[Senate Hearing 115-828]
[From the U.S. Government Publishing Office]


                                                      S. Hrg. 115-828

                      REDUCING HEALTH CARE COSTS:
                     ELIMINATING EXCESS HEALTH CARE
                     SPENDING AND IMPROVING QUALITY
                         AND VALUE FOR PATIENTS

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

                                HEARING

                                OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

 EXAMINING REDUCING HEALTH CARE COSTS, FOCUSING ON ELIMINATING EXCESS 
   HEALTH CARE SPENDING AND IMPROVING QUALITY AND VALUE FOR PATIENTS

                               __________

                             JULY 17, 2018

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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        Available via the World Wide Web: http://www.govinfo.gov
          
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                    U.S. GOVERNMENT PUBLISHING OFFICE                    
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          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

                         TUESDAY, JULY 17, 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

Balser, Jeff, M.D., Ph.D., President and Chief Executive Officer, 
  Vanderbilt University Medical Center, Dean, Vanderbilt 
  University School of Medicine, Nashville, TN...................     5
    Prepared statement...........................................     7
    Summary statement............................................    12
Safyer, Steven M., M.D., President and Chief Executive Officer, 
  Montefiore Health System, Bronx, NY............................    12
    Prepared statement...........................................    14
    Summary statement............................................    17
Lansky, David, Ph.D., President and Chief Executive Officer, 
  Pacific Business Group on Health (PBGH), San Francisco, CA.....    17
    Prepared statement...........................................    20
    Summary statement............................................    25
James, Brent, M.D., M.Stat., Clinical Professor, Department of 
  Medicine, Stanford University School of Medicine, Member, 
  National Academy of Medicine, Stanford, CA.....................    26
    Prepared statement...........................................    28
    Summary statement............................................    34

 
                      REDUCING HEALTH CARE COSTS:
                      ELIMINATING EXCESS HEALTH CARE
                     SPENDING AND IMPROVING QUALITY
                         AND VALUE FOR PATIENTS

                              ----------                              


                         Tuesday, July 17, 2018

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m. in 
Room SD-430, Dirksen Senate Office Building, Hon. Lamar 
Alexander, Chairman of the Committee, presiding.
    Present: Senators Alexander [presiding], Collins, Cassidy, 
Young, Scott, Murray, Bennet, Baldwin, Warren, Hassan, Kaine, 
and Smith.

                 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. We welcome each of you 
and we would ask you to summarize your remarks in 5 minutes, 
and then we will have a 5-minute round of questions from 
Senators.
    A retired engineer in Tennessee, who suffers from a number 
of health problems--diabetes, high blood pressure, depression, 
and chronic pancreatitis--visited Vanderbilt University Medical 
Center's emergency room 11 times last year and had to be 
admitted to the hospital 3 times.
    At Vanderbilt, a pattern like that is a flag for 
Vanderbilt's Familiar Faces program started in 2017 to identify 
patients with chronic diseases, who make frequent visits to the 
emergency room and clinics, often resulting in hospital stays.
    Emergency room visits and hospital stays are expensive for 
patients and the health care systems as a whole. So the 
Familiar Faces program works to help those patients reduce the 
amount of time they spend in the hospital by developing a plan 
to help patients better manage their chronic conditions by 
receiving regular care and treatment.
    After participating in the Vanderbilt Familiar Faces 
program since September 2017, the retired engineer has been 
able to avoid the emergency room completely, instead only 
visiting an outpatient clinic twice.
    This is the second in a series of hearings to look at how 
to reduce health care costs as they continue to increase for 
families, taxpayers, and employers.
    Our focus today is on reducing wasted health care spending, 
which is important given the estimated amount we spend on 
unnecessary services, such as the visits to Vanderbilt's 
emergency room I just described, excessive administrative 
costs, fraud, and other problems. It is a great, big number 
$750 billion in 2009 or as much as 30 percent of our total 
health care spending according to the National Academies.
    At today's hearing, we will discuss two of these categories 
of wasteful spending:
    One, unnecessary spending. This is spending that does not 
actually help patients get better or was spent on unnecessary 
medical tests, services, procedures, or medications.
    Two, lack of preventive care. This results in spending 
money on health care services that could have been avoided if 
the patient had received care earlier.
    Unnecessary spending is a burden on the health care system, 
and on the patients who undergo tests and procedures that may 
not be medically necessary who are then stuck with the bill.
    We need to find ways to improve care and maximize the 
quality of the health care patients do receive by looking at 
what medical tests, services, procedures, or medications are 
really necessary. Or, are there more cost-effective 
alternatives?
    Here is an example of a more cost-effective alternative:
    If Sue has minor back pain, instead of her doctor ordering 
a CT scan or an MRI, which are expensive, Sue would likely be 
better off taking over-the-counter medicine, using heat, and 
exercising according to the American Academy of Family 
Physicians.
    Another example is educating a patient on the cost 
difference between a hip replacement surgery at a hospital 
where the procedure will cost a lot more than if the patient 
had the same procedure, even with the same surgeon, at an 
outpatient clinic.
    Wasted health care spending can also come from not spending 
enough on preventive care. The Cleveland Clinic has said that 
if you achieve at least four of six normal measures of good 
health in two behaviors, you will avoid chronic disease about 
80 percent of the time.
    The six indicators are: blood pressure, cholesterol level, 
blood sugar, Body Mass Index, smoking status, and the ability 
to fulfill the physical requirements of your job.
    The two behaviors are: seeing your primary care physician 
regularly and keeping immunizations up to date.
    This is important because we spend more than 84 percent of 
our health care costs, or $2.6 trillion, treating chronic 
diseases, according to Dr. Roizen at the Cleveland Clinic, who 
testified before our Committee last year.
    However, according to the Organization of Economic 
Cooperation and Development, the U.S. has the highest obesity 
rate in the world at 38 percent. So it seems we are not doing a 
very good of taking care of ourselves.
    At this second hearing, I hope to learn from our witnesses 
specific recommendations on how to start investing more in 
preventive care, how to stop spending money on unnecessary 
medical tests, services, procedures, or medications.
    We have four distinguished witnesses today who are 
implementing innovative strategies to encourage better care, as 
opposed to just more care, and to encourage patients to live 
healthier lives. I look forward to their testimony.
    Senator Murray.

                  OPENING STATEMENT OF SENATOR MURRAY

    Senator Murray. Thank you, Mr. Chairman.
    Before I begin, I do want to emphasize how important it is 
that we all continue to hold the Trump administration 
accountable for the chaos and heartbreak it has caused 
thousands of children it has cruelly and needlessly separated 
from their parents.
    We have gotten some updates, but there are still a lot of 
questions that have not been answered, a lot of families that 
have not been reunited, and therefore a lot of work that has to 
be done fast.
    I am absolutely not going to let up on holding the Trump 
administration accountable on this. I am going to keep asking 
questions, and demanding answers, and fighting to make sure 
those kids and their families are being treated fairly and 
humanely.
    Now today, as we continue our discussion on health care 
costs I, too, have heard from families across my State of 
Washington, who feel overwhelmed by the burden of skyrocketing 
prescription drug costs, rising premiums, and surprise medical 
bills that they were not expecting. I know families across the 
country feel the same way.
    Unfortunately, the President has utterly failed to address 
the problem of rising health care costs. While drug companies 
have raised prices sky high, President Trump has not taken any 
meaningful action.
    Instead, he has enabled the industry's bad behavior by 
touting a drug pricing blueprint so empty it sent 
pharmaceutical stocks soaring, and pretending Pfizer's decision 
to temporarily delay a price hike is the same as a price cut.
    In fact, we confirmed last week that some of the policies 
in his blueprint were actually proposed by the pharmaceutical 
industry. That is not reform. That is an inside job, and 
patients around the country struggling to pay for their 
prescriptions know the difference.
    When it comes to helping people afford the care that they 
need, President Trump's record is worse. Since day one, 
President Trump has never wavered in trying to undermine 
families' health care and raise their costs.
    After families across the country stood up and rejected the 
Trumpcare bills that would have spiked premiums and gutted 
Medicaid, and put families back at the mercy of the big 
insurance companies--who could have priced people with 
preexisting conditions out of care--he decided to do everything 
he could to sabotage families' health care from the Oval Office 
by:
    Championing tax cuts that benefitted massive insurers and 
drug companies, but were paid for by policies that even his 
former Health Secretary admitted would increase premiums for 
families;
    Slashing investments in helping people understand their 
health care options and get covered;
    Handing control back to insurance companies, making it 
easier for them to sell junk plans that ignore patient 
protections--like those for people with preexisting conditions, 
women, and seniors--leaving them unable to afford care.
    After Justice Kennedy announced his retirement from the 
Supreme Court, President Trump took one of the most concerning 
steps yet to sabotage health care for families.
    As a candidate, President Trump promised he would pick 
Supreme Court nominees who would support his efforts to 
rollback preexisting condition protections. And last week he 
picked Judge Kavanaugh, someone who was vetted by far-right 
groups to do just that.
    President Trump clearly does not doubt Judge Kavanaugh 
would strike down protections for people with preexisting 
conditions, so we should not doubt it either.
    For patients across the country, the future of the Supreme 
Court is not a matter of partisan politics. It is a matter of 
life and death.
    So I hope Republicans are listening to the people across 
the country speaking out about their concerns. I also hope they 
will listen to families who want us to work together to reduce 
health care costs.
    Previously in this Committee, we actually made some 
promising progress. We sat down and hammered out a bipartisan 
compromise that would have helped bring down health costs for 
patients and families facing higher premiums this year. I was 
deeply disappointed that Republican leaders blocked our 
bipartisan legislation.
    But I want you to know, Democrats still are at the table. 
We are still interested in finding commonsense solutions to 
help reverse some of the damage of President Trump's health 
care sabotage, and reduce these skyrocketing costs families 
across the country are struggling to pay.
    In addition to resuming that bipartisan work to address 
those rising health care premiums, I am hopeful we can start 
working to find common ground on other challenges families face 
when it comes to health care costs.
    At our last hearing on this issue, the Chairman and I both 
shared stories from patients in our home states who had 
struggled with unexpected health care costs due to surprise 
balance-billing. Patients who had insurance, but were caught 
off guard by large charges from out-of-network care providers, 
even if they went to an in-network hospital.
    I know other Members of the Committee are interested in 
addressing this as well. I am eager to hear their ideas.
    Thank you, Mr. Chairman, and thank you to all of our 
witnesses for joining us today. I look forward to hearing from 
all of you.
    The Chairman. Thank you, Senator Murray.
    Thanks to the witnesses for coming.
    The first witness we will hear from--and we will go from 
right to left, from our right to left--is Dr. Jeff Balser, 
President and Chief Executive of Vanderbilt University Medical 
Center and Dean of the Vanderbilt University School of 
Medicine.
    Under his leadership, Vanderbilt Medical Center has reduced 
spending on unnecessary health care, including a $230 million 
cost reduction from 2013 to 2014.
    Next, we will hear from Dr. Steven Safyer. He is President 
and Chief Executive Officer of Montefiore Health System in New 
York.
    Previously, he held a number of other leadership roles at 
the Health System including Senior Vice President and Chief 
Medical Officer.
    Next, we will hear from Dr. David Lansky. He is President 
and Chief Executive Officer of the Pacific Business Group on 
Health in California. That is a coalition of 60 private and 
public organizations that are looking at ways to promote high 
quality and more affordable health care.
    Finally, Dr. Brent James, Clinical Professor in the 
Department of Medicine at the Stanford University School of 
Medicine in California. He is a Member if the National Academy 
of Medicine and their Institute of Medicine where he helped 
with a 2013 report on how to provide better care at lower cost.
    Welcome to each of you.
    Dr. Balser, let us begin with you and go down the line.

  STATEMENT OF JEFFREY R. BALSER, M.D., PH.D., PRESIDENT AND 
CHIEF EXECUTIVE OFFICER, VANDERBILT UNIVERSITY MEDICAL CENTER, 
  DEAN, VANDERBILT UNIVERSITY SCHOOL OF MEDICINE, NASHVILLE, 
                           TENNESSEE

    Dr. Balser. Chairman Alexander, Ranking Member Murray, and 
Members of the Committee.
    Thank you for the opportunity to speak with you today about 
how we can reduce unnecessary health care spending.
    My comments are informed by experiences leading the 
Vanderbilt University Medicine Center, a large academic health 
center with the honor of serving people nationwide in research, 
through training and, of course, clinical care.
    We see over 2 million patient visits per year in our 
hospitals and over 140 clinics throughout Tennessee and the 
surrounding five state region. We impact the care of many more 
people in that region through an affiliated health care network 
that we have built with over 5,000 clinicians in 60-plus 
hospitals.
    As Senator Alexander mentioned in his comments, the 
trillion dollars of annual waste in health care has many 
causes, but an aspect I will highlight today is our inability 
to get the right information to clinicians so they can provide 
the care that is not only safe, but value-driven; meaning, 
informed by both quality and cost.
    We are well aware of the challenges related to escalating 
drug costs from generics, like epinephrine, to the new cutting 
edge precision therapies. The National Institutes of Health's 
All of Us Research Program, with its research and data center 
based at Vanderbilt, is certain to reveal even more ways to 
leverage vital information in our DNA sequences to save lives, 
making it all the more important that we become much better at 
managing the cost of therapy.
    While the escalation in drug costs is remarkable, it is 
also true that on the whole, health care delivery has not 
systematically managed which drugs we administer to patients to 
optimize value.
    I am not suggesting that the drugs doctors generally order 
are wrong or bad for patients. However, there are many choices 
and too often we fail to systematically provide timely 
information to help clinicians make value-based choices.
    Even in the simplest situation, such as a common infection, 
the offending organism may be sensitive to as many as ten 
antibiotics that are all effective, yet the range of prices for 
those drugs could differ by a factor of 10 or even 100. The 
health care team often will have little information on those 
details.
    At Vanderbilt, our pioneering effort to develop one of the 
first health information systems capable of delivering this 
kind of information to the bedside dates to the late 1990's. 
However, we learned early on that technology alone is not 
sufficient to change practice.
    Over the years, we have also engaged our clinicians to help 
us formulate the best practice, guided by a clinician-led 
pharmacy and therapeutics committee. Importantly, our 
clinicians can override the electronic decision support based 
on their view of the clinical situation.
    Does it work? Since 2010, inpatient drug expense, even 
corrected for discharge volume and disease severity, has more 
than doubled across teaching hospitals in America that, as a 
group, perform the Nation's most complex care. Over this time, 
Vanderbilt has managed to hold costs well below the national 
median, saving about $35 million a year.
    Given this success, we have begun to expand the same 
practice to diagnostic test ordering, an even larger 
opportunity. In one example, genetic testing, we have already 
estimated that $1 million in annual costs can be saved and we 
are just getting started.
    My second example focuses on a different kind of waste. 
Studies estimate that approximately 5 percent of patients 
account for roughly half of U.S. health care spending. These 
exceptionally high utilizers of health care resources are 
patients that require distinctive strategies.
    For example, children with complex, chronic conditions 
require the care of numerous subspecialists. As a result, the 
care is often fragmented, lacking an overarching plan. About 1 
percent of pediatric patients are considered medically complex 
and account for as much as one-third of total child health care 
spending.
    We have developed a medical home model dedicated to these 
patients and their families, ensuring they have a 
``quarterback'' to help them coordinate care across different 
specialties. The impact has been extraordinary.
    For over two years, patients saw an 89 percent reduction in 
inpatient hospital days and a 63 percent reduction in emergency 
room visits.
    For a perspective, according to a 2014 analysis in ``Health 
Affairs,'' a nationwide reduction in pediatric inpatient 
hospital days of only 10 percent would free up $2.9 billion in 
costs to Medicaid. A similar program, that Senator Alexander 
mentioned, focuses on adult patients called our Familiar Faces 
program and is showing comparable benefits.
    Given the magnitude of the cost savings, we should consider 
payment models that encourage care coordination. Notably, the 
ACE Kids Act has been introduced to address some of these 
challenges health systems face including obtaining 
reimbursement across state lines for children with complex 
chronic conditions.
    Thank you, again, for the opportunity to appear before you 
today, and I look forward to the Committee's questions.
    [The prepared statement of Dr. Balser follows:]
                prepared statement of jeffrey r. balser
    Chairman Alexander, Ranking Member Murray, and Members of the 
Committee, thank you for affording me the opportunity to speak with you 
today to share thoughts on how we collectively might make inroads in 
reducing unnecessary and wasteful spending within our nation's 
healthcare system. I applaud the Chairman and this Committee for 
embarking on hearings aimed at exploring the drivers of healthcare cost 
growth and potential remedies to curtail this growth--for everyone from 
patients to payers and provider systems.

    My comments are informed by experiences leading the Vanderbilt 
University Medical Center (VUMC) as its President and CEO. VUMC, in its 
4 campus hospitals, over 140 clinics, and its affiliated clinical 
network of over 5000 clinicians and 60 plus hospitals stretching across 
5 states, functions as the largest, provider-led, health resource to 
patients in the Southeastern portion of the U.S. Based in Nashville TN, 
we serve patients locally and nationwide through research, training, 
and of course clinical care. In several disease areas, particularly 
those requiring high complexity care such as pediatric heart 
transplantation, or CAR T-cell therapy, a novel, effective, but 
incredibly expensive anti-cancer therapy, we play a unique role as the 
essential resource for people living in the mid-southern region of the 
US. This regional distinctiveness, and the similar role many other 
academic health centers play in their regions, will inform some of my 
comments today around allocation of resources for cost effectiveness. I 
am also informed by experiences leading large-scale initiatives at 
Vanderbilt involving the application of health information technology. 
For example, VUMC has taken a leading role in driving nationwide 
advances in the integration of health information technology with 
genomic medicine, culminating in the decision by the National 
Institutes of Health to locate the Data and Research Center for the All 
of Us Precision Medicine Initiative at our center.

    Nearly all analyses have shown that amid myriad causes for the 
rising cost of healthcare, from accelerating technology to inflated 
pricing, by far the largest single issue is waste. Most sources, 
including Consumer's Union and PricewaterhouseCoopers, find that waste 
of all forms consumes about 1 out of every 3 healthcare dollars, or 
roughly $1 Trillion of the $3 Trillion the U.S. spends on healthcare. 
The waste has many causes. Certainly, the dizzying complexity of our 
healthcare payment system, with its administrative--or so-called 
``frictional'' expenses--is being addressed in other sessions, and I 
will not attempt to address that issue today. The largest sources of 
waste are euphemistically termed ``unnecessary services,'' and frankly, 
in most other industries would be less generously labeled 
``sloppiness.'' The root causes are predominantly system failures in 
our ability to effectively communicate - not only in transmitting the 
key information about our patients and the care they are receiving, but 
also shortcomings in the decision support that clinicians need to 
provide care that is timely and cost-effective - within and across our 
healthcare systems. The examples are legendary and range from failure 
to share simple laboratory or radiological test information between 
doctors working across states, across town or even within the same 
institution, to utilizing drugs or tests that could be replaced with 
less expensive and equally effective alternatives, or in some cases, 
eliminated entirely, with no impact on patient outcomes.

    I have focused my prepared testimony on highlighting examples that 
fall into two buckets: (1) strategies that reduce the variability, 
volume and cost of drug and diagnostic test ordering, leveraging health 
IT and clinical decision support protocols; and (2) patient-centered 
care models focused on the needs of our most complex patients, who 
consume a vastly disproportionate amount of healthcare resources. I 
will also briefly touch on the potential for us as a society to improve 
the dialogue around healthcare choices for individuals and families at 
the end of life.
 Reducing Variability, Volume, and Cost of Drug and Diagnostic Ordering
    We are all well aware of the challenges related to escalating drug 
costs. These issues transcend drug class - we've seen it for the 
generic drugs we've used for decades, such as epinephrine, as well as 
for the new cutting-edge therapies such as the biologics showing 
remarkable success in diseases ranging from cancer to common immune 
disorders such as inflammatory bowel disease. The FDA approvals for new 
molecular entities and new biologic licenses have more than doubled 
over the past decade. As efforts to better target therapies to our 
individual molecular makeup progress, the cost challenge with new 
therapies has the potential to amplify. At VUMC, like the rest of the 
country, we've experienced remarkable increases in our cost to purchase 
the drugs we administer to patients in our facilities, growing by as 
much as 10 percent per year over the last decade.

    While the escalation in how much our drugs cost is remarkable, if 
we are honest with ourselves, we must also admit that in most 
healthcare systems, unlike most businesses, we do not systematically 
try to manage what tests we order, and which drugs we administer to 
patients in a manner that has the potential to optimize quality and 
cost. I am not suggesting that the drugs and tests doctors are 
generally ordering are wrong or bad for patients; however, there are 
often many alternatives in healthcare, and our system fails to 
systematically provide timely information to help clinicians make 
value-based choices that consider cost and quality. In even the 
simplest situation, such as a common infection, the offending organism 
may be sensitive to as many as five or even 10 antibiotics that will 
all have acceptable efficacy, yet the range of prices for those drugs 
could differ by a factor of 10 - or even 100, and the healthcare team 
often will have little or no information on those important details.

