system to be as high as 30 percent of
the total health care spending. \9\ This is a very aggressive figure
and likely overstates administrative costs. That said, there is no
doubt that our administrative inefficiencies are costing us a lot of
money.
---------------------------------------------------------------------------
\9\ Jiwani A, Himmelstein D, Woolhandler S, Kahn JG. Billing and
insurance-related administrative costs in United States' health care:
synthesis of micro-costing evidence. BMC Health Services Research.
2014;14(556).
---------------------------------------------------------------------------
When using a simple, narrow definition of what it costs to
administer our health care system, the OECD found that 8 percent of our
health care spending goes to administrative costs. Most other high
income countries, including those that are primarily private, spend
less than half that. \10\
---------------------------------------------------------------------------
\10\ OECD Health Expenditure Data base.
---------------------------------------------------------------------------
Switzerland and the Netherlands, for instance, which also rely on
private insurers, have a substantially lower administrative burden than
the U.S.
Reality 2: It's The Prices
The second and most important factor that explains why our spending
is so much higher is straightforward: it's the prices. The U.S. has,
across the board, the highest prices for medical goods, services, and
labor across all OECD countries. Crestor, a cholesterol-lowering drug,
costs $86 in the U.S., more than twice the OECD average. This general
pattern holds true for nearly all brand-name drugs.
But these price differences persist not just in pharmaceuticals.
Primary care physicians are paid, on average, $218,000 in the U.S.
versus $133,000 among other advanced nations; CT scans cost more than
double, as do MRIs, colonoscopies, and various other procedures. \11\
---------------------------------------------------------------------------
\11\ International Federation of Health Plans 2015 Comparative
Price Report.
---------------------------------------------------------------------------
A recent example illustrates the price problem most acutely: Prince
Louis, the latest ``royal baby'' born to Kate Middleton, the Dutchess
of Cambridge, was delivered in what The Economist described as a
``luxurious private maternity ward in London.'' \12\ The cost of a
luxurious private maternity ward in the middle of London (a very
expensive city)? $8,900. The average cost of delivering a normal,
healthy baby in the U.S.? The Economist estimated it at $10,800, though
in many communities the cost is much, much higher. So when the royal
baby in a luxurious private maternity ward in London is much cheaper
than the average birth in the U.S., we have a price problem.
---------------------------------------------------------------------------
\12\ ``A typical American birth costs as much as delivering a
royal baby.'' The Economist. April 23, 2018. https://www.economist.com/
graphic-detail/2018/04/23/a-typical-american-birth-costs-as-much-as-
delivering-a-royal-baby.
---------------------------------------------------------------------------
High prices need to be understood in the context of what that price
buys. Obviously, one would never compare a Cadillac to a Nissan and say
that they are both cars and the only meaningful difference is their
prices. And in some instances, our higher prices do mean we get the
latest medical devices and medicines more quickly, and our physicians
and nurses, among the best paid health professionals in the world, are
also among the best.
But for many things, we aren't getting meaningfully higher
quality--the MRI machines in London and Geneva are every bit as good as
those in Nashville or Boston, but we are paying two or three times as
much. Here, the analogy is not between a Cadillac and a Nissan--but
between a red corvette and a blue one. We may prefer the red corvette--
but as a country, we are paying twice as much as others do for their
blue one. Same car.
SOLUTIONS
What can we do about this? In its current state, the U.S. health
care market is deeply dysfunctional. A lack of reliable prices and
price transparency, abuse of market power by dominant incumbents, and a
hopelessly complicated bureaucracy all contribute to this untenable
status quo. Many countries manage their price problems through a strong
government price setter. We know efficient markets are another way to
manage prices. We have managed to do the worst of both--we have a weak
price setter in Medicare and we have largely dysfunctional markets.
If we are to create uniquely American solutions, I believe we need
to do three things. Each of them is politically feasible and has
generally enjoyed bipartisan support. Together, I believe these ideas
can make a real impact on the health care system. My recommendations to
the Committee are as follows:
(1) Bring real price transparency to health care markets.
(2) Support the Federal Trade Commission and the Department of
Justice to help enforce our antitrust laws.
(3) Support efforts that will help improve administrative
efficiency.
Solution 1: Price Transparency
In a market-oriented health care system, price transparency is
essential. No market can function without it. We would never expect to
go shopping where the prices weren't available (and we received an
undecipherable bill a month later). In the same way, price transparency
is an essential element.
More than 60 million Americans are now in a high-deductible health
plan. That means that they are paying for a substantial part of their
health care out-of-pocket before their insurance kicks in. Yet, for
most of these individuals (and I am one of them), the lack of price
transparency means one can't be a smart shopper. For most consumers, it
is nearly impossible to get the price of even simple, predictable
services, such as an MRI or an elective procedure. Worse yet, our
deeply broken system means that even when patients think they are going
to an in-network hospital, some physicians will bill ``out-of-network''
in ways that leave patients with very large, unexpected bills. \13\ We
would never tolerate this kind of deceptive behavior in any other
industry, and yet we let it continue in health care.
---------------------------------------------------------------------------
\13\ Cooper Z, Scott Morton FM, Shekita N.Surprise! Out-of-Network
Billing for Emergency Care in the United States. National Bureau of
Economic Research. Working Paper No. 23623 (2017).
---------------------------------------------------------------------------
We have some evidence on price transparency and that evidence is
largely encouraging. When the California Public Employees' Retirement
System (CalPERS) implemented a so-called reference-based pricing
mechanism to pay for hip and knee replacements, patients were told that
the plan would pay a specific amount for the procedure. If a patient
went to a more expensive provider, they would have to pay the
difference. Patients responded to the combined incentives well: the
combination of value-based insurance design and clear, binding price
estimates encourages patients to seek out the low-cost providers. On
top of that, high-cost providers began reducing their prices in
response. \14\
---------------------------------------------------------------------------
\14\ Robinson JC, Brown TT. Increases In Consumer Cost Sharing
Redirect Patient Volumes And Reduce Hospital Prices For Orthopedic
Surgery. Health Affairs. 2013; 32(8):1392-1397.
---------------------------------------------------------------------------
A similar experience has been seen with All-Payer Claims Data bases
(ACPDs)--state data bases that collect data on prices paid by insurers.
APCD data is used by researchers like myself, but it has also been used
by payers in negotiations. In New Hampshire, for instance, a large
insurer, realizing that their rates were substantially higher, used
APCD data to negotiate better rates. \15\ Unfortunately, the utility of
APCDs has been stymied by a recent Supreme Court decision (in Gobeille
v Liberty Mutual) to allow some employers to opt out of APCDs. \16\
---------------------------------------------------------------------------
\15\ Kutscher B. ``How New Hampshire took the guesswork out of
health care costs.'' Modern Health care. July 16, 2015. http://
www.modernhealth care.com/article/20150716/NEWS/150719922.
\16\ Feyman Y and Frakt A. ``Supreme Court delivers a blow to
health care cost transparency.'' STAT. March 4, 2016. https://
www.statnews.com/2016/03/04/health-care-cost-transparency/.
To help inject greater price transparency into U.S. health care
---------------------------------------------------------------------------
markets I recommend the following:
(1) Require that, as a condition of participation in the
Medicare program, providers and hospitals need to be able to
provide any patient with a binding cost estimate (that allows
for rare exceptions) to patients prior to receiving a service.
(a) In instances where emergency room-related charges
are considered out-of-network, require that the
patient's out-of-pocket requirement be capped at in-
network rates.
(b) Require that if the hospital is in-network, any
physician who works in that hospital has to accept in-
network rates.
Some of these changes will require Federal action and others,
state action.
(2) Encourage the creation and use of APCDs, by clarifying that
ERISA's preemption of self-insured employer regulation does not
extend to data collection by state-run APCDs.
(3) Experiment, through the Center for Medicare & Medicaid
Innovation (CMMI), with modifying Medicare's benefit structure
to implement approaches like reference-based pricing that
encourage price transparency among providers.
Solution 2: Ensure competition
The lack of price transparency in the American health care system
is bolstered by a set of largely non-competitive markets, which are
becoming even less competitive over time. This is a particularly acute
problem in the hospital sector (which accounts for one-third of
American health care spending), where recent data suggests that the
average hospital market is already highly concentrated based on Federal
Trade Commission (FTC) thresholds. \17\ Merger activity has been
steadily on the rise. In 2017, for instance, there were 115 hospital
mergers, the highest number since 2000. \18\ A small share of hospital
mergers are typically large enough to be reported to the FTC (less than
one-third were reported in 2014), and among these, a small sliver even
make it to a preliminary investigation. This has resulted in 90 percent
of metropolitan hospital markets now qualifying as ``highly
concentrated'' based on FTC thresholds.
---------------------------------------------------------------------------
\17\ Fulton BD. Health Care Market Concentration Trends In The
United States: Evidence And Policy Responses. Health Affairs. 2017;
36(9):1530-1538.
\18\ ``2017 in Review: The Year M&A Shook the Health care
Landscape.'' Kaufman Hall. https://www.kaufmanhall.com/sites/default/
files/2017-in-Review_The-Year-that-Shook-Health care.pdf.
Figure 4: Average Herfindahl-Hirschman Index (HHI) By Industry
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: Authors' calculations; Fulton BD. Health Care Market
Concentration Trends In The United States: Evidence And Policy
Responses. Health Affairs. 2017; 36(9):1530-1538; Grullon et al. ``Are
US Industries Becoming More Concentrated?'' October 2016.
Based on both fundamental economic theory and a very substantial
evidence base \19\, we know that less competitive markets have both
higher prices and lower quality. The evidence on this is unequivocal.
Yet, the FTC is too severely understaffed to review or investigate most
of these mergers and therefore, has to usually let them go through. And
the cost of those mergers is enormous to American taxpayers. Inadequate
funding of our agencies that ensure a vibrant and healthy marketplace
may be the biggest example of being penny wise, pound foolish.
---------------------------------------------------------------------------
\19\ Gaynor M and Town R. ``The Impact of Hospital
Consolidation.'' Robert Wood Johnson Foundation. June 1, 2012. https://
www.rwjf.org/en/library/research/2012/06/the-impact-of-hospital-
consolidation.html.
---------------------------------------------------------------------------
There is no reason to believe that this trend toward greater
consolidation is about to slow down. Hospitals are now acquiring more
physician practices and the data here seems to suggest that when they
do, prices in those markets go up. \20\
---------------------------------------------------------------------------
\20\ Post B, Buchmueller T, Ryan A. Vertical Integration of
Hospitals and Physicians: Economic Theory and Empirical Evidence on
Spending and Quality. Med Care Res Rev. 2017.
---------------------------------------------------------------------------
The increasingly monopolistic structure of U.S. hospital markets
makes pro-competitive policy an immediate priority. To do so, I
recommend the following:
(1) Encourage greater scrutiny for mergers by lowering the
threshold for pre-merger notification. This is critical for
maintaining competition.
(2) Increase funding for staff at the FTC and DOJ to review,
investigate, and where appropriate, challenge mergers that are
likely to be anti-competitive and harmful to consumers.
(3) Encourage the FTC to develop more rigorous approaches to
evaluate vertical mergers, particularly in health care.
Solution 3: Administrative Simplification
While evidence on the importance of antitrust and price
transparency is clear, we know less about which approaches will be most
useful in lowering wasteful administrative spending. It is also worth
noting that not all administrative costs are wasteful. A bank can lower
its administrative costs by getting rid of its security guards, but we
would never claim that spending on security is a wasteful
administrative cost of running a bank. In the same way, some
administrative costs in health care, like fraud-fighting and smart
benefit design administration, are important and beneficial. Medicaid,
for instance, which has a much higher claims denial and review rate
than Medicare, spends close to 5 percent of total spending on
administrative costs. \21\
---------------------------------------------------------------------------
\21\ MACPAC Data Book 2017, Exhibit 31. https://www.macpac.gov/wp-
content/uploads/2015/11/EXHIBIT-31.-Total-Medicaid-Administrative-
Spending-by-State-and-Category-FY-2016-millions.pdf.
---------------------------------------------------------------------------
Nor is the private sector the only culprit. Even countries with
systems that rely more on private insurance, such as Switzerland and
the Netherlands, tend to have lower administrative costs.
Administrative costs are a feature of the U.S. health system because it
is a fragmented system.
Other countries have a number of solutions to address this issue.
However, it is unclear the extent to which these solutions are a fit
for the U.S. To that end, I recommend the following:
(1) Direct administrative costs
(a) Streamline as many processes as possible across
insurers, such as provider credentialing, by
implementing a national program for credentialing
providers that all payers will be required to accept.
(2) Indirect administrative costs (e.g. labor)
(a) Address physician, and other care providers', time
spent on billing. By simplifying administrative
burdens, providers spend less time and money on dealing
with different billing/reporting systems and more time
with patients.
(3) Explore additional approaches to further reduce the
administrative burden in the U.S.
CONCLUSION
U.S. health care spending has been, and still is, on an
unsustainable trajectory, a trend even more apparent when we examine
the performance of our peers. The three broad approaches I have
discussed--ensure price transparency, promote competition, and simplify
administrative burdens--would address the underlying factors driving
our high and unsustainable health care spending. Each of these should
be able to garner broad, bipartisan support--largely because as
Americans, most of us believe in the power of transparency,
competition, and reducing the burden of bureaucracy. These are
achievable goals and if we move in these directions, we can ensure a
more vibrant, efficient health care system that places less of a burden
on us and future generations.
______
[summary statement of ashish k. jha]
The Problem: American health care spending--at 18 percent of GDP--
is out-of-line with overall economic growth and does not deliver
outcomes commensurate with this level of spending.
The International Context: U.S. health care spending is well
above that of other high income countries. Comparable OECD
countries spend 11.5 percent of their GDP on healthcare; when
compared to peers, we do not get good value for the money we
spend.
Myths: There are several myths that persist about the underlying
cause of this discrepancy:
Myth 1--Social Spending: The U.S. spends less on
social programs (such as food stamps) relative to health care
than its peer nations. This has led some to suggest that this
underinvestment results in unnecessary health care use due to
preventable illnesses. This doesn't appear to be an adequate
explanation given that the U.S. doesn't spend substantially
less on social spending as a share of GDP than its peers (16.3
percent vs 17.1 percent).
Myth 2--Utilization: Another oft-cited explanation is
that Americans simply have a culture of over-use and use health
care services more liberally. With fewer doctor visits, hip
replacements, hospital discharges, this too doesn't offer a
helpful explanation.
Myth 3--Overspecialization: One myth posits that the
U.S. has more specialist physicians who provide the same care
at higher cost. It turns out that with specialists accounting
for 57 percent of all physicians, this story simply lacks
support in the data.
Realities: With a careful look at the data, we find that the
following actually drive U.S. spending:
Reality 1--Administrative Complexity: The U.S. does
appear to spend significantly more than peer countries on
administration--8 percent versus 3 percent in comparable OECD
countries. Moreover, some analyses have found that nearly one-
third of U.S. health care spending is billing-related
administrative burden.
Reality 2--Prices: The second factor explaining the
massive disparity is simply the price of goods and services.
This is true across all labor, goods, and services--including
drugs, physician salaries, and most procedures.
Solutions: Three sets of solutions would help to begin addressing
these disparities:
(1) Price Transparency: The U.S.'s market-based health care
system has been stymied. Increasing price transparency through
existing approaches like All-Payer Claims Data bases and
through innovative insurance design would help to put downward
pressure on price growth.