    Moreover, the recommendations from studies being published showing 
that drug A is actually better than drug B in a given clinical 
scenario, and the factors impacting the cost of drugs A and B in the 
marketplace - both important to optimizing quality and cost - are 
changing weekly, and sometimes daily. This kind of information is not 
practical for our doctors to access as they care for patients, and even 
if it were, the evidence suggests that the number of facts that 
clinicians need to consider to make the best possible decision in every 
situation already is exceeding human cognitive capacity (William Stead, 
Academic Medicine, August 2010).

    My point is that we are not providing the best options to our 
clinicians in a systematic and useful way, as they order literally 
thousands of tests and drugs each year. As such, we are allowing one of 
the most expensive features of healthcare practice to proceed at the 
discretion of many thousands of qualified individual experts, without 
any reasonable systemic feedback or other methods that could allow us 
to manage what we know is tremendous variability. While nearly all 
hospitals have a ``drug formulary committee'' that determines which 
drugs can be accessed by clinicians for patients admitted to the 
facility, few such committees have the resources necessary to determine 
in real time what the most cost-effective choices are in a wide range 
of specific clinical settings, and even fewer have the ability to 
provide that information in a useful way to clinicians. Only very large 
comprehensive health systems, typically the major academic medical 
centers and teaching hospitals, employ the large cohorts of specialist 
physicians capable of making these determinations in a manner that 
approaches ``real time.'' Further, most health systems in the U.S. do 
not employ their clinicians and are therefore far less able to 
influence their care decisions. Some of the institutions making the 
most visible progress in this arena, such as VUMC, Mayo, The Cleveland 
Clinic, and Geisinger do employ most of the clinicians working in their 
hospitals, but this remains the exception. As such, health systems 
struggle to effectively engage clinicians, particularly those they do 
not employ, in ways that are conducive to alignment and consistency in 
clinical practice.

    At VUMC, implementation of clinical decision support systems to 
guide physicians when choosing certain tests or drugs has been a two 
decade-long organizational management journey. Our efforts to develop 
one of the first state-of-the-art health information technology systems 
capable of effecting this kind of clinical decision support at the 
bedside dates to the late 1990s, and was a necessary innovation to 
allow us to project evidence-based recommendations to many hundreds of 
clinicians in daily practice. However, technology alone has by no means 
been sufficient to changing practice. Over the years, we have engaged 
our clinicians extensively, asking them to help us formulate ``best 
practice'' for patient orders discipline-by-discipline, guided by an 
active and dynamic clinician-led pharmacy and therapeutics committee. 
Importantly, we make it a practice to allow our clinicians to override 
the ``recommended option'' from electronic decision support, based on 
their view of the clinical situation. We find this approach greatly 
improves adoption by our clinicians for reasons that are intuitive. The 
vast majority of the waste in drug and test ordering is not conscious 
variability - in other words, clinicians are often not driven by 
scientific evidence to use drug A over drug B, but instead make these 
choices from habit or earlier training. As such, the majority of the 
variability we see in drug and test ordering, like many facets of 
healthcare, is unconscious and unsupported by evidence. Our goal with 
electronic clinical decision support is to eliminate unconscious 
variability, leaving conscious decisions to specify care to the 
clinician's discretion.

    Does it work? We could provide a number of examples, but perhaps 
the most compelling data is our trend at VUMC for the drug expenditures 
we can most readily control from a process perspective, those related 
to inpatients admitted to our adult and children's hospitals. Since 
2010, inpatient drug expense per weighted discharge (accounting for the 
severity of illness) has more than doubled across teaching hospitals 
performing the nation's most complex care, not surprising given the 
trends already discussed in drug costs (see Figure). Over the same 
period, at VUMC we've managed to hold costs far below this level - at 
well below half of the median national trend. Our cost increase from 
2010--2016 was 50 percent, versus a median of 134 percent--saving VUMC 
approximately $30-35 Million per year compared to the median teaching 
hospital.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Given the success of this approach to drug ordering, we've begun to 
expand the practice to manage variability and expense in diagnostic 
test ordering. In fact, we've renamed our ``Pharmacy and Therapeutics 
Committee,'' the standard in nearly every hospital in the country, to 
the ``Pharmacy, Therapeutics, and Diagnostics Committee,'' and have 
included key experts in laboratory medicine from our Pathology 
Department in the program. In one example, genetic testing, we have 
eliminated approximately $1 million in costs annually by altering 
orders for tests that could be streamlined, reduced, or eliminated by 
requiring either on-line or verbal expert consultation prior to 
completing the test order. While an even greater departure from 
standard practice than decision-supported drug ordering, the potential 
for cost savings with diagnostic testing, especially when including 
imaging, is vast and very likely exceeds the potential with drug 
ordering. A study by PricewaterhouseCoopers almost a decade ago (2009) 
estimated waste due to unnecessary testing approached $210 Billion per 
year.

    To dramatically reduce this kind of waste, we need health systems 
and the clinicians working inside these systems to be aligned. As we 
work to solve technical challenges with implementing higher quality 
clinical decision support, and to overcome the equally challenging 
technical barriers to interoperability between vendor-supplied systems 
between medical centers, there remain regulatory and legal barriers to 
achieving fundamental alignment. At present, under the anti-kickback 
and Stark laws, health systems are largely prohibited from creating 
financial incentives that would cause physicians, particularly ones 
they do not employ, to order drugs or tests differently, even if those 
incentives are in the public's best interest. These laws and related 
regulations were established to prevent abuse, and protect the public 
treasury from paying for unnecessary care. However, they were not 
designed for the current era, where hospitals and clinicians must 
increasingly develop and use systems of care. Financial incentives that 
support more defined networks of clinicians who agree to deploy the 
best and most cost-effective clinical practices will support the 
effectiveness of our developing systems of care. Without modernization, 
these legal constraints will be an impediment to achieving clinical 
alignment that can avoid ineffective or unnecessary care.
    Improved Management and Care Coordination of High Utilizers of 
                               Healthcare
    Waste related to overconsumption of healthcare is widely 
disproportionate - studies estimate that approximately 5 percent of 
individuals account for roughly half of

    U.S. health care spending. While the models just described that 
reduce variability in diagnostic test or drug ordering are effective 
approaches to address overutilization in most patients, distinctive 
strategies are required for patients who are exceptionally high 
utilizers of healthcare resources.

    The causes of exceptionally high utilization inform distinctive 
approaches. Over-utilization of healthcare services due to behavioral 
or mental health conditions, or due to social and economic 
circumstances such as homelessness, are situations we could discuss in 
the Q&A period, as they do respond to focused programs tailored to 
these patient populations. However, the largest group of patients 
consuming an exceptional number of costly resources have complex, and 
often chronic medical conditions.
              Medical Homes for Medically Complex Children
    Children with medically complex, chronic conditions that affect 
multiple organ systems are invariably expensive patients to treat and 
require the care of numerous subspecialists. As a result, care is often 
highly fragmented, as individual clinicians, including primary care 
physicians, struggle to provide the holistic care these children 
require. This leads not only to low quality outcomes, but increased 
utilization of acute services. About 1 percent of pediatric patients 
are considered medically complex, but they account for as much as one 
third of total child healthcare spending, one fourth of all hospital 
inpatient days and 40 percent of all pediatric hospital deaths.

    At the Monroe Carell Jr. Children's Hospital at Vanderbilt, we have 
developed a medical home model dedicated to these patients and their 
families, ensuring they have a ``quarterback'' to help them navigate 
through the health care system and coordinate care across different 
clinicians and subspecialties. The impact of this approach has been 
extraordinary. After two years, patients followed in the medical home 
saw an 89 percent reduction in inpatient hospital days, a 75 percent 
reduction in early readmissions and a 63 percent reduction in ED 
visits. For perspective, a nationwide reduction in inpatient hospital 
days of only 10 percent would free-up $2.9 Billion in cost to Medicaid 
programs, according to an analysis published in Health Affairs in 
December of 2014. Program aspects include ensuring continuity of care, 
coordination of care, shared decision making with parents, and follow 
up care by team members between visits to the hospital. Similar models 
are being deployed at other children's hospitals around the nation. 
However, the implementation cost for these programs is substantial, a 
challenge to scaling these models to their full potential without 
support from payers. Federal legislation, the ACE Kids Act, has been 
introduced to address some of the challenges health systems face with 
obtaining reimbursement across state lines for these children with 
complex, chronic conditions. Given the magnitude of the cost-savings 
associated with these programs, it would also seem prudent to consider 
payment models through Medicaid appropriately tailored to the unique 
needs of this patient population, including support for care 
coordination.
                      Adults with Chronic Disease
    The Vanderbilt Familiar Faces (VFF) program is an analogous 
patient-centered medical home model for adults with chronic disease, 
piloted using a multidisciplinary team approach to provide intensive 
case management. A feature of care for adults with complex disease is 
the varied settings where patients interact with the healthcare system 
(versus the potential for a more controlled setting in a children's 
hospital). The VFF team identifies high utilizers with complex, chronic 
disease, and creates a holistic care plan that incorporates strategies 
for managing all touch points where these patients interact with our 
health system, from the Emergency Department (ED), to the many 
inpatient and outpatient venues these patient utilize, engaging them in 
each setting with targeted interventions. As such, extensive use of the 
electronic health record for both communication across settings, as 
well as establishing and adhering to an individual care-plan for each 
patient, is essential. In the first 6 months, hospital discharges and 
ED visits for this patient population dropped by nearly 35 percent. 
VUMC is now working with TN state officials to explore scaling this 
model in the Medicaid population.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

 Decreased number of touches to VUMC system by active VFF patients for 
the 6 months after VFF intervention compared to 6 months prior (updated 
                              05/09/2018)
    Addressing End-of-Life Care
    Finally, I would be remiss if I did not recommend one additional 
topic deserving of our attention--the tremendous overutilization of 
healthcare resources at the end of life. Both clinicians and health 
systems unquestionably have an obligation to help effect positive 
change, and there are constructive ways we could support clinicians and 
hospitals on this journey in constructive ways without impacting 
patient rights.

    In the U.S., more than 40 percent of patients who die from cancer 
are admitted to an ICU in the last six months of life (Bekelman et al., 
JAMA, 2016). A Kaiser Family Foundation analysis on end-of-life 
spending found that Medicare per capita spending in 2014 was nearly 
four times higher for those dying the same year, at $34,529 per 
patient, compared to survivors, at $9,121 per patient. In fact, more 
than 30 percent of Medicare spending goes toward the five percent of 
beneficiaries who die each year, and one-third of that cost--billions 
of dollars annually--occurs in the last month of life. It seems clear 
that this massive expense, among the highest of any developed country 
in the world, is a significant factor fueling health care cost growth. 
As of 2014, 80 percent of Americans who died were insured by Medicare, 
and ``baby-boomer'' aging will continue to expand the percentage of our 
population over age 65.

    A 2017 report by the National Academy of Medicine found that while 
outcomes for patients in hospice consistently show better quality of 
life, not only for the person with serious illness but also for their 
family, there remain huge geographic variations in the use of and 
access to hospice care in the U.S. Moreover, a 2015 Kaiser Family 
Foundation survey found that 89 percent of adults say physicians and 
patients should discuss end-of-life issues, yet only 17 percent of 
survey respondents said they have had such a discussion with their 
healthcare provider. Consequently, 44.5 percent of Medicare 
beneficiaries see 10 or more different physicians during the last six 
months of life.

    At VUMC, we are working across a number of fronts to support more 
compassionate and effective care for patients and their families at the 
end of life.

    Among the most compelling and common-sense approaches is to educate 
all clinicians and patients, to ensure we systematically initiate the 
discussions necessary to understand and document end-of-life 
preferences from patients, early in the patient encounter. Pilot 
studies at our center indicate that earlier discussion of end-of-life 
issues in selected ambulatory settings, such as cancer clinics, can 
help redirect pre-terminal care from the hospital to less expensive 
care settings. Here again, the electronic medical record plays an 
essential role, not only as a vehicle to record this information, but 
in making it visible and easy for the clinician to interpret, to 
support the wishes of patients and family members at a time we all know 
can be extraordinarily difficult. As we consider the vast array of 
incentives CMS now provides to health systems related to the care of 
Medicare patients, we should consider including incentives to discuss 
and document patient preferences for end-of-life care as a 
straightforward means to vastly improve the quality and value of care 
for all Americans.
                [summary statement of jeffery r. balser]
    By most estimates, the cost of waste of all forms in US healthcare 
exceeds $1 trillion, roughly one third of total healthcare spending. 
While these estimates include the cost of overly complex and 
inefficient administrative and payment systems, a sizeable opportunity 
also rests in ``unnecessary services'' or overutilization. While 
widespread, usable and interoperable health information technology is 
the essential scaffold to addressing this issue, sustainable 
improvements also require better alignment of clinician and health 
system incentives, as well as improved decision support at the point of 
care driving both quality and value.

 Reducing Variability, Volume, and Cost of Drug and Diagnostic Ordering

    VUMC has achieved sizeable savings in inpatient drug costs-
approximately $30 or $35 million a year-through strategies targeted at 
reducing the variability, volume and cost of drug and diagnostic test 
ordering. Based on this success, similar efforts have been extended to 
support diagnostic test ordering, where the potential for cost savings 
is even greater. The programs leverage electronic medical records and 
clinical decision support protocols, and are driven by a dynamic 
physician-led drug and diagnostic formulary committee, informed by 
advanced pharmacy support and clinician expertise from broad clinical 
specialty areas to guide evidence-based and cost-effective practice at 
the point of care.

      Improved Management and Care Coordination of High Utilizers

    Studies suggest that the 5 percent of individuals requiring the 
most complex care account for roughly half of all healthcare spending 
nationally. Dr. Balser describes examples of patient-centered care 
models for highly complex patients, often with chronic disease, who 
consume disproportionate amounts of healthcare resources. A model at 
Vanderbilt's children's hospital ensures medical complex children and 
their families have a ``clinical quarterback'' to help navigate through 
the healthcare system and coordinate care across a multitude of 
clinical specialists. After two years, patients managed through this 
intensive, high-touch approach saw an 89 percent reduction in inpatient 
hospital days, a 75 percent reduction in early hospital readmissions, 
and a 63 percent reduction in ED visits. Dr. Balser's testimony 
concludes with a brief discussion of high resource utilization 
associated with care at the end of life, costs which are markedly 
higher in the U.S. than other nations.
                                 ______
                                 
    The Chairman. Thank you, Dr. Balser.
    Dr. Safyer, welcome.

   STATEMENT OF STEVEN M. SAFYER, M.D., PRESIDENT AND CHIEF 
  EXECUTIVE OFFICER, MONTEFIORE HEALTH SYSTEM, BRONX, NEW YORK

    Dr. Safyer. Chairman Alexander, and Ranking Member Murray, 
and Members of the Committee.
    Thank you for the opportunity to discuss Montefiore's model 
for improving quality and managing cost.
    Dr. Steven Safyer, I am the President and Chief Executive 
Officer of the Montefiore Health System and the Albert Einstein 
College of Medicine located in the Bronx, New York.
    We serve the Bronx, Westchester, Rockland, and Orange 
counties in the State of New York. That geography has just 
short of 4 million individuals. The Bronx being more towards 
challenged economically and poor, moving up into an arena where 
there is more commercial insurance and a better sort of 
standard of living.
    We are an integrated system that includes 11 hospitals, 250 
ambulatory care centers, a nursing home, homecare, and more. As 
the ninth largest teaching program in the country, we teach the 
most complicated medicine and we do it within an environment of 
value-based care teaching young physicians population health 
management, which is what we are going to address today.
    We are unique as an academic medical center, but not alone. 
With a high percentage of Medicaid and Medicare patents--85 
percent of our patients are either in Medicare, Medicaid, or 
both which is unusual for an academic medical center--we make 
the most of every single health care dollar by aligning 
financial incentives with payers.
    When patients do well, we succeed financially by sharing in 
the savings. I believe that is the secret, which is, we are in 
sync with the payer, whoever they may be.
    In 1995, Montefiore began to negotiate value-based 
contracts with health plans before the term was widely used. We 
employed a population health management approach identifying 
and stratifying at-risk populations.
    As a pioneer ACO, Montefiore generated more than $73 
million in savings over five years. We began with 21 
institutions. We ended with 7. In that period of time, our 
quality went to the 95 percentile and our spend was 
significantly important, $73 million, which we got to share 
with the Federal Government.
    The pioneer ACO program was a catalyst for expansion of our 
value-based contracts. We now have over 400,000 lives in risk 
that has upside and downside components to it.
    We now have over 55,000 Medicare beneficiaries in a legacy 
program with the Federal Government, which is called Next 
Generation ACO, and we are moving forward with that.
    Our ACO network now extends beyond the Montefiore Health 
System. The network comprises more than 3,800 physicians, 
almost 30 percent of whom are in private practice in their 
communities. We worked hard to recruit non-employed providers 
as partners in the ACO.
    Over the years, we have learned that to be successful, an 
ACO must promote primary care and efficiently use scarce 
financial resources. We shifted many services, like blood 
transfusions that traditionally involve several days in the 
hospital, to being outpatient procedures.
    I like Familiar Faces. We call it diabetes prevention 
programs, but these are patients that are identified, most of 
them are obese, Type 2 diabetes. By the way, over 50 percent of 
the Bronx is obese.
    We provide for them a program that goes on for a number of 
months, and then we follow them later where we teach them how 
to eat, how to exercise, how to think about their health care, 
and really take a whole new view. These are not in our program 
necessarily. They were just patients that live in our community 
that we reach out to.
    We have done similar things with congestive heart failure, 
End Stage Renal Disease, and all the other big targets that we 
need to do better and spend less.
    Patients with substance use disorder also have high costs, 
about 90 percent more, and we have worked very hard with that 
group to support them extensively.
    I just have to say, it is important for you all to look at 
42 CFR Part 2 regulations to align with the HIPAA standards 
because drug use disorders now are segregated in the record, 
and you cannot even find it sometimes.
    While we have learned a lot over the past 20-plus years 
taking risks, stability is the key of success for providers and 
patients. The government needs stability in its spending. 
Providers need stability in reimbursement.
    As a provider that runs on low margins because of our 
governmental payer mix, we depend on the programs that account 
for caring for low income patients like Disproportionate Share 
funding, like 340B, and we depend on Graduate Medical Education 
to fund our training programs, which is our pipeline to the 
future.
    We are confident that learning from our pioneer ACO success 
will strengthen the future of health care. In addition, we 
believe that organizations such as Montefiore, who care for a 
preponderance of Medicaid and Medicare beneficiaries, were 
successful in containing costs through value-based programs 
should have a different payment structure.
    So I will end there and I am looking forward to the 
dialogue. Thank you.
    [The prepared statement of Dr. Safyer follows:]
                 prepared statement of steven m. safyer
    Chairman Alexander, Ranking Member Murray, and Members of the 
Committee, thank you for the opportunity to discuss Montefiore's model 
for improving quality and value and eliminating excess health care 
spending.

    My name is Dr. Steven Safyer, and I am the President and Chief 
Executive Officer of Montefiore Medicine, the umbrella organization for 
Montefiore Health System, one of New York's premier academic health 
systems, and Albert Einstein College of Medicine (Einstein), one of the 
top medical schools in the country with $175 million annually in NIH 
funding. We are the health care anchors in the Bronx, Westchester, 
Rockland and Orange counties, a region of close to 4 million people. We 
combine nationally recognized clinical excellence with expertise in 
accountable, value-based care settings that focus on optimizing 
patients' health and well-being, as well as the health of their 
families and the community.

    Montefiore's mission is to heal, to teach, to discover and to 
advance the health of the communities we serve, and this mission 
continues a commitment that began over 130 years ago to provide 
equitable and socially-just care to all whom we serve. Throughout our 
history, Montefiore has modeled its services and research agenda in 
partnership with our communities, to address both the underlying 
socioeconomic factors that affect health and specific public health 
challenges: from the tuberculosis epidemic in the late 19th century, to 
infant mortality; from lead poisoning, to the HIV/AIDS epidemic in the 
1980s; from the substance abuse epidemic that has never left the Bronx, 
to more recently, the high prevalence of diabetes, obesity and asthma. 
The majority of the communities for which Montefiore cares are under-
resourced, and have high rates of chronic diseases, influenced by 
myriad socioeconomic factors and are significantly hit by the recent 
opioid crisis. Montefiore is responsive to both the health and 
socioeconomic challenges faced by the communities and serves as an 
anchor institution, providing economic stability and serving as the 
largest employer in the regions where we are located.

    We are unique among safety-net hospitals in that Montefiore 
provides its patients the full spectrum of care--from comprehensive 
primary and ambulatory specialty care, to the most complex, quaternary 
life-saving care. We are an integrated academic health system that 
includes 11 hospitals, our innovative Hutchinson Campus (a hospital 
without beds), 250 ambulatory centers, 25 school-based health centers, 
a nursing home and a home care agency. Several years ago, we integrated 
medical and mental health care at all outpatient sites, including our 
pediatric clinics. We have a large mental health and substance abuse 
program in all our communities.

    We are also the 9th largest teaching program in the country, with 
1,500 residents and fellows in training, we study and teach the most 
complicated medicine in the country and we do it with a unique view 
into underserve populations, their needs and their challenges. And we 
do it within an environment of value-based care, teaching young 
physicians to be leaders and innovators in population health. We also 
value the role of primary care and have one of the preeminent social 
medicine programs in the country.

    We are also unique as an integrated academic health system with a 
high percentage of Medicaid and Medicare patients in our care. 
Montefiore is one of the largest providers of Medicaid and Medicare 
services in New York State, with 1.3 million Medicaid and 433,000 
Medicare beneficiaries living in the four counties we serve. Indeed, 
Montefiore provided over 2.5 million primary and specialty care visits 
to Medicaid recipients in 2016 alone. Fifty-five percent of our 
outpatient visits are Medicaid, and an additional 10 percent are the 
uninsured. With 85 percent of patients enrolled in either Medicare, 
Medicaid or both, we make the most of every single health care dollar 
by aligning financial incentives with payers.

    For over 2 decades, Montefiore has led the healthcare industry in 
rewarding providers based on quality, rather than quantity of care. As 
early as 1995, Montefiore's leadership recognized the need for 
transformational change in a healthcare delivery system serving a 
preponderance of government program beneficiaries and formed the 
Montefiore Independent Practice Association (MIPA) to enable it to 
negotiate value-based contracts with health plans. An IPA is similar to 
an ACO. It is an organized group of providers, with its own governing 
body, that come together as an integrated network focused on improving 
the quality of care for individuals and a population while lowering 
costs. Montefiore Care Management (CMO) was formed to provide the 
infrastructure to manage the care of the patients covered by those 
contracts. Before the term was widely used, we employed a population 
health management approach, focusing on identifying and stratifying the 
at-risk population--primarily those with chronic conditions--and 
engaging them with targeted care management interventions.

    Montefiore was one of ten organizations that participated in NCQA's 
beta testing of its accountable care organization accreditation 
standards and processes, and we eagerly applied to become a Pioneer ACO 
when that initiative was announced by CMS in 2011. As New York State's 
only Pioneer Accountable Care Organization (ACO), we refined our core 
capabilities in managing the health of beneficiaries.

    Montefiore generated over $73 million in savings to Medicare as an 
ACO over the 5 years of the program. In its final year, Montefiore's 
Pioneer ACO had more than 3,400 providers responsible for almost 54,000 
Medicare beneficiaries. Montefiore had an Overall Quality Score of 
95.16 percent in the final year, and performed above the mean Pioneer 
ACO scores for the way clinicians communicate. It also received top 
scores for the way patients rated their providers. Significant gains 
were also seen in key measurements such as body mass index and high 
blood pressure screening, as well as flu and pneumococcal vaccinations. 
Our physician network comprises more than 3,800 primary care and 
specialty physicians, almost 30 percent of whom are in private 
practices in their communities. We worked hard to recruit non-employed 
(private-practicing) providers as partners in the ACO. While expanding 
our model was a goal, many were not experienced in quality reporting 
and did not initially have electronic medical records. We invested 
enormous resources in helping them be successful. The quality scores by 
the private practicing MDs, of note, improved by 50 percent attaining a 
level on par with our employed physicians.

    The Pioneer ACO program was a catalyst for the expansion of ACO and 
risk-based programs. It also allowed us to create aggregate-level 
population health interventions for the Medicare fee-for-service 
population. We are now participating in the Next Generation ACO program 
with 55,000 beneficiaries, and we are optimistic that we will continue 
to achieve savings for Medicare and reinvest our share of those savings 
in our delivery system.

    When we applied to become a Pioneer ACO, Montefiore was a four-
hospital system serving primarily Bronx County, one of the nation's 
poorest and most disproportionately disease-burdened counties. Today, 
the Montefiore ACO's network includes both Montefiore and non-
Montefiore sites with 13 hospitals, scores of primary, specialty and 
mental health outpatient sites, including federally qualified health 
centers in New York City, Westchester, Rockland, Orange, and Sullivan 
counties.

    We have learned that to be successful an ACO has to build an 
arsenal of interventions and incentives that promote primary and 
preventive care to efficiently use scare financial resources. We focus 
on the early identification of illnesses and where possible shift care 
to lower-cost settings. We shifted many services, such as blood 
transfusions, that traditionally involved a hospital stay to being 
outpatient procedures when possible. We have increased our focus on the 
socioeconomic determinants of health; partnerships with government 
agencies, community organizations and businesses to provide the full 
range of services our patients require; and special arrangements with 
providers such as skilled nursing facilities to ensure that our 
patients are ensured the highest quality, most cost-effective care 
across the continuum of care.

    We reach out to our highest risk patients who have multiple chronic 
and acute care problems to conduct comprehensive health assessments 
that cover both medical and behavioral problems and socioeconomic 
challenges including housing, employment, nutrition and access to 
health care. If you have any doubts about the importance of managing 
chronic disease for the health of the patients-- as well as the 
nation's health system-- consider this: In our experience 5 percent of 
the more than 400,000 individuals covered by Montefiore's value-based 
contracts, including the 55,000 Medicare beneficiaries currently 
attributed to our NextGen ACO, account for 65 percent of the total cost 
of care--and that is largely because of chronic conditions.

    We support all physicians and other providers in our ACO to develop 
with them a comprehensive care plan and to help them coordinate care. 
Montefiore has care management teams with expertise in diabetes, 
chronic kidney disease, cancer, heart disease, asthma and COPD, and 
behavioral health as well as one team that specialize in helping 
patients and their families with care transitions and one composed of 
pharmacists that assists patients with understanding and adhering to 
their medication regimens. The Montefiore's quality improvement and 
provider relations staff assist physician practices on quality 
improvement and data reporting and transformation of practices into 
Patient Centered Medical Homes (PCMHs).

    We appreciate that our patients need access to high quality 
providers, who understand their language and culture, are available 
when needed and are willing to coordinate with the other providers our 
patients see. Our patients need information about their conditions, 
help in learning self-management skills and linkages to community and 
government sponsored social service agencies to resolve their 
socioeconomic challenges. If we don't accommodate these needs, we 
cannot succeed in accountable care.

    For example, we greatly improved management of patients with End 
Stage Renal Disease (ESRD). To do so, we partnered with all providers 
involved - Nephrology, Dialysis, Interventional Radiologists, and 
Device Manufactures. Early identification is crucial to help prevent 
unnecessary inpatient utilization. We leveraged technology solutions to 
create a registry of ESRD patients in the electronic health record in 
order to more easily identify patients upon presentation to the 
emergency department. This also included notifications to the entire 
care team, the attending nephrologist, and the patient's dialysis 
center upon patient presentation to the emergency department. This 
resulted in improvement of ESRD spend by 3.9 percent.

    Patients with substance use disorder also have disproportionately 
high costs. Based on our experience, patients with substance abuse 
disorder have 89 percent higher costs. This represented the most 
prominent indicator for increased costs to the system. If a provider is 
to be held accountable for the health outcomes of its patients, we must 
have access to information about substance abuse. Hence, we support 
revising the privacy protections included in SAMHSA's 42 CFR Part 2 
regulations to align the standards for all personal health information 
with HIPAA standards, in particular for those operating in 
predominantly accountable care models.

    While we've learned much over our twenty-plus years of taking risk, 
perhaps the most important lesson is that stability is the key to 
success when you are taking risk. Patients need stability in insurance 
coverage and access to care. For example, mental health clinics and 
school-based health centers are absolutely crucial yet run at a loss 
and are constantly at risk due to financial instability.

    Providers need stability in reimbursement (with accountability 
built in) and prescription drug costs. As a provider that runs on low 
margins, we depend on the payments that account for financial 
implications of caring for the uninsured, Medicaid patients, and dual-
eligibles (disproportionate share funding and the 340B program) and the 
losses that come as a teaching hospital that takes all patients 
regardless of ability to pay (direct and indirect graduate medical 
education funding). These needs are real.

    The government (federal and states) need stability in health care 
costs. I believe we can enable greater stability if providers have more 
autonomy to thoughtfully deploy resources to patients, with aligned 
financial incentives and a high bar for quality and health outcomes. 
Accountable care is not a panacea for every market, but it works in 
some, and we are proof.

    We are confident that learning from Pioneer successes in improving 
quality and value and re-deploying health care resources will 
strengthen the future of healthcare. In addition, we believe that 
organizations such as Montefiore, who care for a preponderance of 
Medicaid and Medicare beneficiaries and who are successful in 
containing costs through value-based programs, should have a different 
payment structure. This is becoming especially important with the loss 
of DSH payments. On behalf of the Montefiore, I look forward to working 
with you to achieve our shared goal of a better health system for all 
Americans.

    Thank you. I will be happy to answer any questions you have.
                [summary statement of steven m. safyer]
    Montefiore Medicine, the umbrella organization for Montefiore 
Health System, one of New York's premier academic health systems, and 
Albert Einstein College of Medicine (Einstein), one of the top medical 
schools in the country. We serve the nearly 4 million people living in 
the Bronx, Westchester, Orange, and Rockland counties of New York, a 
combination of rural, urban, and suburban communities. Approximately 
eighty-five percent of the patients discharged from our hospitals are 
enrolled in Medicare, Medicaid, both programs, or are uninsured. 
Einstein is among the top medical schools in the country, with $175 
million annually in NIH funding.

    We are now one of the largest health systems in the country, and we 
have more than 400,000 patients in risk arrangements across Medicare, 
Medicaid, and commercial insurance. We do this because getting higher 
on the premium stream and flexibly deploying those dollars allows us to 
deliver the right care to the right patient in the right setting.

    For over 2 decades, Montefiore has led the healthcare industry in 
rewarding providers based on quality, rather than quantity of care.. 
Montefiore began its journey into accountable care in 1995, when it 
established some of the critical infrastructure necessary to take 
risk--first, an Integrated Provider Network, and second, a Care 
Management Organization. Both entities have since grown to encompass 
much of the administrative and governance backbone of our accountable 
care contracting arrangements, including the federal ACO programs. We 
have learned that to be successful an ACO has to build an arsenal of 
interventions and incentives that promote primary and preventive care 
to efficiently use scare financial resources.

    The Pioneer ACO program, of which we were proud to be a part, 
remains a bright part of our journey. Montefiore generated more than 
$73 million in savings to Medicare over the 5 years of the program 
while delivering quality care to patients. In its final year, 
Montefiore's Pioneer ACO had more than 3,400 providers responsible for 
almost 54,000 Medicare beneficiaries. Montefiore had an Overall Quality 
Score of 95.16 percent in the final year. Significant gains were also 
seen in key measurements such as body mass index and high blood 
pressure screening, as well as flu and pneumococcal vaccinations.

    Pioneer (and the subsequent broader ACO program) led the way for 
commercial health plans to develop ACO and shared savings 
opportunities. This increased our value-based opportunities and helped 
us acclimate providers to quality reporting and use of electronic 
medical records.

    We are confident that learning from Pioneer successes in improving 
quality and value and re-deploying health care resources will 
strengthen the future of healthcare. In addition, we believe that 
organizations such as Montefiore, who care for a preponderance of 
Medicaid and Medicare beneficiaries and who are successful in 
containing costs through value-based programs, should have a different 
payment structure. This is becoming especially important with the loss 
of DSH payments.
                                 ______
                                 
    The Chairman. Thank you, Dr. Safyer.
    Dr. Lansky, welcome.

STATEMENT OF DAVID LANSKY, PH.D., PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, PACIFIC BUSINESS GROUP ON HEALTH, SAN FRANCISCO, 
                           CALIFORNIA

    Dr. Lansky. Thank you, Chairman Alexander, Ranking Member 
Murray, and Members of the Committee.
    Thank you for the opportunity to share the experience of 
the large purchasers of health care who are seeking to improve 
quality and reduce health care costs as well.
    I actually want to begin by sharing one of my personal 
experiences over the years. I have been working on reducing 
costs and improving quality for about 30 years, and I have been 
fortunate to work with three of the great leaders in this field 
over that time. There is a common thread that runs through all 
those experiences that I have had.
    In the 1980's, I worked with Dr. Albert Starr, who invented 
the first successful artificial heart valve in 1959, actually. 
When he did that, he began a commitment to contact every 
patient every year until they died so that he would know the 
outcomes of his surgery and be able to continuously improve 
what the did. He thought it was part of his professional 
obligation to keep track of his patients over time.
    In the 1990's, I worked with Paul Ellwood, who was one of 
the founders of the Jackson Hole Group and he understood that 
he could shape a policy strategy, which we came to call managed 
competition, around having health care plans accountable for 
the outcomes of care, as well as the total cost of care.
    In the last five or six years, I have been working with Dr. 
Michael Porter at Harvard Business School, one of our leading 
thinkers on strategy and competitiveness, who has argued that 
we should move to a model of bundled payments in which the 
payment is tied to achieving health outcomes at a known cost.
    All three of these leaders have carried forward a thread of 
focusing on health outcomes as the goal of our health system 
and how we should structure our payment models.
    So to your question today of how do we reduce costs in the 
American health care system, I say begin by measuring outcomes, 
making that data transparent to the public, and insisting that 
providers compete on how well they do at achieving health 
outcomes for their patients.
    As you know, today I lead an organization of health care 
purchasers. Together, they spend about $100 billion a year. 
They cover about 12 million people. Health care costs are a 
huge tax on the productivity and competitiveness of the 
American business community. Much of the money comes out of the 
pockets of working people, who have not seen wage growth in 20 
years.
    Despite the growth in costs in health care, our members are 
not seeing evidence that their employees are getting better 
health care. They are not getting reliable, high quality health 
care across the country.
    We are not seeing improvements in innovation, or in 
quality, or service that we see in other parts of the economy. 
Instead, we are finding inertia and resistance to the kind of 
transformation that most sectors of our economy have undergone.
    Like Drs. Starr, Ellwood, and Porter, our members believe 
that we can have an innovative and cost effective health system 
if purchasers and individuals are able to choose their 
treatments and their providers based on meaningful information 
about outcomes and cost.
    Our members have tried many strategies to promote higher 
value, and they have made very significant investments to 
improve the cost and the quality of care. It is actually, to 
me, extraordinary and admirable that these companies, whose 
main day job is making airplanes and telecommunications 
equipment, have actually spent so much time and money trying to 
improve the health care system that all of us participate in. 
They are trying to reduce costs by improving quality. I will 
give you a couple of examples.
    Boeing, Intel, Qualcomm, and the Washington State Health 
Care Authority in Senator Murray's state, have all engaged in 
long term, direct contracts with physicians and hospital 
networks under arrangements similar to those in the Medicare 
ACO program. These arrangements have significantly improved 
quality and patient experience, and also now produce 
significant cost savings for both employees and companies.
    Wal-Mart and the Lowe's Companies, Lowe's stores, support a 
Center of Excellence bundled payment program for employees who 
need orthopedic surgery, back surgery, and bariatric surgery. 
In this program, patients have zero cost sharing. They pay 
nothing if they choose to go to a National Center of Excellence 
like Johns Hopkins or Virginia Mason Medical Center.
    These centers make sure that:
    The surgery is appropriate; that helps save costs.
    They agree to collect outcomes data.
    They agree to work with each other to identify best 
practices and continuously improve.
    Most important, because they do superior surgery the first 
time through, there are very few complications, very few 
admissions to skilled nursing facilities. High quality at the 
beginning produces cost savings down the road.
    CalPERS and Pacific Gas and Electric Company supported 
adoption of a model originally piloted by Boeing in Seattle to 
provide advanced primary care for patients with multiple 
chronic conditions. These are the same high utilizers we just 
heard about that often cost as much as $20,000 per year to care 
for.
    By paying a care management fee to primary care practices, 
and integrating social and health services into primary care, 
patients and families reported an increased ability to care for 
themselves. They reduced their depression symptoms. They 
reduced their emergency room use. They improved their chronic 
disease status and they saved about 20 percent in total 
spending.
    So we take a few key lessons from our members' efforts to 
reduce costs:
    Excellent care is out there;
    Value-based payment models can work;
    A strong foundation of primary care is key; and,
    Consumer incentives can be helpful.
    These are all positive signals, but they come with 
cautions. I would suggest several steps for you to consider on 
behalf of Congress.
    First, the Nation needs to embrace a philosophy of 
transparency. Markets cannot work with hidden prices, rebates, 
gag clauses, and the like.
    Second, we need a substantial national effort to produce 
and publicize standardized outcomes data for all major 
conditions and procedures.
    Third, public and private purchasers must work together to 
demand excellence, transparency, and financial stewardship.
    Finally, the Federal Government must lead. The buy side is 
highly fragmented and lacks the scale or the tools to compel 
changes in the behavior of increasingly large health systems, 
insurers, and suppliers. Federal policy and purchasing are 
vital levers of transformation.
    I hope you will continue to stimulate innovation through 
programs such as CMMI and value-based purchasing.
    Thank you for the opportunity to testify.
    [The prepared statement of Dr. Lansky follows:]
                   prepared statement of david lansky
    Chairman Alexander, Ranking Member Murray, and Members of the 
Senate HELP Committee, thank you for the opportunity to share the 
experiences of large purchasers of health care in seeking to reduce 
health care costs. It is an honor to have been invited to participate 
in today's discussion.

    My name is David Lansky. I am the President and CEO of the Pacific 
Business Group on Health, a coalition of large public and private 
purchasers of health care. Together our members spend $100 billion each 
year to sponsor health care coverage for about 12 million Americans. 
They expect - reasonably - that this enormous investment will assure 
that their employees and their families receive high quality, 
appropriate and effective care that enables the workforce to be healthy 
and productive. Unfortunately, the data needed to judge whether 
services are being delivered efficiently and whether optimal health 
outcomes are achieved are not available. As a result, neither consumers 
nor purchasers can identify and reward high quality care, and 
healthcare providers and suppliers are given little incentive to 
compete or continuously improve their performance. We believe that the 
techniques of value purchasing could drive the evolution of a more 
efficient and effective health system, but that these approaches will 
not be fully effective until we have meaningful transparency of cost 
and outcomes data. Government action will be needed first to create 
that information infrastructure and second to use federal purchasing 
power to drive value-based competition.
                Employers' Understanding of the Problem
    Our members share the commitment of Congress and the Administration 
to address the cost of health care, in part by accelerating the shift 
to value-based health care based on meaningful, transparent outcomes 
and pricing information. Because private employers and their employees 
pay for about half of US health care, and public programs pay for half, 
it is imperative that policymakers collaborate with public and private 
purchasers to deploy value of Excellence Network (ECEN) program, 
employees of Wal-Mart and Lowes stores, for example, face zero cost-
sharing if they choose to go to a carefully selected, high quality 
hospital for surgery. About 25 percent of qualifying patients choose to 
use these high performing centers. Employees covered by Safeway stores 
and CalPERS face financial disincentives meant to discourage use of 
low-value providers: if they choose the high cost provider, they must 
pay the full cost of care above a market-set reference price. CalPERS 
found that 21 percent of employees switched to a lower cost hospital 
when the reference price approach was introduced. \1\ Purchasers 
believe there is an appropriate balance of roles between the employer 
and the patient: the employer has the expertise to identify high 
performing programs and offer modest incentives for their use, and the 
patient should have the information and incentives to make the right 
decision for themselves. We believe that similar principles could apply 
to many public programs.
---------------------------------------------------------------------------
    \1\  James C. Robinson and Timothy T. Brown. Increases In Consumer 
Cost Sharing Redirect Patient Volumes

          Transparency and Performance Information. Most PBGH 
        members have provided cost and quality transparency information 
        to their employees, particularly in programs that include high 
        deductible health plans. There remain significant concerns 
        about the usefulness of these tools and the level of consumer 
        engagement, however. To be valuable, such information needs to 
        fully reflect the cost that the employee will ultimately face, 
        taking into account such complexities as their own employer's 
        benefit design, the formulary deployed by their Pharmacy 
        Benefit Manager, the possibility of out-of-network charges, and 
        the aggregation of costs across a complex episode of care. The 
        commonly available tools do not capture all of this 
        information. Patients also want to know what outcomes they can 
        expect from care, and whether outcomes vary across providers. 
        We are strong advocates for the adoption of patient reported 
        outcome measures across full markets. To demonstrate the value 
        of this approach, PBGH led the creation of the California Joint 
        Replacement Registry (now part of the American Joint 
        Replacement Registry), which captured patients' pain, 
        functioning and health status following knee and hip surgery 
        for 41 hospitals. PBGH is now collaborating with the 
        International Consortium of Health Outcomes Measurement to 
        implement standard outcome measures in the United States, with 
        an initial focus on oncology outcome measures throughout 
        Michigan. In short, purchasers want to see meaningful price 
        transparency that reflects total cost of care and the 
        complexities of our payment and cost-sharing systems, and they 
        want to see widespread availability of meaningful outcome 
---------------------------------------------------------------------------
        measures.