(2) Antitrust: Hospitals account for nearly one-third of health
care spending in the U.S. and are one of the most consolidated
industries. Here, efforts to increase the number of mergers
that the FTC challenges would be helpful. This would require
increased funding and a new mandate to challenge consummated
mergers.
(3) Administrative Simplification: To help simplify
administrative burdens, the goal should be to (a) streamline
billing and claims processing as much as possible, (b) Address
physician, and other care providers' time spent on billing and
(c) Explore other approaches to identify ways to lower the
administrative burden in the U.S.
______
The Chairman. Thank you, Dr. Jha.
Mr. Brennan, welcome.
STATEMENT OF NIALL BRENNAN, M.P.P., PRESIDENT AND EXECUTIVE
DIRECTOR, HEALTH CARE COST INSTITUTE, WASHINGTON, DC.
Mr. Brennan. Thank you, Chairman Alexander, Ranking Member
Murray, and Members of the Senate HELP Committee.
It is an honor and a privilege to have been invited to
offer my thoughts and understanding on the cost of health care
in America.
My name is Niall Brennan. I am President of the Health Care
Cost Institute. HCCI is an independent, nonprofit organization
founded in 2011 to foster greater understanding of health care
spending trends, and the drivers of health care cost growth
among Americans with employer sponsored coverage, upon which
almost one out of every two Americans rely.
Our data represents the roughly 40 million people each year
covered by UnitedHealth Group, Aetna, Humana, and Kaiser
Permanente. In addition to conducting our own research using
this data, we also provide it to leading researchers and
research organizations to conduct their own analyses. We use
the data to build price transparency tools for consumers and
states.
On the basis of our analysis of this data, I would like to
make the following key points regarding spending trends in the
ESI population.
First, after several years of relatively slow growth
following the recession, per capita spending growth for health
care for consumers with ESI is rising.
Second, the main driver of these increases in ESI spending,
there has not been growth in the number of services used, but
rather, growth in the cost per unit of service; a measure of
which combines both increases in prices and shifts toward the
use of higher priced services.
Finally, although there are differences in growth rates
across types of health care services, those rates are
increasing largely in tandem, suggesting that systemic factors
are at work and that focusing on just one component of health
care spending will have a limited impact on total spending.
Using the most recent HCCI data, we found the total
spending per person in ESI plans averaged just over $5,400 in
2016. This was a new high for this population. This number
includes payments by insurers and consumers for health care
goods and services, but does not include the cost of premiums.
We found that after several years of slowing spending
growth, rates of growth are again increasing. After increasing
by 4.1 percent between 2014 and 2015, per person spending
increased by 4.6 percent between 2015 and 2016. These were the
highest rates of growth we have seen in this population since
2009, when spending rose by 6.4 percent. In contrast, between
2009 and 2014, spending increases averaged a little over 3
percent a year.
Why is spending rising? We found that working Americans are
using the same, or lower, quantities of health care, but are
paying more for it every year. Utilization rates declined
between 2012 and 2016 for hospital inpatient, outpatient, and
professional services while increasing a modest 1.8 percent for
prescription drugs.
For example, despite an almost 13 percent reduction in
hospital admissions per 1,000 people, hospital spending
actually rose by 8 percent between 2012 and 2016. Meaning that
price increases and service intensity drove increases in
hospital spending at a time when utilization had declined
significantly.
We also found significant increases in prescription drug
spending with all drug spending increasing by 27 percent
between 2012 and 2015, and brand prescription drug spending
increasing by 11 percent, while fill days decreased by 38
percent. This can only partly be explained by the introduction
of new, high cost drugs like Sovaldi.
As for solutions, health care spending has proven highly
resistant to most efforts to curb excess growth rates over a
long period of time. In part, because every dollar of health
care savings represents lost revenue for an existing health
system stakeholder.
I think by now we realize that there are no magic bullets,
but there are important steps that we can take.
We need to better understand if factors, such as
consolidation, are driving higher private sector health care
prices.
We need to prohibit predatory practices such as out of
network billing, which saddle unsuspecting consumers with
crippling financial bills.
We need to educate both consumers and providers to work
together to make more informed decisions that better take the
cost of care into account.
This concludes my oral testimony.
Thank you very much.
[The prepared statement of Mr. Brennan follows:]
prepared statement of niall brennan
Chairman Alexander, Ranking Member Murray, and Members of the
Senate HELP Committee, it is an honor and a privilege to have been
invited to offer my thoughts on understanding the cost of health care
in America. My name is Niall Brennan. I am the President and CEO of the
Health Care Cost Institute (HCCI). HCCI is an independent, nonpartisan,
not-for-profit organization founded in 2011 to foster greater
understanding of health care spending trends and the drivers of health
care cost growth among Americans with employer-sponsored insurance
(ESI)--who account for nearly half of the national population in the
United States. HCCI's data covers about one-fourth of all ESI enrollees
under age 65, or roughly 40 million people each year over a 10-year
period. In addition to conducting our own research using this data we
also provide it to leading researchers and research organizations to
conduct their own analyses, and use the data to build price
transparency tools for consumers.
On the basis of HCCI's analysis of those data, I would like to make
the following key points regarding spending trends in the ESI
population:
After several years of relatively slow growth
following the recession, per person spending growth on health
care services under ESI plans has been rising again toward pre-
recession rates--both tracking with and contributing to the
unsustainable health care spending trend for the country.
The main driver of these increases in ESI spending
has not been growth in the number of services used but rather
growth in the cost per unit of service--a measure which
combines increases in the prices of specific services and
shifts toward the use of higher-priced services.
Although spending growth rates differ across types of
health services, those rates are increasing largely in tandem--
suggesting that systemic factors are at work and that a
combination of solutions will be needed to address the factors
driving cost growth with all stakeholders contributing.
In the remainder of my testimony, I will provide an overview of
recent health care spending trends in the ESI population, examine
specific spending trends by type of service and discuss changes in
consumer out-of-pocket spending.
Background on HCCI and its Data and Analyses?
HCCI possesses detailed claims data from four leading US health
care organizations: United Health Group, Aetna, Humana, and Kaiser
Permanente. HCCI receives data from these four organizations, and after
a rigorous deidentification process to ensure patient privacy, we
engage in a number of activities.
First, HCCI's in-house team of researchers and data scientists
produce their own research and analyses on a range of issues. Our
flagship publication is our annual Health Care Cost and Utilization
Report which provides year-on-year and cumulative trends in health care
spending for the ESI population--and this work will form the basis for
much of my remarks. \1\ Beyond this report, however, we engage in a
range of research examining issues such as geographic variation in
health spending, the impact of high-deductible health plans on health
spending, shoppable versus not shoppable health care services, and
spending for populations with specific chronic conditions such as
diabetes, hypertension and multiple sclerosis.
---------------------------------------------------------------------------
\1\ Health Care Cost Institute. ``2016 Health Care Cost and
Utilization Report.'' HealthCostInstitute.org, published January 23,
2018. http://www.healthcostinstitute.org/report/2016-health-care-cost-
utilization-report.
---------------------------------------------------------------------------
Second, we license our data to researchers to enable even more
insights into the drivers of US health care spending. Researchers
access HCCI data remotely via a secure data enclave. We're proud that
the finest researchers and health policy analysts have chosen to use
our data including the Congressional Budget Office, the Medicare
Payment Advisory Commission, the CMS Office of the Actuary, the Federal
Trade Commission, the Society of Actuaries, the American Academy of
Actuaries and academics from a host of universities including Harvard,
MIT, the University of Michigan, Dartmouth, Stanford, and others.
Third, we leverage our data assets to provide health care price
transparency tools to consumers at the national, State, and local
levels. In 2015, HCCI launched Guroo.com, an easy-to-navigate,
consumer-friendly website that aggregated billions of claims from our
partners at United Health Group, Aetna, and Humana into ``care
bundles'' that allowed consumers shopping for care to understand the
average costs associated with common services such as knee replacement
and childbirth. \2\ Recently, HCCI was selected through a competitive
procurement by the State of Florida to help launch a facility-level,
consumer-facing website to provide health care price transparency to
all Floridians. This site, known as the FloridaHealthPriceFinder will
launch in the near future. \3\
---------------------------------------------------------------------------
\2\ Health Care Constitute. Guroo.com, accessed June 21, 2018.
https://www.guroo.com.
\3\ Agency for Health Care Administration.
FloridaHealthPriceFinder.gov, accessed June 21, 2018. https://
pricing.floridahealthfinder.gov.
---------------------------------------------------------------------------
Finally, HCCI was the first organization--and remains one of a
select group--to have been designated by CMS as a National Qualified
Entity. Under this designation, HCCI receives 100 percent of Medicare
fee-for-service data that it combines with its commercial data assets
to advance public reporting on the quality and cost of care in the
United States.
HCCI is governed by an independent board comprised of leading
academics and health care experts.
Health Care Spending in the ESI population
Concerns about health care spending are not new, interventions are
many and varied--and yet the one constant seems to be that spending on
health care goes up every year, often significantly faster than
inflation. According to the National Health Expenditures (NHE)
estimates, the country spent a grand total of $3.3 trillion dollars on
health care in 2016, or about 18 percent of gross domestic product--
that is twice the share in 1980. \4\ Focusing just on payments for
health care goods and services (including hospital admissions,
physician visits, prescription drugs, and nursing home care, etc.),
spending nationwide totaled about $2.8 trillion or approximately $8,800
per person that year.
---------------------------------------------------------------------------
\4\ Centers for Medicare and Medicaid Services. ``NHE Fact
Sheet.'' CMS.gov, last modified April 27, 2018. https://www.cms.gov/
research-statistics-data-and-systems/statistics-trends-and-reports/
nationalhealthexpenddata/nhe-fact-sheet.html
---------------------------------------------------------------------------
Health care spending growth challenges the budgets of governments,
businesses, and families. The rapid growth in health care spending
leaves less room for other investments, and this pressure will only
increase over time if these expenditures continue to grow as projected.
At HCCI, our analysis focused primarily on the ESI population,
including workers, spouses, and dependents, which is somewhat younger
and healthier than the US population overall. Using the most recent
HCCI data, we found that total spending per person in ESI plans
averaged $5,407 in 2016--which was a new high for this population (see
Figure 1). That amount captures payments by payers (employers and
insurers) for health care goods and services and out-of-pocket costs
paid by enrollees through deductibles, coinsurance, and co-payments; it
does not include insurance premiums or insurers' administrative costs.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In our analysis, we divided that spending into four broad
categories:
Inpatient spending, which consists primarily of
spending on hospital admissions but includes some spending on
skilled nursing facilities and other inpatient care, averaged
$1,049 per enrollee (19 percent of total spending).
Spending on professional services--including
physician visits, vaccines, physician-administered drugs,
imaging services, and lab tests--averaged $1,821 per enrollee
(34 percent).
Spending on services provided by outpatient
facilities, including emergency room (ER) visits and outpatient
surgery, averaged $1,507 per enrollee (28 percent).
Spending on prescription drugs--brand and generic--
averaged $1,030 (19 percent). \5\
---------------------------------------------------------------------------
\5\ Health Care Cost Institute. ``2016 Health Care Cost and
Utilization Report.''
---------------------------------------------------------------------------
ESI Spending Trends, 2012-2016
Next, we turned to the question of how health care spending is
changing. Examining trends in spending growth, we found that after
several years of slowing spending growth, rates of growth are again
increasing. Our analysis of more than 40 million people with ESI
coverage found that per capita spending increased by 4.6 percent
between 2015 and 2016 and 4.1 percent between 2014 and 2015--these were
the highest rates of growth since 2009 when spending per capita rose by
6.4 percent. By contrast, spending growth per capita from 2009 to 2014
averaged 3.3 percent per year. \6\
---------------------------------------------------------------------------
\6\ Herrera, Carolina-Nicole, Martin Gaynor, David Newman, Robert
J. Town, and Stephen T. Parente. ``Trends underlying employer-sponsored
health insurance growth for Americans younger than age sixty-five.''
Health Affairs 32, no. 10 (2013): 1715-1722.
---------------------------------------------------------------------------
Between 2012 and 2016, total health care spending increased 15
percent. In 2016, the annual health care bill for working Americans and
their families in our sample was more than $700 higher than 2012, not
counting the cost of increased premiums.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Utilization is Not Driving Spending Growth
Why is spending rising? We found that working Americans are using
the same or lower quantities of health care but are paying more for it
every year. Based on our data, utilization rates--that is, in the
number of services used--declined between 2012 and 2016 for hospital
inpatient, outpatient, and professional services, while increasing a
modest 1.8 percent for prescription drugs (see Figure 3). Despite a
cumulative 12.9 percent reduction in hospital admissions per 1,000
people, hospital spending rose by 8.3 percent--meaning that price
increases and service intensity played an important role in increasing
hospital spending during a period of declining hospital utilization.
Therefore, we conclude that spending increases are largely due to
increases in the spending-per-unit of health care (which, for
simplicity, we refer to as ``price'' per unit).
Figure 3: Cumulative Change in Price, Utilization and Spending,
2012-2016
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
We acknowledge that differences in service mix, quality, and the
introduction of new technologies and therapies--which are often very
expensive but only sometimes represent significant clinical advances--
play a role in driving overall health care spending and distort the
overall price effect we calculate. That being said, this should not
distract us from the larger issue at hand--that health care spending
continues to rise at a rate that will ultimately be unsustainable for
the US economy.
Moreover, we are able in the HCCI data to account for growth in the
intensity of care within service categories (using measures developed
in Medicare such as relative value units for physician services and
Diagnosis Related Group weightings for inpatient admissions). When we
do that we find, for example, that while the average price of an
inpatient admission rose by 24.3 percent between 2012 and 2016, the
average intensity-adjusted price rose by 16.7 percent. Although overall
trends in spending are also affected by shifts in the mix of services
used across categories (for example, from care moving from inpatient to
outpatient settings) we believe our findings point strongly to the
important role of price growth in spending trends for the ESI
population.
Growth in Spending by Type of Service
A great advantage of the HCCI dataset is that we can use it to
examine spending trends within service categories and subcategories to
gain additional insights. In our most recent annual report, our
analysis yielded the following findings. \7\
---------------------------------------------------------------------------
\7\ Health Care Cost Institute. ``2016 Health Care Cost and
Utilization Report.''
---------------------------------------------------------------------------
Inpatient Admissions. Inpatient utilization declined steadily from
2012 to 2016, continuing a long-established trend of declining
inpatient utilization. The cumulative decline in inpatient utilization
from 2012 to 2016 was 12.9 percent, while spending increased by 8.3
percent--meaning that the price of the average inpatient admission
increased by 24.3 percent over this period. Surgical admissions were
the largest contributor to the spending and price trends within the
inpatient category. The price of a surgical admission, measured as the
average facility fee for the average surgical admission, increased by
nearly $10,000 from 2012 to 2016 (from $32,088 to $41,702) leading to a
9.2 percent increase in spending despite a 16.0 percent decrease in
utilization.
Outpatient Services. The use of outpatient services declined from
2012 to 2014 but increased between 2014 and 2016, resulting in a small
net decline in outpatient utilization between 2012 and 2016. However,
outpatient spending rose every year, with a cumulative increase of 17.7
percent--which appears to be largely attributable to increases in price
per unit. For example, ER visits comprised 23.4 percent of outpatient
spending and saw a cumulative price increase of 31.5 percent from 2012
to 2016.