          Implementation of care improvement models: For many 
        years, purchasers subscribed to the ``managed competition'' 
        model, which held that the purchaser's role was to hold the 
        health plan or provider system accountable for outcomes and 
        total cost of care for a population, and then allow providers 
        to compete for business against those standard metrics. Most of 
        the contracting approaches described above reflect that 
        approach: it is not the employer's business to tell the 
        providers how to deliver care. But this view has changed in 
        recent years. Many of our members now engage quite vigorously 
        with their provider partners to ensure conformity to evidence 
        based guidelines, or even to offer training and improvement 
        support to the providers. For both large health systems and 
        small physician practices, we have learned that the expertise 
        to analyze data, identify opportunities for improvement, and 
        bring in the necessary training and collaboration resources are 
        often lacking. As a result, individual employers like Intel and 
        multi-employer collaboratives are now more prescriptive about 
        improvement priorities, methods, and measures. PBGH operates 
        the California Quality Collaborative for this purpose, and has 
        led implementation of a CMMI-sponsored practice transformation 
        initiative for 5,000 physicians in California; our colleagues 
        at the Health Transformation Alliance have recommended specific 
        diabetes and orthopedics protocols to their contracted 
        providers; in our centers of excellence network, we convene all 
        participating hospitals and their surgeons annually to compare 
        best practices across the network. Our recognition that 
        purchasers need to engage actively with their provider partners 
        to ensure that best clinical practices are adopted has a 
        corollary in federal programs. It will be important to tie 
        together the federal investments in payment reform, quality 
        metrics, and improvement support if we want to see significant 
        transformation in quality, efficiency and accountability.

    In addition, I will mention purchasers' increasing interest in 
encouraging federal programs to observe and adopt best practices from 
successful private sector efforts. Employers and public purchasers have 
learned that they are too fragmented and lack the scale to compel 
changes in the nation's approach to health care payment or measurement. 
They share a vision of a health system in which providers compete for 
our business by succeeding at providing high quality care while making 
efficient use of resources. But the continuing prevalence of volume-
based payments coupled with a chaotic and burdensome measurement 
environment, as well as the persistence of a regulatory regime 
originally designed to manage a traditional medical indemnity system 
makes it impossible to achieve meaningful competition and the likely 
price discipline that could result. For that reason, employers are 
enthusiastic about aligning strategies with large state and federal 
health care purchasers. PBGH supports a significant public policy 
effort, which includes programs to bring employers to Washington to 
share lessons learned about emergent purchasing strategies, a 
collaborative effort between employers, consumer and patient 
organizations to respond to proposed innovation models and rulemaking, 
and active participation on advisory bodies at the Congressional Budget 
Office, National Quality Forum and similar programs.
             Purchasers' Recommendations for Policy Action
    We encourage your attention to three main policy approaches that 
provide significant opportunities to reduce costs and improve quality: 
transparency of health outcomes, strengthening the ACO and bundled 
payment programs, and encouraging centers of excellence in Medicare. 
Employers also encourage Congress to consider several additional 
measures to accelerate the shift to value, addressing primary care, 
high drug costs, and competitive markets.

    1. Require outcomes-oriented quality measures for priority 
conditions: CMS has taken tentative steps towards reducing the burden 
of quality measurement by increasing the use of outcomes measures, but 
such efforts must be dramatically increased and accelerated. The 
federal government can act quickly in three ways:

          a. Develop the national infrastructure for 
        measurement of outcomes across all major conditions

          b. Simplify the quality reporting requirements under 
        MACRA to emphasize standardized outcome measures for each 
        condition

          c. Require the adoption and publication of outcomes 
        data for all federal payment programs.

    2. Strengthen the ACO and bundled payment programs to increase 
provider risk for total cost of care: Although accountable care 
organizations (ACOs) were initially introduced in the Medicare program, 
large employers have aggressively promoted advanced ACO models. For 
example, the Boeing Company is contracting directly with accountable 
care organizations through its ``Preferred Partnership'' program. 
Launched in 2015, Boeing offers direct employer-to-ACO contracts to 
more than 60,000 employees and their families in California \2\ , 
Missouri, South Carolina, and Washington. \3\ All of these arrangements 
feature two-sided financial risk with shared savings for reduced costs 
and improved quality and downside risk if total costs exceed the 
targeted trend. Additionally, Boeing negotiates performance standards 
for a priority set of metrics, including clinical quality, member 
experience and access to care. Furthermore, Boeing expects the ACOs to 
offer an intensive outpatient care (IOCP) program to manage the care 
for medically complex patients. The experience from ACOs led by large 
employers provides lessons that can be applied to Medicare ACOs:
---------------------------------------------------------------------------
    \2\  Boeing and MemorialCare Partner on Boeing's First California 
Customized Health Plan Option Offering Better Benefits and Lower Costs 
for Boeing Employees and Their Families. Press Release, June 21, 2016. 
https://www.memorialcare.org/about/pressroom/news/boeing-and-
memorialcare-partner-boeing-first-californiacustomized-health-plan.
    \3\  M. Stempniak, Will Boeing Change Health Care? (Hospitals & 
Health Networks magazine, December 10, 2015) https://www.hhnmag.com/
articles/6709-will-boeing-change-health-care.

          a. Patients should be given the opportunity to 
        actively enroll in ACOs, rather than being passively 
---------------------------------------------------------------------------
        ``attributed'' to health systems.

          b. The most successful ACO models include ``two-sided 
        risk''--that is, they give providers the opportunity to share 
        in savings if costs go down, as well as the risk of having to 
        cover costs if total costs go up

          c. ACOs should be held accountable to a robust, 
        standardized and publicly reported set of outcomes-oriented 
        quality measures that enable consumers to make an informed 
        choice when choosing to enroll.

    3. Enable Medicare beneficiaries to identify and seek care from 
high performing centers: In recent years, centers of excellence (CoE) 
have become a common feature of commercial insurance and private 
purchaser medical care networks. Nearly 90 percent of large employers 
expect to use such centers to improve quality of care and 
predictability of cost for their employees. \4\ Commercial CoE programs 
have primarily been used for common elective procedures and certain 
medical conditions with high costs and variability in quality and 
price, including hip and knee replacements, spine care, heart surgery, 
bariatric surgery, and some oncology services. \5\
---------------------------------------------------------------------------
    \4\  National Business Group on Health, Large Employers' 2018 
Health Care Strategy and Plan Design Survey.https://
www.businessgrouphealth.org/news/nbgh-news/press-releases/press-
release-details/?ID=334
    \5\  The NBGH survey cited above reports 77 percent of employers 
using (47 percent) or considering COE for orthopedics; 77 percent for 
bariatric; 62 percent for cardiac; 56 percent for cancer.

    The Employers Centers of Excellence Network (ECEN)--managed by PBGH 
on behalf of our members--has shown significant improvements in health 
outcomes and costs. \6\ The ECEN program results demonstrate that it is 
possible to save money by reducing unnecessary services, while 
improving outcomes and patient experience. Even when factoring in 
travel expenses and waived co-pays, negotiated bundled payments for 
surgical procedures performed by CoEs cost considerably less, on 
average, than what members currently pay for these services. The cost 
equation improves even further, since these high quality procedures 
produce quality outcomes that can mitigate costly revisions and 
infections. Much of the cost reduction comes from avoiding unnecessary 
procedures, with top-performing surgeons using evidence-based medicine 
to determine surgical appropriateness. Furthermore, 98 percent of 
patients recommend the ECEN program.
---------------------------------------------------------------------------
    \6\  Slotkin, Jonathan R., MD, et al. ``Why GE, Boeing, Lowe's, and 
Wal-Mart Are Directly Buying Health Care for Employees'', Harvard 
Business Review, June 8, 2017. Accessed online 10/9/17 at https://
hbr.org/2017/06/why-geboeing-lowes-and-walmart-are-directly-buying-
health-care-for-employees.

    We believe that a well-designed CoE program within traditional 
---------------------------------------------------------------------------
Medicare would offer:

          Better health outcomes than typically achieved by FFS 
        providers

          Lower beneficiary expenses through reduced cost-
        sharing

          Program cost savings through more appropriate and 
        higher quality care

          System-wide quality and affordability improvements 
        due to provider competition.Furthermore, the procedures and 
        conditions that are most commonly included in CoEs--
        orthopedics, cardiac care, cancer care, and diabetes--are among 
        those that affect many Medicare beneficiaries and constitute a 
        large proportion of Medicare spending.

    For a CoE program to be introduced in Medicare, however, several 
regulatory, administrative, and political obstacles need to be 
addressed. To address these issues, CMMI should consider development of 
a voluntary CoE pilot with an appropriate evaluation design to 
determine the benefits of CoEs for Medicare beneficiaries. A CoE pilot 
would enable CMMI to test bundled payment models as part of a 
comprehensive quality improvement program rather than a standalone test 
of a new provider payment model. Furthermore, the voluntary nature of a 
CoE pilot (for providers as well as beneficiaries) would address CMMI's 
concerns about ``mandatory'' bundled payment models. The use of benefit 
design under Medicare to reward patients who choose high performing 
providers would set an important precedent and be a disruptive force in 
the health care system. By setting a high bar and stimulating healthy 
competition among providers, a CoE program would be a catalyst for 
change that would eventually ``lift all boats'' by improving quality 
and affordability system-wide.

    These three policy initiatives would send a profound signal to 
health care providers, suppliers, and payers. They should be designed 
in close alignment with state and private purchasers. Employers also 
encourage Congress to consider several additional measures to 
accelerate the shift to value, addressing primary care, high drug 
costs, and market consolidation.

    4. Primary Care

    The decisions made in primary care practices have outsize influence 
on downstream medical care. A Stanford University study published last 
year showed that high value primary care for a commercially insured 
population can lead to spending that is 28 percent lower than average 
value primary care. The savings are clustered in four areas: 
unnecessary surgical and other specialty procedures (41 percent), low 
value prescribing (26 percent), avoidable hospitalizations and ED 
visits (17 percent), and unnecessary testing (8 percent). The high 
value primary care practices did see their patients more often, 
resulting in higher spending on office visits, but only by 2 percent. 
Rebalancing spending away from specialists and the hospital setting and 
towards primary care in the community is important. Employers encourage 
their employees and dependents to affiliate with effective primary care 
practices, but we are concerned that the national imbalance between 
primary and specialty care can only be corrected with strong signals 
from the Medicare program. Three policy changes would significantly 
strengthen the primary care foundation of our health care system:

          1. Develop and implement alternative payment models 
        that support advanced primary care delivery. For example, the 
        American Academy of Family Physicians (AAFP) has proposed a 
        payment model for comprehensive care management and 
        coordination, including payments for services not traditionally 
        covered by Medicare (e.g., non-face-to-face services), with 
        financial accountability for quality outcomes and total cost of 
        care.

          2. Increase payment rates for advanced primary care 
        models that achieve high quality outcomes and reduce total cost 
        of care. The Medicare Payment Advisory Committee (MedPAC) and 
        other experts have observed that certain procedures and 
        specialty services are overpriced, based on the relative value 
        units (RVUs) used to calculate payment rates to physicians. It 
        appears that the Centers for Medicare and Medicaid Services 
        (CMS) has relied too heavily on recommendations from the AMA/
        Specialty Society Relative Value Scale Update Committee (RUC), 
        resulting in underpayment for critical primary care services. 
        Congress and CMS should consider structural and process changes 
        to correct this imbalance.

          3. Promote the uptake of direct primary care (DPC), 
        which would allow patients to use their HSA dollars to pay the 
        fixed fees charged by DPC practices. Several bill under 
        consideration in Congress, including S. 1358--Primary Care 
        Enhancement Act, would address this need.

    5. Drug Costs

    The cost of drugs is an increasingly serious problem for employers 
and their employees. Growth in drug spending is expected to exceed the 
growth in total health care spending in future years, driven largely by 
increases in prices for specialty drugs. \7\
---------------------------------------------------------------------------
    \7\  Kaiser Family Foundation analysis of National Health 
Expenditure (NHE) Historical (1960-2016) and Projected (2017-2026) data 
from Centers for Medicare and Medicaid Services, Office of the Actuary, 
National Health Statistics Group. https://www.healthsystemtracker.org/
chart-collection/recent-forecasted-trends-prescriptiondrug-spending/?--
sf--s=recent+trends#item-growth-prescription-spending-slowed-2016-
increasing-rapidly-20142015--2016 (accessed 7/14/18).

    Large employers are struggling with this cost burden, and they are 
in a weak position to negotiate prices with drug manufacturers and 
pharmacy benefit managers (PBMs). They recognize that public policy 
changes are needed to address the fundamental problems driving high 
drug prices, and they support policies that would improve transparency, 
increase healthy market competition, and make use of value-based 
---------------------------------------------------------------------------
payment models.

    One serious problem that employers are trying to address is the 
distortion introduced by rebates. Rebates distort the market by 
encouraging drug companies to increase list prices to allow for higher 
rebates for PBM/PDPs. Because patient cost sharing is typically 
calculated based on the list price, a higher list price causes patient 
cost sharing to increase. Because drugs with higher list prices 
generate higher rebates for PBMs, they are likely to include them on 
the formularies in a favorable tier. One example of this waste is 
having a branded, expensive drug on the formulary when there are 
cheaper generics available. Rebates may also provide an incentive for 
the PBM to favor less clinically effective branded drugs over 
competitors with lower rebates. Finally, the rebates encourage more 
drug use because the rebates are based on volume. We can see these 
inefficiencies by looking at the existing formularies and seeing that 
nearly all PBM/PDPs include branded drugs on their formularies when 
generics are available. We estimate that a ``waste free'' formulary--
based on clinical evidence and rigorous benefit/cost analysis--would 
reduce drug spending by between 8 percent and 15 percent with no 
adverse effects on patient outcomes. Large employers are beginning to 
develop and test the use of a ``waste-free'' formulary, and the lessons 
from these initiatives will be relevant to Medicare drug pricing 
policy.

    A second approach to address the problem is being initiated by 
large employers: inclusion of drug costs in accountable care 
arrangements. Instead of financing drug benefits separately from other 
health care services, these arrangements integrate drug cost management 
into the comprehensive quality and cost management of health care. 
Specifically, this means that the health systems and provider groups 
accept responsibility and accountability for the total cost of care--
including drugs--as well as quality outcomes. The provider systems are 
in a better position to evaluate the benefits of drugs and make the 
appropriate decisions regarding drug treatment vs. other treatments. 
This puts the accountability for clinical and cost decisions in the 
right place, and it is more likely to result in lower overall costs and 
improved quality. Applying this approach in Medicare is challenging due 
to the separation of Part D from Parts A and B, but we encourage CMS to 
experiment with integrated payment arrangements, which may point the 
way for legislative changes to integrate drugs with other health 
benefits under Medicare.

    6. Competitive Markets

    In addition to these four specific areas, there is a systemic 
problem that needs to be addressed the effect of market consolidation 
on prices. We know the following:

          Market power has enabled providers, drug companies 
        and others to raise prices, and it is largely the result of 
        market concentration. According to a recent paper, ``Hospital 
        prices are positively associated with indicators of hospital 
        market power. Even after conditioning on many demand and cost 
        factors, hospital prices in monopoly markets are 15.3 percent 
        higher than those in markets with four or more hospitals.'' \8\ 
        A recent Kaiser Health News article commented specifically on 
        the problem of high hospital prices in California. \9\
---------------------------------------------------------------------------
    \8\  Zack Cooper, Stuart V. Craig, Martin Gaynor, John Van Reenen, 
``The Price Ain't Right? Hospital Prices and Health Spending on the 
Privately Insured''. NBER Working Paper No. 21815. Issues in December 
2015, Revised in May 2018. http://www.nber.org/papers/w21815
    \9\  Chad Terhune, ``As Hospital Chains Grow, So Do Their Prices 
for Care'', Kaiser Health News, June 13, 2016. https://khn.org/news/as-
hospital-chains-grow-so-do-their-prices-for-care/

          Market concentration has been growing in recent 
        years. Most hospital markets are already highly concentrated, 
        and hospitals have also been buying up physician practices. The 
        trends in consolidation are documented in a recent Health 
        Affairs article. \10\
---------------------------------------------------------------------------
    \10\  Brent Fulton, ``Health Care Market Concentration Trends in 
the United States: Evidence and Policy Responses''. Health Affairs 36, 
no.9 (2017):1530-1538. https://www.healthaffairs.org/doi/10.1377/
hlthaff.2017.0556

    Most employers believe that the best way to improve value (improved 
quality and patient experience, at lower cost) is through market 
forces, i.e., healthy competition among providers, but real competition 
no longer exists in many markets. Government action may be needed to 
ensure that competition works in a way that benefits consumers and 
purchasers. Anti-trust enforcement is one policy lever, but its 
effectiveness is limited, especially in addressing markets that are 
already concentrated. Other actions to address anti-competitive 
practices are needed. Several recent articles and reports describe 
potential policy solutions.\11\,\12\,\13\,\14\ Among the potential 
policy steps, the following appear to be the most promising and 
feasible.
---------------------------------------------------------------------------
    \11\  Thomas L. Greaney, ``Coping With Concentration'', Health 
Affairs 36, no.9 (2017):1564-1571. https://www.healthaffairs.org/doi/
10.1377/hlthaff.2017.0558
    \12\  National Academy of Social Insurance, ``Addressing Pricing 
Power in Health Care Markets: Principles and Policy Options to 
Strengthen and Shape Markets'', April 2015. https://www.nasi.org/sites/
default/files/research/Addressing--Pricing--Power--in--Health--Care--
Markets.pdf
    \13\  Leemore S. Dafny and Thomas H. Lee, MD., ``Health Care Needs 
Real Competition'', Harvard Business Review, December 2016, pp. 76-87. 
https://hbr.org/2016/12/health-care-needs-real-competition
    \14\  Martin Gaynor, Farzad Mostashari, and Paul Ginsburg, ``Making 
health care markets work: Competition policy for health care.'' 
Brookings Institution, April 13, 2017. https://www.brookings.edu/
research/making-health-caremarkets-work-competition-policy-for-health-
care/

---------------------------------------------------------------------------
          Site-neutral payments

          Transparency and standardized provider performance 
        reporting

          Promotion of entry of new competitors/reduction of 
        barriers to entry

          Prohibition of anti-competitive practices, e.g., 
        anti-tiering, anti-steering, and gag clauses.
                  [summary statement of david lansky]
    The Pacific Business Group on Health represents over 60 large 
health care purchasers who collectively spend $100 billion each year to 
provide health coverage for 12 million Americans. Our members--large 
employers and public agencies--are deeply concerned about the growth in 
health care costs. Purchasers believe that aggressive implementation of 
value based purchasing approaches by both public and private sectors 
would both reduce health care spending and improve quality. Meaningful, 
accessible information about prices and health outcomes would provide 
the foundation for real competition between providers and allow 
patients and employers to make informed decisions about where to seek 
care. We look forward to constructive competition between provider 
organizations based on common, transparent definitions of episodes of 
care and accountability for population health, so that providers are 
motivated to continuously seek better ways to use technology, 
workforce, and expensive care resources to achieve health outcomes.

    The Congress and Federal agencies must lead this process by 
accelerating the adoption of the necessary standards, infrastructure, 
and purchasing models. Key actions include:

          1. Develop the national infrastructure for measurement of 
        outcomes across all major conditions

          2. Simplify the quality reporting requirements under MACRA to 
        emphasize standardized outcome measures for each condition

          3. Require the adoption and publication of outcomes data for 
        all federal payment programs

          4. Strengthen the ACO and bundled payment programs to 
        increase provider risk for total cost of care

          5. Enable Medicare beneficiaries to identify and seek care 
        from high performing centers.

    The Medicare, state Medicaid and employee programs, and private 
purchasers must act in concert to convey a consistent expectation to 
providers and suppliers. Together they can deploy a portfolio of high-
leverage tools that can reduce health care spending while also assuring 
that more Americans receive high quality care. Implementation of these 
and other methods will take time and inflict some pain on important 
stakeholders. Yet the vitality of our economy, the solvency of our 
treasury, and the welfare of all Americans depend upon our aligned 
efforts.
                                 ______
                                 
    The Chairman. Thank you, Dr. Lansky.
    Dr. James.

 STATEMENT OF BRENT JAMES, M.D., M.STAT., CLINICAL PROFESSOR, 
DEPARTMENT OF MEDICINE, STANFORD UNIVERSITY SCHOOL OF MEDICINE; 
   MEMBER, NATIONAL ACADEMY OF MEDICINE, STANFORD, CALIFORNIA

    Dr. James. Thank you, Senator Alexander, Senator Murray, 
and Members of the Committee.
    Dr. W. Edwards Deming was the father of quality improvement 
theory. Quality improvement is the science of process 
management that applies to any productive human activity 
whatsoever. It also supplies a set of tools that very broadly 
identify waste. The value opportunity is to reduce total cost 
by improving quality of finished outputs.
    In 2010, the Institute of Medicine convened a large panel 
of experts around this topic to identify and categorize waste 
in health care delivery. Our actual conclusion was that a 
minimum of 30 percent, and probably over 50 percent, of all 
spending in the United States on health care delivery is waste 
on value adding from a patient's perspective.
    Now, I plan this field a bit when I model it. I get 
somewhere north of 60 percent waste estimates, credible, 
actionable areas. I think your estimates are low, Senator 
Alexander.
    This year, we will spend approaching $3.6 trillion as a 
country on health care delivery in total. At a midpoint of 50 
percent, I make about a $1.8 trillion waste opportunity in that 
particular bucket.
    Now, any time you are talking about costs, it breaks into 
two pieces and that is a fairly critical distinction.
    Imagine I wanted to run a program to put a chicken in every 
pot and I wanted to be able to fund it. Well, with two pieces, 
I need to know what I am going to spend per chicken; we call 
that unit costing. But I also have to know how many chickens; 
that is called utilization rates.
    These models give us the ability to assign categories of 
waste. The thing you need to know when analyzing health care 
waste, about 95 percent of value recovery opportunity links 
back to utilization rates, not to unit costing.
    Now, 5 percent of $1.8 trillion is $90 billion a year. That 
is real money. But if you are not attacking utilization rates, 
very explicitly, you are nibbling around the edges. So it is 
something to think about. In fact, as I listened to the 
colleagues on the panel, they were all talking about 
utilization rates down the line. Just as a thought.
    The primary cause of the waste, we now know, is complexity. 
Fraud and abuse makes, say, a relatively small contribution, 
almost trivially small, frankly.
    Stanford's Dr. David Eddy invented the term evidence based 
medicine some years ago, first published in 1990, and he 
developed most of the formal methods we use for performing that 
body of science. He says it this way, ``The complexity of 
modern medicine exceeds the capacity of the unaided expert 
mind.'' I put examples of that too from the other peoples' 
testimony.
    The problem gets worse every day. The rate of medical 
evidence production is increasing exponentially, a challenge 
not just for today, but for tomorrow.
    Now, most successful waste elimination strategies have 
worked by addressing complexity down at the level where 
physicians, nurses, and other health professional interact with 
patients on a daily basis. It is a common thread that runs 
through these activities. In fact, two separate IOM committees 
addressed exactly this.
    We produced a far more effective definition of 
transparency, transparency down at the level of a physician 
interacting with a patient. That is where the rubber hits the 
road, if you are interested in taking waste out of the system.
    You need to know these approaches work. For many examples, 
I worked in a system in Utah, a relatively small system, 22 
hospitals, about 200 outpatient clinics. We set a goal to keep 
our health care cost increases at less than the Consumer Price 
Index, inflation plus 1 percent, in terms of total cost. We 
wanted our care to be affordable to the people that we served 
in our state.
    Five big Q.I. projects across four years reduced our total 
costs of operations by 13 percent. We are small. It was only 
about $700 million across that time. You have heard from others 
here, too. This is not at all unique to Utah. This stuff works. 
It works by taking waste out of the system.
    Now, I say 13 percent. I really believe that the waste 
opportunity is somewhere north of 60 percent and 13 percent is 
a good start. We have not begun to tap out what is available.
    Here is the funny thing, though. From a financial 
perspective, opportunities for waste elimination dramatically 
exceed other opportunities for traditional revenue enhancement 
that most health care delivery systems rely upon for their 
financial well-being, orders of magnitude more opportunity.
    You would think that in a health care market, people would 
be going after that value vigorously. Why not? Why do we have 
to hold hearings on it? Why are we having these conversations? 
Two primary causes.
    The first is traditional methods. It is often baked-in to 
management systems, the way we have thought about it in the 
past.
    The second is more profound. It turns out that waste 
elimination is not financially aligned in most instances. If I 
am paid in a fee for service system, well, there is always an 
investment. You have to make an investment to take the waste 
out, investment in your systems, investment in change 
strategies.
    The trouble is, is when I make the investment that 
investment nearly always happens down at the level of a care 
delivery group. Most often, the waste savings do not go to the 
care delivery group who made the investment. It goes to someone 
else, a payer, to David and his people, for example, you see.
    That misalignment means that it is a paved road to 
financial disaster. Even if you are committed to it 
philosophically, you do not have the resources to do the next 
project that comes up.
    If I expand it from fee for service, the financial 
alignment expands to about 55 percent. But if I want the whole 
pie, if I want to pick up that last 45 percent, I have to have 
provider or financial risk, financial arrangements.
    This has actually been a topic that came up as part of the 
ACA, the Center for Medicare and Medicaid Intervention focused 
on what we call pay for value, a shift in payment modes to 
align financial incentives. The current Administration has been 
following it as well.
    I think from a policy standpoint, it is a very important 
idea.
    Thank you, sir.
    [The prepared statement of Dr. James follows:]
                   prepared statement of brent james
    A. Health care delivery ``waste'' describes any consumption of 
resources that does not provide optimal benefit to a patient.

    Dr. W. Edwards Deming is the father of quality improvement theory. 
Quality improvement is the science of process management. Deming based 
his work on 3 foundational principles. The first 2 of Deming's 3 
premises were:

        (1) Premise 1--All productive human work, of any sort 
        whatsoever, can be described as a process. The definition of a 
        process: ``A series of linked steps, usually but not always 
        sequential, designed to create a product, transform an input 
        into and output, produce an experience, generate information, 
        or in some other way add value.''

    On that foundation, Deming argued that any enterprise should 
organize literally everything around ``value-added front line work 
processes,'' where ``value-added'' is defined by a customer.

        (2) Premise 2--Every process produces 3 parallel classes of 
        outcomes:

             a. A ``physical outcome'' is the product or service that 
        the process was designed to create. In clinical care delivery, 
        we call these medical or clinical outcomes.

             b. A ``service outcome'' describes the interaction that 
        takes place between the producer of a product or service and 
        the consumer of that product or service, as the transaction 
        takes place, as experienced by the consumer. This is patient 
        satisfaction--the care delivery experience.

             c. A ``cost outcome'' represents the resources consumed to 
        operate the process. Treating cost as the outcome of a process, 
        rather than as an input, made Deming's approach unique. It 
        fundamentally redefined the concept of value, defined as the 
        ratio of the quality of a product divided by its cost.

    The term ``quality'' describes the relative attributes of any 
outcome. Thus people speak of ``clinical outcome quality'' or ``service 
quality.'' From a theoretic perspective, it is similarly appropriate to 
consider the ``quality'' of cost outcomes.

    The fact that every process always produces all 3 categories of 
outcomes means that the 3 classes of outcomes are intertwined. It is 
impossible to functionally separate them, from an operational 
perspective. For example, a physician may make a change to a treatment 
process with an aim to improve a clinical outcome. That will, by 
definition, also change the process's cost outcomes. Alternatively, an 
administrator may change that same process with an aim reduce costs. 
That will, unavoidably, change the process's clinical outcomes.

    Deming next began to explore the interactive relationships between 
physical and cost outcomes. A surprising finding emerged: The linkages 
between physical and cost outcomes were not always negative. To that 
point, everyone had always assumed that higher quality always meant 
higher cost. Deming showed that some major classes of process changes, 
when introduced to improve physical outcome quality, caused costs to 
fall. He identified 3 causal mechanisms by which physical and cost 
outcomes interact. The first 2 interactions form the basis for all 
quality-based definitions of ``waste'' (James, 1989):

    a. Quality waste--A step in a process fails. Some proportion of the 
time (it doesn't have to be 100 percent), that process failure causes a 
physical outcome failure--a ``quality'' failure. When that occurs, the 
process operator has only 2 options:

        1. The process operator can repair the low quality product. 
        This is called ``rework'' in quality theory. The problem: 
        Rework--repairing the failed product--always involves 
        additional time and resources. In other words, it always costs 
        more.

        When a process operator detects a failure, the best response is 
        to ``move upstream'' into the process, figure out where and how 
        it failed, then fix the process so that it will not fail again. 
        It is always cheaper to ``do it right the first time'' than to 
        ``fail then repair.''

        For example, Reiss- Brennan et al. created a 3rd generation 
        primary care medical home called Team-Based Care (TBC) (Brennan 
        et al., 2016). They deployed chronic disease management, mental 
        health integration, and care coordinators into primary care 
        practices. As patients received better clinical management in a 
        primary care setting, specialty visit rates fell by 21 percent, 
        and hospitalization rates fell by 22 percent. Overall, 
        deploying TBC cost $22 per person per year (a not-insignificant 
        investment), but total medical expense fell by $115 per person 
        per year (a five-times savings, compared to the investment). 
        Seen through the lens of quality improvement, specialty 
        referrals and hospitalizations represented failures of upstream 
        primary care processes.

        Similarly, preventable care-associated patient injuries 
        (patient safety) represent quality waste. It is nearly always 
        much cheaper to avoid patient injuries from the start, than to 
        treat them after they occur.

        2. If the failed outcome does not involve a human life, then 
        the process operator could simply discard it. This is called 
        ``scrap'' in quality theory. Obviously, all of the time and 
        resources consumed to create the scrapped product are wasted.

        For example, a hospital clerk runs and prints a large report, 
        only to discover that the date range used in the report was 
        wrong. That wastes not just the discarded paper, but the human 
        and computer time consumed to produce the report.

    b. Inefficiency waste--2 parallel processes produce identical 
outputs. One of those processes use significantly more resources to 
achieve that goal. The unnecessary use of resources represents waste.

    In the late 1980s, clinical research teams at Intermountain 
Healthcare examined treatment details for common conditions routinely 
managed in hospitals (transurethral prostatectomy (TURP), 
cholecystectomy (gallbladder removal), total hip arthroplasty 
(artificial hip joint implantation), coronary artery bypass graft 
surgery (CABG), community-acquired pneumonia, and implantation of 
permanent cardiac pacemakers) (James, 1995). For statistically 
identical patients with statistically identical clinical outcomes, they 
found about

        a 2-fold difference in resources consumed. For example, when 
        performing a TURP on a standard patient, one urologic surgeon 
        consumed on average 1184 hospital dollars to achieve a good 
        outcome (these were 1986 dollars--medical inflation has greatly 
        increased those numbers across the years). Another surgeon in 
        the same hospital averaged $2233 for an equivalent patient with 
        the same good clinical outcome.

    For both quality waste and inefficiency waste, process management 
offered an opportunity to reduce operating costs by producing better 
physical outcomes. Deming proved that better quality could drive lower 
costs.

    There is a third way in which physical and cost outcomes interact, 
that fall outside Deming's ``waste'' mechanisms:

        c. Cost effectiveness--In some circumstances, clinicians find a 
        treatment process that produces better outcomes, but the new 
        process appropriately consumes more resources to produce that 
        result. When that happens, those who both stand to benefit and 
        to compensate the required higher resource consumption face a 
        choice: Does the amount of quality gained by using the new 
        process justify its additional expenses. Obviously, this is a 
        choice that health care consumers must ultimately make.

    Under Deming's quality improvement theory, higher quality can 
eliminate waste and reduce costs. This defines ``value''--the best 
quality result at the lowest necessary cost. Deming's theories 
initially transformed manufacturing around the world. Any company that 
could not master his process management methods to produce higher 
value--better quality at lower costs--could not compete with companies 
that could. It became a litmus test for survival in many industries, 
and produced a maxim: Do Deming or die.

    Starting in the late 1980s, clinical investigators demonstrated 
that Deming's theories apply in health care delivery. They realized 
that Deming's approach took concepts found in preventive medicine, and 
generalized them.

    Clinical quality improvement's prevention-based approach raises 2 
questions:

          How much quality and inefficiency waste exists in 
        health care delivery?

          While theory is useful, it does not always accurately 
        reflect implementable reality. Do these principles apply and 
        produce expected results in real care delivery experience?

        B. In 2010, an Institute of Medicine (IOM) expert panel 
        conducted an evidence review (IOM 2010). They estimated that a 
        minimum of 30 percent, and probably over 50 percent, of all 
        money spent on health care delivery is waste recoverable 
        through higher quality. Some analyses suggest that waste levels 
        may be much higher.

        C. In 2018, total expenditures on health care delivery in the 
        United States will approach $3.6 trillion. Midpoint estimates 
        suggest as much as $1.8 trillion in recoverable waste. More 
        than half of health care spending, and associated waste, is 
        funded through government.

        D. Most research on health care waste comes from the United 
        States. However, evidence from other countries (e.g., Canada, 
        Australia, and European democracies) suggests that health care 
        waste levels are similar across the world.

    The 2010 IOM report is currently the best published citation for 
waste in health care delivery. Subsequent reports derive from it. It 
started with Deming's ideas of quality waste and inefficiency waste, 
then catalogued specific examples of care delivery waste that various 
researchers had documented.

    Outside the U.S., most countries lack the detailed financial data 
that make direct waste estimates possible. However, care delivery 
systems in other countries have studied clinical process failures and 
generated estimates of failure rates. That is the basis for asserting 
that financial waste rates in other countries mirror those seen in the 
United States. The waste results from the process failures. While the 
U.S. invests much more heavily in health services research than other 
countries, there is sufficient evidence to support the conclusion that 
care delivery process performance, and process failures, are similar.

    Several years later, James & Poulsen published a financial model 
that aligns Deming's waste categories to health care delivery 
operations (James & Poulsen, 2016). That approach included additional 
categories of waste that did not appear in the 2010 IOM report, and so 
produced higher estimates of the amount of waste that currently exists 
in care delivery operations.

    The James/Poulsen financial model has 3 tiers:

    Tier 1 waste (the base)--A ``unit of care'' is any granular service 
or supply provided to a patient during a care delivery encounter. 
Examples of ``units of care'' include things like a single dose of a 
specific medications; a single specific type of imaging exam; a lab 
test; an acuity-adjusted hour of nursing time; a 6-minute block of 
physician time, adjusted by specialty; an acuity-adjusted minute in a 
procedure room (such as an operating theater); a bedpan; a box of 
tissue (Kleenex). U.S. hospitals maintain master lists of all possible 
``units of care'' that they could possibly supply to a patient. 
Depending on other internal features, these lists are called ``charge 
masters'' or ``cost masters.'' As a patient receives care during a 
clinical encounter, the treating facility records each unit of care 
consumed. Mapped through the charge or cost master, this allows the 
treating facility to create a detailed bill for all services provided 
during a clinical encounter.

    One can usefully think of a care facility as a business that 
obtains, creates, maintains, and supplies these ``units of care.'' In 
Tier 1, ``waste'' refers to any costs associated with any ``unit of 
care'' in excess of an absolute necessary minimum. The associated 
organizational function is called ``supply chain.'' It is that part of 
a care delivery organization that obtains, assembles, and supplies to 
the point of actual care delivery all necessary supplies, including 
equipment and personnel.

    Figure 1 labels Tier 1 ``Efficiency (cost per unit of care)''.

    Tier 2 waste--During a clinical encounter physicians, nurses, and 
other clinicians select and apply different units of care, including 
their own time, to address patients' health care needs. ``Within-case 
utilization'' refers to the specific type and number of ``units of 
care'' used during a care delivery episode. Detailed studies of 
variation in care delivery typically focus at this level. Such studies 
identify cohorts of similar patients being treated for the same 
clinical problem, then track the type and number of units of care used. 
They break total health care costs into two parts: The type and number 
of units of care consumed (utilization), and the true cost of 
acquisition of each unit of care (cost per unit).

    Tier 3 waste pushes the idea of utilization a level higher. ``Case-
rate utilization'' describes how often specific treatments are used in 
defined population.


 
                                                                                           Percentage of total
                                                                       Waste rate within    health care costs   Percentage of total    Remaining value
                                                                      category (1 percent     to which this     cost recoverable w/       (Percent)
                                                                         of all cases)       category applies       in category
 
3. Case-rate utilization (# of cases within a population)                                                                                      100.0
 
   Inappropriate care                                                     20 percent           100 percent          100 percent                 80.0
 
   Care patients would not have selected if given a fair choice           40 percent            15 percent          100 percent                 75.2
 
   Avoidable care                                                         15 percent           100 percent           80 percent                 65.6
 
2. Within case utilization (# & type of units per case)
 
   Initial misdiagnosis, delayed diagnosis                                15 percent           100 percent           25 percent                 63.1
 
   Avoidable care-associated patient injuries                             26 percent            10 percent           70 percent                 62.0
 
   Variation in care delivery not driven by patient need                  33 percent           100 percent           80 percent                 45.6
 
   Operational inefficiency for health professionals                      35 percent            40 percent           50 percent                 42.4
 
   Avoidable administrative overhead                                      30 percent            15 percent           50 percent                 41.5
 
   Excess insurance company profits                                       50 percent            20 percent           70 percent                 38.6
 
1. Efficiency (cost per unit of care)                                      5 percent            60 percent          100 percent                 37.4
 
   Proportion waste in care delivery:                                                                                                           62.6
 


    Figure 1. Breakdown of total health care delivery costs into 3 
tiers, that build one on top of another.

    Figure 1 adds specific subcategories within each tier, cataloguing 
known classes of waste in health care delivery. The columns to the 
right summarize data from the published literature regarding measured 
within-class rates of waste; the proportion of total health care costs 
to which that category of waste apply; and estimates of how much of 
that waste should be amenable to extraction using current technologies. 
The table correctly adjusts--for example, it applies waste savings that 
could be obtained by eliminating ``within case utilization'' only after 
all inappropriate care and avoidable care have been removed. Many of 
the estimates in the table are just that--the author's own estimates--
and will be modified as better data and expert opinion become 
available.

    Figure 1 adds one important category that other studies of health 
care waste did not include. Wallace and Savitz adapted Toyota 
Production System (TPS) Lean Observation to a health care setting 
(Wallace & Savitz, 2008). They tracked work performed within more than 
60 different health profession roles, such a pharmacists, nurses of 
various specialties, hospitalist physicians, and central supply staff 
workers. They directly assessed those roles in 4 integrated care 
delivery systems (Intermountain Healthcare, Providence Health Systems, 
University of North Carolina Health Care, and University of Virginia). 
Every task performed was classified as ``value adding'' or ``non-value 
adding'' (waste) by expert observers, in real time.

    The proportion of health worker's time judged ``waste'' ranged from 
20 percent to over 70 percent. Overall, non-value adding activities--
waste--comprised on average more than 35 percent of all health 
professional work time. Extrapolating to the entire health care 
workforce, their findings are summarized as ``Operational inefficiency 
for health professionals'' in Figure 1. By way of illustration, waste 
levels were placed at 35 percent (column 1), as estimated in the study. 
Worker salaries are estimated to comprise about 40 percent of all 
health care costs (column 2). Based on experience gained while 
addressing associated processes, the model estimates that 50 percent of 
such waste could be recovered with current technologies.

    This model, while extending beyond those included in the 2010 IOM 
report, still leaves some sources of waste unaccounted. For example, it 
does not include estimates of clinician inefficiencies that track back 
to the structure of current electronic medical record (EMR) systems 
(Sinsky et al. found that physicians spend about 2 hours performing 
EMR-based administrative tasks for every hour they spend with 
patients--Sinsky et al. 2016).

    This model and associated argument is the source, in conclusion (B) 
above, of the statement that ``some analyses suggest that waste levels 
may be much higher''

          E. The primary drivers of waste are (1) care delivery 
        execution that still relies primarily on personal expertise and 
        human memory (the ``craft of medicine''); (2) in the face of 
        high and rapidly increasing complexity of clinical practice, 
        that ``exceeds the capacity of the unaided expert mind''; 
        framed within (3) legal structures, cultural expectations, and 
        payment methods that actively encourage utilization. Waste 
        estimates include healthcare fraud and abuse. However, these 
        factors are small compared to other sources.

    Arguments supporting this assertion are beyond the scope of this 
testimony. The author refers interested parties to James & Savitz, 2011 
and James & Lazar, 2007; or invites those parties to contact the author 
directly.

    F. A series of at-scale projects have shown that quality-based 
waste recovery is achievable using available tools. For example, one 
Utah-based health system improved patient outcomes and thus reduced 
total operating costs 13 percent across 4 years ($688 million, through 
2015). Other examples abound.

    A great many examples of clinical projects that show lower costs 
associated with better clinical quality are present available in the 
peer-reviewed medical literature. For purposes of this testimony, 
however, a recently published experience at Intermountain Healthcare 
provides a solid ``at scale'' example (James & Poulsen, 2016--op. 
cit.):

    Intermountain Healthcare is a non-profit system of 22 hospitals, 
more than 190 outpatient clinics, and an associated HMO-model health 
plan. It supplies more than half of all health care services in Utah 
and some areas in surrounding states.

    In 2010, Intermountain's Chief Financial Officer set a goal: In 
order to keep health services affordable, and thus accessible, to the 
patients Intermountain served, he asked the care delivery system to 
limit total health care costs increases to consumer price index 
inflation plus 1 percent (CPI+1). Intermountain's Finance department 
modeled that goal using ``best estimates'' of prior consumer price 
index inflation and health care total cost growth rates. Their 
estimates are shown in Figure 2. It required that Intermountain reduce 
its total operating costs by 13 percent across the next 5 years, 
through the end of 2016.