Professional Services. Declines in the use of professional services
represent a comparatively recent trend, as use of these services
decreased every year since 2013. Despite declines in use, spending on
professional services increased a cumulative 11.2 percent from 2012 to
2016, while the average price per service increased a cumulative 14.6
percent. The professional service subcategory with the greatest
increase in average price per service was administered drugs. The
average price of administered drugs increased dramatically since 2012,
a cumulative 41.9 percent to an average of $581 per service in 2016.
Prescription Drugs. Although the utilization of prescription drugs
remained relatively constant over the study period, spending on all
prescription drugs grew a cumulative 27.2 percent. A large component of
this growth was increased spending on brand name prescription drugs.
While annual spending growth on generic drugs has been driven largely
by increased use, increased spending on brand prescription drugs was
due to increases in average price per filled day (a standardized
measure of prescription prices).
The average price--measured through allowed amounts, not including
any coupons, discounts, or rebates--for a filled day of a brand
prescription drug increased more than 20 percent per year from 2012 to
2015, and grew 15.0 percent from 2015 to 2016, for a cumulative growth
of 111 percent from 2012 to 2016. Part of the substantial price growth
of brand prescription drugs is in part explained by the introduction of
new drugs that feature both high prices and breakthrough clinical
improvements and outcomes (e.g., hepatitis C antivirals that first
became available in 2013) and the decline in use of lower cost brand
drugs after patent expirations (e.g., Singulair and Lexapro in 2012,
Nexium in 2014).\8\,\9\ However, the change in the mix of prescription
drugs due to innovative new therapies and patent expirations does not
fully explain why spending on brand prescriptions continues to increase
each year as use continues to fall.
---------------------------------------------------------------------------
\8\ Chhatwal, Jagpreet, Fasiha Kanwal, Mark S. Roberts, and
Michael A. Dunn. ``Cost-effectiveness and budget impact of hepatitis C
virus treatment with sofosbuvir and ledipasvir in the United States.''
Annals of internal medicine 162, no. 6 (2015): 397-406.
\9\ Deruiter, Jack, and Pamela Holston. ``Drug Patent Expirations
and the `Patent Cliff'.'' U.S. Pharmacist, published June 20, 2012.
http://stage.uspharmacist.com/article/drug-patent-expirations-and-the-
patent-cliff.
---------------------------------------------------------------------------
Spending Variation Across States
HCCI's dataset covers enrollees in every State so we are able to
examine differences in spending per capita across states (with
adjustments to make the data representative of the national under-65
population with ESI). Alaska and Hawaii have unique issues regarding
health care and can be difficult to compare to other states, but even
within the continental U.S. average spending per capita varied widely
around the national average of $5,407 in 2016 (see Figure 4). Eight of
those 48 states had average spending of over $6,000 per capita led by
Wyoming at $6,916, while nine states had average spending below $5,000
per enrollee, with Utah the lowest at $4,415.
Geographic differences in spending for working individuals can stem
from a number of factors from differences in the cost of services
across locations, to differences in the age, health and socioeconomic
influences of enrollees, to differences in how providers treat
patients. One recent study showed that in the ESI population about half
of the variation in spending may be due to differences in prices across
locations. \10\ However, there is an ongoing debate among healthcare
researchers on this issue, with some drawing important inferences from
spending differences in Medicare and others raising questions about
those findings and their implications.\11\,\12\ Further analysis about
the geographic differences in spending among the ESI could yield
important insights.
---------------------------------------------------------------------------
\10\ Cooper, Zack, Stuart V. Craig, Martin Gaynor, and John Van
Reenen. The price ain't right? Hospital prices and health spending on
the privately insured. No. w21815. National Bureau of Economic
Research, 2015.
\11\ Song, Yunjie, Jonathan Skinner, Julie Bynum, Jason
Sutherland, John E. Wennberg, and Elliott S. Fisher. ``Regional
variations in diagnostic practices.'' New England Journal of Medicine
363, no. 1 (2010): 45-53.
\12\ Reschovsky, James D., Jack Hadley, and Patrick S. Romano.
``Geographic variation in fee-for-service Medicare beneficiaries'
medical costs is largely explained by disease burden.'' Medical Care
Research and Review 70.5 (2013): 542-563.
---------------------------------------------------------------------------
Effects on Consumers and Budgets
HCCI also focuses on the effect that these trends are having on
consumers through out-of-pocket (OOP) payments. Over time, people with
ESI are generally using fewer inpatient, outpatient, and professional
services, but the amount of OOP payment continues to increase. OOP
spending, while displaying a slightly lower overall cumulative growth
rate than total spending between 2012 and 2016 (12 percent versus 15
percent). However, for most services OOP spending is actually rising
faster than total spending, the exception being prescription drug
spending where average OOP declined significantly, although this
decline was primarily driven by steep declines in OOP spending for a
small number of people with very high prescription drug spending.
More importantly, the cost of insurance coverage in the form of
premiums is a significant and growing burden for working individuals
and families. For example, the Kaiser Family Foundation and Health
Research and Educational Trust (HRET)'s annual survey of employers
found that the average contribution of workers toward their premiums
increased 22.3 percent between 2012 and 2016. \13\
---------------------------------------------------------------------------
\13\ The Henry J. Kaiser Family Foundation. ``2017 Employer Health
Benefits Survey.'' KFF.org, published September 19, 2017. www.kff.org/
health-costs/report/2017-employer-health-benefits-survey.
---------------------------------------------------------------------------
Individual Spending is Often Unpredictable
In addition to the rising burden of OOP costs, it is important to
remember that most health care spending is concentrated among a small
group of people. Indeed, in a recent analysis we found that from 2009
to 2015, the top 5 percent of people--so called ``top spenders''--
accounted for over half of all health care spending, consistent with
many previous studies. \14\ However, we also found that each year most
top spenders--more than 60 percent--were different from the year
before. \15\
---------------------------------------------------------------------------
\14\ Johnson, William, Niall Brennan, Sally Rodriguez, and John
Hargraves. ``Consistently High Turnover in the Group of Top Health Care
Spenders. NEJM Catalyst, published February 1, 2018. https://
catalyst.nejm.org/high-turnover-top-health-care-spenders/.
\15\ Johnson, William and Sally Rodriguez. ``Top Spenders Among
the Commercially Insured: Increased Spending Concentration and
Consistent Turnover from 2013 to 2015.'' HealthCostInstitute.org,
published February 2018. http://www.healthcostinstitute.org/wp-content/
uploads/2018/04/Issue-Brief-Top-Spenders.pdf.
---------------------------------------------------------------------------
In other words, high health care spending annually affects new
people. In 2015, for example, the median new top spender faced an over
$3,000 increase in their OOP spending from the previous year. To put
this spending increase in context, the Federal Reserve Board's 2017
Survey of Household Economics and Decision reported that 41 percent of
respondents could not afford even a $400 emergency expense. \16\ The
jarring impact of unpredictable health care spending on individuals'
will only become worse as the cost of health care continues to rise.
---------------------------------------------------------------------------
\16\ Board of Governors of the Federal Reserve System. ``Report on
the Economic Well-Being of U.S. Households in 2017.''
FederalReserve.gov, published May 2018. https://www.Federalreserve.gov/
publications/files/2017-report-economic-well-being-us-households-
201805.pdf.
---------------------------------------------------------------------------
Conclusions
Individuals and families with ESI coverage represent nearly half of
the U.S. population, and our report suggests that health care spending
growth for this population is trending in the wrong direction. Despite
the recent attention around value-based care approaches as a means to
reducing health care costs and improving quality, the reality is that
across the health care system as a whole, spending is projected to
increase from 17.9 percent of GDP in 2016 to 19.7 percent in 2026. \17\
Put another way, U.S. health care spending in 2025 will be $2.3
trillion dollars higher than it was in 2016.
---------------------------------------------------------------------------
\17\ Centers for Medicare and Medicaid Services. ``NHE Fact
Sheet.''
---------------------------------------------------------------------------
Yes, there will be innovative new drugs and technologies, and yes,
some of them may be expensive, but that alone does not explain the
rapid price and spending growth in U.S. health care nor does it
guarantee higher value care. We believe there needs to be a meaningful
conversation among all stakeholders across the U.S. health care system
to better understand the causes and drivers of increased health care
spending. Bringing these groups together can lead to meaningful policy
decisions that continue to respect and reward innovation in health care
within the parameters of a sustainable health care system.
______
[summary statement of niall brennan]
Mr. Brennan is the President and CEO of the Health Care Cost
Institute (HCCI) in Washington, DC. HCCI is an independent,
nonpartisan, not-for-profit organization founded in 2011 to foster
greater understanding of health care spending trends and the drivers of
health care cost growth. After providing background on HCCI, Mr.
Brennan's testimony reviews details of health care spending in the
population of Americans with employer-sponsored insurance (ESI)
coverage. Between 2015 and 2016, per enrollee spending for this
population grew 4.6 percent, representing the highest rate of growth
since 2009, and pushing average total spending per person in ESI plans
to $5,407--a new high for this group. In HCCI's analysis, utilization
is not driving spending growth. Between 2012 and 2016 the number of
services used declined for hospital inpatient, outpatient, and
professional services, while increasing a modest amount for
prescription drugs. HCCI concludes that spending increases are largely
due to increases in the spending-per-unit of health care (which, for
simplicity they refer to as ``price'' per unit). Mr. Brennan next turns
to the effect of these spending trends on consumers and budgets.
Average out-of-pocket (OOP) spending, including deductibles,
copayments, and coinsurance are growing at roughly the same rate as
plan payments. In addition, premiums for individual and family coverage
have increased, with the employee's contribution rising 22.3 percent
between 2012 and 2016. To conclude, Mr. Brennan points out that
spending for the ESI population is increasing in tandem with spending
across the health care system overall--national health expenditures are
projected to increase from 17.9 percent of GDP in 2016 to 19.7 percent
of GDP in 2026. This suggests that systematic factors are at work and a
combination of solutions will be needed to address the factors driving
cost growth with all stakeholders contributing.
______
The Chairman. Thank you, Mr. Brennan.
Dr. Hyman.
STATEMENT OF DAVID HYMAN, M.D., J.D., PROFESSOR, GEORGETOWN
UNIVERSITY LAW CENTER, WASHINGTON, DC.
Dr. Hyman. Thank you, Chairman Alexander and Ranking Member
Murray, for inviting me to speak to you today.
Much of what I am going to say is drawn from a book that is
coming out in about a week called, ``Overcharged: Why Americans
Pay Too Much for Health Care.'' I am happy to make copies of
that available to Members of the Committee or their staff.
My written testimony and my remarks today address three
questions, some of which have already been preempted by my
distinguished fellow panelists.
First, how expensive is health care in the United States
and who pays for it?
Second, why is American health care so expensive?
Third, what should we do if we want to make health care in
the United States less expensive?
I think there is broad agreement, not just among health
policy analysts, and not just the health policy analysts on the
panel, and also among the general public, on the first
question, that health care in America is quite expensive.
The figures for the GDP make sense to economists, but I
think a better way of looking at it is the per capita figures
that you heard earlier; roughly $10,000 for every man, woman,
and child in the United States. It is also useful to compare
that to, say, the median household income of about $60,000.
Now, households are obviously typically, on average, made
up of more than just one person. So you can, say, multiply by
two-and-a-half and then divide into 60. You get a very sizable
share of Americans' income as being devoted to health care. And
I think lots of people feel like that is too much and the value
of care that they are receiving is not necessarily self-
evident. Not much disagreement on that.
On the who pays question, it is quite common to say,
``Well, the government pays 40-some percent and individuals
through their employment-based coverage or otherwise are paying
the balance.''
The reality is, of course, the Government obtains the funds
that it spends by taxing individual households and by issuing
debt, which is a call on future taxpayers. So the reality is
all Americans are paying this. There is no separate bucket of
money that we can call the Government.
There is lots of concern, as you have heard earlier and
heard from both the opening remarks by Chairman Alexander and
Ranking Member Murray, about high bills, about surprise medical
bills, about out of network bills.
I think the important point to recognize about all of this,
that Professor Buntin alluded to earlier, is you should think
separately about the high cost of health care and the rate of
growth of health care because, although they are related,
strategies to address one may not do much about the other, and
vice versa.
On why is American health care so expensive, I am ashamed
to speak about this with Dr. Jha on the panel because he has a
recent article on the subject in ``JAMA'' that I commend to
you, along with the four or five commentaries that do a nice
job of comparing across ten wealthy countries other than the
United States, the break down of spending into various buckets.
They make clear that we are No. 1 in health care spending, not
necessarily something that we should be bragging about.
Now, there are complications. The composition of that needs
to be paid attention to and in terms of the causes, we have
already heard discussion about monopoly in particular markets.
Sometimes we create monopolies deliberately. That is what the
patent system does for pharmaceuticals. And sometimes licensed
professionals have monopoly positions as well. But any
competitive practices are, I think, a persistent problem.
Viewed from a broader perspective, our health care system
is expensive because we set it up to be expensive. Every
incentive points in the direction of higher spending. There are
neither supply side nor demand side real constraints on what
health care is provided, and more importantly, the price at
which it changes hands.
Attempts to do that have given rise to cries of rationing
followed by lobbying and lawsuits with the results that we see
around us; the $10,000 per capita, which is the result of a
long run increase in spending every year running well ahead of
general inflation.
What should we do about it? Well, everyone else on the
panel seemed to have three ideas. I have 13 that I put down.
[Laughter.]
Dr. Hyman. Five of them are about pharmaceuticals. In the
30 seconds that I have left, I am not going to try and go
through them all.
I certainly agree that we should do more things on
transparency and addressing market consolidation.
I think payment neutrality is something that you ought to
be looking at that has not been mentioned. That is actually one
of the drivers of consolidation. I think you should explore
competitive bidding for Medicare Advantage.
I see my time has expired, so I will stop there.
[The prepared statement of Dr. Hyman follows:]
prepared statement of professor david a. hyman
How expensive is health care in the United States, and who pays?
Why is American health care so expensive? And what should we do if we
want to make health care in the United States less expensive? These
three questions have provided steady employment to generations of
health policy analysts--and resulted in piles of books, articles,
governmental reports, white papers, op-eds, and blog postings. \1\
---------------------------------------------------------------------------
\1\ For my own recent contribution to the pile, see Charles Silver
and David A. Hyman, Overcharged: Why Americans Pay Too Much For Health
Care (2018).
---------------------------------------------------------------------------
My testimony provides abbreviated responses to each of these
questions, and highlights areas of agreement and disagreement. As
detailed below, there is considerable agreement on the answer to the
first question. There is more disagreement on the answer to the second
question--and vehement disagreement on the answer to the third
question.
1. How Expensive is Health Care in the United States--and Who Pays?
One of the rare points of unanimity in American health policy is
that the United States is ``the most expensive place in the world to
get sick.'' \2\ Overall, we spent $3.3 trillion, or 17.9 percent of our
GDP on health care in 2016. \3\ Expressed in per capita terms, this is
about $10.4k per person. \4\ By way of comparison, the median household
income in the United States is $59k. \5\ By way of further comparison,
American health care spending as a share of GDP is dramatically higher
than any of our fellow OECD member countries. \6\
---------------------------------------------------------------------------
\2\ Margot Sanger-Katz, Even Insured Can Face Crushing Medical
Debt, Study Finds, N.Y. Times, Jan. 5, 2016, at https://
www.nytimes.com/2016/01/06/upshot/lost-jobs-houses-savings-even-
insured-often-face-crushing-medical-debt.html.
\3\ CMS, National Health Expenditures Highlights, at https://
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/Downloads/highlights.pdf.
\4\ Id.
\5\ U.S. Census Bureau, Income, Poverty and Health Insurance
Coverage in the United States: 2016, Sep. 12, 2017, at https://
www.census.gov/newsroom/press-releases/2017/income-povery.html.
\6\ OECD, Health Expenditure and Financing, https://
stats.oecd.org/Index.aspx?DataSetCode=SHA. According to the OECD, the
U.S. spent 17.2 percent of GDP on health care in 2016. The next biggest
spenders were Switzerland (12.4 percent), Germany (11.3 percent), and
Sweden and France (11.0 percent).
---------------------------------------------------------------------------
Polling indicates that high medical bills (and surprise bills) are
a serious concern for many Americans. \7\ Kaiser Health News and NPR
have a website devoted to the ``bill of the month,'' including a urine
test that cost $17.8k, a prescription for toenail fungus that cost
$1.5k. \8\ Eric Ferguson of North Carolina was bitten by a snake and
received a bill from his local hospital for $89k--most of which was for
anti-venom that he found online for $3k. \9\
---------------------------------------------------------------------------
\7\ NORC, Americans' Views on Healthcare Costs, Coverage and
Policy, Feb. 2018, at http://www.norc.org/PDFs/
WHI%20Healthcare%20Costs%20Coverage%20and&20Policy/
WHI%20Healthcare%20Costs%20Coverage%20and%20Policy%20Topline.pdf.
\8\ KHN, Bill of the Month, at https://khn.org/news/tag/bill-of-
the-month/.
\9\ See Cato, Twice Bitten, at https://www.cato.org/multimedia/
cato-video/twice-bitten. See also Ron Dicker, Eric Ferguson Charged
More Than $89,000 By Hospital For Snake Bite Anti-Venom Treatment, Jan
31, 2014, at https://www.huffingtonpost.com/2014/01/31/eric-ferguson-
snake-bite_n_4703157.html.
---------------------------------------------------------------------------
Of course, spending on health care varies widely, and a small share
of the population accounts for a massively disproportionate share of
total spending. For example, the top 5 percent of the population (in
terms of health care spending) accounts for 51 percent of total health
care spending, and the top 20 percent accounts for 83 percent of health
care spending. \10\ Conversely, the bottom 50 percent of the population
(again in terms of health care spending) accounts for only about 3
percent of total health care spending. \11\ Of course, among other
things, age and health status affect health care spending.
---------------------------------------------------------------------------
\10\ Bradley Sawyer and Nolan Sroczynski, How do health
expenditures vary across the population? Peterson-Kaiser Health System
Tracker, Dec. 1, 2017, at https://www.healthsystemtracker.org/chart-
collection/health-expenditures-vary-across-population/#item-start.
\11\ Id.
---------------------------------------------------------------------------
Where does the money to pay for all this spending come from? The
conventional approach is to differentiate between government-funded
health care (principally Medicare, Medicaid, and CHIP); private
insurance; and out-of-pocket. Over the past half-century, government's
share has risen to roughly 45 percent of total health care spending, as
new programs have been created and the populations covered by those
programs have expanded. \12\ These developments have created
significant budgetary pressures, at both the state and Federal levels.
Conversely, the share of health care spending accounted for by out-of-
pocket has declined dramatically. \13\ Of course, these divisions are
artificial: the funds to pay for government-funded health care are
obtained by taxing individual households, and for most Americans, the
premiums for employment-based insurance are foregone wages.
---------------------------------------------------------------------------
\12\ For 2016 figures, see CMS, NHE Fact Sheet, https://
www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-
reports/nationalhealthexpenddata/nhe-fact-sheet.html.
\13\ ASPE Chartpack on National Health Spending, June 22, 2018,
slides 8-9.
---------------------------------------------------------------------------
One final point: there is a difference between the absolute level
of health care spending in the U.S. (which has been persistently higher
than in all other countries) and the rate of health care spending
growth (which slowed dramatically in the U.S. and in other countries
beginning in 2008). It remains to be seen whether this slow-down
(relative to historical averages) in growth rates is the new normal, or
just a temporary pause. More to the point, strategies designed to
target the absolute level of health care spending may do little about
the rate of spending growth-and vice-versa.
Why is American Health Care So Expensive?
The health care economy includes a daunting array of goods and
services, delivered in a wide array of settings, by an army of
professionals and allied health personnel. Each market niche has its
own peculiar institutional details and compensation arrangements. But,
at the highest level of generality, spending on health care in the
United States equals the price per unit of service * volume of
services. Thus, in examining why American health care is so expensive,
it is necessary to consider both price and volume.
A solid body of research makes it clear that high prices are a
major factor in why American health spending is so high. In the words
of the conclusion of a well-known study published in Health Affairs in
2004:
In 2000 the United States spent considerably more on health
care than any other country, whether measured per capita or as
a percentage of GDP. At the same time, most measures of
aggregate utilization such as physician visits per capita and
hospital days per capita were below the OECD median. Since
spending is a product of both the goods and services used and
their prices, this implies that much higher prices are paid in
the United States than in other countries. But U.S.
policymakers need to reflect on what Americans are getting for
their greater health spending. They could conclude: It's the
prices, stupid. \14\
---------------------------------------------------------------------------
\14\ Gerard F. Anderson, Uwe E. Reinhardt, Peter S. Hussey, and
Varduhi Petrosyan, ``It's The Prices, Stupid'': Why The United States
Is So Different From Other Countries, 22 Health Affairs 89 (2004), at
https://www.healthaffairs.org/doi/pdf/10.1377/hlthaff.22.3.89.
A decade later, little had changed. That's when the late Uwe
Reinhardt, one of the authors of the 2004 study, wrote a column
entitled ``U.S. Health Care Prices Are the Elephant in the Room.'' \15\
A subsequent study, published in JAMA in 2018, used data from 2013-2016
for the U.S. and ten other high income OECD countries, and found that
``prices of labor and goods, including pharmaceuticals, and
administrative costs appeared to be the major drivers of the difference
in overall cost between the United States and other high-income
countries.'' \16\
---------------------------------------------------------------------------
\15\ Uwe Reinhardt, U.S. Health Care Prices Are the Elephant in
the Room, N.Y. Times Economix Blog, Mar. 29, 2013, at https://
economix.blogs.nytimes.com/2013/03/29/u-s-health-care-prices-are-the-
elephant-in-the-room/.
\16\ Irene Papanicolas, Liana R. Woskie, Ashish K. Jha, Health
Care Spending in the United States and Other High-Income Countries,
JAMA. 2018;319(10):1024-1039, at https://jamanetwork.com/journals/jama/
article-abstract/2674671.
---------------------------------------------------------------------------
To be sure, there are various complications, including a variety of
volume/composition differentials that must also be taken into account.
For example, in the United States we perform more imaging studies,
Caesarean deliveries and knee replacements. \17\ We also have higher
administrative costs. \18\ Many health care providers have the
functional equivalent of a monopoly position, and price their products
and services accordingly. \19\ In many sectors of the health care
economy, collusion and other anti-competitive practices are a
persistent problem. Restrictions on entry further limit the
effectiveness of competition. Finally, ``decomposing differences in
health care spending into price and quantity is more difficult than it
might seem, and there are important challenges in drawing policy
inferences from such analyses.'' \20\
---------------------------------------------------------------------------
\17\ Ezekiel J. Emanuel, The Real Cost of the US Health Care
System, JAMA. 2018;319(10):983-985, at https://jamanetwork.com/
journals/jama/article-abstract/2674647.
\18\ Id.
\19\ Stephen T. Parente, Factors Contributing to Higher Health
Care Spending in the United States Compared With Other High-Income
Countries, JAMA. 2018;319(10):988-990, at https://jamanetwork.com/
journals/jama/article-abstract/2674646.
\20\ Katherine Baicker & Amitabh Chandra, Challenges in
Understanding Differences in Health Care Spending Between the United
States and Other High-Income Countries, JAMA. 2018;319(10):986-987, at
https://jamanetwork.com/journals/jama/article-abstract/2674648.
---------------------------------------------------------------------------
Viewed from a different perspective, the American health care
system is expensive because every incentive points in that direction.
Our reliance on open-ended third-party payment seems designed to funnel
money from the rest of the economy into the health care system. In
health care, we have relatively few constraints--whether on the supply
side or on the demand-side, and whether on price or on volume. Previous
attempts to impose such restraints have predictably given rise to cries
of ``rationing,'' followed by lobbying and lawsuits. The consequences
are easy to see.
Finally, there is tremendous waste, fraud, and abuse in our health
care system. Knowledgeable observers believe that something on the
order of one-third of dollars spent on health care are wasted. In 2011,
Berwick and Hackbarth offered a mid-point estimate of the cost of waste
of $910 billion, with an upper bound of $1.263 trillion. \21\ A
different team of researchers reached a similar conclusion in 2015.
\22\ In my forthcoming book, we found evidence of waste, fraud, and
abuse everywhere we looked. \23\
---------------------------------------------------------------------------
\21\ Donald M. Berwick & Andrew D. Hackbarth, Eliminating Waste in
US Health Care, JAMA. 2012;307(14):1513-1516, at https://
jamanetwork.com/journals/jama/article-abstract/1148376.
\22\ Paul Keckley, Medical Necessity and Unnecessary Care--The
Full Story, The Keckley Report, Jan. 26, 2015, at http://
www.paulkeckley.com/the-keckley-report/2015/1/26/medical-necessity-and-
unnecessary-care-the-full-story.
\23\ See supra note 1.
---------------------------------------------------------------------------
What Should We Do if We Want to Make American Health Care Less
Expensive?
Open-ended third-party payment has given us a health care system we
can't afford. If we don't like things the way they are, we need to
change the incentives under which our health care system operates.
Overcharged is full of ideas on how to do that. A partial list would
include the following:
Encourage market entry, particularly by lower-cost
providers.
Rely more heavily on first party payment.
Subsidize those in need by giving them money, rather
than open-ended insurance.
Minimize mandated benefits.
Increase competition in the market for generic drugs
with (i) increased antitrust enforcement; (ii) priority review
of ANDAs for generic drugs that have experienced price hikes,
(iii) prevent misuse of the FDA's processes to slow generic
entry; and (iv) relax the FDA's grip on entry by allowing
companies that qualify to sell generic drugs in Canada,
England, France, Israel, and other developed countries to sell
the same drugs in the United States--at least so long as a
generic equivalent has already been approved by the FDA, and
the 180 days of marketing exclusivity provided by the Hatch-
Waxman Act has expired.
Move as many drugs as possible from Medicare Part B
to Medicare Part D.
Eliminate the requirement that Medicare Part D plans
cover all approved drugs in the six ``protected classes'':
immunosuppressants, antidepressants, antipsychotics,
anticonvulsants, antiretrovirals, and antineoplastics.
Move as many drugs as possible from prescription-only
to over-the-counter, or behind-the-counter.
Adopt strict payment neutrality regardless of the
site in which care is delivered.
Adopt competitive bidding for Medicare Advantage.
Use prizes (rather than patents) to encourage drug
innovation.
Improve transparency of information on pricing and
quality.
Address charge-master abuse by enforcing basic
contract law principles. Failing that, cap out-of-network bills
at Medicare's payment rate plus a modest percentage.
Reasonable people can disagree about the optimal strategy for
making our health care system more affordable. And different people
will prefer different trade-offs among cost, quality, and access. But,
everyone should understand that our current trajectory is
unsustainable.
______
[summary statement of professor david a. hyman]
How expensive is health care in the United States, and who pays?
Why is American health care so expensive? And what should we do if we
want to make health care in the United States less expensive? My
testimony provides responses to each of these questions, and highlights
areas of agreement and disagreement.
First, a solid body of research makes it clear that high prices are
a major factor in why American health spending is so high. For example,
a study published in 2018 found that ``prices of labor and goods,
including pharmaceuticals, and administrative costs appeared to be the
major drivers of the difference in overall cost between the United
States and other high-income countries.'' To be sure, there are various
complications, including a variety of volume/composition differentials
that must also be taken into account. And, there is tremendous waste,
fraud, and abuse in our health care system.
Viewed from a different perspective, the American health care
system is expensive because every incentive points in that direction.
Our reliance on open-ended third-party payment seems designed to funnel
money from the rest of the economy into the health care system. In
health care, we have relatively few constraints--whether on the supply
side or on the demand-side, and whether on price or on volume. Previous
attempts to impose such restraints have predictably given rise to cries
of ``rationing,'' followed by lobbying and lawsuits. The consequences
are easy to see.
Open-ended third-party payment has given us a health care system we
can't afford. If we don't like things the way they are, we need to
change the incentives under which our health care system operates. My
forthcoming book, Overcharged: Why Americans Pay Too Much For Health
Care, is full of ideas on how to do that. A partial list would include
the following:
Encourage market entry, particularly by lower-cost
providers.
Rely more heavily on first party payment.
Subsidize those in need by giving them money, rather
than open-ended insurance.
Minimize mandated benefits.
Increase competition in the market for generic drugs
with (i) increased antitrust enforcement; (ii) priority review
of ANDAs for generic drugs that have experienced price hikes,
(iii) prevent misuse of the FDA's processes to slow generic
entry; and (iv) relax the FDA's grip on market entry.
Move as many drugs as possible from Medicare Part B
to Medicare Part D.
Eliminate the requirement that Medicare Part D plans
cover all approved drugs in the six ``protected classes'':
immunosuppressants, antidepressants, antipsychotics,
anticonvulsants, antiretrovirals, and antineoplastics.
Move as many drugs as possible from prescription-only
to over-the-counter, or behind-the-counter.
Adopt strict payment neutrality regardless of the
site in which care is delivered.
Adopt competitive bidding for Medicare Advantage.
Use prizes (rather than patents) to encourage drug
innovation.
Improve transparency of information on pricing and
quality.
Address charge-master abuse by enforcing basic
contract law principles. Failing that, cap out-of-network bills
at Medicare's payment rate plus a modest percentage.
______
The Chairman. Well, thank you, Dr. Hyman.
Thanks to the four of you. That is a terrific introduction
to our discussion, I think we would all agree, and we are all
looking forward to a 5 minute round of questions.
If I may say at the beginning, our goal is to try to move
the discussion for four or five hearings from this. Rather than
perpetuate the stalemate we have had over health insurance or
specifically 6 percent of the health insurance market to a
larger discussion of reducing the growth of health care costs.
Senator Murray and I work very well together and we have
solved many problems. We have not won any prizes on health
insurance and we have very distinct views about why we have
not. I am not going to revisit that, although I am able to.
What I would like to say that while Senators are able to
say whatever they would like in their time, I hope we can focus
on the larger picture, particularly with such distinguished
witnesses today.
Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman.
I really appreciate this panel and the suggestions that
they have given. I am going to take it, though, to a lower
level. I am from Wyoming, which is the least populated state in
the Nation. So I am really interested in ways that we could
encourage or support competition, or do any of the other things
that you mentioned.