    To achieve that goal, Intermountain's clinical leadership launched 
5 major quality improvement projects, with an aim to control health 
care costs through better clinical outcomes. The heavy green line shows 
results for the first 4 years of the project. Across those 4 years, 
operating costs fell by $688 million--a 13 percent reduction in the 
system's expected total operating costs.


    Figure 2. Financial consequences of waste elimination at 
Intermountain Healthcare from 2011 to 2015, achieved through clinical 
quality improvement. The solid blue line shows expected total health 
care costs for Intermountain's service population, taking into account 
general population growth, aging of the population and other 
population-based epidemics (e.g., Baby Boom entering chronic disease 
years, the obesity epidemic), and introduction of new treatment 
technologies. The solid black line shows `allowable' growth in health 
care costs needed to achieve CPI+1--a 13 percent reduction in total 
operating costs through 2016. The green line show actual total costs.

    These results echo findings of waste elimination and cost savings 
demonstrated by a long list of other projects, at Intermountain and 
many other U.S.-based care delivery systems. They demonstrate, using 
current tools, it should be possible to dramatically reduce growth 
rates in health care costs.

          G. Waste elimination through higher quality offers health 
        care providers financial opportunities that dramatically exceed 
        other sources. However, most care providers are not actively 
        pursuing broad quality-based waste elimination. That is 
        primarily because payment mechanisms create misaligned 
        financial incentives.

    As noted above, this year the U.S. will spend almost $3.6 trillion 
on health care delivery services. A midpoint estimate that about 50 
percent of that spending is waste suggests a value opportunity of about 
$1.6 trillion. That dwarfs, by at least a factor of 100, any other 
opportunities for health care provider income growth. Return on 
investment for waste elimination projects are typically significantly 
larger than those for traditional service expansion approaches, as well 
(as above, the details of this analysis are left for another settings). 
Why, then, do such levels of waste continue? Why aren't health care 
markets driving care providers to very vigorously address and remove 
waste in the health care delivery system?

    The reason: Financial incentives for waste elimination do not 
align. Figure 3 shows how the tiered classes of health care waste, 
defined in Figure 1, align with payment mechanisms.

    Figure 3. Association of tiered waste categories with payment 
mechanisms. ``FFS'' stands for ``fee for service'' payment--still the 
most common method used to reimburse care delivery. Waste elimination 
always requires substantial investment, nearly always by care 
providers. The triangles in the table show who gets the savings when a 
waste-elimination project succeeds. Red triangles indicate that the 
savings go to payers, leaving those who must invest--the care 
providers--with no recompense for their initial investment.

    Improving quality to eliminate waste always requires that care 
delivery groups invest in new systems and change leadership. Under 
current payment mechanisms, the resulting waste savings often go to 
someone other than those who must make that investment. That can leave 
care delivery groups under financial stress, without resources to fund 
future projects. Under fee-for-service (FFS) payment only about 5 
percent of quality-based waste elimination generates compensatory 
savings back to the care delivery group that must invest and make the 
change. Adding per case payment (DRGs) increases alignment to about 55 
percent. The final 45 percent of potential savings requires that care 
providers bear financial risk--various forms of shared savings or 
directly capitated compensation.

    Figure 3 also summarizes the waste tiers in Figure 1, noting the 
total proportion of all waste opportunities associated with each tier. 
For example, about 45 percent of cost reduction opportunities function 
at the level of population health (Tier 3). Another 50 percent aligns 
to addressing variation in clinical practice, improving patient safety, 
and eliminating administrative overhead (Tier 2). Figure 3 assigns only 
5 percent of total waste elimination opportunities to unit costs (Tier 
1).

    Health care delivery in the United States costs significantly more 
per person, and consumes more of total national wealth (as measured by 
percentage of Gross Domestic Product), than does health care delivery 
in other modern democracies. Papanicolas , Woskie, & Jha (Papanicolas, 
2018) correctly note that unit costs, by themselves, explain the 2-fold 
difference health care spending seen in the United States as compared 
to other countries.

    The reason that Figure 3 assigns only 5 percent of total waste 
elimination opportunities to unit costs (Tier 1) is because so many of 
the elements that drive higher unit costs are outside of the control of 
health care providers. We arrived at the 5 percent estimate based on 
observations of the gains achieved by successful supply chain 
operations in leading care delivery systems. We also note that, given 
the size of the U.S. health system, even a 5 gain is consequential.

    H. One person's waste is another person's income. Thus, health care 
waste vigorously defends itself--through traditional health management 
methods and, often, through political mechanisms.

    This argument, too, is left for further discussion beyond this 
document.
                               References
    James, B.C. Quality Management for Health Care Delivery 
(monograph). Chicago, IL: Hospital Research and Educational Trust 
(American Hospital Association), 1989.

    Reiss-Brennan B, Brunisholz KD, Dredge C, Briot P, Grazier K, 
Wilcox A, Savitz L, and James B. Association of integrated team-based 
care with health care quality, utilization, and cost. JAMA 2016; 
316(8):826-34 (Aug 23/30).

    James, Brent C. What is a TURP? controlling variation in the 
performance of clinical processes. Improving Clinical Practice: Total 
Quality Management & the Physician (ed: D.B. Blumenthal and A.C. 
Scheck). San Francisco, CA: Jossey-Bass Publishers, 1995 (Chapter 7).

    Institute of Medicine Roundtable on Value and Science-Driven 
Healthcare. The Healthcare Imperative: Lowering Costs and Improving 
Outcomes. Yong, Pierre L., Saunders, Robert S., and Olsen, LeighAnne, 
editors. Washington, DC: National Academy Press, 2010.

    James Brent C and Poulsen Gregory P. The case for capitation: It's 
the only way to cut waste while improving quality. Harv Bus Rev 2016; 
94(7-8):102-11, 134 (Jul-Aug).

    Wallace, C. Jane and Savitz, Lucy. Estimating waste in frontline 
health care worker activities. J Eval Clin Pract 2008; 14(1):178-80 
(Jan).

    Sinsky et al. Allocation of physician time in ambulatory practice: 
A time and motion study in 4 specialties. Ann Intern Med 2016; 
165(11):753-60 (6 Dec).

    James Brent C and Savitz Lucy A. How Intermountain trimmed health 
care costs through robust quality improvement efforts. Health Affairs 
2011; 30(6):1185-91 (June).

    James Brent C and Lazar Joel S. Sustaining and extending clinical 
improvements: A health system's use of Clinical Programs to build 
quality infrastructure. Practice-Based Learning and Improvement: The 
Clinical Improvement Action Guide, 2nd Edition. Nelson Eugene C. and 
Batalden Paul, editors. Chicago, IL: Joint Commission Press, 2007.

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spending in the United States and other high-income countries. JAMA. 
2018; 319(10):1024-1039 (Mar 13).
                   [summary statement of brent james]
      Health care delivery ``waste'' describes any consumption 
of resources that does not provide optimal benefit to a patient. Under 
Deming's quality improvement theory, higher quality eliminates waste. 
This defines ``value''--the best quality result at the lowest necessary 
cost. Deming's theories initially transformed manufacturing around the 
world. Starting in the late 1980s, clinical investigators demonstrated 
that Deming's theories apply in health care delivery.

      In 2010, an Institute of Medicine (IOM) expert panel 
conducted an evidence review. They estimated that a minimum of 30 
percent, and probably over 50 percent, of all money spent on health 
care delivery is waste recoverable through higher quality. Some 
analyses suggest that waste levels may be much higher.

      This year, total expenditures on health care delivery in 
the United States will approach $3.6 trillion. Midpoint estimates 
suggest as much as $1.8 trillion in recoverable waste. More than half 
of health care spending, and associated waste, is funded through 
government.

      Most research on health care waste comes from the United 
States. However, evidence from other countries (e.g., Canada, 
Australia, and European democracies) suggests thathealth care waste 
levels are similar across the world.

      The primary drivers of waste are (1) care delivery 
execution that still relies primarily on personal expertise and human 
memory (the ``craft of medicine''); (2) in the face of high and rapidly 
increasing complexity of clinical practice, that ``exceeds the capacity 
of the unaided expert mind''; framed within (3) legal structures, 
cultural expectations, and payment methods that actively encourage 
utilization. Waste estimates include healthcare fraud and abuse. 
However, these factors are small compared to other sources.

      A series of at-scale projects have shown that quality-
based waste recovery is achievable using available tools. For example, 
one Utah-based health system improved patient outcomes and thus reduced 
total operating costs 13 percent across 4 years ($688 million, through 
2015). Other examples abound.

      Waste elimination through higher quality offers health 
care providers financial opportunities that dramatically exceed other 
sources. However, most care providers are not actively pursuing broad 
quality-based waste elimination. That is primarily because payment 
mechanisms create misaligned financial incentives.

    Improving quality to eliminate waste always requires that care 
delivery groups invest in new systems and change leadership. Under 
current payment mechanisms, the resulting waste savings often go to 
someone else. That can place the care delivery group under financial 
stress and leave them without resources for future projects. Under fee-
for-service (FFS) payment only about 5 percent of quality-based waste 
elimination generates compensatory savings back to the care delivery 
group that must invest and make the change. Adding per case payment 
(DRGs) increases alignment to about 55 percent. The final 45 percent of 
potential savings requires that care providers bear financial risk--
various forms of shared savings or directly capitated compensation.

      One person's waste is another person's income. Thus, 
health care waste vigorously defends itself--through traditional health 
management methods and, often, through political mechanisms.
                                 ______
                                 