I loved your example of the $10 pizza. If there is nowhere
else to go, you buy the $10 pizza. That is one of the problems
we have in a small population state. Our biggest city is 60,000
people. Our towns are all 40 miles apart. There are only 19
towns where the population exceeds the elevation.
[Laughter.]
Senator Enzi. We face some of the highest health care costs
in the country.
There are no competitive hospitals in any of the
communities, and we lack a lot of specialists. So they go out
of state for their specialist which, I guess, would be out of
network.
I am open to any suggestions that you might have for ways
we can bring that down. I will be doing a subcommittee hearing
on rural and frontier health care costs as well.
Does anybody want to kick that off?
Dr. Hyman.
Dr. Hyman. Obviously, your difficulty is not unique to
Wyoming. Many states have significant rural areas where the
population density is not very high and the population that is
necessary to sustain a good hospital can make it very difficult
to have in significant parts of the country. So, I do not think
there is a magic solution to that.
I think if you want to broaden access, one strategy to
consider is your state policy on telemedicine, which makes it
possible for people to treat patients remotely, including
across state lines. Now, this is an issue of state law, rather
than Federal law historically.
The other thing that is worth considering is your state
policy on the use of physician assistants and nurse
practitioners because physicians are expensive to train and
they are expensive people to have around. You can use these
other paraprofessional strategies to broaden access. Not a
perfect solution by any means.
Senator Enzi. Does anyone else care to comment?
Dr. Buntin. If I might add to that.
Yes, this problem is not unique, so it is such an excellent
question to bring up at this point in the hearing. Tennessee,
obviously, has a number of very rural areas as well.
There are a couple of ways to think about setting up
beneficial competition, and that is what some of the
demonstrations being run by states, and the Federal Government,
and in many cases--in fact, sometimes more often now--by
private insurers.
That is to set targets or benchmarks so that hospitals, or
groups of providers, can compete against themselves and then
share savings with insurers or with governments, if they
achieve them.
Another way to think about it is to set up competition
across areas, beneficial competition about whether you can
achieve the same health outcomes at lower cost.
I agree. It is a really large challenge for rural areas,
and we probably cannot use the same methods of competition as
we can in urban areas, but we can get creative about the types
of competition we introduce into the system.
Senator Enzi. Thank you.
Since we are running out of time, if the other two have
suggestions on that, if you could provide them in writing, I
would appreciate it because I want to ask Dr. Hyman another
question based on one of his 13 issues.
Senator Enzi. Providers are sometimes forced to toss
expired biomedical products that have been purchased, but not
used. That is a waste of money and can be particularly
concerning during a shortage situation.
Products do not necessary expire exactly on the expiration
date. We know this because the Food and Drug Administration
sometimes extends those dates. Of course, it might not always
be appropriate for a manufacturer to pursue an extension. We
should not assume that every product that is thrown out is one
that was safe for human use, especially when the products might
be stored in a variety of conditions.
I was surprised when Wyoming hospitals told me their saline
for fluid bags expired after just 1 year. I did not know that
salt and water had an expiration.
I would be interested in how we can accurately reflect
product shelf life to prevent waste and how that might affect
health care costs.
Dr. Hyman. That is a very interesting question, Senator. I
do not hold myself out as an expert on FDA expiration policies,
but they strike me as the people to go and talk to about overly
aggressive shelf life expiration dates.
My wife throws out jam the instant that the date runs, even
though I explain to her as long as it is refrigerated. She is
not interested. It does not matter how many degrees that I
have. Now, I am not suggesting jam is equivalent to hip
implants or things like that.
[Laughter.]
Dr. Hyman. It is probably closer to saline, however.
Senator Enzi. Yes.
Dr. Hyman. This is a subset of a broader problem of waste
in the American health care system.
My written testimony alludes to the fact that the standard
estimate is between fraud, waste, and abuse respectable
researchers think that number is north of 25 percent and
perhaps 35 percent.
Your example is a subset of a much broader problem that we
are facing. Sometimes it is beneficial financially for
institutions to throw away things because they can bill more
and get paid more for doing so.
Senator Enzi. Thank you.
My time has expired. I have other questions that I will
submit in writing. If you would be so kind, you are such a
wealth of information, all of you. I appreciate it.
The Chairman. Thank you, Senator Enzi.
Senator Murray.
Senator Murray. Thank you to all of our witnesses for
really great testimony. I appreciate it.
Dr. Buntin, you talked about the importance of continuing
to change the way we pay for health care. You noted that
investing in models that pay for the right care, instead of
just paying for more care, quote, ``Sends a strong signal to
the health care industry.''
My state is sending that signal. The Washington State
Health Care Authority set an objective that all of its
programs, including Medicaid and benefits for state employees,
will shift 90 percent of payments to systems that reward
quality and efficiency by 2021.
The Obama administration had set a similar objective, by
the way, that 50 percent of Medicare payments be alternative
payment models rather than traditional volume-based payments by
2018. Those type of payment changes matter.
Efforts by CMS, and the Agency for Health Research and
Quality, to reduce hospital acquired conditions may have
prevented an estimated 8,000 deaths between 2014 and 2016. So I
was disappointed that the Trump Administration backed away from
that commitment earlier this year.
Dr. Buntin, can you talk to us about why those signals
matter to the health care system? How can we continue to help
these providers invest in models of care that keep our patients
healthy in the first place?
Dr. Buntin. Yes. Thank you so much, Senator Murray, for
that question. I think this is an important point that has not
received enough attention.
Every day, medical practices in states like yours are
making decisions about what to invest in. I can tell you that
setting targets, like the targets set by the Washington State
Health Care Authority, targets set by states like
Massachusetts, and like the other ones that you mentioned,
change the conversation in ``the C-suite'' about what
investments should be made.
Whether that investment is to upgrade an Electronic Health
Record so that you can better manage the care of diabetics, or
buy a new MRI machine when there are five other ones in town,
that emphasis on value really does matter.
As I said during my testimony, convincing providers that we
are going to, if you will, keep the pressure on toward value-
based payment really makes a big difference.
If we continue in all areas to both partner with public and
private insurers to emphasize value-based demonstrations--like
the ones going on in Washington State where there are
accountable care organizations, shared savings programs, or
numerous providers have adopted bundled payment strategies--if
we organize them so that those incentives are aligned and
providers know that they are participating in that same
program.
For example, for state employees, and for privately insured
people, and for their Medicaid patients, then they will be
self-reinforcing. I think that will change the trajectory of
our health care costs meaningfully over time.
Senator Murray. Thank you.
Mr. Brennan, we often hear health care is one of the only
industries where patients do not know the price of a service
before they purchase it.
In a recent article, I saw you say that is partly because
of our complex health care system. And you actually said, ``We
do not expect the average consumer to buy the individual
components that comprise a car,'' which raises a really
important point.
For transparent price information to be actually useful,
patients need to know how much of their cost the insurance
covers. They need to know which providers will give them care.
And they need to know whether those providers are actually in
the network. So it is very complex.
I wanted to ask you, what information do you think patients
need to have price transparency?
Mr. Brennan. Thank you, Senator Murray.
It is a great question and price transparency is a great
idea. I have been an advocate of greater transparency in health
care for many years dating back to my time at CMS. I think the
question is there is just a fundamental lack of standards in
the field now.
Actually, I was prompted by Senator Alexander's comment on
Electronic Health Records. I think the failure of Electronic
Health Records was a failure to put the provider at the center
from a user-centered design perspective. I really hope that as
we make progress with price transparency initiatives, we place
the consumer at the center. We put ourselves in their shoes.
Is a price a charge? Is a price a negotiated rate? Is a
price your out-of-pocket payment on a negotiated rate? Is a
price a single service? Or is a price a bundle of services that
represent a hip replacement or a knee replacement?
These are all really important things and if we do not
approach it in a very careful manner, I think we may miss a
real opportunity to engage consumers with tools that can help
them.
Senator Murray. That they actually understand it.
Mr. Brennan. Yes.
Senator Murray. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Murray.
Senator Collins.
Senator Collins. Thank you, Mr. Chairman, for holding these
important hearings.
Dr. Jha, you talked about the importance of price
transparency and that is something that is of great interest to
me.
In the State of Maine, for example, the cost of a knee
replacement can vary from less than $25,000 to more than
$50,000. The state recently has passed a law that says if the
consumer can find a lower cost than would be covered by his or
her insurance, that the savings are split between the insurer
and the patient which, I think, is very innovative.
But researchers have also found that patients equate high
prices with high quality. It reminds me of when people shop for
colleges, they assume higher cost colleges are better colleges,
which is not necessarily the truth.
We are not dealing with a normal market here. It seems to
me that when we have price transparency, we need to have some
way to also have an evaluation of quality.
Do you have any thoughts on that?
Dr. Jha. Senator Collins, you have made an incredibly
important point that I often make, which is in talks on this
topic, I start off, I ask people, ``If you had a choice between
a $1,000 laptop and a $2,000 laptop, and your co-pay was $100,
which one would you pick?'' Everybody wants the $2,000 laptop
because the assumption is, it is better.
The only way price transparency works is, as you said, if
you have quality information, and that is how we do tradeoffs.
Sometimes we say, ``You know what? I do not want to pay for
the $2,000 laptop because the marginal benefit is not worth it
for me.'' Right now, we have tools that cannot even help you
figure out whether it is a $1,000 or a $2,000.
I think what the State of Maine is doing is progress in
that. There have been other areas where we have seen this.
Reference pricing is another effort that California tried where
there was a reference price for a knee replacement. And then,
if you wanted to get a knee replacement somewhere else, you had
to pay the difference. That is another pretty good mechanism
that keeps prices down.
But none of it works without quality information because at
the end of the day, if you are helping your mom figure out
where to get her knee replacement, you do care about prices.
But you care incredible amounts about quality and what we know
is that quality varies tremendously between providers.
Even though I brought up price transparency as one of the
things that I would push for, I am incredibly grateful for you
bringing up the point that, onto itself, is not going to work.
Actually, without quality information, there is reason to
believe it is going to make things worse because people are
going to use price as a measure or a marker of quality and go
down that road. So we really do have to address it.
Senator Collins. That is exactly what I think. Thank you
for your laptop example because that is a perfect one.
Mr. Brennan, since you are familiar with CMS
reimbursements. A lot of the reimbursement policies from CMS do
not promote early intervention. I want to give you two
examples.
One is colorectal cancer screening. If you have a
colonoscopy, and it is called ``a screening test,'' CMS pays
for that, Medicare pays for that for seniors. But if the
physician removes a polyp while you are under anesthesia, then
the cost shifts to the patient.
I have had specialists in Maine tell me that when patients
realize that, they cancel the screening. It just does not make
sense to me.
Another example has to do with diabetes care. There is a
practice in Maine that does a great job of once a week, calling
people with Type 2 diabetes, checking on their compliance with
diet, with exercise, and what their blood sugar readings are.
They do not get reimbursed for that call.
Yet, if that person with diabetes loses a limb, or goes
blind, or has a stroke, we will pay for all of those costs.
What could we do in the reimbursement area?
Mr. Brennan. Thank you, Senator Collins. That is a great
question.
I think most people on the panel would agree that we do a
really good job of treating sickness in America, but we do not
necessarily do a good job of managing and treating health.
I obviously no longer speak for CMS, but I would draw your
attention to a lot of the innovative programs at the Center for
Medicare and Medicaid Innovation, particularly their efforts
around better treatment and management for patients with
diabetes that encourage precisely the type of behavior that you
want to see from a reimbursement perspective.
Senator Collins. Thank you.
The Chairman. Thank you, Senator Collins.
Senator Casey.
Senator Casey. Thanks very much, Mr. Chairman.
I want to thank the panel for being here.
I know that in the testimony of Dr. Buntin, I wanted to go
to Page 9 of your testimony. In the middle of that page, you
said the following, ``On the consumer demand side, I am less
optimistic about opportunities to contain cost growth without
doing harm. While work I conducted with colleagues at RAND
suggests that high deductible health plans can reduce health
care spending, the effects are attenuated by accounts like
HSA's. We also found evidence that consumers cut back on
investments in preventive care when faced with high
deductibles, even when preventive care is exempt from
deductibles and cost-sharing.''
That is the predicate for the question.
As you know, there has been a huge debate here about
Medicaid and where to go with Medicaid, and frankly, more than
animated debate, a lot of intensity behind the debate. I have
been part of that and I will continue to be.
Could you discuss the impact such changes as you refer to
in this paragraph could have on Medicaid beneficiaries given
the limited resources that these beneficiaries usually have
available?
Dr. Buntin. Yes, thank you for the question.
I think that this is an important point and there has been
research, since the research that I conducted, that has
confirmed many of these findings.
There are savings that can be achieved by putting people
into high deductible plans, but they tend to be rather across
the board savings. People cut back on both necessary and
unnecessary care when faced with high deductibles.
There was hope that by exempting certain services, like
preventive services from those high deductibles, and by putting
moneys into Health Savings Accounts and other vehicles, that
might help people to make better choices.
Evidence seems to indicate, so far, that these policies are
confusing and that people do still continue to cutback on their
preventive care.
Turning to what you asked about Medicaid, what does this
mean? For a low resource population, I would have really great
concerns, especially since most of the research done to date
has been on employee populations that probably have better
financial resources and better access to information.
We do have some states, like the State of Indiana, that are
conducting experiments about the use of Health Savings Accounts
for Medicaid beneficiaries.
I think they really should be seen as experiments and we
should know the full results of those state level experiments
before we expand them further.
Senator Casey. Well, I appreciate that. And any follow-up
research you think we should review, I hope you will send that
our way.
Dr. Buntin. I would be happy to provide that to the
Committee.
Senator Casey. Thanks very much.
In the remaining time that I have, I know that we have had
a lot of discussions, not only in this Committee, but more
broadly about lack of broadband access or, I should say, lack
of access to high speed Internet and broadband in rural areas.
I know that Senator Enzi asked a question related to this
earlier. I was not here when he asked, but my staff informed me
of that.
I live in a state that has 67 counties and 48 are rural. We
have one of the largest rural populations of any state in the
country just because we are a big population state and have a
disproportionately high number of people living in those areas,
literally millions of Pennsylvanians.
In those areas, you can go into counties where it is 40,
50, even 60 percent of the people living in the county do not
have access to high speed Internet. It is bad for children in
school. It is bad for small businesses. It is also bad for
health care.
We had an article that just appeared in the ``Pittsburgh
Post-Gazette,'' dated the 26 of June. I will read the title and
just ask that it be submitted to the record. The title is,
``Lifeline Offline: Unreliable Internet, Cell Service Are
Hurting Rural Pennsylvania's Health.''
Mr. Chairman, I would ask consent to have this article be
submitted as part of the hearing record.
The Chairman. Be so ordered.
Senator Casey. Thank you.
Dr. Hyman, we will submit for you some questions for the
record that relate to this, but obviously when you have that
many people within one state that do not have access to high
speed Internet, you are going to have health care issues with
it.
We are grateful if you would look out for those questions
for the record and answer them.
Thank you.
The Chairman. Thank you, Senator Casey.
Senator Cassidy.
Senator Cassidy. Mr. Chairman, thank you for holding this.
Will there be a second round? Just curious.
The Chairman. Sure, if you want to stay and ask a second
round of questions, I will stay with you.
Senator Cassidy. Okay. That sounds great.
Thank you. Loved your testimony.