    The Chairman. Thank you, Dr. James.
    Well, this is fascinating and thanks to each of you. We 
will now begin a 5 minute round of questions.
    This is a bipartisan hearing, which means Senator Murray 
and I have agreed on the witnesses and the subject, and I hope 
to devote most of the time to looking ahead to the subject she 
talked about.
    Senator Murray raised the issue of health insurance. 
Everyone knows my respect for her and how well we have worked 
together on most issues to get a result. I have a little 
different view than she does, which I think I have to state.
    If you are looking for why health insurance costs are so 
high in our state, I would suggest to my Democratic friends, 
they need to look in the mirror because they voted for 
Obamacare, and prices are up 158 percent since then.
    Number two, so far as a Trump administration sabotage, if 
there was one, apparently it did not work because the predicted 
prices for 2019 are down by 10 percent.
    Three, it could have been down by 40 percent if we could 
have agreed on the Alexander-Murray negotiation that we had in 
which Democrats pulled the rug out from under it at the last 
minute by refusing to vote for the Hyde Amendment compromise 
that they voted for a hundred times in the same bill, and have 
voted for every since 1976.
    So each has our different points of view on that, and I did 
not one to be mentioned without the other.
    Let me go to looking ahead now at health care costs.
    Dr. James, that is an astonishing testimony. According to 
some estimates, 18 percent of our Gross Domestic Product in the 
United States goes to health care. And, of course, our Gross 
Domestic Product is almost one-fourth of the world's gross 
domestic product. That is a massive amount of money. You are 
suggesting that half of that is wasted.
    Let us say you are right, even though it is an astonishing 
number, and you were a United States Senator, where would you 
start to bring that number down? What would Step 1 and 2 be?
    Dr. James. My first step would be to align financial 
incentives. There is so much detail in it, that you cannot do 
it from a central planning function.
    The Chairman. Now, boil that down a little bit more.
    Dr. James. Continue to shift payment for health care to a 
pay for value.
    The Chairman. Which we are beginning to do, right?
    Dr. James. That is correct. We need to continue that 
initiative vigorously.
    At the extreme is capitated care, frankly. There are seven 
or eight different models for doing it, but as we shift those 
financial incentives, I think, the science is back behind it. 
What you will see is the whole industry stepping up, then, to 
help us solve this problem.
    The Chairman. What would be Step 1 or 2 to deal with 
complexity, which you say is the number one cause of all this?
    Dr. James. I personally believe that the current crop of 
Electronic Medical Records is intellectually dead. They are 
very poorly structured for dealing with complexity in health 
care. There are a batch of new ones that are just nascent, 
starting to form that offer wonderful opportunities.
    I think that we, as a country, leading the world need to 
start to think about a new generation of health I.T. that is 
focused on what is called ``clinical decision support'' rather 
than primarily financial performance.
    The Chairman. Dr. Balser, you mentioned that Vanderbilt has 
an electronic support system to make the provision of 
medications more effective. I visited with your Electronic 
Medical Records team.
    What do you think about what Dr. James said about 
Electronic Medical Records? What about your experience with 
prescribing medications in a more effective and cheaper way?
    Two different questions, really.
    Dr. Balser. Yes, so I agree with what Dr. James said. I 
would emphasize, though, that providing the information at the 
point of care that doctors need is both people and process, as 
well as technology.
    What most health care in the United States does not have, 
that some of the large academic centers do have, is a very 
robust interaction between the physicians--particularly the 
specialists who are capable of deciding on any given week what 
is the best antibiotic based on the evidence, and which one is 
the cheapest based on the market-- and having that transmit to 
the doctors through the Electronic Health Record and through 
the decision support.
    I agree the technology needs to improve, but having those 
really robust processes inside health systems that connect the 
doctors and their best evidence to what is happening out on the 
line is key.
    The Chairman. But your folks at Vanderbilt experienced the 
complexity of Meaningful Use 3. They said one was helpful, two 
was okay, and three was terrifying.
    Dr. Balser. Yes, I agree with that.
    The Chairman. They have been looking at it for years.
    Dr. Balser. Yes, so I certainly would love to see some of 
the things we are talking about around supporting on the line 
decision support in Meaningful Use 3, propelling the right kind 
of information to the clinicians, as opposed to some of the 
things that were originally conceived in Meaningful Use 3.
    The Chairman. Dr. Lansky, do you agree that 30, 40, 50 
percent of what we spend on health care is wasted? And if so, 
what would be the one or two things Senator Murray or I could 
do about it?
    Dr. Lansky. These estimates are very sound and we certainly 
see it directly.
    Senator Murray's state, Washington Health Alliance, did a 
study of low cost services in Washington, and I think 46 
percent of them were considered unnecessary, which is a huge 
amount of spending and burden for the patient. So I think those 
numbers are right.
    In terms of what to do about it, obviously, I would 
emphasize the importance of simplifying the measurement 
environment to focus on outcomes.
    As Brent said, moving toward value-based payment much more 
rapidly than we are. So that health care organizations like 
these have the responsibility to manage within a budget, 
essentially, and root out costs that they can by giving 
attention to the waste that exists in their systems.
    I think standardizing the products, if you like, so that 
when we say ``a knee replacement'' or ``an episode of diabetes 
care,'' we have a standard concept that we can begin to have 
competition around it. Right now, we really do not have 
competition for performance, and therefore, we are not having 
any pressure to reduce waste.
    The Chairman. I would like to hear what Dr. Safyer said, 
but I am out of time, so we will get back to you.
    Senator Murray.
    Senator Murray. Thank you very much, Mr. Chairman.
    Thank you all for your testimony today. Dr. Lansky, let me 
start with you.
    One of the problems you talked about in your testimony is 
the high and rising cost of prescription drugs. Yesterday, we 
saw a data release by Bloomberg that shows that prices for 40 
of the most commonly used drugs to treat diabetes, cancer, HIV, 
M.S., asthma, rheumatoid arthritis, and others have been 
increasing.
    I released a similar report today showing that list prices 
for many of the most prescribed and most expensive drugs 
continue to rise.
    You proposed one solution, Dr. Lansky, including the cost 
of drugs and payment reforms like Accountable Care 
Organizations.
    How would that proposal help control spending on 
prescription drugs?
    Dr. Lansky. Well, I think we, as employers, are fairly far 
downstream from the pricing strategy of the drug companies and 
the P.B.M.'s. So we tend to look at solutions we can execute 
within our purview as a purchaser.
    One of those is to say the accountability for total 
spending is in the hands of an accountable organization like 
one of these organizations.
    If they have the responsibility for total cost of care, 
including the cost of drugs, then they will be very thoughtful 
about designing a formulary or selecting from alternative 
medications based on the ultimate cost of administering those 
medications.
    I know in one of Senator Cassidy's proposals, he refers to 
some ``me too'' drugs where we see a lot of drugs being created 
now, which are actually combinations of fairly inexpensive 
drugs which become expensive when they are combined.
    Those formularies are then constructed to reward 
intermediaries who make money by the use of those unnecessarily 
expensive drugs.
    An Accountable Care Organization would be very aggressive 
in understanding how they can choose medications to minimize 
cost and maximize clinical benefit.
    Senator Murray. One of your recommendations is to 
strengthen the Accountable Care Organization and bundled 
payment programs run by Medicare.
    Medicare's programs to improve the way we pay for health 
care complements similar reforms you referred to in your 
testimony like Boeing's Accountable Care Organization that is 
working well.
    Until recently, these Medicare reforms were contributing to 
the Obama administration's objective to move at least half of 
Medicare payments away from traditional volume-based payments 
by 2018. Traditional volume-based payments create incentives 
for providers to give more care instead of the right care.
    At our last hearing, witnesses said these types of 
overarching objectives build momentum towards a health care 
system that delivers more efficient, better quality care for 
patients.
    I was disappointed the Trump administration backed away 
from that commitment and I was disappointed that CMS ended the 
requirement to bundle payments for joint replacements and 
cardiac rehab at certain facilities.
    I wanted to ask you. Why are these Medicare reforms 
important? How do they help large employers enact similar 
reforms in the private sector that bring down costs for our 
workers?
    Dr. Lansky. Thank you. Our purchaser members are very much 
committed to the same strategies you just summarized. However, 
they are relatively small.
    Even a very large organization like Comcast or Wal-Mart may 
have one million employees with covered lives, but they are 
scattered across every state. They do not have the influence to 
alter the behavior of their provider organizations, and their 
markets, and their communities.
    Frankly, the Federal Government and the state governments 
have the biggest buying power and if they do not act in concert 
with the strategies of a value-based payment, then providers 
will have conflicting and mixed incentives.
    Typically, what we are seeing now in the market is many 
hospitals, for example, are going back to pursuing fee for 
service reimbursement because it is a very successful model for 
them and they know how to do it.
    The momentum toward transformation that you described is 
beginning to slow because they are not getting a consistent 
economic signal.
    Senator Murray. Dr. Safyer, your organization, is it 
Montefiore?
    Dr. Safyer. Yes.
    Senator Murray. Is managing to save Medicare money and 
improve quality, and that is despite the many challenges that 
your patient population faces.
    You noted that many of your patients struggle to find 
housing, employment, pay for healthy food. Those are the so-
called social determinants of health.
    In my home state, our Medicaid program is now working to 
address those same challenges to try and keep patients healthy, 
and make sure Medicaid is on a sustainable financial footing.
    Talk to us about why addressing the social determinants of 
health care is so critical to keeping your patient population 
healthy?
    Dr. Safyer. Well, I think everybody here could understand 
easily that the social determinants of health have a huge 
impact on someone's well-being.
    The Bronx is somewhat exaggerated in terms of its 
challenges. We have areas where there are no pharmacies. We 
have areas where the walkups are five storys. We have areas 
where the air conditioning and/or the infrastructure of a 
building is toxic.
    We have areas where there are food swamps and food deserts, 
and they are different, and you can conjure what that means. 
And those are just a few of the examples. I would also add that 
sometimes just exercising is difficult for young people. What 
we need to do is begin to change how communities exist to boost 
well-being.
    Something like 50 percent of the Bronx is overweight.
    Senator Murray. You said that. That is astonishing.
    Dr. Safyer. Yes, and an amazing amount of our population 
have actual diabetes, and that is something that is multi-
factorial and you have to go after that.
    So I think that health care systems should be leaders in 
making change, but they cannot make it all on their own. Just 
give you one example.
    We go to bodegas in neighborhoods that have the highest 
levels of obesity. It is a food store. You cannot find food in 
that store. You would not identify it as food. It is filled 
with beer, and liquor, and soda waters.
    Those bodegas get rewarded for keeping the companies, the 
soda companies buy the equipment to keep the soda cool, but 
they have to put it in the front, and you have to leave your 
vegetables in the back, and they are not seen. They are not 
gone after.
    So these things are very complicated, very complex and they 
have a huge effect.
    Senator Murray. Thank you.
    The Chairman. Thank you, Senator Murray.
    Senator Cassidy.
    Senator Cassidy. Gentlemen, loved all your testimony. At 
one point, I told my aide, ``Be still, my heart.'' I was so 
excited about what you were saying.
    We have something online, which some of you have said 
things and perhaps have directly referenced, a white paper as 
to how to address and how to lower health care costs. We would 
love you to go on our Website and give us a review because we 
are trying to implement some of this.
    I am going to speak quickly and ask you too. I have limited 
time.
    Dr. Safyer, you have mentioned that you do an intervention 
where you counsel people on diet to hopefully address the 
epidemic of obesity.
    Do you have longitudinal data? Does counseling on diet 
actually make a difference or not?
    Dr. Safyer. We have made a large impact. I want to make one 
thing clear, which is that we open all of these programs to 
more of the community.
    Senator Cassidy. But you have actually seen merely 
counseling because it does seem multi-factorial, but 
nonetheless, just by counseling, you have been able to get 
folks to lose weight?
    Dr. Safyer. Yes, and counseling includes other members of 
the group bonding with each other, and working, and being 
competitive, and learning how to do it.
    Senator Cassidy. Got it. Let me move on. I am sorry, not to 
be rude.
    Dr. Safyer. Sure.
    Senator Cassidy. Dr. Lansky, you mentioned the direct 
primary care model in your testimony.
    For those not familiar with it, I call it ``the blue collar 
concierge'' in which you pay a monthly fee and the doctor takes 
care of your primary care needs. Senator Cantwell and I have a 
bill out there for that.
    In your experience, just because I am trying to socialize 
the idea, how could greater use of direct, primary care reduce 
administrative costs to the system?
    Dr. Lansky. Right now, we have, in the fee for service 
system, we have a lot of billing and insurance policies going 
on that are very confusing and generate an enormous amount of 
administrative work.
    Direct primary care, I think, produces essentially a 
version of the capitation for the primary care physician, which 
reduces the transactional data around the individual episodes 
and fee for service payment.
    Senator Cassidy. I know that you know this, but just for 
everyone else to understand, if you look at the percent of a 
primary care doctor's billing that relates to administrative 
costs as it relates to billing, it is much higher than for a 
surgeon.
    Dr. Lansky. Right.
    Senator Cassidy. A surgeon might be 2 percent; for a 
primary care doctor, it might be 25 percent. And so therefore, 
that is where you have the most impact of this.
    Dr. Lansky. Yes.
    Senator Cassidy. We would like to expand that.
    Dr. James, you mentioned that a way to get waste in the 
system is to do something like a DRG. I compare it to an Uber 
driver.
    I got brought home from Dulles. I was reading. All of a 
sudden, I was on a circuitous route because the taxi driver had 
a vested interest in taking me to where it was the biggest 
traffic jam. I ended up in Reston. It was just incredible.
    Dr. James. A beautiful community.
    Senator Cassidy. Beautiful community, but it cost me an arm 
and a leg.
    [Laughter.]
    Senator Cassidy. The Uber driver, he has a vested interest 
in getting me home as quickly as possible.
    Dr. James. Yes.
    Senator Cassidy. I could not help but think there is a 
comparison there.
    Dr. James. Yes, it is a line financial incentive.
    Senator Cassidy. It is a line financial incentive.
    Now, what can we do in Congress to better align that? When 
I speak to my physician colleagues, there is a great deal of 
complexity in coming up with the sort of information system, 
the data analysis, et cetera that is needed to be comfortable 
taking on two sided risk.
    Dr. James. Yes.
    Senator Cassidy. What can we do to aid that?
    Dr. James. My personal answer would be to continue to 
invest in CMMI, the Center for Medicare and Medicaid 
Innovation. Again, in both administrations, it received some 
pretty good support, but that is their mission to work out 
those sorts of things.
    At a policy level, I think that is probably one of the 
better investments you could make.
    The truth is it requires consolidation. It does not require 
ownership. So we have grand examples. Northern California, for 
example, where an I.P. model physician group, about 1,200 
independent physicians, came together and formed that group.
    Senator Cassidy. Now IPA's, though, inherently are, or at 
least traditionally, have kept the smaller practice model ethos 
as opposed to the more corporate of a Kaiser, for example.
    Dr. James. That is correct. They evolve over time, though, 
and they start to develop the methods by which their members 
can benefit from this kind of coordinated care management. They 
start to develop information systems. They start to build 
better contracting.
    Senator Cassidy. So how do we facilitate that? CMMI would 
be to kind of reward those successful models and to promulgate?
    Dr. James. Well, they test different models for payment.
    What we have currently are seven or eight different models 
for moving toward capitated payment where you get full risk 
alignment, where you get full financial incentive alignment.
    I think we need more experimentation, more tests of 
different models.
    Senator Cassidy. So encourage that testing.
    One more thing, here again, I may just hang around for a 
second round. Dr. Lansky, I am trying to think.
    What do we do about a state like Tennessee, a state like 
Iowa or Louisiana where we have maybe one or two or there is no 
insurers competing in the individual market, the Obamacare 
exchanges.
    When I look at Medigap, there is great competition, in part 
because those insurance companies do not have to go negotiate 
with a provider network. They can take Medicare rates and they 
are automatically in business.
    Now, I am not saying we would have to take Medicare rates, 
but you could take some multiple, 1.2 or 1.5.
    What are your thoughts about using reference pricing--which 
you referenced in yours, reference pricing being Medicare or it 
could be Medicaid but probably Medicare--in which somebody 
could go to a Tennessee, Iowa, Louisiana and immediately 
compete with the dominant insurer?
    Of course, the dominant insurer has the ability to 
negotiate a price. With this, the price is negotiated for them, 
but that eliminates that administrative cost of that 
negotiation and allows someone to step in and compete with 
another insurer, which experience shows drives down cost.
    Any thoughts on that?
    Dr. Lansky. I think you are outside of my expertise on 
that, but I think conceptually, that is an interesting 
direction to go.
    Senator Cassidy. Okay. I am over time. I yield back.
    Thank you.
    The Chairman. Thank you, Senator Cassidy.
    Senator Hassan.
    Senator Hassan. Well, thank you very much, Mr. Chair, and 
Ranking Member Murray for holding this hearing.
    Thank you to all the witnesses for being here.
    I will echo Senator Murray's comments that I do not want 
any of us to lose sight of the fact that there are children who 
are still traumatized at our border today because of the 
humanitarian crisis created by this Administration.
    I just want us, as Members of this Committee in particular, 
to continue to push the Administration to reunite families as 
quickly and humanely as possible.
    As to today's hearing, I thank you all for being here. Dr. 
Balser, I will just say I loved your testimony about medical 
homes. I am the mom of a medically complex young man and I can 
still remember what a difference a medical home made.
    I can still remember going to a subspecialist appointment 
with my son and trying to explain what the X-ray from another 
subspecialist meant. I am sitting in a room thinking, ``Why is 
the mom explaining the X-ray to the doctor?'' So it is a really 
important thing, not just for cost, but for quality outcomes, 
and for peace of mind for families. Thank you for your work on 
that.
    Dr. Lansky, I wanted to drilldown on the issue of outcomes, 
how we measure them, particularly around prescription drugs.
    We spend a lot of time in this Committee hearing about how 
prescription drug prices are skyrocketing. They are a major 
driver of health care costs, and we should be working to rein 
them in.
    The Trump administration has paid lip service to this 
issue, but has not taken any real, meaningful action. I am 
worried that this Administration is actually headed in the 
wrong direction when it comes to controlling these costs.
    Take the recent news about what can only be described as a 
sweetheart deal between the giant drug maker, Novartis, and the 
Centers for Medicare and Medicaid Services.
    Novartis has an innovative new therapy known as CAR-T cell 
therapy. Novartis has priced this critical therapy at a 
whopping $475,000. It is really amazing therapy. It harnesses 
the patient's own immune cells to fight and kill certain kinds 
of cancer. We need to make sure the patients can access it.
    But it has come to light that CMS and Novartis had a pretty 
cozy relationship when it came to working on how CMS would 
reimburse for the drug; a relationship that would have set off 
any lawyer's alarm bells. In fact, CMS's own lawyers were 
reportedly, ``surprised and concerned,'' their words, with 
Novartis' interactions with CMS on this reimbursement scheme.
    The lawyers also pointed out that the agency was unusually 
deferential to Novartis when it came to figuring out 
reimbursement.
    That deference resulted in an agreement to enter into 
performance based reimbursement that rated the drug's 
effectiveness based on patients' outcomes, which sounds good. 
Except that Novartis convinced CMS to measure the effectiveness 
after just one month when experts say patients generally do 
their best rather than measuring at a later point where 
improvements tend to level off or the patients even may 
decline.
    So they convinced CMS not to look at an overall assessment 
that would be accurate. The result was a reimbursement scheme 
that would have amounted to essentially a blank check for 
Novartis.
    Now, thankfully, this inappropriate relationship between 
CMS and Novartis has come to light and the reimbursement scheme 
CMS and Novartis cooked up has been halted.
    But I raise this issue today because it is not the first 
time we have seen troubling ties between the Trump 
administration and Big Pharma that put consumers' interests at 
risk. I worry about what other kind of backroom or insider 
deals with Big Pharma the Trump administration may be pursuing.
    We need to make sure that patients have access to these 
amazing new drugs like CAR-T cell therapy, and we need to 
figure out how to reimburse properly for these groundbreaking 
therapies.
    But letting the drug company write the reimbursement policy 
is like the proverbial fox in the henhouse.
    Dr. Lansky, do you have any thoughts on how Congress can 
make sure that pharmaceutical companies cannot rig new payment 
systems? How can we measure outcomes in a way that is 
meaningful, and balanced, and immune from undue influence?
    Dr. Lansky. A very important question, of course.
    The structure that is being discussed now with creating 
outcomes-based payment for drugs is a structure worth 
exploring. It makes a lot of sense, as you said.
    The outcomes have to be fairly long term, long enough to 
capture the meaningful outcome for the patient and it is for a 
definitive therapy.
    We have, however, not supported as much value-based 
assessments as we could. So groups like ICER, which do drug 
assessments and PCORI, has a variety of assessments. PCORI, as 
you know, is not allowed to look closely at the long term cost 
benefit of the therapies they are evaluating.
    ICER does look at those and ICER probably would have data 
for you to help look at what is the appropriate place to set a 
threshold for an outcome measurement.
    So I think the Congress can support more value assessment 
strategies through a variety of mechanisms that would provide 
the data for CMS and others to negotiate with better 
information.
    Senator Hassan. Thank you very much.
    Thank you, Mr. Chair.
    The Chairman. Thank you, Senator Hassan.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Mr. Chairman, I, too, feel compelled to respond very 
briefly to the Ranking Member's comments before turning to my 
questions.
    In March, the leader kept his commitment to you and to me 
to bring, what had been bipartisan bills, to the Senate floor 
to fund high risk pools and cost saving reductions.
    These bills would have led to a decrease of up to 40 
percent in insurance premiums over the next two years, which 
would certainly have been welcomed.
    It was very unfortunate that the Ranking Member, for whom I 
have great respect and with whom I have worked very closely on 
many issues, chose to block those bills.
    If there has been a change of heart on that, I would 
certainly welcome it.
    To turn to my questions now, Dr. Balser, there is growing 
research that shows that we may be over testing and that can be 
part of the problem, part of the waste that all of you have 
identified.
    For example, a 2014 study of women over 30 found that 
nearly two-thirds who had undergone a complete hysterectomy 
were still being tested for cervical cancer, were still getting 
that screening, which obviously makes no sense whatsoever.
    We are also seeing trends of over-diagnosis due to over 
testing in certain populations of older adults, who may not 
stand to benefit from additional screening. And sometimes the 
risks of the screening increase with age.
    What changes should we be pursuing in the area of testing 
to try to prevent that kind of waste?
    Dr. Balser. Thank you for that question.
    Divided into two buckets, one is making sure that the 
testing we are doing is really evidence-based, to speak to the 
area you mentioned around hysterectomies.
    Frankly, again, just like physicians have trouble keeping 
up with all of the different drugs and in every situation--
which drug is the most cost effective or the most efficacious--
the same thing is true with testing.
    Such as, for example, bone marrow tests where it is a very 
complicated process of ordering all the various tests on the 
bone marrow.
    What we are finding is that if we expand the traditional 
function of a Pharmacy and Therapeutics Committee that every 
hospital has to include testing; so a Pharmacy, Therapeutics, 
and Diagnosis committee, and then just like driving into the 
clinician decision support the right drug to use, we actually 
pull information from the Electronic Health Record to guide the 
physicians in what test to order and how to interpret those 
tests.
    Sometimes we have automated support and in other cases, we 
actually ensure that the physicians talk to the lab medicine 
folks before the tests are ordered. That reduces greatly 
unnecessary testing.
    On the other side, there will always be areas where we over 
test intentionally because the risk to patients, should we miss 
something, is enormous, and a good example is prostate cancer. 
We will always over-diagnose prostate cancer because the risk 
of missing it is high. So I think the key there is to minimize 
overtreatment.
    Again, really having good support for PCORI and the other 
kinds of institutes that are helping us do the outcomes 
research.
    For example, at Vanderbilt, many patients with prostate 
cancer, we now know, do not require surgery. It can be safely 
followed with MRI screening. That is saving patients a lot of 
morbidity and also saving the health care system a lot of 
money.
    Senator Collins. Thank you very much.
    Dr. Lansky, a September 2017 article that was in ``Managed 
Care'' magazine highlighted your organization's strategy in 
dealing with Pharmacy Benefit Managers. I have done a lot on 
this issue in the Aging Committee in looking at transparency.
    You mentioned that you hired an expert consultant to go 
over the P.B.M. contracts. You found example after example 
where the P.B.M. turned the formulary to its advantage and not 
to the customer's advantage.
    It seems to me there are perverse conflicts of interest in 
the way this whole system works, in addition to a lack of 
transparency. One is that the P.B.M. may be paid a percentage 
of the cost of the drug. So that is an incentive for the 
manufacturer to have a high list price and the manufacturer 
wants to please the Pharmacy Benefit Manager in order to have 
its drug included on the formulary.
    Any comments on that?
    Dr. Lansky. Yes, I agree with those points absolutely; very 
challenging.
    We have been working, as you mentioned, to identify what we 
call a formulary where the conflicting incentives that are now 
operating in the system would be removed. You would have 
transparency of the cost through the patient, who ultimately is 
paying for all of this, and is the beneficiary of it.
    We have identified a number of areas where that could be 
improved. The challenge now is to rebuild the intermediary 
layer of payment and financing so that kind of an evidence-
based formulary can be applied.
    Senator Collins. Thank you.
    The Chairman. Thank you, Senator Collins.
    Senator Smith.
    Senator Smith. Thank you, Chair Alexander and Ranking 
Member Murray.
    Thank you all very much for being here today. We have a 
joke in my office that this is a particularly wonky hearing and 
so I am particularly happy. I really appreciate it.
    Several of my colleagues have asked some interesting, I 
think, really important questions about the skyrocketing 
challenges we have with prescription drugs, and I want to just 
nod my head to those questions. It is the thing that I hear the 
most in Minnesota.
    I am doing a whole series of listening sessions on this 
around the state, and had one woman in particular who stuck in 
my mind, who laid out five examples of insulin pens that she 
purchased all around the world: $8, $11, $15; exactly the same 
medicine, exactly the same manufacturer, $140 in the United 
States. And this is what my constituents and all of our 
constituents are grappling with, and it is really a challenge.
    But I would like to just actually hone in on something else 
that I am quite interested in. Dr. Lansky, you are talking 
about how employers, and many of you are talking about, how 
employers are playing a more activist role in negotiating 
directly with providers to try to control costs and also, I 
think, make sure that people are getting the good quality care 
that they need.
    Could you just talk a little bit more about how that 
happens in the world? What I am trying to get at is who ought 
to be deciding what care a patient needs? Who is the final 
decider?
    Sometimes I know when I talk to my friends and colleagues 
who are in the provider community, nurses, physicians also, 
sometimes they feel like the people who are not providers, the 