On my Website, Cassidy.Senate.Gov, I will be as shameless
as you, Dr. Hyman. I have an eight page whitepaper. I would
love your input, and a lot of it is reflected in what you say,
but we are trying to stimulate conversation.
[Chart.]
Senator Cassidy. Thank you.
I am going to ask some questions that I, frankly, do not
know the answer to, which is sometimes not what I do.
Dr. Buntin, you mentioned, and I think Dr. Jha, you
mentioned that Medicare spending has been flat. We speak of the
prices associated with that.
You see here, though, that the employer sponsored
insurance, and I will show this to my colleagues, in employer
sponsored insurance, it has skyrocketed.
Why is it flat in Medicare and why is it skyrocketing here?
Dr. Jha.
Dr. Jha. Well, I think Medicare, there is actually, Dr.
Buntin actually laid out, I think, several reasons why we have
seen a relatively flat cost growth in Medicare. Medicare costs
have gone up as more Americans have become older and entered
the program, but per capita cost growth in Medicare has been
slower.
Senator Cassidy. Let me ask.
Dr. Jha. Yes.
Senator Cassidy. Because Dr. Buntin, it was unclear from
your testimony if you weighted that, because you mention per
capita costs as falling because younger Baby Boomers are
ending. It was unclear in your testimony if you weighted that;
if you did a retrogression.
Dr. Buntin. Thank you. Thank you for the opportunity to
clarify that.
Yes, even if you adjust for the fact that beneficiaries
entering the program are younger, the costs are still
relatively flat.
Senator Cassidy. I am sorry. So continue, Dr. Jha.
Dr. Jha. No, it is great.
I think the important issue, and this is something Mr.
Brennan brought up as well, is the utilization of health care
services has been falling. People are spending less time in
hospitals. That is a good thing.
Senator Cassidy. Now, I have heard a theory that it is
falling because it is more expensive, so they forego the
expense. They forego the kind of discretionary lower cost care
instead, but have to get the more expensive care.
Dr. Jha. Yes, so when I look at things like
hospitalization, which is expensive, the decline on this has
been very clear and in one direction. It started quite a while
ago where the number of days Americans spend at the hospital
has been declining for at least a good 10, 15 years. And again,
I see that as a good thing. I see that as more people are
healthy.
The big difference between Medicare and private insurance
is Medicare, the prices are set. We can talk about whether the
prices are too high or too low.
Senator Cassidy. Let me ask you.
Dr. Jha. Yes.
Senator Cassidy. We have a problem in the individual
market.
Dr. Jha. Yes.
Senator Cassidy. In which there is a concentration of
insurers and we cannot get new folks to come in.
Dr. Jha. Yes.
Senator Cassidy. Now, somebody pointed out to me, part of
the competitiveness of Medigap is that the Medigap insurers
know the price is set. And so, therefore, they do not have to
put together a provider network and bargain. Rather, they can
come in and take Medicare prices.
Dr. Jha. Yes.
Senator Cassidy. Tennessee has a lot of counties without,
as I recall, that are bare. No insurer. Iowa has a lot.
Louisiana has some with only one.
If we said, ``Wait a second.'' If you have a place like
Tennessee, Iowa, part of Louisiana, which is bare, if we said a
new insurer could pay a 1.1 or a 1.2 ratio of Medicare rates
and go into business, as long as they have capital reserves,
would that be part of the solution?
Dr. Buntin. I think a good example of that, and I am
actually happy to say that Tennessee has seen a number of
insurers entering this year. And so, we do think the market
will look better next year, and I think that is an indication
that market is stabilizing.
But to answer your question, if you look at what private
insurers are saying, for example, to their investors, they are
saying that getting into providing Medicare Advantage and
Medicaid plans is where the good business is.
That is because explicitly by regulation in Medicare
Advantage, they can key off of Medicare prices for out of
network care.
Senator Cassidy. Again, to the point, if our problem is
that we cannot get folks into the individual market, if we
said, ``You can take advantage of Medicare rates, even a
multiple,'' that would be something that could maybe invite
more folks in. I am just putting that out as a thought
experiment.
Dr. Buntin. I think it would give a lot of insurers the
guarantee about getting into new markets that would make it
more attractive to them. Yes.
Senator Cassidy. Okay.
Dr. Jha. The only quick thing I will add is in a lot of
markets where there is a tremendous amount of market power by
providers, something like that, I think, creates both certainty
and a certain price point.
Senator Cassidy. Let me stop because you are with Partners.
Partners led this consolidation in Boston. It has driven up
costs 12 percent. I am admiring your intellectual honesty in
criticizing your employer. I hope you have a job tomorrow. But
let me ask.
I have been told that some of this consolidation takes
place as Baby Boomers get off of Blue Cross, if you will, and
into Medicare, margins fall and less efficient hospitals cannot
stay afloat. Part of the consolidation is the inefficient are
purchased by the efficient, and therefore the market
consolidation is almost inevitable.
As opposed to Partners where, frankly, they came together
when they were both making good margins independently.
Dr. Jha. For the record, Senator, I am employed by Harvard
University and also the Department of Veterans Affairs, because
I practice medicine----
Senator Cassidy. Got you.
Dr. Jha. ----taking care of veterans. So my friends the
Partners are not going to be as happy about this, but I do
think the consolidation problem is real.
Without commenting specifically on Partners, what I will
say is on the issue that you raise of inefficient hospitals, I
believe if you, again, look at the broad trends in American
health care, and we are not talking about rural areas. We are
not talking about Wyoming or parts of Pennsylvania, but we are
talking about in cities like Boston and bigger cities, we
probably could stand to have fewer hospitals.
When those hospitals get bought up by large systems, they
stay in business and then the market power makes it actually, I
think, a real challenge for increasing prices. So I think it is
a complicated interplay.
There are certainly areas where you have critical hospitals
that you need and a purchase might actually keep that hospital
afloat. But I think that is the exception, not the rule.
Senator Cassidy. I am out of time. I should yield back, but
I please ask you to look at my whitepaper and give me feedback.
Dr. Jha. We will. Thank you.
Senator Cassidy. I yield back. Thank you.
The Chairman. We will come back to you in a second round,
Senator Cassidy, if you would like to.
Senator Smith.
Senator Smith. Thank you, Chairman Alexander.
I have to say this is just a very interesting panel. I am
so grateful for all of you being here.
I do not know if I am going to have enough time to dive-in
to this, but I appreciate, Senator Enzi, you raising the issues
around rural health care, because it is extremely important in
Minnesota. Potential next steps in some ways are not obvious,
based on the broader issues that we have in this country around
health care costs.
But I would like to actually focus in on prescription drug
prices, which is something that I hear about all the time in
Minnesota.
I had a roundtable with a group of people in Minnesota a
couple of weeks ago and there was a mom there whose daughter
has Type 1 diabetes. She and her husband and her daughter had
traveled all over the world. It was so interesting.
She pulled out the insulin pens. In Taiwan, she said she
paid $8 for that insulin pen. In Canada, she paid $13. In
Greece, she paid $10. In Israel, she paid $11. In Germany, it
was $14, and so on.
But then in St. Paul, Minnesota, where she lives, she paid
$140. Interestingly, around the world, she did not even need a
prescription much of the time.
$140 versus, say, $13. This is, for her, not an abstract
challenge. This is, ``How do I pay for my daughter's health and
pay the rent?'' kind of challenge.
Dr. Jha, can you give us two or three things that we could
do, sooner rather than later, to address this problem?
Dr. Jha. Thank you, Senator, for that really important
question.
I had a similar experience. I was in Europe and my
briefcase was stolen with my own prescription. I walked into a
pharmacy in Paris and paid 90 percent less for a generic pill
than I was paying in Boston. So this is an experience, I think,
any of us who have traveled abroad have had.
Look, I think the prescription drug issue needs to be split
up in a couple of ways. You brought up the issue of insulin.
Insulin is not a new innovation that we just discovered and we
want to pay for that innovation.
There are innovations where we can talk about whether the
$100,000 for a new cancer drug is worth it or not. That is not
the insulin conversation.
Senator Smith. That is not what is going on here. And it
has gone up 300 percent, on average, I understand in the last 3
years.
Dr. Jha. Exactly. And so, we have to separate these two
issues between what I see as innovation for new treatments
where there is a debate to be had about what are the tradeoffs
we are willing to live with as a society. And what I think is
just plain old market power and manipulation of the fact that
often in generic markets, there is one provider.
Senator Smith. Right.
Dr. Jha. When you are a monopoly, you can charge more or
less whatever you want. So I think this is a place where there
is a series of policies that can be implemented.
I believe that for things like generic drugs, we should
look seriously at, for instance, importing drugs from other
countries. I mean, imagine that insulin that is approved in
Germany. Would any of us really feel uncomfortable taking it
because the German authorities have signed off on it?
Senator Smith. Well, and it is exactly the same product,
the same manufacturer.
Dr. Jha. Exactly the same.
Senator Smith. Probably manufactured in the same place.
Dr. Jha. Yes. So I believe for certain things, we have to
take a different approach to dealing with competition,
encouraging more competition.
One of the ways prices get kept down in every other
industry is through international competition. We live in a
global market. Health care is the one place where that has
struggled.
Specifically around generic drugs, I think we need to look
toward more competition as a way to drive prices down.
Senator Smith. Did you see any of those ways of increasing
competition dealing with what we have, as in many markets, a
monopoly that allows these big drug companies to basically
charge whatever they feel like charging? Did you see any
recommendations to address that in the President's blueprint?
Dr. Jha. I have not paid very close attention to the
President's blueprint on drug pricing.
Senator Smith. I did not. I have just a minute more and I
would like to raise this question of pricing transparency.
I really appreciate what Senator Collins was raising about
linking up quality and cost. In Minnesota, we have something
called Minnesota Community Measurement, which is a multi-
stakeholder group of payers, and providers, and employers, and
policymakers all who have come together to create a data base
of costs and quality data.
Maybe, Dr. Buntin, just in the few seconds that we have,
could you tell us a little bit about whether you think systems
like this can make a difference? How can we make them more
accessible to people?
Dr. Buntin. Thank you for that question.
I do think it is important when we talk about price
transparency to look at the best examples of tools. This was
something that Niall Brennan addressed in his testimony.
Just presenting people with prices alone does not seem to
change their behavior much. There has been ample research on
this subject. So we need to look ahead and figure out what will
work.
I do think that one thing that is nice about Minnesota, is
that there is a combination of some price and quality
information; that is a step. And I think it can be tailored
down to the level of providers; that is an additional step.
Perhaps a third and fourth step, for example, is asking
people what insurance they have? Where they are relative to
their deductible? Really having the types of details that
people need to make decisions.
But fundamentally, I think that research has shown it is
very difficult to get people at the point and time when they
are ill and need a service to do a lot of comparison shopping.
Senator Smith. Yes.
Dr. Buntin. We cannot rely on just one thing. It may help,
but it is not the silver bullet solution.
Senator Smith. Thank you so much. I know I am out of time,
but I will follow-up with others on that issue, because I am
interested in all your perspectives.
Thank you.
The Chairman. Thank you, Senator Smith.
[Chart.]
The Chairman. I do not want to be outdone by Senator
Cassidy, so I have my own chart.
[Laughter.]
The Chairman. My question is, what do we do about this?
There was some talk, two of you said, ``Well, Medicare is
under a little bit better control,'' in terms of prices than
other health care costs. But if you are a United States
Senator, you are confronted with this.
This bottom line is one-third of the Federal budget. It has
gone up at about the rate of inflation for the last 10 years
and over the next 10 years, according to the Congressional
Budget Office, it goes up at more than the rate of inflation.
In other words, it is not breaking the bank. It is not
busting the budget, and it is very important things. More than
half of it is national defense. The National Institutes of
Health, Senator Murray and Senator Blunt are about to put us
into the fourth consecutive year of $2 billion a year increases
on biomedical research. I mean, we are pretty excited about
that.
Then National Laboratories, those are secret weapons and
competitiveness. And then, National Parks, President Trump, and
Senator Portman, and Senator Warner, and others, we have a bill
to really do some things with the National Parks. We have that
all under control even though it is priority spending.
This is two-thirds of the budget. It is Medicare, Medicaid,
and Social Security. Medicare and Medicaid are the biggest
parts of it and they are allegedly under better control than
other health care costs.
This is going to wipe out this if we do not do something
about it.
Do you have any comment on what a United States Senator
should do about that red line?
Dr. Buntin. Thank you, Senator Alexander. I would love to
take that on.
Having been in the Great Smoky Mountains National Park near
your hometown this past weekend, I can tell you that I love
that and the National Institutes of Health, and I like to see
that blue line rising.
I think this relates directly to the types of things I
talked about, and that when I was at the Congressional Budget
Office, we tried to educate Congress about it year after year.
The key determinant of that red line rising is that rate of
growth in health care costs. In particular, the Congressional
Budget Office generally tries to emphasize how that is affected
and how much of our Gross Domestic Product, or a national
output, health care will consume.
They focus on the extent to which health care costs per
capita grow faster than productivity as a whole; the set of
taxes that we use to fund our government.
That is where, when I was emphasizing that we need to keep
an eye on prices paid to providers in our public programs, and
where we need to keep emphasizing that we are serious about
paying for value, and we want to see investments made by
providers that will yield higher value care. That is where, I
think, we have to keep the pressure on.
The Chairman. Within my time, let me go to Dr. Jha and
something he said. You mentioned waste, fraud, and abuse. We
always make speeches about that.
I have tried to get CMS and the National Laboratories to
hook up on that.
But another area is administrative burden. You said that
could be, or Dr. Hyman said 25 or 35 percent of the total. That
is a massive number.
Are there specific things Members of Congress can do about
administrative burden as a way to reduce the growth of this red
line and other health care costs?
Dr. Jha. Thank you for your question, Senator.
Let me just say one quick thing on the red line, kind of
more generally. There, if you ask the question, ``What does the
evidence tell us today about things that lower health care
spending growth in the Medicare population?'' There are a
couple of things.
Accountable Care Organizations seem to be making a
difference. Again, changing the way that we pay for health
care. Medicare Advantage has seen phenomenal growth over the
last 10 years and we see that having a dampening effect on
health care spending growth.
There are things that have actually made a difference.
The Chairman. That helps to reduce the growth of health
care.
Dr. Jha. Reduce the growth of health care spending in the
Medicare population; so the red line.
The Chairman. Because the beneficiaries pay part of it?
Dr. Jha. No. So ACO's have done this, Accountable Care
Organizations have done this primarily by preventing
unnecessary hospitalizations.
Medicare Advantage has done this through a variety of
different means, which we do not actually understand very well
because those data are not available yet to researchers. CMS
has said they will make that available.
But the evidence is very clear that M.A., Medicare
Advantage is having a dampening effect on health care spending
growth. Not only for its own beneficiaries, but it is also
spilling over on Medicare fee for service beneficiaries.
There are things that are working and I think we should
encourage more of that.
On administrative costs, a lot of those administrative
costs fall on the private side, on private insurance, though we
do think that there are administrative costs----
The Chairman. Such as?
Dr. Jha. Well, so if you go to the private side, as a
physician if I am practicing in a hospital--and I work at a
V.A., so it is different--but when I was working at a Partner
hospital and there were six different insurance companies,
every one of them credentialed me separately.
The amount of spending that goes into that repeat is
wasteful. And so, there are proposals to say, ``Can we just do,
you get credentialed once and then other insurers take that
credential.''
There are those kinds of ideas that are simple. As I said,
they do not hurt innovation. They do not hurt quality, but they
save the system money. There is no shortage of ideas.
The Chairman. My last question, to what extent is
Electronic Health Records' growth over the last few years added
to the burden?
Dr. Jha. Yes, so this is an area I followed very closely.
It is a little bit painful because I have been one of the
big advocates of Electronic Health Records and believed that it
had the opportunity to have a big, positive impact on our
health care system. I remain hopeful that it will.
But the way we have done it, it is undoubtedly clear that
the physicians and nurses of our country have borne the brunt
of that. What that has meant is for physicians spending hours a
day longer charting.
That does not necessarily show up in the red line, but it
does show up in burnout rates. It does show up in other
negative ways toward the health system and we have to do better
on that.
The Chairman. Thanks, very much.
Senator Kaine.
Senator Kaine. Thank you, Mr. Chairman.
To the Chairman and Ranking Member, what a wonderful
hearing.
In Virginia, my constituents have just been reading
newspaper articles about health insurance premiums going up,
and the companies are pretty blunt about why, and they are
laying it at the feet of the uncertainty that this
Administration is putting into the health care market.
President Trump actually bragged about it. He was giving a
speech in Nevada this past weekend. He criticized Senator
McCain for his vote not to repeal the Affordable Care Act. This
was his quote. President Trump said, ``It is all right because
we have essentially gutted it anyway.''
I hope we will all try to take steps to not make it worse.
I think this hearing is about strategies and information so we
can make it better.
One question I want to ask you for the record, and then I
have one that I really want to talk to you about is it is
interesting that in your testimony, I do not see a lot of
discussion about health.
I used to always challenge my own HHS Secretary when I was
Governor, ``Before you talk to me about health care, talk to me
about health.''
I want to ask you for strategies. I think one of you said
we do a better job of managing illness than we do managing or
promoting health.
I want to ask for strategies where we can promote health,
which should have an effect on health care costs, as well as
leading to a better quality of life.
I want us to be the world's greatest deliberative body that
the Senate often says we are. I think a hearing like this
helps. I think that there are a couple of big ideas on the
table that I hope this Senate might contemplate.
Senator Cassidy has a big idea. It is a big idea and I do
not want to try to describe it. He would do a better job of
describing it. But his bill with Senator Graham, that is a big
idea about doing things differently.
Senators Sanders and Warren have a big idea, the single
payer model.
Senator Bennet and I have a big idea. We call it the
Medicare-X.
Just picking up, Dr. Buntin, on your testimony and others,
about slow cost growth in Medicare, our idea is basically this:
ask CMS to develop an insurance policy that would cover the
Obamacare Essential Health Care Benefits and put that on the
Health Exchanges so that an individual can purchase it.
CMS would have to cover, through premium collection, the
cost of this policy, so it would not increase the debt. It
would not increase taxes. It would not touch the Medicare Trust
Fund.
But the idea behind our proposal is Medicare has a low
administrative cost burden, not the administrative complexity,
Dr. Jha, that you are talking about.
They already have a distribution network. They already have
a fee schedule. They already exist in every ZIP Code. They do
not have to cover a profit margin. They do not have to return
to shareholders. They do not have to pay state, and local, and
Federal taxes. They do not have to advertise on the evening
news because everybody knows that there is Medicare.
If you put that one item into the current system on the
individual exchange, people who qualify for an Obamacare
subsidy could use that subsidy to buy down the premium cost of
Medicare-X. Or they could say, ``I like my policy just fine. I
like my private policy. I am going to stick with it.'' It would
just be the injection of a competition, an additional choice.
Senator Bennet and I talk about doing it first in
communities that only have one option on the exchange for
individuals.
I hope we will get to a day--because I am sure there are
really good things about my proposal and I am sure there are
some challenges--but I would love to have a time after we
finish hearings on cost where we put Medicare-X on the table,
with Senator Cassidy's proposal, and with Senator Sanders' one
single payer proposal. And we will hear form witnesses about
what they like and what they do not like about each.
But I am just struck, and I have been struck over and over
again, by the positive track record in Medicare in doing what
Dr. Buntin, you said our focus should be. Which is, if we
cannot scale back the 18 percent--it might be unrealistic to
think we can without shedding all kinds of jobs--at least we
ought to be trying to control the growth of costs, and at least
we ought to be trying to control the growth of premiums and
other out of pocket costs that our constituents experience.
If any of you have any thoughts about that, I would love to
hear it.
Mr. Brennan. Well, I think specific to your notion of
getting to a culture of health as opposed to treating sickness,
it is really important.
Again, it boils down to incentives, not just for providers
who are currently incentivized to treat people when they are
sick and not necessarily keep them healthy.
But also for consumers, there are so many roadblocks in the
way, just the little everyday frictions and hassles of the
health care system, and finding the right primary care doctor
that will see you at the right time. So we need to remove
barriers for both patients and providers to promote a culture
of health.
Dr. Jha. Just very quickly, Senator, two quick points.
One is so much of what determines health happens outside of
the doctor's office. And so, we need to think about health much
more comprehensively.
If you want to prevent hospitalizations for asthma, you
have deal with air pollution. Right? If you want to prevent
obesity, you have to think about food policy.
The reason my testimony focused on health care is because
that is what is gobbling up $3.3 trillion of our national
income. But nobody that I know thinks, ``What is the best way
to spend that money to improve the health of the American
people?'' So I think we do have to take that on.
On the suggestion that you brought up, Senator Cassidy's
idea, the broad principle, I would say, is we need a lot more
experimentation than we have right now. There are good ideas on
both sides of the political aisle and we have to be able to try
them out. Some of them will work and some of them will not
work. But instead of predicating it on, ``Well, we already know
what the impact is going to be,'' we do not. We should be
trying out more things in our health care system.
In many ways, our health care system looks like the system
that was designed in 1965, and the world has changed, and we
need a health system that also changes with it.
The Chairman. Thank you, Senator Kaine.
Now, we will begin a second round for those Senators who
would like to do that. Senator Murkowski may be back.
Senator Murray.
Senator Murray. Thank you, Mr. Chairman.
I just have one focus. Dr. Jha, I wanted to ask you. You
talked about the problem of patients going to in-network
hospitals, but being surprised by expensive bills when it
turned out that some of their physicians were out of network.
In addition to that problem, Mr. Brennan noted that
emergency room care is growing more expensive and some insurers
now are adopting policies in which they refuse to pay for,
quote, ``unnecessary emergency room visits.''
What factors are leading to these high unexpected bills we
are hearing about?
Dr. Jha. Yes, so I think both of those are really
substantial problems and the best estimates are that about 14
percent of the time, so one out of seven times, when somebody
goes to the emergency department, they are going to be stuck
with a surprise bill.
Senator Alexander, the example you used of the gentleman
from the great State of Tennessee. This is not a rare example.
This is becoming more and more common.
Senator Murray. One of seven times?
Dr. Jha. There are some estimates that 14 percent of the
time, or 1 out of 7 times when somebody goes to the emergency
department, they may get a surprise bill. So that is a very
high number if it turns out to be true.
Even if that is double the true number, these are just
astronomically high numbers that a lot of Americans are
experiencing.
The business model that leads to that is there are
hospitals that have trouble staffing their emergency
department. A private company comes in and says, ``We will
staff it for you and you do not have to pay us a cent and we
will be here 24/7.'' The hospital says, ``That seems like a
good idea,'' and then all their physicians are out of network
and that is how they make their money.
Senator Murray. What kind of policies should we do to make
sure people do not say that?
Dr. Jha. I think this is an outrage. I think this is, I
mean, it is unethical if not illegal. Obviously, it is not
illegal, but it ought to be.
States can do a lot on that and about 21 states have begun
to address this. I think six states have actually done
something useful on this, which is basically put in policies
that say, ``If you do out of network billing for things like
emergency department, hospital care,'' you essentially----
There's a bunch of ways you can do it. You hold the patient
harmless. You do not do balance billing to the patient. You
have to go through some sort of a negotiation process with the
insurer. Some states have put in policies that you essentially
get some multiple of the Medicare rate.
The bottom line is there are lots of good ideas out there
from a policy point of view. States have a big role, but
actually, the Federal Government has a big role because, of
course, a lot of patients get their insurance through their
employer. I mean, actually a lot of people get it through an
employer, but employers are self-insured. And so, because of
ERISA, they do not fall under the same state mandates.
I think the Federal Government also has a role here in
putting in policies that say, ``We will not allow for this
surprise billing and it should not go to the patient,'' and
that there has to be a mechanism by which that gets resolved
between the insurer and the provider, and the patient is not
left with this unexpected bill.
Senator Murray. Yes, and that goes to the person I talked
about in my opening statement too, who did her homework----
Dr. Jha. Yes.
Senator Murray. ----and thought she was going to get
covered by insurance. How would she know to ask every single
person that came? The anesthesiologist? She had no idea.
Dr. Jha. No. It is insane to expect it and even when the
consumers do their job, they are still stuck with this.
Very quickly, on your emergency department issue of not
paying for it. There is actually very good evidence that it is
very easy in retrospect to figure out what was an unnecessary
emergency room visit. Right?
I develop chest pains. I go to the emergency room. It turns
out, it was heartburn. Well, that was unnecessary. Well, if I
knew that I would not have gone to the emergency department.
Senator Murray. We are told to go to the emergency room.
Dr. Jha. Yes. So I think that policy sounds good on paper.
It will not work. It will prevent people who need to go to the
emergency department----
Senator Murray. From going.
Dr. Jha. Then it will stick a lot of people with
unnecessary bills.
These are not our solutions to our health care cost
problems. These are just ways of saddling sick people with
bills that are not good for them. This is a place where, I
think, policymakers can make a big difference.
Senator Murray. Okay. Thank you very much.
Dr. Hyman. Senator Murray, there is a chapter in the book
about this particular problem. It is full of stories of people
who found themselves in this situation through no fault of
their own.
Probably the worst is the patient who gave birth in a
hospital and then discovered that the NICU was out of network,
which is just crazy.
The underlying problem here is a lack of adequate
competition and disclosure of information. The solutions that
the states are looking at are band-aid responses to the
underlying problem.
If you went to a body shop to have your car repaired, the
paint, the man who painted it would not send you a bill 3 weeks
later on the theory that he was out of network. You would never
go to the body shop. You would write a mean review about it on
Yelp and no one would ever go there again. The employer would
fire the painter and reorganize their operations.
The patients are stuck in the middle, but it is a problem
of inadequate competition and inadequate information.
Senator Murray. Okay. Thank you all very much. Appreciate
it.
The Chairman. Where is that book you promised, Dr. Hyman?
Do you have enough for all of us?
Dr. Hyman. I will have it sent over.
The Chairman. Okay, good. We had the same example from our
respective states, actually, without any prior collaboration.
Senator Cassidy.
Senator Cassidy. Dr. Hyman, you have worked with the FTC, I
understand. Your testimony refers to the consolidation that has
occurred in the industry, and Dr. Jha and I spoke of Partners
in Boston.
Now, I remember 8 years ago reading a report that 64
percent of the major metropolitan areas, already 8 years ago,
had consolidation that would normally have violated antitrust
rules.
Has the FTC been asleep at the wheel?
Dr. Hyman. Senator, I was proud to serve at the Federal
Trade Commission from 2001 to 2004 looking at these issues of
health care competition policy. That was when the FTC launched
the merger retrospective that culminated in the challenge to
the Evanston Hospital merger.
The reality is there have been a whole series of challenges
to collusion among physicians. There was a series of challenges
to hospital mergers that were mostly unsuccessful. The merger
retrospective was an attempt to try and figure out, (A), why
that had happened. And (B), evaluate consummated mergers to see
whether they could come up with actual evidence of post-merger
pricing increases that would be persuasive enough that they
would be allowed to unwind the merger.
The difficulty with unwinding a consummated merger should
not be underestimated. Well, there is a matter of proof.
Senator Cassidy. I get that.
Dr. Hyman. Yes.
Senator Cassidy. I can totally intuitively understand that,
but if 8 years ago, 64 percent of them were consolidated and it
has only gotten markedly worse since.
Dr. Hyman. I was about to get to, I do not know the current
figures and I am not sure of the specific study you are talking
about.
One of the challenges is whether antitrust--because of
unfavorable precedent, or hostile Federal judges, or inadequate
resources--has been up to the task.
Senator Cassidy. What you are suggesting is under status
quo, it would be difficult to prevent. And if we were going to
prevent it in the future, it may require legislative action?
Dr. Hyman. I have not thought enough about that to give a
response to that. I think the additional challenges I want to
highlight is Federal payment policy can also encourage
consolidation.
Senator Cassidy. I totally get that.
Dr. Hyman. You might want to look closer to home.
Senator Cassidy. Look at my white Blackberry. Just send me
a note, will you?
Dr. Hyman. I would be happy to do that.
I would also note my coauthor, Charles Silver, sent you
comments on your proposal that I subscribe to.
Senator Cassidy. On the price transparency?
Dr. Hyman. Yes.
Senator Cassidy. Now, let me ask you as well, the price
transparency, I understand in your book, I am told that you
have some comments on the interaction between Health Savings
Accounts and price transparency.
Can you very briefly, because I have another question for
Dr. Jha, can you address that?
Dr. Hyman. Yes, it is extremely foolish to expect that
price transparency will have any effect on people who are not
at-risk for the financial consequences of where they go. They
do not care. They are not at-risk. So telling them information
about pricing is not going to have an impact.
To the extent that they are actually using information on
pricing to assess quality, as Dr. Jha has previously alluded
to, it will actually do exactly the opposite of what you might
want them to.
If you want high deductible health plans, or Health Savings
Accounts, or greater first party payments to work, we need to
do a much better job at getting better information to consumers
about, ``If you go here, here is what it is going to cost, and
here is the quality. And if you go to this other place, here is
the difference.''
Now, in private markets, for everything else, we see that.
So if you watch the ads for cars on television, nobody has to
force them to tell you what the price is.
Senator Cassidy. One thing I have been struck, ``Consumer
Reports'' did a secret shopper of generics and they found
between pharmacies, the price for the same generic ranged from
$44 to $700. I think I remember that correctly.
But so, I think you would also suggest that if we are going
to have price transparency, the price should be pushed out. It
should not just be something you have to learn by knocking on
the door.
Is that, again, a fair statement?
Dr. Hyman. I agree with that. I think we ought to have
widely available information. You should only expect that the
people who care about it will go and look for it, but we should
not make it so hard for them to get it.
Senator Cassidy. Dr. Jha, I am struck. You spoke very
favorably of the ACO's. It is actually to me, the evidence I
have seen is that if you take out McAllen, Texas, which was
already so high, that some of the places really have not
achieved savings. It has actually been flat.
Now, if you read Atul Gawande's follow-up on McAllen, it
actually seemed like the M.A. plans were actually more
responsible for lowering cost than the ACO. You are nodding
your head. It seems as if you might agree with that.
Dr. Jha. Yes. So look, when you look at the sum of the
evidence on ACO's--and the best work on this has been done by a
colleague, J. Michael McWilliams, M.D.--it has probably reduced
spending growth by 1 to 2 percent over controlled practices in
those communities. That is not a home run.
Senator Cassidy. That is weighted somewhat to, again, the
McAllen's, which are already so high that they had no place to
go but down.