people who are, in their words, the bean counters are deciding.
    Could you help me understand how you see that balance and 
how that comes together? Especially as employers play a more 
important role and that is roughly half of the people who have 
insurance.
    Dr. Lansky. So we believe the patient and their physician 
or other provider should be deciding, and those parties should 
have the right information, incentives, and authority to make 
things happen.
    We have some opportunity to influence the information and 
incentives, and even to delegate the authority to someone. 
Because we do have a fiduciary role as the plan sponsor--on 
behalf of hundreds of thousands of people and a great deal of 
money--to guide the process, to structure the process so that 
ultimately that patient and physician can have the information 
and incentives to make the right decision.
    Senator Smith. One of the big challenges that I hear is 
that it is so difficult to get the data and get the 
information. It is not at all transparent. In fact, it is 
extremely confusing both for patients and often for providers 
too.
    What do we do to address that problem? Anybody?
    Dr. Balser. So one challenge we have is that inside a 
healthcare system where the physicians are employed by the 
health care system, we have much greater ability to move 
information through electronic decision support and guide 
physicians in their practice.
    Increasingly, we are trying to create ACO-like structures 
and affiliated networks around us that let us influence care 
out in communities where physicians may be in small groups and 
do not actually have the kind of support we have at a 
Vanderbilt.
    A challenge we face with that relates to the Stark and 
Anti-kickback laws, which were designed at a time where they 
were well-conceived to try to prevent self-dealing. But today, 
the way those laws are written, they actually are preventing us 
from providing evidence-based guidance to clinicians that we do 
not primarily employ.
    I have actually included in my written statement, it would 
be wonderful if Congress would look at that. Not eliminate 
those laws, but try to modernize them so that we can do the 
right things without running into harm's way to support 
physicians that we do not employ.
    I am not imagining that 100 percent of physicians in this 
country are going to be employed by health care systems. We are 
always going to be working with doctors that we do not employ.
    Senator Smith. Dr. Safyer.
    Dr. Safyer. Yes, I agree with everything that Dr. Balser 
said.
    I would add one component that is underlying here, which is 
our information systems, which tend to be in the academic 
medical centers, have robust information to give us many 
answers. But we could do a lot better if the different systems 
spoke to each other, which is not good business for the 
providers in the systems.
    When we built the railroads in this country, the gauge of 
the track that you were on did not change as you came out of 
Minnesota into another state.
    So our information systems are designed to be proprietary 
and to compete with each other, but not share information that 
would be readily available.
    In the Bronx, we built a rail, which is connecting the 
different systems. It is a workaround, but it only has about 25 
different items in it. It is not comprehensive. We have the 
information. It is not easily accessible.
    Senator Smith. Thank you.
    Mr. Chair, I know I am out of time, but I want to just 
close by saying that I appreciate this. I am struck by all of 
your testimony about the amount of experimentation and testing 
that we need to be doing.
    It is one of the main reasons why I am so concerned about 
the Trump administration's recent efforts to undermine the work 
of the Centers for Medicare and Medicaid Innovation. That is 
the place where we need to test out ideas on ACO's and others 
that you have been discussing. I think that it is a big mistake 
to move away from that.
    Thank you.
    The Chairman. Thank you, Senator Smith.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    We are talking today about how to reduce health spending 
and Senator Murray mentioned one approach with a lot of 
promise, it is called bundled payments, and I want to follow up 
some on that.
    Currently, Medicare pays for health care by reimbursing 
hospitals for each individual service that they perform. Right 
now, if you get a hip replacement, the hospital gets paid in 
little chunks, or big chunks, for every piece that they did.
    They are paid when the doctor cuts you open. They are paid 
when the anesthesiologist puts you to sleep. They are paid for 
the operating room. They are paid for the device. They are paid 
for follow up visits. And then if things go wrong, they are 
paid to treat your infection or for a second surgery to treat 
the problem, and on and on.
    But the Affordable Care Act let Medicare test using bundled 
payments for certain services and it is a pretty simple idea, 
just like it sounds. Instead of getting paid for every piece 
separately, the hospital gets paid one set price for a whole 
bundle of services that go from start to finish.
    Dr. Lansky, let me start with you. Why does changing the 
way that Medicare pays for procedures to a bundled price have 
an impact on the quality of care that the patient receives?
    Dr. Lansky. It does not guarantee that it will have an 
impact on quality of care, but it creates a platform for the 
team to work together. So the team is now convened to manage 
against a budget, essentially, across diagnostics, treatment, 
rehab, and outcomes entirely.
    Unless they also have an incentive to achieve a good 
outcome, if anything, there may be a risk. We either do too 
many bundles or they will not optimize the spending to achieve 
a good outcome.
    Once the team is convened, if they are also accountable for 
the outcome and their payment is in some way contingent on 
outcome----
    Senator Warren. When you say ``outcome,'' it is things like 
low rates of infection.
    Dr. Lansky. Yes, and also if it is a knee replacement, can 
they walk?
    Senator Warren. Can they actually walk?
    Dr. Lansky. Are they returning to normal activities of 
daily living six months after the surgery?
    For a bundled payment to lead to higher quality care, it 
must cover an entire episode from beginning to end. The payment 
has to be affected by the patient's outcome. Ideally, the 
payment should be prospective, not retrospective. In other 
words, the team knows upfront they are getting a certain amount 
of money and managing to it. If it is a retrospective payment, 
a year later, some accountant figures it out.
    Senator Warren. Right, because you are trying to shape 
behavior upfront. Okay.
    So back to a hypothesis, we think that is what it would do. 
Paying a bundled price, if done right, would give hospitals the 
incentive to keep patients healthy and managed towards good 
outcomes.
    Now, Medicare set out to test this hypothesis with some 
research projects designed to examine whether costs went down 
and whether patients did better.
    The first round of research was opt-in. Meaning, the 
hospitals that got bundled payments were the ones that signed 
up to get paid in this way. They volunteered. The data looked 
good, but researchers suspected that the hospitals that signed 
up were the ones who were confident that they could do better 
under a bundled payment system.
    So Medicare tried a more rigorous test which meant 
requiring all the hospitals in a certain part of the country to 
participate in certain types of care like hip and knee 
replacements or bypass surgery.
    Now, Dr. Lansky, when President Trump took office in 2017, 
his Administration just flat out canceled most of the mandatory 
parts of the research agenda. So that raises the question.
    Are we getting solid data about how bundled payments work 
if we just collect results from the hospitals that chose to 
opt-in?
    Dr. Lansky. There are two effects I am concerned about. One 
is that we do not know whether we are only getting the high 
performers or the low performers in the data.
    The second is we are not moving toward a competitive market 
where we have all the providers in the community revealing 
their data for you and me to see and make our own decisions 
where we want to go for care. We are only getting a few 
spotlights.
    Senator Warren. So the Trump administration said they 
canceled mandatory participation in this research project 
because they said it was just too hard on hospitals. Sometimes 
hospitals argue that the older patients or sicker patients are 
going to have more problems and the hospital is going to be 
penalized if it does not have good outcomes.
    Let me ask you, Dr. Safyer. You have a lot of experience 
running programs providing outcome-based care to patients in 
the Bronx.
    Are there ways to design successful programs even for 
hospitals serving patients that have a very high degree of 
health challenges?
    Dr. Safyer. The answer is yes and I believe that the role 
of Medicare and Medicaid should move in that direction 
aggressively.
    I will just make one very important point to your question 
which is, and we discussed it earlier, the social determinants 
of health are huge and important, and we need to account for 
them. So that should be built-in to it.
    Quite frankly, I was disappointed in some of the metrics 
that we have used in Medicare where that was not included and 
it was ignored.
    Senator Warren. Okay.
    Dr. Safyer. I think we need to get back to that.
    Senator Warren. Look, in Massachusetts, we are leading the 
way on efforts to reward high quality care, and we are doing it 
in our Medicaid program, which cares for many of the most 
vulnerable patients.
    Here is the bottom line. If we do not stop trying to 
improve health care in this country--we do not stop trying to 
improve the health care in this country because it is hard or 
because it makes people who benefit from a broken system 
uncomfortable--if President Trump decides he wants to get 
serious about bringing down health care costs in this country, 
he can start by reversing his shortsighted decision to cancel 
research on one very promising way to do it.
    We should make this research better, not take this research 
off the table.
    Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warren.
    Senator Kaine.
    Senator Kaine. Thank you, Mr. Chair.
    Thanks to our witnesses.
    I echo comments made by our Ranking Member at the 
beginning.
    Also, Senator Hassan, I hope this Committee might take up 
the condition of children who are under the jurisdiction of 
HHS, the Office of Refugee Resettlement, because I think it is 
an important thing we should exercise oversight on.
    I appreciate you being here today on this important topic. 
My constituents in Virginia are asking me all the time about 
health care costs. This Committee is, I think, uniquely suited 
because of the folks on the committee--former governors, 
physicians, et cetera--to reduce costs.
    I was intrigued by the testimony of Dr. James and Dr. 
Balser on waste, and I am just going to read a couple of 
excerpts from your written testimony.
    From Dr. James, ``Higher quality eliminates waste. This 
year, total expenditures on health care delivery in the United 
States will approach $3.6 trillion. Midpoint estimates suggest 
as much as $1.8 trillion in recoverable waste.''
    ``The primary drivers of waste are, (1), care delivery 
execution that still relies primarily on personal expertise and 
human memory; (2) in the face of high and rapidly increasing 
complexity of clinical practice that, 'exceeds the capacity of 
the unaided expert mind' framed within; (3) legal structures, 
cultural expectations, and payment methods that actively 
encourage utilization. Waste estimates include healthcare fraud 
and abuse. However, these factors are small compared to other 
sources.''
    Dr. Balser, you have similar testimony. ``Nearly all 
analyses have shown that amid myriad causes for the rising cost 
of healthcare, from accelerating technology to inflated 
pricing, by far the largest single issue is waste.''
    ``The largest sources of waste are euphemistically termed 
'unnecessary services,' and frankly, in most other industries 
would be less generously labeled 'sloppiness'. The root causes 
are predominantly system failures in our ability to effectively 
communicate, not only in transmitting the key information about 
our patients and the care they are receiving, but also 
shortcomings in the decision support that clinicians need to 
provide care that is timely and cost-effective.''
    I found that testimony fascinating and the timing of our 
hearing fascinating.
    Yesterday, the Administration shuttered a 20-year Federal 
program, the National Guidelines Clearinghouse. This was put in 
place 20 years ago in 1998 to collect best practices about a 
variety of health conditions and treatment options. Those best 
practices are vetted before they are included in this online 
clearinghouse.
    The online clearinghouse is used 200,000 times a month, 
largely by health care providers who are dealing with patients 
and then using the online database to try to figure out what is 
the best treatment modality for a patient, so they do not 
waste. So they do not do something wrong. So that they more 
likely provide the high quality, which you suggest, Dr. James, 
will drive out waste.
    The Administration just closed the program yesterday after 
20 years. The American Health Insurance Plans, AHIP, the 
Association of Family Physicians begged the Administration not 
to shutter this voluntary informational resource to allow 
clinicians, and possibly, especially clinicians in small 
settings, rural setting family physicians to be able to get the 
best information so that they can not direct the wrong 
treatment, but the right treatment to help their patients.
    High quality drives out waste. High quality should help us 
reduce costs.
    Can you think of a single good reason why an Administration 
would want to shutter a program like this that provides vetted 
health quality information to providers?
    Dr. James. Senator, I am not here to defend the current 
Administration, first of all. I do not know why. I will say 
this, the piece that is missing from your model is the last 
mile. It is not enough to have a database. You do need the 
evidence, so it is a critical piece.
    Senator Kaine. Yes.
    Dr. James. How do you get it so that it is available in 
every patient interaction almost without having to hunt it, 
which is what it really takes?
    Senator Kaine. But you would assert that we do need the 
database.
    Dr. James. Well, I need the content, and then I need to get 
it down to that interaction.
    Senator Kaine. Any other thoughts about why it would be a 
good idea to eliminate the National Guidelines Clearinghouse?
    Dr. Safyer. Well, there is no good idea for shutting down 
an opportunity to learn about why we spend so much and do not 
get the quality that we need. I cannot even get close to it.
    But just to make a comment about something that has come up 
a number of times, which is related.
    Senator Kaine. But could I ask either Dr. Lansky or Dr. 
Balser first?
    Can you see a reason why the Federal Government would 
shutdown the National Guidelines Clearinghouse after 20 years?
    Dr. Lansky. No.
    Senator Kaine. Dr. Lansky, no. Dr. Balser.
    Dr. Balser. No.
    Senator Kaine. The asserted reason is budget cuts. We just 
did a tax bill that increases the national debt by $1.5 
trillion. This is a small, in the single digit million dollar 
annual allocation program.
    The notion that we can increase the debt by $1.5 trillion 
over ten years to give tax breaks to big corporations and then 
eliminate a best practices Website that produces quality, which 
is good for people, and drives out waste and cost is beyond me.
    My time is up. Thank you, Mr. Chair.
    The Chairman. Thank you.
    Senator Murray and I need to go to the floor to speak 
before the vote at 11:45. I have asked Senator Cassidy to Chair 
the hearing, and any second round of questions that Senators 
might have, and then conclude the hearing.
    Before I leave, I would like to thank the witnesses for 
coming. I am struck, as I think any normal person would be, by 
the idea that as much as half of what we spend on health care 
is wasted. There is always waste in any human enterprise, but 
that is a ridiculous amount of money.
    As we continue our hearings here, I want to, and I am sure 
Senator Murray feels the same way, we want to see if there are 
steps we could take here that make a big difference in that. So 
we will listen carefully to what you have to say.
    I have heard you focus on utilization. You focused on 
complexity; we have heard that in our other hearings. At an 
earlier hearing, the testimony was that we do not use more 
health care than other countries, but that our prices are 
higher.
    So I guess the trick is for us to listen carefully enough 
to figure out, what could we actually do about that here? There 
may be one, or two, or three things that would have a big 
effect.
    When I was a young man and worked in the White House, I was 
an impatient person and the wise man I worked for would say to 
me, ``Lamar, just a little move here makes a big difference out 
there.''
    So if we could avoid getting balled up in technical details 
here or partisan politics, it could be that toward the end of 
the year, that we could begin to work together to see if there 
is one, or two, or three things that we might do, which would 
set in motion a reduction of complexity, or better utilization, 
or whatever step to work on that waste.
    We have some very good talent on this committee. We have at 
least two physicians, governors, former governors, all sorts of 
people who are used to solving problems.
    So I would say to my colleagues who are here, and I will 
say to the others, that after we get through these four or five 
hearings on reducing health care costs, I hope we can sit down 
and say, ``Now, what can we actually do about this?''
    Your testimony today has been extremely helpful. I hope it 
has been worth your time because it has been worth ours.
    Senator Cassidy.
    Senator Cassidy [presiding]. Let me ask my colleagues, are 
either of you interested in a second round? Yes? Okay. Well 
then, why do you not go first?
    Senator Kaine. Thank you, Senator Cassidy. Mine is just to 
be polite to Dr. Safyer. He was about to answer and offer an 
opinion, and I cut him off because my time was running out and 
I wanted to hear from Dr. Lansky and Dr. Balser.
    So, Dr. Safyer, do you remember?
    Dr. Safyer. I remember.
    I just want to make a very important point, I think, which 
is, do not underestimate the Federal Government's power if they 
got involved in the price of drugs, the price of insurance, and 
all these quality issues along with the price for equipment 
that we buy and put into peoples' knees and hips.
    It is unregulated. It is the Wild West. I think we are 
dangerously going back in that direction.
    So I do agree with Brent very strongly, and the other 
people here, that the quality is sometimes not the best, but 
the providers need to be in a system where other things are in 
tune and working in that direction.
    If you just look to Europe where there is arguably one 
socialist system in terms of health care. The rest have private 
insurers, private providers, and so forth, but they discipline 
the price of items, the governments. There are rules to the 
road and there are not rules to the road in our environment.
    I do not think it is very hard to find where the waste is 
up and down. And everybody I think, and I do not think Brent 
would disagree with me, needs to be involved in that 
transformation.
    Senator Kaine. If I could say, and I will conclude, Senator 
Cassidy, with your comment about the need for rules for the 
road and discipline mechanisms, we do not even use market 
mechanisms to discipline price.
    So we had a recent testimony on drug pricing, and I pointed 
out that the cost in the United States of Gleevec, which is an 
anti-leukemia drug, is dramatically higher than the cost in 
other nations.
    I asked our HHS Secretary, ``Do you know what a best price 
contract is?'' He said, ``Yes, I kind of know what it is.'' I 
said, ``All the time in commercial settings, in a commercial 
negotiation, you will say, `I am going to pay you for this, and 
because I have such a big market, I am going to pay you at the 
price that is the best price you offer to any other nation.'"
    If we just use standard commercial practices like best 
price contracts, for example, which are market mechanisms, if 
we did that, we could dramatically reduce the cost especially 
of mature drugs that are past the point where dollars are being 
put in to research them.
    So discipline does not even have to mean countering the 
market. It even means using traditional commercial practices, 
which we refuse to use, to discipline costs in the country. I 
think we should be exploring how to do that.
    Dr. Safyer. My wife and I are physicians. People show up at 
our doors.
    So recently, I bought the equivalent of Naloxone, which is 
miraculous if somebody overdoses, because I am just kind of 
waiting for it to happen, even though my neighborhood is not 
the Bronx. The inhaled version of it is $400. I mean, it is 
incomprehensible. The companies are making money on both ends 
of it and nobody has disciplined it.
    In addition to that, my wife has allergies, bees, yellow 
jackets, wasps. EpiPens now are in that same range. It is just 
an old drug that has been around forever and it is 
unreasonable.
    Senator Kaine. Thank you.
    Senator Cassidy. There are several things to follow up on.
    Dr. Lansky, when Chairman Alexander mentioned a few things 
we could do that could make a big difference--and you echoed in 
your testimony, or I echo you--price transparency could be a 
big thing. Now, people will pooh-pooh that and say, ``Price 
transparency does not work,'' using some experiment out of New 
York.
    But I like what you did with joint replacement with 
reference pricing. Sure, you can go wherever you want, but you 
are going to pay the delta between that which we find is high 
quality, good price and that which these folks down the road 
decide to charge.
    Any comments on that?
    Dr. Lansky. I think the evidence is good that reference 
pricing works. It works for drugs. It works for procedures. The 
key is it has to be for a defined product.
    So I think in all of the discussions we are having, the 
opportunity we have to standardize what the ``it'' is that 
people are competing on. What they are pricing. What you and I, 
as consumers, can recognize as a fixed object, if you will, in 
the marketplace. That is an important part of it.
    But the model is very effective, and I think the 
opportunity to even within Medicare----
    Senator Cassidy. So let me go beyond that because I do not 
review the health economics literature as closely as you do.
    But I remember reading an article I thought well done, that 
if we look at ACO's--really, and the guy like me who is 60 
years old, got a little bit of osteoarthritis and takes my 
Advil whenever I need it--you do not make your money on me, 
managing my health care.
    You make it on those who have chronic disease and/or 
hearts, hips, knees, joints, joint replacement, hearts. Bundle 
payment, just merely focusing on bundle payment for joint 
replacement, heart conditions, and perhaps high cost chronic 
illness is actually as effective as trying to enroll everybody 
into an ACO.
    Dr. Balser, you seem to agree with that.
    Dr. Balser. I totally agree. I think the ACO experiment has 
not been as successful as we would have liked because we tried 
to run before we learned to walk. Bundles are learning to walk.
    If you say we are going to do a bundle around heart 
surgery, it forces about 100 people to get together and figure 
out the most cost effective and smooth approach to designing 
the system. So from the time the patient shows up at the door 
to the time they are out three months, they have the highest 
quality outcome and the lowest cost. It really, strongly 
incents a health care system to do that hard work.
    Senator Cassidy. Just because I am not sure, it may be that 
walking is really where we need to be and perhaps a direct 
primary care model for the guy like me who has a little bit of 
osteoarthritis and whatever happens when you turn to be 60 
years old.
    Yes, sir.
    Dr. Safyer. I agree, but I see it as a first step. No pun 
intended. So what we need to do is have those kinds of 
programs, but we need to be moving the entire system into one 
that is an ACO or risk bearing.
    Senator Cassidy. I am not sure I have seen, though, that 
ACO's work for people who do not have significant medical 
expenditure.
    Dr. Safyer. Yes, but people move in and out of different 
experiences in the health care system appropriately. So when 
the whole system is aligned, I think you get better outcomes. 
You also get the demand.
    Senator Cassidy. But there is an administrative overhead 
associated with ACO's----
    Dr. Safyer. Yes.
    Senator Cassidy.--Which, if you go to a direct primary care 
model, you will eliminate that administrative overhead.
    Dr. Safyer. Well, the largest overhead is in the commercial 
arena and that is very large.
    Senator Cassidy. Let me ask you this, because chronic 
disease management, you mentioned in your testimony doing End 
Stage Renal Disease. Now, that seems just crying out for a 
bundled payment, but it seemed in some regard, we have not been 
able to achieve that.
    Any thoughts on the successful application of bundled 
payments to ESRD?
    Dr. Safyer. I agree with you and where you are going, and I 
think we should be doing bundles, which is a word that is 
commonly used, in many more areas, and we should be aggressive 
about it.
    But we should have a target about where we are going. 
Again, I come back to it. If you are not disciplining the 
pharmaceutical companies, the vendors, and the insurers to 
something that is reasonable, you will never get towards what 
France has or Portugal has, which is not, I am not talking 
about the British system.
    Senator Cassidy. So that leads into my next question.
    Dr. James, we in the Federal Employees Health Benefit 
program get a risk-adjusted amount to an insurer to take care 
of a Federal employee. These members of CalPERS and other 
organizations give a risk-adjusted amount to an insurer to care 
for that.
    Senator Collins and I had a bill, Cassidy-Collins, which 
would have given a risk-adjusted amount to states to care for 
those folks who are on the exchanges and of those who are on 
Medicaid.
    I think it is fair to say that states gain Medicaid to 
maximize reimbursement to lower their exposure. And frankly, 
providers help states gain because it is cost less contracting.
    What are your thoughts conceptually about the Federal 
Government on a risk-adjusted basis capitating, if you will, 
per patient payment to states for things such as Medicaid and 
for, say, the acute care aspect, not long term care, and for 
the individual market?
    Dr. James. I like the way that you are headed with that, 
but I think you stop a step too short.
    It is funny. We see it in Medicare Advantage. Currently, we 
basically capitate insurance plans, and then they pay the care 
providers fee for service, and that is where the whole thing 
breaks down right there.
    Insurance companies, states, do not deliver any care. They 
do not plan or design those care systems and that is where the 
alignment has to take place.
    Senator Cassidy. So you are saying the payment should go 
directly to the insurer or to the patient to choose their plan?
    Dr. James. If we could have talked them into it, I would 
have preferred that the Federal Government paid us as a system 
direct capitated payments for Medicare patients' right to the 
care delivery system.
    Senator Cassidy. Then what about for Medicaid and for the 
individual market?
    Dr. James. We had in Utah, led by a fellow named Dan 
Liljenquist, who is someone you really ought to look into, with 
what he is doing with pharma right now. He was a state Senator.
    We had a Medicaid ACO that basically deployed exactly that.
    Senator Cassidy. So conceptually, you feel like it is a 
valid thing.
    Dr. James. Yes.
    Senator Cassidy. I can tell you, you are always burning 
down the world when we did it, but it seemed like everybody 
else was doing it.
    Dr. James. Yes. One other little comment on the last 
conversation, in the ``Harvard Business Review'' in July 2016, 
Mike Porter and Bob Kaplan, me and Greg Poulson debated that 
issue about bundled payment.
    The way to think about a bundled payment is capitation 
light for medical procedures that have clearly defined 
boundaries.
    Senator Cassidy. Yes.
    Dr. James. An awful lot of what we do in medicine does not 
have clearly defined boundaries.
    I like the way that Dr. Safyer, you were saying, it is a 
step before you run, walk before you run. But you are stepping 
toward a capitated model.
    Senator Cassidy. Let me ask one more thing, because they 
just called votes and I have one more thing I wanted to ask.
    We have not talked about tort reform, but I will tell you, 
my physician colleagues will say, ``The reason I ordered that 
MRI is because if I do not, I get sued.'' There has been data 
that states that have put in tort reform have lower ordering of 
so-called unnecessary tests than states which have not put in 
tort reform.
    Dr. Balser, do you want to take a shot at that?
    Dr. Balser. Yes, there is no question that states that have 
put in, not just caps on torts, but committees, expert 
committees that actually screen cases for reasonableness have 
an enormous impact in reducing this problem.
    The states that have very robust screening processes where 
frivolous suits are just not carried forward are doing much 
better in this regard.
    Senator Cassidy. Does anybody disagree with that position?
    Dr. Safyer. No. I agree strongly.
    Senator Cassidy. One more thing, Dr. Safyer, I do have one 
more thing.
    Surprise medical bills; New York has apparently done some 
stuff. The ACA had three ways to go at surprise medical bills. 
I think New York has another method. Any comments on that?
    I think we, on this Committee, would be interested in 
helping out on issues such as surprise medical bills, which, 
for those who are not familiar with what I am speaking, you are 
brought to an emergency room. Your physician is out of network 
because they contract with the hospital. The hospital is in 
your network. You think you are covered, and then you get the 
surprise bill.
    Doctors do not like it because doctors say, ``The payer 
does not negotiate with me because they think they can get a 
better price by not negotiating with me.''
    Thoughts on that?
    Dr. Safyer. I am in favor of disciplining that and I think 
New York is moving in the right direction, but we are not quite 
there yet.
    Senator Cassidy. What about the ACA's provision? I think 
that ACA had the greatest of three insurers must pay providers 
the plan's average in-network amount, Medicare amount, or so-
called usual, customary, and reasonable. But I think New York 
is actually doing something different than that. Again, any 
comment?
    Dr. Safyer. I do not have the facts in particular, but I 
know it is moving in the right direction and something that we 
are paying attention to.
    Senator Cassidy. Okay.
    Dr. Safyer. It is frightening to people and could 
potentially keep people out of emergency rooms when they need 
them.
    Senator Cassidy. Yes.
    Thank you all for being here.
    The hearing record remains open for 10 days. Members may 
submit additional information for the record in that time, if 
they would like.
    Senator Cassidy. The HELP Committee will meet again 
Wednesday, July 25 for an executive session.
    Thank you for being here.
    The Committee stands adjourned.
    [Whereupon, at 11:46 a.m., the hearing was adjourned.]

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