Dr. Jha. Yes, and the key here is that it is your early
ones who have had a bunch of years that have done it and it has
been the independent practices that have seen to have actually
saved money.
Senator Cassidy. Let me go back to that.
Dr. Jha. Yes.
Senator Cassidy. Because one thing as a physician speaking
to a physician I have found that you need a beneficial
relationship between patient and doctor in which there is both
an interest in the health, but also the financial health,
physical financial, for you to truly achieve savings, in that
way you can. Whereas opposed to the patient on their own trying
to figure out the cheapest place to get the best colonoscopy.
Dr. Jha. Yes.
Senator Collins. It is actually the doc saying, ``Listen,
if you go here, you are going to get best and best.'' Would you
agree with that?
Dr. Jha. Yes.
Senator Cassidy. Dr. Buntin, you are nodding your head yes
as well.
Dr. Jha. I would, and I think what we have seen so far, as
again, speaking physician to physician, I think we as
physicians have not done a good enough job.
Senator Cassidy. I would disagree with you a little bit
when it comes to M.A. because physician-run M.A. plans
precisely are that paradigm.
Dr. Jha. Yes, M.A.'s are, but as a general, I think,
physicians have not done a good enough job of steering patients
toward lower price providers. So I think that is a real
challenge.
I agree, I am in a high deductible health plan. I find it
unbelievably hard to shop, and I feel like I should be a
reasonably good shopper being a doctor, being a health policy
person, I cannot figure it out.
Senator Cassidy. You are suggesting that Federal
legislation regarding price transparency may be important.
Dr. Jha. I think it is really important. It has to be
coupled with other things like competition in the marketplace
because I think without competition, transparency alone will
not get us there.
Senator Cassidy. I am way over time. Thank you for your
forbearance.
The Chairman. Thanks for your good questions.
Well, thanks to all of you. I am going to conclude, unless
Senator Murray has something else, with a political question.
We are supposed to be the politicians, but you have all either
participated in the government or examined it carefully.
Let me get my chart back up here.
[Chart.]
The Chairman. There has been some talk about how Medicare
costs are better than some other health care costs, but look at
that red line going through the roof.
Even the most recent report by the CBO, which one of you
used to be at the CBO, Medicare trustees say the Trust Fund
will be insolvent by 2026, 3 years earlier than they projected
last year. Medicare spending is still unsustainable.
Where does all of this lead us? Obviously, this cannot
continue forever. Now, President Obama did not tackle it, that
part of it. Congress huffed and puffed and did not tackle it
during President Obama's time.
President Trump has said he is not going to tackle it, this
part up here. Republicans are not courageous about Medicare,
Medicaid, and Social Security. Democrats are not.
What event do you suppose will cause the Government or the
country at large to take steps to bring the growth of health
care spending under control? Do you suppose this
unsustainability of Government programs might cause it? Or do
you think it will be something in the marketplace other than
that? Or do you have any idea at all what might bring us there?
Dr. Buntin.
Dr. Buntin. I am so glad you asked this. If this hearing
had been held 10 years ago, the forecast of the actuaries was
that the hospital insurance trust fund would be bankrupt
already.
What has happened since then is that we have really had,
while the Baby Boom has been retiring, costs have been going
up, but on a per person basis, they have been going up more
slowly than we would have ever guessed a decade ago.
Luckily, on that red line that you are showing is
increasing very steeply in the future. Part of that, we cannot
control because the Baby Boomers are aging and they will be
eligible for Medicare.
But if we can stay the course on the things that have kept
per person costs down in Medicare, then I believe the
trajectory of that line will be bent down.
The Chairman. Dr. Jha.
Dr. Jha. First, I am reminded of an old Yogi Berra-ism that
predictions are hard, especially about the future.
Look, that graph is scary but my point is that we do not
know what the future holds because a lot can change and I think
what we need to see in order to enable change----
Let us say that graph is right. Let us say we are heading
toward a cliff. What do we do? I do not think the solution is--
not only is not politically feasible, I do not think morally it
is right--to dramatically scale back programs and leave people
uncovered. I think that has a political cost. It has a health
cost. I do not think that is where we want to go.
I believe that there is nobody I know who has all the
answers, and what we need is a lot more experimenting. We need
new models. So again, I do not think 10 years ago, anybody
predicted that M.A., Medicare Advantage, would grow as much as
it has and that it would have the kind of impact that it has
had, a beneficial impact in slowing health care spending.
I would like to see, Senator Kaine brought up three
different ideas. I would like to see us experimenting with new
approaches, new models.
The only thing I will add is we need to connect the dots
with people that when more and more money goes into health
care, that means less money for education, less money for the
National Institutes of Health, less money for our national
parks.
The Chairman. Thats what I try to do with that.
Dr. Jha. I know, which I think is brilliant, but we need to
connect the dots for the American people so they understand
that there is no free lunch here and that there is a lot of
policy experiments we can do to drive this agenda forward. We
have to do it because the cost of inaction is too high.
The Chairman. Mr. Brennan.
Mr. Brennan. I think it really is a difficult question. I
have been doing this for a number of years now and when health
care spending hit 12 percent of the GDP, people said, ``This is
totally unsustainable.'' When it hit 15 percent, people said,
``Well, now it is really unsustainable.'' And now we are at 18
percent with projections to 20.
To echo some of the comments by Dr. Jha and Dr. Buntin, we
need to start figuring out what are we not getting because of
the amount of money we are spending on health care. Maybe that
will be a triggering event or maybe in 5 years' time, we will
be sitting here saying, ``No. When it gets to 30 percent that
is when it is really, really going to be unsustainable.''
The Chairman. Dr. Hyman, you can have the last word.
Dr. Hyman. I first want to thank the Committee, again, for
inviting us and echo the comments of my fellow panelists.
Let me close with two quotes, one from Peter Fisher, former
Under Secretary of the Treasury in 1992 when the numbers were
much less impressive than the ones even on the left side of
your figure.
What he said was, ``Think of the Federal Government as a
gigantic insurance company with a small sideline in national
defense and home security.''
[Laughter.]
Dr. Hyman. We continue down that trajectory with an excess
rate of growth in health care relative to the rest of the
economy driving the red line upwards and projections about how
bad it will be, either making it really awful or just bad.
The other quote I want to leave you with is economist,
Herbert Stein, who said, ``If something cannot continue
forever, it won't.'' And so, maybe that is the only good news
is eventually, we will muddle our way through to something
other than where we are now.
Thank you very much.
The Chairman. Well, thank you, very much.
I think Senator Murkowski wants to come back, but she is
not here yet. Does anyone know? We will wait just a moment and
see if she literally is on the way, or whether that is just a
rumor that we have heard in the hall.
[Pause.]
The Chairman. We may resort to an old fashioned telephone
and actually call and see. Everybody under 35 does not do that
anymore. They just use their thumbs. Here she is.
Senator Murkowski, you are going get to have the last word.
Senator Murkowski. Thank you, Mr. Chairman.
I apologize that I am keeping you late, but I want to let
you know how much I appreciated the panel.
Just a moment ago, I was with our Governor and had a chance
to share some of the thoughts that we face on our health care
costs. As you know, in our state, very high, very challenging,
and we have struggled to find some solutions.
I wanted to ask a question that may seem to be a little bit
parochial, but I have such an extraordinary panel in front of
me. I feel if I do not take this opportunity, it would be lost.
Back in 2004, Alaska put in place something that is called
the 80th percentile rule. Are any of you familiar with that?
Okay. The 80th percentile rule sets a minimum for how much
insurance companies have to pay when Alaskans with private
insurance plans go visit doctors or other providers that are
out of network.
What the rule does is it requires the insurers to base
their payments for out of network claims on the amount at, or
above, 80 percent of what all the providers charge for a
specific service in a given area of the state.
There was a study that was conducted by the University of
Alaska there at the ISER, which is the Institute of Social and
Economic Research. It was just completed about a month ago. It
found that the rule contributed to anywhere from 8 percent to
nearly 25 percent of the annual growth in spending.
The headline in the newspaper, after the report was laid
down, attributed $85 million to state health care spending
directly attributable to this 80th percentile rule, which, of
course, gets everyone's attention. They said about 22.5 percent
could be attributed to the rule.
One of the complicating factors that we have in the state,
and Senator Enzi mentioned it as well, as the rules state, you
have few specialists. So you essentially have a few number of
providers that are effectively setting the rate for the entire
state.
The Division of Insurance is looking at this considering
whether or not making changes are appropriate, possibly even
eliminating it entirely.
I bring this up because it is something that is unique, I
understand to Alaska, but it was also designed to deal with--
what Senator Enzi has raised, what other rural states deal
with--with a lack of specialists.
I would like your comments, if you are able, but also
recognizing that we have a situation where we do not want to
leave our emergency providers basically holding the bag if
folks are brought into the emergency room because they are out
of network situation.
Again, I apologize for the very parochial nature of this,
but again, when you are looking at something that we have
experimented a little bit with to see if we cannot reduce our
costs, and now we are finding that we have gone the other way.
Can any of you comment? Dr. Buntin and Dr. Jha, both of you
are nodding your heads. Can you help me because we are looking
for some advice here?
Dr. Buntin. Well, it does sound like unintended
consequences which come into policymaking so often. This is an
issue that was brought up in the opening remarks by both
Senator Murray and Senator Alexander. What do people do about
out of network providers and these surprise bills?
This is a seemingly logical step to take to say, ``We are
going to limit those out of network prices to 88 percent.'' The
situation in Alaska is that the population distribution is so
sparse, there are so few providers that it just might make
economic sense for a provider to just take the 80 percent of
whatever the highest rate is available in the state.
Senator Murkowski. Right.
Dr. Buntin. Maybe that worked at first, but now it is a
situation where the insurers are having difficulty getting the
providers to the table to negotiate rates that are lower.
It might be the type of situation where it is good to seek
external reference prices.
Senator Murkowski. Out of state?
Dr. Buntin. External prices to reference, so external,
perhaps, to the state or perhaps Medicare prices. This is an
idea that Senator Cassidy brought up. I do not remember if you
were in the room at the time.
Those are possible solutions.
I am certainly not an expert in this area and perhaps Dr.
Jha is going to comment on it, but there are 20-some-odd states
that have been facing this problem and trying to look for other
solutions. It is possible that some of us can look into that
and get back to you about whether any of them have come up with
solutions that might work given your unique circumstances in
Alaska.
Senator Murkowski. Thank you.
Dr. Jha.
Dr. Jha. Let me just add that there are a couple of
problems that are contributing to this, and one of them is we
have talked about the importance of competition. What you have
highlighted, Senator Enzi highlighted.
It sounds great on paper, and in lots of places it works,
but in large parts of Alaska, it is going to be a challenge.
And that, of course, makes sense.
But actually, we heard earlier that there are some things
that we can do to try to improve access and can actually help
with competition a little bit, such as greater focus on
telemedicine. I actually think Alaska has been doing a lot in
this area.
Senator Murkowski. A lot.
Dr. Jha. But we could do more still. Medicare is another,
is something that can push this a bit more than it has in terms
of how it pays for these things.
There are policies that we can put in to try to create a
little bit of virtual competition when real competition is
hard, but that does not get away from the problem that you have
highlighted.
It is very interesting because when you first described the
80th percentile rule, my first thought was, ``Well, that seems
pretty reasonable.'' And then as you described the impact of
that, I realized, ``But in this case, it will not work.''
What other states have done is they have said things like,
``If you go out of network, you are getting a certain
percentage of Medicare.'' So you might get 110 percent of
Medicare as your payment and that changes the incentive because
you are no longer referencing to the highest priced guy in your
community. Now you have a national number to deal with and that
is more likely to bring providers into the conversation with
insurers to be in network.
That is what I believe about six states have done in terms
of this. I am happy to work with your staff to get you more
detailed information, but this is a complicated problem, but I
think we can make progress in this area.
Senator Murkowski. Well, I appreciate that and I would like
to follow-up with you.
Let me ask one more quick question, if I may, Mr. Chairman
and I will be very brief, but the administrative burden that
you have raised, Dr. Jha. Clearly, I think it is a reason for
some of the higher prices. Others say that consolidation drives
the prices.
But I have heard from several of our hospitals and doctor
groups that it is the administrative burden that is driving the
consolidation. In some of our smaller communities, it just does
not work.
Small practices just cannot afford to bring on the folks to
deal with the billing, to deal with the insurance companies, to
deal with Medicare and Medicaid. They cannot deal with it. And
so, they have to find their efficiencies of scale.
Would reducing the administrative burden also reduce the
trend of the consolidation that you have suggested and
effectively work to protect patients from rising costs?
Dr. Jha. The evidence on this is that the average physician
has somebody working in his or her office about 15 hours a week
just to do reporting on quality data, et cetera.
If you think about a three physician practice, you are
hiring close to two, full time people or one and a half full
time people just to manage all the administrative requirements.
That is not even your own administrative time.
What happens more and more is hospitals show up and say,
``We will buy out your practice. We will do all of that for
you, and you just practice medicine.'' Sounds pretty good.
I do think that these two trends, that I actually kept
separate in my own testimony, I think you have done a very
important job of linking the two and reminding us that these
are not separate phenomena, and one of them may actually be
feeding into the other.
We have to look much more sharply, much more closely at the
administrative challenges that physicians face because it does
make them much more susceptible to just giving up that part of
their practice, becoming an employee, and consumers are not
necessarily helped by that.
Senator Murkowski. Do you have any answers to that yet?
Dr. Jha. Well, so I think we have to look at different
quality measures, for instance. If you are employing somebody
15 hours a week on average, we have to get to electronic
quality measurement.
I mean, the idea that you hire a nurse to go through your
chart and document stuff and file it, we are in 2018. We should
be able to do this electronically. So we have to push the
Electronic Health Record to make this stuff much more
streamlined and much more efficient. So I think that is one
place where we can make some progress.
Dr. Hyman. Senator, I would just add, first of all, the
perhaps apocryphal story is that Duke University Hospital has
one and a half billing clerks for every bed that it has. So one
of my friends checked in and said, ``Where are my one and a
half billing clerks?''
But the caution I would add is unless the market is
competitive, even if you succeed in lowering administrative
overhead, it does not follow that prices will drop. So you need
to attend to both of those things.
Competition has been highlighted repeatedly, but it is
important to recognize even if we cut administrating overhead
in half, providers could pocket that unless they were competing
with one another.
Mr. Brennan. I think specific to the issue of the
acquisition of physician practices by hospitals and hospital
systems, that can actually have an inflationary effect on
spending because if something that was one price in a
physician's office is now a higher price because it is being
covered through a different hospital payment system.
Senator Murkowski. Mr. Chairman, thank you. You have been
very, very generous.
I thank the panel for your help. I look forward to
following up with you.
But thank you, Mr. Chairman, for holding this over so much.
The Chairman. Thank you, Senator Murkowski. Thank you for
making the effort to come back.
Well, thanks to the four of you. This has been very helpful
to the Senators. You obviously know what you are talking about,
which we recognize when we see it, and we appreciate it. So
thank you for your time and your wisdom, and if you have more
to say to us, we would welcome it in writing.
The hearing record will remain open for 10 days. Members
may submit additional information for the record within that
time, if they would like.
The Chairman. We intend to hold three or four more hearings
on reducing the growth of health care costs. One of those will
be focused on the administrative burden.
Thank you for coming.
The Committee will stand adjourned.
[Whereupon, at 12:03 p.m., the hearing was adjourned.]